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Summary:

Mobile payment service Square has taken a stand against NFC touch technology in favor of its own card swipe and location-based services. But transatlantic rival iZettle says that it will remain agnostic as it tries to corner the European market.

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Stockholm mobile payment firm iZettle is usually referred to as Europe’s answer to Square, and for good reason: with a card-reading device that plugs into the iPhone and allows merchants to take card payments for a small fee, it’s highly reminiscent of the hotly-tipped San Francisco startup.

But when I spoke to CEO Jacob de Geer a few days ago, it became clear that while they share plenty of DNA, the two companies are starting to go in different directions.

It’s been a big year for iZettle. It came out of beta and hit full launch a couple of months ago in the (admittedly small) Swedish market, and has since gained a strong following with thousands of shops and merchants signing up. That interest led to an $11 million round of funding led by Index Ventures, presumably to help the business expand outside its home country.

I talked to de Geer about his plans for the future, and found out that the company wants to be in another six to 10 European markets by the end of 2012 — and that it is hoping to achieve a lot of technological progress over the next year, too.

But there’s another important conversation de Geer expects to stay at the top of the agenda in the meantime: the question of whether NFC touch technology will become mainstream.

“Everyone is talking about near field communications as a kind of new messiah,” he says. “But the problem is that there are still no NFC-enabled credit cards, and still no NFC-enabled terminals — it’s a chicken and egg situation.”

It’s true that NFC has had the slowest of starts. Despite support from the likes of Google and Intel and consistent rumors about Apple’s interest, not everyone is convinced.

Speaking at our Mobilize conference earlier this year, Square’s COO Keith Rabois was clear about his position on the technology. “I’ve never met a single merchant in the U.S. who says ‘I want this NFC thing’,” he told GigaOM founder Om Malik in an on-stage conversation.

Instead, the company has opted to circumvent the idea of touch entirely with location-based service called Card Case — which uses location and loyalty to offer hands-free payments.

In contrast, however, iZettle isn’t ruling out adopting or supporting NFC — and thinks that providers can be agnostic about the technology for now.

“The big difference between us and Square and Keith Rabois is that they have clearly put down their foot and said that NFC stands for Not For Commerce,” says de Geer. “In the short run NFC is overhyped and it will under-deliver — but from our position, looking at the effort and marketing and rules changes coming from the card carriers, I am not as skeptical. I think NFC is likely to happen… but I think it will take a while.”

In fact, he suggests, the rollout of NFC — which he predicts to go mainstream by 2015 — could actually be a crucial element in helping iZettle become a global player. One simple reason: technology.

While America is largely still reliant on the magnetic strip, most credit cards outside of the U.S. use embedded chips and PIN entry to provide an extra layer of security. This on-board system means that the idea of supporting NFC is not as daunting to a company from outside American borders — and it means that it would be far cheaper for a merchant to spend a few dollars on an iZettle device than hundreds on buying a new cash register or card payment machine.

“We can tap into NFC hardware that’s already in the phone,” he says, “but then there’s the cost effectiveness of us being able to populate the market with NFC technology, rather than trying to repopulate the existing point of sale devices — it’s a lot more appealing. That means that if it turns out the consumer wants it, we can support it.”

In the meantime, says de Geer, the best route to success may be to partner with other companies to develop new possible answers. Retailers looking for better loyalty systems and faster payment options are already starting to route around the slow-moving card companies and their NFC catch 22.

“We see a lot of companies experimenting with new payment solutions, like Starbucks,” he says, referring to the coffee chain’s mobile trials.

“They’re fed up with the existing infrastructure, and they’re starting to look at either creating their own proprietary solutions or finding alternative solutions with built-in loyalty,” says de Geer. “I’d be surprised if we don’t see other companies following the same trend.”

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