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2СAN IS NOT JUST A KEY
With a small device a smart phone turns, a smart phone turns into... Into an elegant mobile POS-terminal. Nikolai Zhmurenko, having examined the activities of Jack Dorsey, who invented the first phone to use for such a purpose, decided that Russian entrepreneurs will appreciate such a device, and founded the 2can project. Not so long ago, his startup has attracted an investment from one of the most powerful Russian funds, the Almaz Capital. And Nikolai told us the story of his project.
I ‘spied’ upon Jack Dorsey’s idea, the founder of Twitter. It was he who in 2009 invented a service that allowed entrepreneurs to use their smart phones as a device for receiving payments from bank cards with the help of a small external device. In the spring of 2010 in the US there appeared the Square project which quickly began to grow significantly: by the summer of 2011 it had about 700 thousand clients. Today, the Square has more than 2 million users and about a dozen successor companies. All such services operate more or less the same idea. An entrepreneur is given the opportunity to accept bank cards with his/her smart phone, and then there are just details left - each company writes their own software, their applications differ with a functional, a way to provide an analysis of the accepted payments and other characteristics. All companies use different card readers: some of them support a large line of smart phones, while others - only a few models.
As for spreading of cards the USA is a unique country. There are about 4.5 cards per capita there, while in European countries - about 1.5. In Russia, with its population of 140 million emission of cards is about 220 million units, which is more than one and a half of cards per person. As for the number of cards, we have already have caught up with Europe, but as for the use we are still behind. In Western Europe, there are about 22,000-25,000 points where you can pay by card for 1 million population, while in Russia - about 4,500. During the first three quarters of 2012, only 15% in cash and 48% in the number of card operations is payment for goods and services. The rest constitutes cash withdrawals at ATMs. Of course, this ratio changes (for example, in 2011 the payment was 13% and 39 %, in 2010 - 9 % and 33 %), cardholders came to realize that the card is not just a key for opening the ATM but a payment instrument. Bankers and businessmen have worked hard to run a large number of cards, we now have another common goal - to qualitatively change the infrastructure for non-cash payments.
2can at work
The 2can service is actually an application for smart phones running iOS and Android, and a processing system, a software that integrates with the application and processing systems of the partner banks. 2can uses any channel for data transmission: 3G, GPRS, Wi-Fi. With the help of a small device a smart phone works as a traditional POS- terminal: card is run through a card reader that is connected to the phone via the audio input, on the screen of the smart phone you can see the payment sum an the name of goods or services. The data sent to the authorization, get on our server, then go to the processing of our partner bank, and then to the payment system. If the approval to make such payment is received, on the phone screen a signature box appears - a buyer signs with his/her finger confirming the payment. This information goes to the bank server. The final procedure is either the buyer is asked to enter his/her mobile phone number or email address, to which a terminal receipt will be sent.
2can earns a fee for the transaction. We sign customers for the service for free, providing them with a free card reader and activate the application. Our earnings are 2.75% of the transaction.
Now our card reader works with all models of Samsung, with all HTC, and, of course, iPhone. Sony Ericson has only one model, with which it is incompatible. Each smart phone model has its own specific character, you cannot say that the card reader is compatible with a particular Android version: one and the same version of the operating system may be running on different phones, but it is not a determining factor. The device can work with Samsung, but it does not work with Alcatel, although they both have one and the same version of the operating system. By the way, we have problems with Alcatel as the device is not working with it, but we are dealing with this problem. We have issued the challenge to support the widest range of phones.
The application actually provides the functions of a standard POS - terminal: with its help you can take a card payment, cancel a payment if some erroneous payment took place. Returns can be done if, for example, the product was defective. Besides, the application provides an opportunity of making a certain analysis. Moreover, this analysis is available both in the application and in the personal account of a businessman in the web version. The second one provides more opportunities: a detailed analysis on each transaction, the sum, time, place, etc.
In 2011, a similar service in Russia was not only uncommon, it was strange both to entrepreneurs and banks or customers. During the year the situation changed completely. In late 2011 and throughout 2012 similar projects started in Europe - in October 2011 the Swedish project iZettle appeared which now works in a number of European countries, then a project in the UK, two projects in Germany followed. Mobile acquiring started to actively develop. While we were preparing to implement 2can also in Russia competing teams of developers began to appear.
2can has two founders including a person responsible for developing the software, another partner came from the banking business, and the third one is responsible for the production of card readers. And me, too. In the summer of 2012 I started looking for investors. Up to this point the project was funded with my money and the money of one of my partners. The first investment round stretched from October to December 2012 during which another $ 2 million were attracted to the money which started. That was the money of business angels, as well as investments of two funds: InVenture Partners and Almaz Capital Partners.
Complex solutions – reader
One part of the service is a card reader that is connected to your phone. The Square at the time started with a very simple card reader: inside the cube there was not anything other than a magnetic head that read the card data. Next the data were passed into the smart phone where they were codified and transmitted securely via networks to the bank. At some point, in the spring of 2011, experts in the United States had a heated debate, whether it was dangerous. The data that were read from the card enter the smart phone not protected. If your smart phone has a parallel hostile application, or installed by unscrupulous entrepreneur or of viral nature whose task is simply to gather information from the card, it can tap the data. Even there were experts who called this reader without encryption a hole in the US card security. As a result of these discussions, the company decided to go on the reader with encryption. Such a device encrypts the data immediately after reading, and transmits them to the smart phone already encrypted. Data can be decoded only by the company's servers.
In the beginning, we also thought to start with a simple reader. With our project, we immediately came to international payment systems Visa and MasterCard, to see if they are willing to support the development of such a service in Russia. The payment systems did not advise us to get involved in a story with the reader without encryption. For us it was a challenge because it demanded more expensive and more complex device: the volume of investments in the purchase of these devices was increased, but first of all it was necessary to find a manufacturer. The most important thing was to integrate the device into our service, the software we were developing was becoming more complicated, both application and processing. Moreover, the next problem was compatibility with smart phones. A simple device was compatible with all smart phones: the data was read, transmitted to the smart phone via the audio input, in short, no difficulties. As soon as we started talking about a more complex device encrypting the data, the question of compatibility with certain models arose immediately. We had to work with different suppliers to come to the device that supports the widest range, to participate in improving a card reader. Now we understand that it was not in vain that one part of the team convinced the other one to choose the reader with encryption. In September 2012 we launched the first mobile acquiring service in Russia supported by international payment systems meeting their requirements for safety.
Customers of 2can are product vendors or services having an irregular flow of card payments. Why am I talking about a small or irregular stream of payments? Traditional POS- terminal equipment is a quite expensive thing. A POS-terminal costs from $ 600 to $ 800. The banks, which provide acquiring services, are interested in covering the expenses for the terminal. They will not buy expensive equipment to provide a small retailer with it where there are just two payments with credit cards per week. For banks it is more profitable to put the terminal in a large store that carries out at least 2 non-cash payment per hour. There is a certain turnover below which banks are not interested in working with sellers. It, of course, depends on the bank but in most cases the seller should have the average monthly turnover on the cards not less than 100 thousand roubles. Someone calls a somewhat smaller sum, someone, on the contrary, a large one. It turns out that an entrepreneur who needs nothing but acquiring from the bank and he is not ready to show a big enough card turnover does not find a traditional offer.
There are quite a lot of such outlets and we offer our service to them. These may be small shops, even stores on the organized markets. Of course, these are small neighbourhood stores, especially if they are not located in Moscow but in the regions. Online shopping and any delivery services are potentially interested in the service because one courier potentially is not a very large card turnover that can fail to interest the bank, but we are very interested in them and our service may be of interest to him. Russians, those 220 million cards, more and more often want to pay with the card. In Russia, there are no many POS- terminals, about 600,000, and they are mainly concentrated in the big cities, stores, corporate chains. For comparison, when Square was launched, at that time in the US there were about 7 million standard terminals and points where you could pay by card.
2can and banks
We work with banks in two ways. First, technological partnership based on the rules of payment systems, in terms of which we are an aggregator of payments. Visa calls it PSP - payment service provider, MasterCard - payment facilitator. In any case, with this status we cannot directly integrate with the payment system and give them the transactions for authorization. We should have a partner bank with a processing system with the help of which we integrate our processing system and through which we pass the transaction for authorization.
The second area of cooperation is where the bank's position is more active. A number of banks that work with small and medium-sized businesses can offer their customers a new tool. Previously, they quite deliberately did not offer acquiring to a part of entrepreneurs because of the lack of the economic warranty. Now they realize that they can offer another tool to their customers. The roles are reversed: to some extent we are becoming a technological partner, but the bank - a showcase for business customers. For customers this is an offer from their bank, but in fact, behind this branded service for the bank there is our mechanism, our processing, our application, which, of course, returns all transactions to the processing of the bank itself. In the future, we are planning to increase the client base both through our own sales and through partnership programmes with banks.
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