A Future in the Cloud

The Visa Acceptance Cloud will virtualize POS terminals. What will that mean for acquirers and merchants?

The dawn of a new era for point-of-sale terminals may be upon the payments industry with the announcement earlier this year of the Visa Acceptance Cloud. The platform aims to move to a cloud-based platform transactions that have required dedicated software on point-of-sale terminals.

This capability has been proven for years—think semi-integrated point-of-sale systems connected to POS terminals—and its application to standard POS terminals and Internet of Thing devices has the potential to broadly expand what might be considered a payment-acceptance device.

Though some analysts view the acceptance cloud as a further adaptation of devices and acceptance, it remains a new way of thinking about a stalwart of the payments industry. And, as with any change, there are questions about the potential impact.

First, just what is the Visa Acceptance Cloud? Visa says the platform removes the need for payment-processing software to be embedded in each hardware device to be universally accessible in the cloud. The card brand says the platform expands beyond its Tap to Phone technology, announced in 2020. Tap to Phone made it so Android smart phones and tablets could be used as contactless POS terminals with no additional hardware.

Tap to Phone was in use on more than 300,000 devices across 54 countries as of Dec. 31. Tests of the Visa Acceptance Cloud are ongoing in North America, South America, Europe, Africa, Asia, and Australia.

In addition to payment acceptance, Visa Acceptance Cloud incorporates buy now, pay later services, fraud management, advanced data analytics, and Rapid Seller Onboarding, a merchant-onboarding service in Visa’s Central and Eastern Europe, the Middle East, and Africa region.

Broadening Acceptance

Details are sparse regarding Visa Acceptance Cloud, including how it works, which devices are eligible, when it will be broadly available, and how it will be distributed. Visa declined to comment further on these questions.

Still, it seems clear that, even without many available details, the Visa Acceptance Cloud could be transformational. “Any time you see innovation that broadens acceptance, it is compelling,” says Ginger Schmeltzer, strategic advisor at the Boston-based consultancy Aite-Novarica. “It makes it easier to pay, which I always think is so important.”

Using as an example the growth in easier checkout experiences for online shopping, Schmeltzer says each iteration of technology that allows merchants to accept payments more easily, and for consumers to pay more easily, results in a more streamlined and better consumer experience. “It’s taking friction out of the process,” she says.

But, beyond enabling smoother transactions, the Acceptance Cloud also could make it easier for third parties to integrate payment functionality befitting their market behaviors and end users, suggests Cliff Gray, senior associate at The Strawhecker Group, an Omaha, Neb.-based advisory firm.

“It’s largely the SoftPOS model, similar in approach to semi-integrated,” Gray says, “since all the handling of sensitive data has been moved off the resident hardware, the underlying certification requirements have been removed to the cloud, freeing the merchant to bring their own equipment to the party.”

For example, Ford Motor Co. might use a generic Android operating system in its vehicles and another company’s near-field communication kernel and “have no concerns about PCI and other certification requirements,” Gray says. “They can go to market more quickly.”

Changing Models

Going to market quicker, making payment acceptance easier for consumers and merchants, and providing better security for transactions are the expected payoffs from most improvements to the payments process. But what does the Visa Acceptance Cloud present now?

For one, more merchants might be able to use commercially available, off-the-shelf devices that are NFC-enabled with an app only—no plug-in dongle. Companies like MagicCube Inc. launched its cloud-based acceptance platform earlier this year and just in February Apple Inc. finally capitalized on its 2020 acquisition of Mobeewave Inc. by launching Tap to Pay with iPhone with a similar capability. “NFC is pretty standard now,” Gray says.

“The point of sale has evolved,” Schmeltzer says. “We’re already moving away. The acquirers already have to change their models. I don’t think this was unexpected.”

As chief technology officer at Paya Holdings Inc., an Atlanta-based payments provider, Balaji Devarasetty has witnessed the ongoing adoption of cloud technology for payments. As EMV became widespread in the United States, POS software developers needed a secure way to capture payment card data without housing it in their applications.

The semi-integrated POS model was ushered in as a way to use a POS terminal to capture the data, send it to the cloud for processing and return the authorization decision to the software, minimizing PCI-compliance matters and reducing risk to the merchant.

“The natural progression was the terminal had to be connected to the cloud, as well,” says Devarasetty. Then, as the EMV rollout continued, NFC was built into the new EMV terminals merchants were using. That trend evolved into a smart POS terminal, like GoDaddy Inc.’s Poynt device, he says. Now, the smart device has become the phone itself.

Will that be a big change for acquirers? Probably not. “Cloud processing for POS transactions, it’s already happening with the advent of Clover, Square, Toast, Shopify, and other restaurant POS systems,” Devarasetty says. “These are already hosted in the cloud. That is not new. What I’m seeing is acquirers also shifting more to the cloud.”

Big processor Global Payments Inc., for example, said in 2021 it was moving its merchant-acquiring technology to Google Cloud. And Stripe Inc., which is working with Apple on application to run on iPhones for the new Tap to Pay service, uses Amazon Web Services.

‘The Cloud Has Evolved’

Acquirers have already proven their adaptability, and expectations are that will continue with moving POS transactions to the cloud. There is no panicky rush among them to change their models, Schmeltzer says. “It just accelerates, pushes it farther along,” she says.

A broad adoption of the Visa cloud technology, which is expected and likely will yield similar services from the other major U.S. card brands, may force acquirers to adapt their hardware-leasing and other revenue models, Gray says, “as well as all the deployment implications of merchants who no longer require any hardware.” American Express Co., Discover Financial Services, and Mastercard Inc. did not respond to inquiries from Digital Transactions.

The chief benefit for a merchant is that the business may not require a dedicated device resting on the countertop. It will just need an app. “It means I don’t need any additional hardware,” Schmeltzer says. “It becomes much less of a hurdle to get there.”

And for many smaller merchants, the technology could allow them to have the latest payment-acceptance technology, which might have been too expensive or too demanding otherwise. “The merchant can stay nimble,” she says.

For consumers, it can afford them flexibility in how and who they can pay electronically. As an example, a parent might just tap her card or mobile phone against a swimming instructor’s phone to complete a payment. “It becomes more [appealing] when I as a consumer have much more flexibility in how to accept payment,” Schmeltzer says.

The other payoff for merchants, as it has been with the semi-integrated model for POS software, is much of the risk, along with the merchant’s PCI-compliance requirements, could be reduced.

In years past, cloud providers might not have been able to meet regulatory requirements for compliance as easily as today, Devarasetty says. “But now the cloud has evolved,” he says. “The Amazons and Googles have become smart
and can tell exactly where your data is.”

And PCI compliance might be lessened, since no card data is handled onsite. Cloud-based point-of-sale “completely obfuscates the [primary account number] and data around it from the merchant environment,” notes Gray. “That’s just one example of the advantages of cloud-based POS systems. They take the data-security management off the merchants. They have to certify the NFC kernel.” The NFC kernel is the key piece of code enabling NFC interactions.

‘Accelerating Change’

If the barriers to acceptance are lower because of cloud-based POS transaction processing, that could translate into more embedded payments in more places, such as automobiles and other Internet of Things objects.

At its core, the Visa Acceptance Cloud is an acknowledgement of the advances in payment technology, merchant acceptance, and
consumer expectations. The payment-acceptance component is important, but it’s the value-add services surrounding it that may harbor the most potential.

“It’s a matter of what part of that package the actual acceptance piece holds,” Schmeltzer says. “The value-adds are much more important than the actual transaction itself. It’s just accelerating change that was already happening.”