Visa invests in mobile security startup MagicCube – for the second time

Deal comes on the heels of Apple’s recent $100 million buy of competitor Mobeewave

Payments giant Visa has pumped more money into MagicCube, a Silicon Valley startup whose technology lets merchants transform mobile devices into payment terminals.

Visa’s investment comes on the heels of Apple’s recent $100 million acquisition of MagicCube competitor Mobeewave, a Montreal startup whose software turns iPhones into mobile payment terminals. Bloomberg broke the news of that deal.

Santa Clara, California-based MagicCube announced Visa’s strategic investment Aug. 24. The amount of the investment wasn’t disclosed, and neither was the amount of Visa’s previous injection of funding into the 6-year-old startup.

Previous backers in MagicCube include Azure Capital Partners, Epic Ventures, NTT Data, Silicon Valley Bank, and the Sony Innovation Fund, among others. (Sony’s VC fund invested an undisclosed amount in MagicCube in late May). MagicCube doesn’t divulge how much its overall investment haul is. Crunchbase says the tally is $12.2 million, excluding Visa’s fresh investment.

MagicCube’s innovation will complement Visa’s fledgling tap-to-phone initiative. In January, Visa unveiled a partnership with Samsung designed to bring the payments company’s tap-to-phone technology to sectors such as retail, manufacturing, health care and logistics. Samsung’s VC arm was an investor in Mobeewave.

Magic Cubes technology centers on software POS, or softPOS for short. Using a smartphone or other mobile device, a merchant can take softPOS payments without the need for extra hardware, such as a traditional POS terminal. Payments via contactless cards and digital wallets can be accepted from an array of financial services providers through an array of mobile devices.

“Sellers are looking for simple, low-barrier ways to offer digital payments, and there may be nothing simpler than transforming an everyday device, such as a mobile phone, into a payment terminal,” Mary Kay Bowman, Visa’s global head of buyer and seller solutions, said in a news release.

Bowman added that Visa and MagicCube “want to enable sellers around the world to not only begin accepting digital and contactless payments, but also give them flexibility to do so in a way that is physically less constrained [than] a traditional point of sale.” 

MagicCube’s technology has been certified by EMVCo, the consortium that oversees the global infrastructure for chip-based payment cards and acceptance devices, as the first software-based “trusted execution environment.” The software allows verification methods such as PINs and biometrics.

“Why is Visa investing in us? Because we’ve proven we can be as secure as hardware,” Sam Shawki, co-founder and CEO of MagicCube, tells FinLedger. “We are, in my opinion, the true fully functional, fully secure, supported-by-all-four-payment-networks replacement of a terminal. To this day, everything else is not a full solution.”

Shawki says his company’s platform breaks down a barrier in acceptance of payments by merchants. While people around the world hold more than 22 billion payment cards, according to Statista, the number of installed POS terminals that are able to read them is barely over 100 million.

“Acceptance is where the bottleneck of the digitization of cash is stuck,” says Shawki, who previously led Visa’s global remote payments business unit.

In attempting to remove that bottleneck, MagicCube is taking on a $48 billion-a-year market for old-school payment terminals. Replacement of POS hardware with POS software won’t “happen overnight,” Shawki says, “but we expect that it would happen quicker than people are thinking. When Apple bought Mobeewave, that confirmed that players like us are not crazy.”

As you might imagine, many makers of POS hardware aren’t crazy about startups like MagicCube and Mobeewave. “It’s very difficult for some of them to be smart enough to invest in you rather than fight you,” Shawki says.

It’s worth noting, though, that POS hardware provider ID Tech is one of MagicCube’s partners. “Advancing the global digitization of payments requires stronger security and greater accessibility than many hardware-based POS systems can provide,” Justin Ning, vice president of product management and marketing at ID Tech, said in a 2018 news release announcing his company’s partnership with MagicCube.

Although MagicCube has signed up a number of partners, it hasn’t brought aboard any customers — yet. Shawki says the startup will be announcing its first customer, a large bank in the United Kingdom, in the coming weeks.

Shawki says the rise of contactless payment cards and the pandemic-driven emphasis on contactless transactions promise to boost demand for MagicCube’s technology.

“We think that next year, you’re going to start seeing the [softPOS] market ignite. As always, the transition will take people time,” he says. “Replacing these [legacy] devices is not really our goal. Our goal is creating an extra market.”

“Once Visa and Mastercard decide to push the hardware out of the way, they will. And I think they’re betting on us as a major contender,” Shawki adds.

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