Jacob de Geer thinks there’s something wrong with banks.
Mr. de Geer, who is a Swedish entrepreneur and the co-founder of iZettle, a payments service that offers merchants a device for processing credit card transactions, says banks don’t meet the needs of many small businesses.
“Financial institutions focus more on their large clients than on the small ones,” he said. “Most of them were founded way before the invention of the Internet or the smartphone.”
But he thinks he has a solution. On Friday, iZettle announced a program to lend money to small businesses that use its service, providing cash advances to companies for a one-time fee.
IZettle, which operates in 11 countries from Britain to Brazil, raised a further $67 million from its existing backers, including Intel Capital and American Express, to take its total fund-raising to roughly $180 million.
The steps by iZettle follow similar announcements from Square, the six-year-old American payments start-up, that also has expanded from its payments roots to offer additional financial products for its small-business customers. Square also offers a device to process credit card transactions.
For iZettle, the new lending program will initially be available only in Europe, and the company will charge small businesses a flat fee equivalent to roughly 10 to 15 percent of each cash advance.
To recoup the money it lends to businesses, the start-up will take a small percentage of each transaction that small businesses process through its payments system. To reduce defaults, the company says it will crunch data from businesses’ existing transactions to determine their credit risk.
“We see our customers are very underserved by traditional financial players,” said Mr. de Geer. “We’re transforming ourselves into something that resembles a next-generation financial services company.”
IZettle is not the only tech start-up looking to offer loans to small businesses.
Earlier this year, Funding Circle, a London-based peer-to-peer lender, raised a further $150 million, which valued the company at roughly $1 billion. The start-up operates a platform in Britain and the United States that allows individuals to lend directly to businesses.