How Europe’s Most Used Mobile Payments Solution Will Take on the U.S.

Ever since its product SEQR was first launched in Sweden two years ago, global mobile payments provider Seamless, founded in 2001, has expanded into several other countries in Europe. And alongside many other players in the space, SEQR is Europe’s most used mobile wallet in stores and online. And now it’s coming to America. In a recent interview with MPD CEO Karen Webster, CEO of Seamless that provides SEQR, Peter Fredell offered an inside look into how Seamless hooks new merchants and consumers, and how it plans to gain traction in the U.S. at a time when the mobile payments spotlight still shines on Apple Pay.

KW: Seamless’ website says its mobile payment solution SEQR is Europe’s most used mobile wallet online and in stores. So how does Seamless measure usage, and who are you beating?

PF: As a matter of fact, it’s a smaller claim than it sounds. We are the only mobile payments system in the production. There’s a lot of noise in the market but a lot of the other players are still doing pilot testing, or are in the beginning stages.

On how we measure usage, we come back to Sweden as the first country we launched in – almost exactly 2 years ago. In that time, we tracked about 400,000 Swedes that used our mobile payments systems, and that represented give or take 4 percent of the Swedish population. They do about 16,000 transactions a day – that’s how we measure it. Both in how many consumers are actively using it, and how many payments they make a day.

Of course, we’ve launched in Finland, Romania and Belgium – it’s picking up there, too, but Sweden has a two-year lead. We will also be in Portugal, as we announced, in late Q4 this year.

KW: How have you managed to get into production as so many others are still trying? What’s your secret to getting to market, and what makes you unique enough to get consumers and merchants to give you a try?

PF: It’s all pretty easy – you follow a predictable path with these mobile payment systems. First you invent and build the technology, then you have to attract merchants, and then you attract consumers. There’s a lot of talk that there’s this chicken and egg problem with merchants and consumers, where the merchants don’t want to take on a solution that has no attached consumers. This is not true – it’s only true if the merchants have an investment to make in order to take on the technology.

Coming back to the technology, we always said it has to fulfill certain absolute demands. There’s got to be a business case for somebody, so for merchants to take on a technology, they have to make money. Very simple.

Number two, when you go to a new merchant in a new country and you ask them to accept your mobile payments system, they ask the cost. In our case, we say it costs nothing, and merchants make money every time a consumer charges their card due to card fees. The merchant ticks that box. After that, they always ask how many consumers we have – our answer when we go into a new country is of course, zero. But we mitigate that problem by the merchant not having an investment. On the other hand, they will never get consumers to download an app to pay with unless they can pay somewhere with it. The merchant has to come first. That’s what we did – we built a technology that made the merchants money.

Our solution, SEQR, does not route the payments over the card rails, it routes them over the direct debit various nesting functions that exist in different countries. Those routing paths cost virtually nothing – our raw material cost for a payment is virtually nothing, meaning we can offer it at a very attractive rate to merchants.

Then of course, the consumers who are also stakeholders in this, also have to make money. But if you don’t run your payments on the card rails, there’s plenty of “dough” to go around. You can also attract consumers with offers, bonuses and more.

KW: So Apple Pay has really surprised a lot of people because it has created a business model that imposes a lot of additional cost in the system. The issuers pay Apple on every transaction, and yet everyone is fine with that because there is this overwhelming expectation that consumers who love Apple and their iPhones will download Apple Pay and use it, and that Apple, with its history of innovations, will create a very compelling experience. They had merchants, but not a lot to start with, and leverage NFC capabilities already in the market. How do you absorb that information about this powerful player with what you’re doing at SEQR?

PF: Well, first of all, we’re happy Apple finally came into the market. We felt that it was important that they enter the market to get more consumers more aware that they can pay with your mobile phone. Apple will be a big player in the payment market, but they won’t be a new monopolistic force. They’re limited to the market share of who has an iPhone.

The other thing is that, while Apple has great innovations, they didn’t actually innovate with anything. It’s pretty much a copy of Google Wallet. As a matter of fact, all the merchants that accept Apple Pay also accept Google Wallet. Essentially the phone emulates a card via an NFC signal – the phone becomes an overlay tool, over a card. That’s exactly what Google Wallet did. Google has had little traction so far – but Apple came in and did the same thing with more success, and the only reason for that is the strength of the brand. Apple users are very loyal to the brand.

KW: Well I do agree – they haven’t reinvented the model, but they’ve changed the conversation about mobile payments. So as Seamless thinks about entering the US market with SEQR, how has the entry of Apple Pay changed your conversation about your approach to mobile payments?

PF: It hasn’t changed it much.

Let’s go back a few steps and ask, why mobile payments? It’s not like the card is broken or inconvenient. But there are two things that you can achieve with mobile payments – one is the interaction with the consumer. It’s pretty much impossible to interact with a consumer via a piece of plastic, so mobile as the tool for payment is forceful as an advertisement tool, pushing coupons, etc.

The second is disintermediation. If we think about a card reader in a physical store, it’s also a router of payments through or to the card rails. The phone can of course act as a router, and that is what we’ve done with SEQR. Instead of routing through the card network, we route it through the ACH. It allows for a disintermediation of the whole card value chain – that’s how money is made.

What Apple Pay has done is interesting. If the tool you’re paying with is the user interface that the consumer sees, you’re communicating with that consumer. The merchants that turn on the NFC capability in their terminals have given up on it because it’s an emulated card payment – the merchant doesn’t see that it’s a mobile payment, just that it’s a card payment. That opens up the chance for anybody with an interface with the consumer, anyone who has the downloadable app, to start issuing cards.

There are two things with Apple Pay that make me curious. First, the merchants – if they turn on that capability, they will not only accept Google Wallets or Apple Pay, but they will accept anybody who is issuing cards and emulating them via an NFC signal.

KW: I think the reason that merchants are doing this remains to be seen. There’s a long road ahead of even Apple Pay igniting in the space. But I think we’re seeing that it’s really for the consumer to decide what they’re going to use to pay at their favorite merchant. It always has been that way. There isn’t a merchant in the world that, especially now, that is going to deny the consumer that opportunity to pay the way they want to. They don’t want to lose that sale.

PF: I both agree and disagree. I agree with the statement that merchants don’t want to lose a sale. The thing is, all consumers also have the cards – otherwise they couldn’t be part of Apple Pay. The core of the battle that stands between MCX and Apple Pay is that the merchants realize that they now have a chance to disintermediate the card companies. Why do they want to do that? It’s obvious – the card fees which in the U.S. are a bit over 2 percent. So that disintermediation could double merchants’ operational margin.

To contradict you a bit here – the merchant has always decided which way a consumer can pay at their store. They will not lose a sale by denying Apple Pay because they know that a consumer will have a card for the foreseeable future.

KW: I don’t think anyone cared whether they could use Google Wallet or couldn’t, and you could make that statement about a lot of other mobile wallet players. Apple is a very strong brand – and we’re seeing this play out in the U.S. market in real time. Consumers are blasting Rite Aid and CVS on Twitter, basically yelling at those merchants for denying Apple Pay. What’s so funny is that it’s a very small segment of the population, but if you are the CEO of those merchants, why do you want this headache? The two percent you’re saving versus the PR hit you’re taking just isn’t worth it. It’s become a PR issue, now.

PF: But that’s very short-term thinking. I think what will happen here, is after Apple Pay version one, if Apple also added an ACH routing for this, then I think you’d see merchants adopting it immediately.

KW: Yes, but they may happen when Apple Pay gets ahead of steam and gets more traction.

Let’s get back to the point about what makes you different. In Europe, consumers are used to direct debit. Moving from direct debit, giving merchants their debit information directly is probably not too far from what they do day to day. Moving to the U.S., there’s a series of major breaches, one after another. Now you’ve got merchants saying to their consumers that there’s this new payment method called SEQR. All you have to do is give the merchant their checking account information to enable it. Given security concerns, consumers might not be too fond of that. Have you thought about this?

PF: You’d be surprised to know that in Sweden, our product is a credit card. It’s actually not connected to people’s bank accounts at all. In every country we enter into, we will have two options – either the credit option where the merchant pays as normal and the consumers pay once a month. We don’t take the risk on those transactions – we’ve partnered with credit companies. It’s really about the rails – it’s not about credit or debit, which can also be routed through ACH.

You have to think of two things. One is how you route the payment. Then, it’s what the product that the consumer is using – we offer both credit and debit.

KW: How do you get consumers interested? Does the merchant have an incentive to do that since they’re getting the benefit of reduced costs? How does that work?

 PF: The most popular thing we’re doing are digital coupons. Every week, we have a new set of coupons available. We work a lot with Coke, for example. If a consumer buys a can of Coke, you get sometimes the entire value of the Coke back. This happens automatically because we have skew-level data – we’re connected to the cashier machine, not to the card terminal. We can detect that a consumer bought that Coke and immediately send that money to their bank account. This is financed by the merchants and the producers like Coke, but also from the credit companies. They all want to increase usage. But there’s a lot of value to go around – we’ve disintermediated the whole card rail value chain.

In addition, merchants are sending out direct mail advertisements about SEQR, and since they have the channels to market already, we piggy-back on those.

KW: What does the merchant have to actually do to accept SEQR? Is there a separate device?

What we do is integration into their POS systems. For example, we’re integrated with PCMS, which is very large in the U.K. and U.S. We’re actually integrated to a about a hundred different POS makers already – the company has been around for 14 years and we do about $3.1 billion payments a year.

Very often, we already have integrated with the POS system that the merchant is using. So they essentially have to request that module from the cashier maker – it’s literally a click of a button. Above that, they have to install a QR code in the form of a digital QR code or a sticker. That sticker allows for consumers to use their NFC capacity on the phone. In our experience, most people use the QR code because it’s faster and more convenient. But we can enable NFC or QR codes.

So what merchant segments are you targeting with your entry into the U.S. market?

You should, as a mobile payment service, target first grocery stores and QSRs. Why? Those are the most challenging payment situations. Or rather, you should target anywhere there’s a queue – if it works there, it works in all of the other stores, too. You’ve got to start with the hardest ones.

Peter Fredell
Chief Executive Officer at Seamless

Peter Fredell was one of the first employees at OMX, then named OM, when the Swedish Option Market started its operations in 1985. After that he held various senior positions in trading derivatives in the Swedish market. In 1987 he joined Bank Leu, then the largest private bank in Switzerland, as chief trader for derivatives. Subsequently he got hired at Bankers Trust as head over their French equity and derivatives trading. After this he was promoted to head all markets in Europe other than France, Germany, and the UK.

In 1992, Fredell left Bankers Trust to set up his own investment banking boutique, Fredell & Co. Fredell & Co quickly became one of the pre-eminent players in the European asset backed debt market. Another successful part of Fredell & Co was their emerging markets operations with notable mandates in Russia, Lebanon, Georgia, the Czech republic, and Hungary.

In the late nineties, Fredell & Co together with ABB, The Belgian Government (GIMV) and Bouwfonds (ABN-Amro) set up the internet-based mortgage lender EuropeLoan S.A. Europeloan quickly established itself in five European countries and at its peak handled approximately one hundred thousand applications per month. In the beginning of the new century, Fredell acquired Europeloan Finance SA including all outstanding mortgages, about 3.5 Billion SEK. In connection with this Fredell & Co reshaped itself as an investment company. Since then Fredell & Co has made various successful investment, and divestments, in the financial and technological space.

In 2006 Seamless did their IPO on the Swedish First North Stock exchange. Fredell was then one of the major investors. Over the years, Fredell has accumulated shares and is today the largest owner of Seamless. He joined the board of Seamless in 2009 and was appointed as CEO of the company in 2011.

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