Digital Transactions Authoritative, insightful and timely information for payments professionals
Payments 3.0
The 30% annual growth of mobile point of sale (mPOS) over the past three years (footnote 1) indicates that a new innovation is being rapidly adopted. The number of different companies providing mPOS devices, currently upwards of 200, is extraordinary even by the norms of the mobile phone-based product world.
The geographic distribution of many payments innovations tends to be lumpy (for example, text message-based payments clustering in Africa, or real-time consumer payments systems in Europe), but mPOS is spread relatively proportionately to the global distribution of merchants and merchant volume. (footote 2)
Principles of a Successful mPOS Strategy
Despite the numbers and market coverage, there is room for strategically focused new mPOS providers to succeed. With the innovation itself being so easy to produce and distribute and with little or no on-the-ground sales force required, the main “strategy” so far appears to be that of an 1890s land rush. There is, however, room left for those who enter strategically.
The obvious segment for mPOS is merchants that don’t accept cards because they find it too expensive or too onerous to get set up to do it. Because the majority of the old terminal technology is replaced by the merchant’s existing mobile device, mPOS is the ideal electronic payment method for the several million micro-merchants and mobile merchants in the U.S. But this market may be both saturated and only marginally, if at all, profitable due to low volumes.
A subtler part of mPOS strategy is to build additional services into the mPOS offering. For example, mPOS can be designed to diffuse the checkout line, allowing people to check out their total purchases anywhere in the store, or purchase an item right at the shelf. The experience has been that the savings over traditional fixed checkout lines more than covers the increased attention to assuring all products get paid for.
The mPOS added value can be extended to the ordering process, as in a restaurant where orders are taken right on the payment device, eliminating the need for a separate step to generate a bill. And then the payment can be processed using the same device. Giving the mPOS system the capability to capture consumers’ phone numbers and email addresses during the transaction in a way that is easily downloadable directly to marketing databases represents another opportunity to add value.
While many mPOS providers are new ventures, some of the bigger ones are outgrowths from established sellers of traditional POS payments systems that face the threat of cannibalizing their own revenue. One major POS terminal provider seems to have learned this, pulling back their mPOS product when it was seen to be substituting for transactions that the firm believed would have been made anyway using its higher-value, traditional POS system.
In this, startups with nothing to cannibalize have a real advantage. Current providers of terminals should consider launching a “startup” mPOS brand, controlling the cannibalization via brand management, selective distribution, and pricing.
It is accepted wisdom that consumers want to trust the company that processes their payment. But trust, like any product attribute, has to be managed to keep the cost of creating trust below the marginal value of gaining it. Although it is illogical, most people worry about how trustworthy a payment system is in direct proportion to the size and frequency of the payments they use it for, discounting that a breach could leave them vulnerable to much bigger losses.
One example of the mismanaging of trustworthiness is seen in the number of times new mPOS firms have justified give-away pricing, believing that the only way to gain trust is through the halo effect that comes from ubiquity. The halo effect is real. How much it is worth is the issue that needs to be managed.
Who Will Be the Winners?
MPOS seems here to stay. The mPOS providers that prosper will be those that understand that the land rush is over and the game is now one of developing value-added services linked to their mPOS product, selecting markets carefully, understanding the value of trust, and avoiding cannibalization of their own higher-revenue products.
George Warfel • george.warfel@edgardunn.com
n
n
1. Mobile At The Point of Sale: How SMBs are Adopting Mobile Devices To Accept Card-Present Payments, Control Scan, September 2014. 2. Edgar, Dunn & Company proprietary research.
