Zettle in: PayPal adapts its European card reader for U.S. market

PayPal has launched Zettle in the U.S. — but it's not the same product PayPal bought just three years ago.

Zettle, formerly iZettle, launched in 2010 in Stockholm as a local rival to Square's mobile point of sale platform. PayPal purchased Zettle in 2019 for $2.3 billion, despite having its own competing offering, called PayPal Here.

The American version of Zettle supports connections to PayPal's invoicing service and a business Mastercard. Zettle enables integrations with accounting and e-commerce technology connections such as BigCommerce, Lightspeed, Quickbooks Online and SalesVu, with added partnerships planned over the next few months.

By integrating with other providers, PayPal is working to help businesses manage overall finances, with potential connections to PayPal's merchant lending arm that's tied to consumer payment flow. PayPal is trying to sell merchants on a combination that includes measuring consumer demand against supply, and streamlining B2B payments and treasury management.

These integrations speak to "a historic shift in consumer behavior towards digital channels, which poses an unprecedented challenge to small businesses that are struggling to adapt to meet these new customer demands," said Jim Magats, senior vice president of omni payments for PayPal, which works with a network of about 30 million businesses, mostly small- to medium-sized enterprises.

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Small merchants value the ability to sync online and offline systems, product catalogs, inventory management systems and other functions, Magats said. A merchant that works with BigCommerce for example, can press a button and BigCommerce's inventory gets synced to the retailer's store inventory.

"This is especially important for small businesses that often have to keep their in-store and online inventory siloed," Magats said. "We see PayPal Zettle as an orchestrator for commerce tools. Our job is bringing all of these solutions together to make it easier for small businesses."

For PayPal, Zettle will boost point of sale capabilities beyond PayPal Here, the company's point of sale card reader. While Here is mostly focused on payment acceptance, Zettle offers a broader range of services that help businesses manage tasks beyond checkout.

PayPal Zettle is a much more robust, integrated, end-to-end product for small and medium-size businesses that offers a better customer experience and includes features like contactless payments, PayPal and Venmo QR Codes, popular digital wallets, an improved product library and reporting, integrations with partners and a better user experience design, Magats said. The payment company will continue to support both PayPal Zettle and PayPal Here, but it will eventually develop one product, according to PayPal.

Zettle helps PayPal address a longstanding goal of building a physical point of sale franchise, a strategy that has taken on more importance as the pandemic accelerates both online sales and in-store technology to accommodate omnichannel, or a combination of shopping, marketing, ordering and payments in different channels on different devices. By expanding Zettle, PayPal is attempting to bring omnichannel to its small-business customers. PayPal has also expanded its crypto support, enabling crypto trading to its Venmo P2P app, in a prelude to expanding crypto options for merchants.

"PayPal has been focused on helping online and mobile businesses," Magats said. "With the launch of PayPal Zettle, PayPal will be able to better serve in-store and omnichannel businesses in an integrated and seamless way, and help in-store businesses seamlessly go digital."

PayPal is not operating in a vacuum, and these strategies are playing out at other merchant technology companies. Stripe has used a series of investments to add new payment technology designed to reach merchants that were traditionally offline, but it added digital capabilities during the pandemic, such as online storefronts and payments.

Square recently launched its financial services business, which enables it to combine direct lending to merchants with Square's mix of multichannel payments for small businesses, its crypto trading support and products for consumers, such as its Square Cash peer-to-peer app.

And Fiserv has used the Clover point of sale system that it acquired from Fiserv to build out an increasingly larger menu of merchant services, including a recent acquisition of Pineapple Payments to improve Clover's distribution.

While most commerce still takes place at the physical point of sale, the pandemic's impact on retail requires merchants to support both digital and physical points of sale, with integrations between online and instore shopping, said Richad Crone, a payments consultant.

Consumers can spend prepaid idle PayPal balances, use buy now/pay later and spread social payments through worth-of-mouth promotions via the combination of products that PayPal and Zettle support, Crone said.

"It's the perfect timing for this launch as it's propelled by the demand demented by the pandemic for integrating commerce with check in, checkout, payment and supply chain management for the merchants," Crone said.

PayPal's acquisition of Zettle was in part a counter to Square's European expansion. PayPal often buys competitors in newer product categories.

PayPal can use its scale, including about 400 million users and its merchant network, to build an "Amazon-like" effect in merchant services, according to Ray Pucci, director of the merchant services practice at Mercator Advisory Group.

"PayPal has a robust network effect whenever they expand services and features to provide a suite of payment solutions and business tools for merchants," Pucci said. "Introducing PayPal Zettle at point of sale is a logical move as many of their online merchant customers also have an in-store presence."

Beyond Stripe and Square, other technology firms are adding physical point of sale to a digital payments franchise. Shopify offers POS terminals, for example, since many merchants on its marketplace also have physical stores, according to Pucci. And GoDaddy in late 2020 spent $320 million to acquire Poynt to serve the same strategy.

The POS field will become more competitive especially now as Zettle also goes up against leading market players Clover and Square, Pucci said. "Small and medium-sized merchants will benefit as more payment vendors will aggressively fight for their business."