Payments security providers and mobile card reader vendors alike will watch with much interest from the sidelines as iZettle AB tries to resolve its restrictions from Visa Europe for processing Visa transactions in the company's core market.
Stockholm-based iZettle introduced a card reader that attaches to mobile devices in regions of Europe more than a year ago, similar to what Square Inc. offers in the U.S. to merchants in need of a way to accept credit card transactions.
But Visa Europe this week cited failure to meet undisclosed requirements in restricting iZettle from processing Visa transactions, the most popular type in Europe, in Finland, Denmark and Norway, while allowing those transactions in Sweden.
From all signals, it appears iZettle's chip-and-signature reader's inability to accept chip-and-PIN is the key factor in Visa Europe's restriction, which begins Aug. 1.
Jacob de Geer, CEO of iZettle, would not say exactly what objections he received from Visa Europe, which is independent from Visa Inc. The companies have been discussing the issue for some time, but "unfortunately, we didn't find a short-term solution," he says.
Jumio Inc., a Mountain View, Calif.-based company that enables payments through webcams and smartphone cameras, has nothing at stake in iZettle's problems with Visa Europe, says CEO Daniel Mattes.
Mattes says he considers himself an interested observer, because the conflict may determine which security methods ultimately "win out" through the process.
"This industry is very complicated, with new policies and regulations all of the time," says Mattes.
Mattes says iZettle was likely not prepared for Visa Europe's directive that EMV transactions in Europe must include PIN transaction capabilities, since iZettle's reader does not include a PIN entry device at this time.
"The new cards and security measures vary from country to country, but generally the PIN codes are being added as another layer of security," Mattes says.
These differences are illustrated by the fact that iZettle can still accept Visa transactions in Sweden, Mattes says. "It will be interesting to find out why Sweden was OK, but the other countries were not," he adds.
Visa Europe insists on PIN transactions in a manner in which the consumer has to enter his code on an EMV-certified device, not on the phone itself, Mattes adds.
An iZettle rival, London-based mPowa Inc., views the company's setback as an opportunity, especially because mPowa touts a mobile card reader system capable of accepting PIN codes.
"iZettle is out at this time, making us the only game in town and we're thrilled about it," mPowa CEO Dan Wagner says.
Wagner has demonstrated enough confidence in mPowa's performance in Europe that he is starting to make a move into the U.S. market.
MPowa offers merchants a magnetic-stripe reader that can be plugged into the phone's headphone socket or a chip-and-PIN device that communicates with the phone through Bluetooth.
Instead of swiping a card, the merchant offering chip-and-PIN would hand the reader to the customer. The device prompts the consumer to key in a PIN before removing the card from the device.
In addition to having PIN capabilities, mPowa added Google Inc. Android support this week, which Wagner claims makes his mobile payments company the first in Europe to accept all major credit and debit cards through Android and Apple devices.
"Android is a great platform to add, and I don't know why some others have not embraced it," Wagner says.
The Android expansion "is clearly good news" for mPowa because platform independence is important for any system seeking widespread acceptance, says Zil Bareisis, a London-based senior analyst with research firm Celent.
However, mPowa may have to "double down" on security because the Android platform "seems to be more prone to malware and security concerns," Bareisis adds.
As for iZettle's woes, Bareisis says he was surprised to hear about the Visa restrictions, considering iZettle had been doing business in its market for the past year.
"If this can't be resolved, it's a pretty big blow for iZettle," he adds.