Card Readers: The Battle Nears an End

Card Readers: The Battle Nears an End

We haven’t written about the wider card reader market (or mobile point of sale market) for a couple of years. The market has been a little static and there’s been too much going on elsewhere with EU interchange reductions, corporate acquisition activity and endless re-pricing.

But now the smoke has cleared and we’ve had a few weeks to survey the industry, the survivors have emerged and the battle lines have been drawn.


Who’s Left Standing?

It’s no surprise that the UK card reader market is now contended by the four specialist global brands, which have the benefit of transaction volume from other countries to lower their marginal costs.

iZettle and SumUp, both start-ups that emerged in 2011 as ‘fintech disruptors’ have survived thus far and are now going head-to-head in the battle for top spot.

With its new card reader, PayPal Here, PayPal has established itself as a contender in the industry, though mostly through its brand strength and financial fire-power, and not through its pricing.

And finally, the US-based mobile payment brand Square has entered the UK market. While its card reader is fairly uninventive, it can hold its own against more established competitors and it adds more choice to the market.

Around the edges of the industry are some niche British contenders that focus on particular verticles. Payatrader, for example, serves microbusinesses taking less than £25,000 per year in card payments and Smart Trade App caters to sole traders like tradesmen and beauticians.

While these peripheral services aren’t seriously competing with the big boys, they offer real benefits to the businesses they serve. For example, Payatrader charges the same rate for eCommerce and CNP as it does for Chip & Pin and Smart Trade App allows you to accept payments using only a phone.


Who’s Gone?

Some big names have vacated the space to focus elsewhere having found the market too tough.

WorldPay is the highest profile casualty, withdrawing its card reader called Zinc after a very brief stint on the shelves. In its place, Worldpay has released a pretty expensive fixed-price pay-as-you-go traditional option. Starting at £67.40 per month for terminal hire with a £150 set up fee, Zinc’s replacement clearly isn’t the cheapest service on the market!

Then there’s Amsterdam-based Adyen, which recently killed its Shuttle device in the UK. Shuttle was, at one point, the cheapest card reader in the UK so it’s a shame to see it go. Unfortunately, Shuttle’s super competitive pricing was probably its downfall as it simply couldn’t make enough money to survive.

Back in April 2016, German startup Payleven was bought and absorbed by SumUp — just four years after Payleven had launched.

Beyond the high-profile brands, other card readers are still available if you look hard enough but they aren’t really being pushed by their owners. Most banks and processors, for example, will offer a card reader solution for smaller businesses but they’re starting to realise just how unprofitable payment processing can be at such a small scale.

You can still get a First Data Pogo, an Elavon MobileMerchant or a Barclaycard Anywhere but you have to look really hard and their pricing is truly atrocious compared to the market leaders.

Barclaycard Anywhere, for example, charges an eye-watering £60 for the reader and 2.6% per transaction. You realise Barclaycard’s capitulation is complete when you compare the design of their original quirky card reader launched three years ago to today’s version, which is no different from any other white label reader on the market.

Gone are the Star Trek styled flip lid and the clumsy physical cable connector, which Barclaycard previously heralded as “innovative, differentiating features”. Hmm.


Comparing the Market Leaders

On the face of it, there isn’t a massive price difference between the four market leaders.

SumUp has stolen a lead but it’s marginal and likely to be fluid. Meanwhile, iZettle has abandoned its complex, tiered pricing structure, which ranged from 2.37% to 1%, replacing it with a simple flat rate of 1.75% for card reader transactions and 2.5% for invoicing.

Both brands distribute via various third-parties — including Cardswitcher — and you can usually find a bargain by shopping around for a lower device price.

Square charges largely similar transaction rates but the device price is higher. At the time of writing, Square costs £39, SumUp costs £19 and iZettle costs £25.

PayPal is comfortably the most expensive of the four and only becomes cost-effective if your transaction volume is greater than £15,000 per month. And frankly, if you do that volume, you should be renting a traditional terminal rather than buying a card reader.

PayPal has obviously tried to maintain pricing consistency with its more established eCommerce offering, which is why it’s more expensive than other services. However, PayPal is likely to trade on the strength of its brand and PayPal fans will likely pay a bit more for a name they recognise. If you choose to go with PayPal, be aware that you don’t get much — if anything — extra for your money.

ReaderPurchase PriceTransaction Rate
Sum Up£191.69%
PayPal£352.75% (to £6000); 2.0% (£6000-£15000); 1.5% (above £15000)

A lot of the non-price differentiators have now disappeared as devices become increasingly commoditised and similar.

Card readers no longer charge a premium for AMEX and whilst all offer CNP transactions, it’s done through a separate web application.

Analytics and reporting functions are perhaps the biggest differentiator. All card readers have something slightly different to offer and what’s best for your business will depend on your specific requirements.


Traditional Card Machine Rental

We’ve said this consistently and it still applies today, the card reader’s greatest battle is with other card readers, it’s against the established terminal rental model.

When comparing card readers with terminals, the same broad outcome remains:

Card readers are only cost-effective for small businesses with limited transaction turnover.

Whilst they don’t charge fixed costs (terminal rental and minimum monthly rental charges), their transaction rates are on average around four times more than a traditional rental contract.

Card readers charge above 1.69% to process card payments compared to just 0.3% for debit cards and 0.8% for credit cards for traditional rental contracts. As you can see card machines are substantially more costly to run.

As you can see in the graph above, all things considered (PCI costs, authorisation fees and the other costs noted above) a traditional terminal rental is more cost-effective than even the cheapest card reader at monthly turnover levels greater than £2,100 or £2,400 if you opt for a portable terminal. That’s only £25,000 of cards per year!

There are drawbacks to traditional terminal rental contract. The tie-in is typically four years with early exit termination fees, something you don’t have with card readers.

However, there comes a point at which the cost differential is too great to ignore. If you accept over £60,000 of cards per year then a card reader is more than twice as expensive!


Finding the Best Deal

Choosing between a card reader and a traditional terminal doesn’t guarantee you the best deal. You’ve got to compare the market to see which providers are offering the best package for your business.

To see what the market has to offer you — and potentially save up to 40% — jump over to our comparison engine and fill in some simple details about your business!

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