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DT, January 2017

A Cultivated Palate for POS
January 1, 2017

By Kevin Woodward

Developing a point-of-sale app to operate on a tablet is but one ingredient necessary for catering to the payment-processing needs of hospitality merchants.

Hospitality merchants have long been a favored customer base for many acquirers and independent sales organizations. For example, Heartland Payment Systems, now part of Global Payments Inc., made restaurants a key part of its portfolio.

Others approached hospitality merchants from the hardware perspective, selling expensive fixed POS stations that provided the merchants with the unique software their businesses needed.

Then, about six years ago, following Apple Inc.’s release of the iPad tablet, the hospitality POS market began to change. The iPad, and tablets using Android, Google’s mobile operating system, began to proliferate as business tools, with developers quickly creating point-of-sale apps that use plug-in card readers to accept payment cards.

Jump to today, and scores of such tablet-based systems are available. Some are sold directly to merchants by the developer, while others, like Click a Waiter Inc., can be white-labeled and resold by ISOs and acquirers. First Data Corp. offers its Clover POS system with mobile devices.

While many vendors serve general retailers, others specialize in hospitality merchants. Finding success as a POS provider for these merchants requires more than providing basic payment-processing services. It requires an acknowledgement that hospitality merchants have unique needs that the provider understands. Also, it requires an allegiance to protecting data, ongoing evaluation of software features and functions, and affordable pricing.

‘Everybody’s Got To Eat’

Hospitality merchants are appealing because they tend to generate significant payment volume. The average annual unit sales for a quick-serve restaurant are $834,000, says the National Restaurant Association. Overall sales at commercial restaurants will total $782.7 billion in 2016, a 33.4% increase from the 2010 total of $586.7 billion, the association says.

That’s more than enough to attract throngs of payments companies. And more units come on stream every day. “There’s 100,000 new ones every year,” says Chris Ciabarra, chief technology officer and co-founder of Revel Systems, a San Francisco-based POS provider. “Small businesses is the fastest-growing space right now. Everybody’s got to eat.”

Revel came out with an iPad-based POS system in 2010 and now has more than 30,000 terminals in operation. Revel offers restaurant, quick-serve restaurant, general retail, and enterprise configurations of its system.

Other providers, such as TouchBistro, a Toronto-based POS-system provider, solely target hospitality merchants. TouchBistro, too, uses the iPad for its tablet system, but it has additional configurations that rely on Apple computers.

Writing orders down on a piece of paper and taking them back to the kitchen had been the standard operating procedure for decades, says Alex Barrotti, founder and chief executive of TouchBistro. “Not much has changed,” Barrotti says. “You either hand it to the chef or walk over to the point of sale to type it in.”

TouchBistro POS systems are in more than 7,000 locations, Barrotti says, with approximately 20,000 terminals in use.

Understanding how restaurants and bars work is vital to persuading an owner to use a particular POS system. TouchBistro’s origins directly relate to the necessity of knowing the merchant’s pain points.

As Barrotti tells the story, he became acquainted with the owner of sushi restaurant that had an outdoor seating area, which customers always wanted to sit in. That required the server to walk back to the kitchen to relay the order.

So the owner “came to me one day and said he had all these customers who wanted to eat outside, but they have to prepare the sushi in an air-conditioned environment,” Barrotti recalls. “He wanted something that could be used to take the order on the patio and automatically send it to the kitchen inside.”

Barrotti, who had sold his technology company not long before, began evaluating the options. None of the then-current devices did the job. Then, the iPad debuted. He moved back to Toronto—the sushi restaurant was in the Caribbean—and started TouchBistro, he says.

TouchBistro’s technology, in addition to accepting multiple payment types, has the ability to wirelessly send orders to the kitchen while the server is at the table. The server can press “Send” after each diner orders while still taking other orders at the same table. That can speed up food and beverage orders to the table, which can translate into an increased table turnover rate. The more tables are turned—measured by how often tables are occupied during a specified time—the greater the potential revenue.

Revel’s Ciabarra says any sales pitch to a hospitality merchant reflects the merchant’s needs. “You have to speak the lingo and be understanding of the language when talking to retailers or restaurants,” Ciabarra says.

For example, both retailers and restaurateurs offer consumers the ability to order products and services online. In retail, it’s called e-commerce. Restaurant owners call it online ordering.

Fine Tuning

This awareness of differences extends beyond basic features and functions. Restaurants may add new products or need functions in the software that enable customized orders to accurately make it to the kitchen, Ciabarra says.

For example, a POS system may need the ability to correctly modify orders, such as ordering a cheeseburger with bacon, but without onions.

This fine-tuning also extends into the operational side of using a POS system. Revel announced in December a data-analytics product, Insights by Revel, that enables owners and managers to monitor their labor activity and get reports on net sales, payments, and product mix.

Data security is another critical aspect that must be addressed with POS systems for hospitality merchants. They are routine targets for criminals. Indeed, Noble House Hotels & Resorts, which operates 17 U.S. properties, announced a breach last year that escalated from one location to 11 others.  And HEI Hotels & Resorts reported earlier in 2016 that malware might have captured card data from dining venues or other locations inside 20 of its properties.

One advantage of using iPads for a POS system is that the development environment is tightly controlled by Apple. Each app is vetted before it goes into the App Store. But POS providers do not rely on that measure alone, especially for payments security. TouchBistro makes a direct integration of the data from its app to its payment processors. There is no middleware, Barrotti says. The primary account number is never visible to TouchBistro’s system, he says.

At Revel, each transaction is encrypted from the device to the processor, Ciabarra says. Revel uses only WiFi or a wired Ethernet connection, never Bluetooth, to transmit payment data, he says. Bluetooth is less stable than WiFi, which can impair productivity in a busy location.

Pricing, as with any merchant considering payments services, is another factor. Many of the tablet-based POS-system vendors price their service at a monthly fee that typically is independent of their merchant-services agreement. At TouchBistro, Barrotti says merchants bring their own hardware (the company is an Apple-authorized seller in Canada). TouchBistro makes its money from the monthly fee, he says.

At Revel, pricing, which can vary because of the resellers, used to be much higher than it is now, Ciabarra says. “The whole market needs to increase its prices,” he says. “The startups are undercutting their prices. They don’t realize how expensive it is to board and maintain the client.” That trend is starting to reverse now, he notes.

The Big Change

Restaurant merchants tend to have higher support costs than general retailers, Ciabarra says, because there are fewer problems that can surface for general retailers than for hospitality merchants. “Support costs are a little higher on the restaurant side.”

Hospitality POS systems have had to contend with the EMV chip card migration, too. It presents an issue for hospitality merchants, especially those with quick-serve restaurants, because an EMV transaction typically takes considerably longer to complete than does one made with a magnetic-stripe card or as a mobile payment, Ciabarra says. “They need to perfect EMV and make it fast,” he says.

The major U.S. card brands all have programs to enable faster chip card payments, but the integrations are just under way now and are not yet offered by every payments provider.

TouchBistro designed a case that holds the tablet or smart phone and on the back side holds a Square Inc. EMV reader with near-field communication technology, Barrotti says. TouchBistro announced its integration with Square in August.

Hospitality POS systems continue to evolve. Revel offers a mobile app that can be white-labeled. Stanford University is using it for their students to preorder food, for example. Tableside mobile ordering will gain favor among merchants, too, Barrotti says.

But the big change may still be in the offing. Merchants, especially younger ones, are well aware of their POS-system options. “They’re more educated [about the options],” Barrotti says. Indeed, many come to TouchBistro wanting a demonstration, he says, having already researched their set of possible candidates already. “They’re almost close to a buying decision.”

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