Clover opens a new field for First Data

An unexpected delight at yesterday’s Retail Expo was the debut of Clover – a new EPOS product for SME’s. Clover was acquired by First Data – the world’s largest payment processor – in 2013.

The SME EPOS market looks large at first sight; there are over 140.000 retailers in the UK and a number of large technology companies have tried to exploit the lucrative potential of a “shop in a box.” But each has failed in the face of stiff competition from a  Darwinian array of niche EPOS vendors specialising in everything from dry cleaning to funeral parlours. These businesses (often set up by ex-retailers) have spent years honing their software to an exact fit of their customers needs which, up until now, has made the provision of a “shop in a box” pretty much impossible. Retail sounds to management consultants like a single customer set but it’s not.

This may be about to change.

The roaring success of Square in the US has drawn a number of big players into the market for in-store technology. The idea? Provide a generic EPOS system that includes hardware, payments and a basic stock/table management with a set of open API’s. Then get the Darwinian niche guys to rewrite their software as applications provisioned through an app store. The retailer gets the right software for their business but with the advantage of service delivery from a global giant. And the niche software vendors can focus on their customers’ needs and not worry about operating systems, cash drawers, payment service integration and all the annoying, low margin stuff they have to supply to make their software work.

Even better for the retailers, this model will encourage 3rd parties to integrate their services with the core EPOS and payments processes. These could be loyalty schemes such as Nectar, mobile wallets, tax free shopping services, people counting systems, table booking applications and so on.

EPOS integration is really hard right now. There are thousands (yes, thousands) of EPOS vendors in the field. Most want to get paid for writing integrations and don’t publish API’s. Worse, even when you pay them money, integration to 3rd parties is often so far down the development queue that nothing ever gets done. I know this from bitter experience, having sat on both sides of this particular fence.

So, turning EPOS into a cloud-based app delivered by a large player committed to open API’s should be a winning strategy. How does Clover measure up?

What I like

  • This is a good bit of big company innovation from First Data. Its core business of payment processing is low growth with declining margins so it makes a lot of sense to find other products that would be attractive to its customers. EPOS is one and the strong linkage with payments gives First Data a right to play. It was the only merchant acquirer exhibiting at the Retail Expo. Clover makes First Data relevant to the sector.
  • I also like that they have bought rather than built the capability. There’s no shortage of start-ups focusing on retail technology so there’s no sense in writing your own code.

Clover EPOS

  • The Clover package looks lovely. It’s a very sleek, Apple-style, white with beveled edges and a very attractive sleekness. The package includes touchscreen tablet, cash drawer, scanner, printer and even weighing scales. The UK version features a desktop or mobile chip & PIN machines.

Clover EPOS Screenshot

  • The touch screen tablet is proprietary and runs Android. Out of the box, it comes with a fully featured EPOS system with basic inventory management, employee clock in/out and table management. I visited one triallist, Café Vergnano in London. The staff were delighted with the system although they were adamant that Clover worked on an iPad. Such is the power of branding.
  • Set up is really easy. You just need to plug it in and turn it on. No gold build.
  • It is resilient. If it can’t get an Internet connection, you can still trade although you won’t be able to authorise card payments.
  • Clover is properly built for the mobile age. Running the apps on Android means that they should be able to run on other devices, liberating the staff from the tyranny of the till point. Elements of functionality could be decoupled and run on the customers’ phones too.
  • The analytics look good and are accessible from any device and (again) are built to look good on a mobile.
  • The app store is still in beta so not offering much yet but strategically it absolutely the right route.

But there are some challenges…..

  • Firstly, Clover is commercialised by First Data, a company that knows a lot about payments but very little about retail or hospitality compared with the established players. To succeed, there will need to be clear, consistent and long lasting commitment to this proposition; not just a quick sales and marketing campaign.
  • The UK proposition will need to be managed in the UK with its own development budget. Retail is a local industry everywhere and EPOS doesn’t cross borders. Localising product management is often a challenge for US based multinationals.
  • Payment services typically represents a fraction of the lifetime revenue of an EPOS deal. The business value is in the software and that is what customers will pay for. If First Data goes into this market with a primary focus on pulling though payment business rather than delighting its customers with the best EPOS in the UK, it will fail.  It will need to start thinking like an EPOS vendor, not a payments company. A good start would be to cease referring to its customers as merchants.
  • First Data will need to retrain its sales team. I understand that it currently has 8 sales reps working on Clover in the UK but has plans to ramp up significantly. Shifting card machines is about negotiating around a price list; selling EPOS requires an often-lengthy discussion about the client’s business processes. It’s different and the existing sales team may not have the right consultative skills.
  • First Data needs to get to scale rapidly. If only 20 customers in the UK use Clover, developers will ignore the app store, if 20.000 get on board, there will be a stampede. The more customers, the more apps, the more value created for everyone.
  • There’s no e-commerce option at launch. This may soon come through the app store but is a major gap in Clover’s capability right now.
  • The plan is to integrate a chip & PIN reader into the touch screen unit. In the meantime, First Data is spoiling the beauty of the solution by connecting it to a not-very-attractive card machine. At least the payment device is branded First Data not Clover so putting some emotional distance between the cool and not cool elements of the solution.
  • Clover will retail at  about £1000 one-off or £90/month. This includes all the hardware and basic EPOS apps but merchant services are extra. The one-off fee compares favourably with a typical £1200 – £1500 charged by an established EPOS vendor but the monthly charge out of line. The subscription model should be the preferred option for First Data so I would bring that down a notch.
  • I worry about whether the white will keep clean in a typical retail environment. A fashion boutique will wipe it clean but in a busy café Clove will quickly attract the grime.
  • Finally, it’s not clear that there is a First Data sized pot of gold in this market. Cybertill – the pioneer of cloud based EPOS in the UK– is a dynamic, well run company with an excellent product set.  Cybertill has been at this since 2001 and has just reached £6m turnover. That’s not enough to keep First Data in biscuits.