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DT, February 2017

Why App Stores Have Come to the Point of Sale
February 1, 2017

By Kevin Woodward

As POS systems gain ground, vendors strive to keep merchants happy with more than single-purpose payment terminals. Enter the app store.



Adaptability as a survival mechanism not only has a role in nature, but in the payments arena, too. One area where that’s manifested is in the adoption of a point-of-sale app-store strategy.

It’s a move designed to respond to a shift happening among merchants, which are increasingly moving away from single-purpose point-of-sale terminals to more full-featured devices that accept payments, help manage employee schedules, monitor inventory, and provide detailed sales reports. To accomplish all these tasks, payments companies turn to apps.

Apps can aid merchant retention and acquisition. A portfolio with low attrition is one that is more profitable, and less costly to maintain, than one with a higher attrition rate.

The emergence of POS app stores is tied to the nature of the full-featured payment devices many merchants now want. Based on tablets, and with most using a third-party operating system like Apple Inc.’s iOS or Google’s Android, these devices are usually familiar to merchants who may use a smart phone and its accompanying app store for personal use. So, since apps have paid off for consumer mobile devices, they can also be a key part of a POS strategy for payments companies.

‘Frustrated Developers’

That is the exact plan set out by Mark Schulze, co-founder of Clover, a tablet-based POS system that First Data Corp. purchased in 2012. “We were app developers ourselves,” says Schulze. “We were trying to build consumer-facing ones.”

What brought payments into view for Schulze and his colleagues was their attempts to integrate their apps in to merchants’ POS systems. “We couldn’t do it,” he says. That approach would have taken two to three years, time that Clover knew could be better spent selling its services.

That’s when the app-store approach arose as the chief avenue for the POS developer. “We were frustrated developers, not restaurateurs,” Schulze says.

Clover now includes a stationary system and multiple mobile POS devices, all using an app marketplace open to developers. “We have more than 200 apps in the marketplace today,” Schulze says. “We’ve shipped more than 500,000 Clover devices.” In addition to the United States, Clover is available in the United Kingdom and Ireland.

The allure of the app marketplace even draws out traditional POS terminal makers such as VeriFone Systems Inc. to adopt the strategy, as embodied in the San Jose, Calif.-based company’s newly launched Carbon device.

“If you look at the current physical retail merchant, a large chunk of them are using terminals that are single-purpose for payments [only],” says Hitesh Anand, VeriFone vice president of commerce platform and mobile. Carbon Commerce Platform is a dual-screen POS system that incorporates a merchant-facing Android tablet with a consumer-facing display.

Carbon is visually similar to the dual-screen, Android-based device offered by Poynt Co. Poynt’s chief executive, Osama Bedier—former head of Google Wallet and longtime PayPal Holdings Inc. senior executive–launched the firm in late 2014 with $28 million in funding and subsequently disclosed preorders of 500,000 units for its Poynt Smart Terminal. Poynt did not respond to Digital Transactions inquiries.

How important is Carbon and its platform, called Engage, to VeriFone? In a December earnings call, Paul Galant, VeriFone chief executive, predicted between 5% and 10% of all VeriFone device sales will come through Engage by the end of fiscal 2017. He added 5 million terminals in the U.S. market remain to be upgraded for EMV chip cards. VeriFone is closely working with processor Vantiv Inc., which will be among the first to offer the Carbon service.

With few exceptions, VeriFone products are sold to merchants through other companies, such as processors, POS equipment distributors and independent sales organizations. Adding an app-based payment device made sense because it serves these sales partners, Anand says.

“In a digital store, consumers are given lots of options for services,” Anand says. “To enable similar services on a payment terminal is what we have built with the Carbon Commerce Platform.”

Merchants becoming accustomed to self-service can use the app marketplace to find additional tools, such as inventory management and employee scheduling, he says. “For the merchant, it becomes a discovery and deployment tool,” Anand says.

‘Richer Services’

Providing a POS app-store service is beneficial for payments companies wanting to enrich the products they offer small and mid-size businesses, says Thad Peterson, senior analyst with Boston-based Aite Group LLC, a payments consultancy.

He views the offering as a new way to aid merchant retention and acquisition. “They’re trying, particularly companies like VeriFone, to deepen their penetration in the POS space,” Peterson tells Digital Transactions. “They need to migrate to richer services.”

Generating extra revenue from a POS app marketplace may not happen right away, Peterson says. “At this time, I don’t think anyone has scale in the space to drive revenue from apps,” he says. But what it can do straight away is cement relationships with providers outside of the POS space, Peterson adds.

Peterson also suggests that the fragmentation of POS app stores could hold back adoption. “The challenge I see is they’re all closed systems,” he says. There probably is a challenge related to differentiation, too, because many providers offer similar services, he says. Despite this, POS app stores are “very valuable assets,” Peterson says.

Revenue, at least directly from app sales, is just one goal for Clover’s Schulze. So far, his experience is that merchants using Clover have been less likely to jump to other processors because they have built a reliance on the services that goes beyond payments.

‘Craving Differentiation’

The critical element, in using a POS app marketplace to attract and retain merchants, is to put the customer first, VeriFone’s Anand says. “What we need to do is make sure the right service and the right applications are there and we provide them in a seamless and simple manner,” he says.

To do that, a few measures are important. “Step one is relevance,” Peterson says. “They have to be apps that small and mid-size businesses want to use and demand is sufficient to create the value proposition they want.”

Another component is that the app has to work every time. The third piece is that the app must make it easier for the merchant to complete the task in comparison to how they accomplished it without the app, Peterson says.

To help ensure these measures are achieved, payments companies have to aid developers as much as possible with software tools and a process for vetting their apps.

Clover provides software development aids to help developers create an Android app, a Clover Web app, or to integrate with a Clover device. First Data provides a dedicated Web site with information on all three avenues. It also provides devices—remanufactured Clover equipment—for developers to test their apps, Schulze says. First Data also vets apps to ensure they adhere to security protocols.

At VeriFone, which is building its developer base, it, too, offers software development services. It provides an online device simulator so developers don’t have to buy devices, which can be beneficial for developers whose forte may be elsewhere, Anand says. Internally, VeriFone is creating a developer support staff. “Our role helps developers deploy apps more quickly,” he says.

VeriFone takes care of the payment-certification aspects of the apps, exempting developers from having to learn and maintain an extensive knowledge of payment-security requirements, Anand says.

What’s also important is how the app marketplaces are organized. In the case of Clover, and soon VeriFone, the apps are searchable on compatible devices and on a Web site.

In VeriFone’s situation, its channel partners will be able to preload apps on the device, such as the processor’s payments app. Clover’s app marketplace features First Data services, like check acceptance from TeleCheck.

The other factor to consider is the sales pitch itself. “Everybody in the ISO and acquiring industry is craving differentiation,” Peterson says. “For them to be able to offer this as a value-add for merchants has to be a good thing.”

Sales training is important, especially if the reseller is new to the app-store concept, but so is marketing support. Resellers, however, are not restricted from forming relationships with app developers. At Clover, this happens frequently, Schulze says. Such relationships may result in a bundled Clover product to sell.

“Our partners can use their own marketing to push apps they may want,” says Anand. “Some apps may showcase a unique feature of a device, even we may market it for a developer.”

Developers, too, are free to set their own price for the apps. Some are free, while others are paid or use the “freemium” model of a basic version at no charge, but additional features at a fee.

‘This Is the Future’

POS app stores are going to be around for a while. “We’re at the very beginning,” Schulze says. “For small and mid-size businesses, it’s harder for them to compete with those sorts of big information-technology investments that a Nordstrom or Best Buy can do.” App stores enable smaller merchants to more effectively compete with larger merchants, he says.

Anand sees the app-store concept as the future. “Single-purpose devices, they cannot survive,” he says, with justification for buying one becoming more difficult as commerce-enabled devices proliferate. “This is the future. The payment device is the core and commerce is on top.


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