German mobile payments startup SumUp failed to deliver on plans announced last year to invade the U.S., challenging Square on its home turf, but it wasn’t due to fear of the competition. Merchants were just much slower to act on EMV than SumUp expected.
“We realize it takes time to adopt EMV, but we thought U.S. merchants would begin preparations earlier,” said David Klein, who founded the Berlin-based company in 2012, and has since expanded its operations to 15 European countries. “Instead, many waited until the liability shift actually went into effect (on Oct. 1, 2015) to begin making plans for chip card acceptance, which surprised us.”
SumUp recently re-mobilized its U.S. rollout by advertising to hire execs and the company is now aiming to roll out services “before the end of the year,” Klein said, with a distribution partner it has not yet disclosed.
“We’re very optimistic about opportunities in the U.S., because we’re bringing in a low-cost operating model calibrated to drive incremental profits, and we’ve proven it can work,” Klein said.
SumUp this month said it’s achieved profitability with this approach in Europe, where it’s doubled its revenues in the last six months to approach $100 million in annual revenue. But the privately held company doesn’t release specific sales and marketing data.
“We don’t really discuss our numbers, but as our scale increases our costs continue to fall,” Klein said. SumUp has received a total of about $50 million from investors so far, and about 20% of it came in last year, Klein confirmed.
Klein is relying on strong growth forecasts for mobile payments in the U.S., especially among smaller merchants that are shifting for the first time to accept card payments.
The mobile point of sale market in North America is expected to increase 156% by 2019, according to a recent report from the Electronic Transactions Association and The Strawhecker Group.
“We’re keeping a tight focus on the smallest of those, with a direct offering that’s simple and easy to understand,” Klein said.
Klein is undaunted by the existing competition from existing U.S. providers of mobile card readers that include Square, Intuit and ProPay, among others.
Square continues to grow rapidly, and its gross payment volume during the second quarter ended June 30 rose 42% to $12.5 billion, but costs remain high. The San Francisco-based company launched an IPO last year but hasn’t turned a profit since its launch in 2010.
One of Square’s burdens is that it made its mark initially by giving away lower-tech, magstripe card readers that the company still provides while simultaneously selling a $49 contactless EMV upgraded reader. Square this month launched another wave of direct mail promotions for its new card reader, targeting U.S. small-business owners.
Square simultaneously is positioning itself to expand to Europe, which some observers say will pose challenges because existing mobile payments players there, including Sweden-based iZettle and SumUp, already are pushing aggressive pricing.
SumUp in the U.K. charges merchants £19 (US$25) for a card reader and 1.95% per transaction, based on Europe’s narrower interchange rates.
Square did not reply to queries about its European expansion plans or pricing in the market.
Beyond North America, Square also operates in Japan and Australia and some observers believe Square will benefit from the scale of further global expansion.
Square already is in “a very strong position” versus its rivals, contends Rick Oglesby, an analyst with AZ Payments Group LLC. “Square spends a huge amount of money on new product and brand development, sales and marketing, and it aims to get the payback over a longer timeframe,” Oglesby said.
For example, Square’s cash flow over the last six months was strong and it’s showed strong volume in selling interest-bearing loans through Square Capital, which Oglesby believes will bear fruit in upcoming quarters.
“Square is much less concerned with showing a profit on paper and much more concerned with maximizing long-term returns, and I’d argue that profit margins are likely to be higher in Europe than they are in the U.S., despite lower absolute pricing,” Oglesby said.