Every dark cloud presents a re-terminalization opportunity

NCR posted worse than expected results this week citing “ongoing data security concerns, which were heightened in the third quarter. This is causing retailers to shift IT priorities, resources, and capital spending.”

The US retail data breaches have been well publicised and resulted in a much delayed decision to join the rest of the world and implement chip & PIN.

This means that pretty much every payment terminal in the USA needs replacing; hence less capex available for NCR’s products.

Every cloud has silver lining and Verifone, who have been struggling for years, are naturally delighted with what they refer to as the “re-terminalization” of the world’s largest economy. Even better, they think that Apple Pay will drive a 30% increase in the total number of terminals in the market.

Slide from Verifone's Sep 14 analyst deck.
Slide from Verifone’s Sep 14 analyst deck.



Will Apple Pay kill Quidco?

Card-linked offers are a fast growing corner of the retail loyalty industry. These schemes, of which Quidco and Topcashback are the leaders, offer shoppers cash rebates for spend with participating merchants. The shopper registers for the scheme and their payment card number (PAN) is used to track each transaction. These schemes have been successful because:

  • Shoppers can use one card to access rewards from many retailers.
  • There is no need for vouchers or discount codes.
  • Retailers can participate without making an IT modifications
  • Retailers can generate immediate footfall by posting offers which the CLO schemes then communicate to their subscribers

There are also some drawbacks

  • CLO’s are manually intensive. Typically, once the scheme has signed up a new retail partner, it organises for a file of each day’s card transactions to be sent from the retailer’s merchant acquirer to a trusted third party. There is it scanned for participating cards and these transactions are sent to the CLO scheme. The scheme then works out which transactions qualify for cashback, sends a bill to the retailer for the cashback/scheme’s commission and credits the money to the shoppers account.
  • CLO’s can only be applied to the whole basket. The card payment transaction only carries the total value of the purchase. So, for a department store (say) there’s no way of telling whether the shopper bought cosmetics or a cricket bat. That makes CLO’s a very blunt instrument.
  • CLO’s are not real time. It takes 24 hours (at best) to process a transaction which means there’s no way of either confirming to the shopper that they have received a reward or of communicating to shop staff that this customer is entitled to special treatment. This makes the whole process impersonal for both the retailer and shopper and impedes brand building.
  • CLO’s are fundamentally insecure. They can only operate through one or more parties storing PAN’s. This is allowable under PCI rules provided they are stored with appropriate safeguards but carries significant risk. Fines and collateral damage in the event of a data breach are unpleasant. LoyaltyBuild, an Irish, provider was forced to suspend trading for four months following the theft of customer card details.

ApplePay launches today in the USA and in Europe in Q1 2015. Although Apple Pay allows shoppers to spend money on their habitual payment cards, it doesn’t use PAN’s.  This is bad news for the CLO industry.

In place of a PAN, a token is generated for each transaction. The token has the same architecture as a PAN. The first six numbers identify the bank that issued the card so that the transaction can be routed in the normal way. But the last ten digits change for each purchase. This means that CLO schemes won’t be able to use the PAN as a unique identifier with which to track their clients.

Quidco and friends won’t be out of business immediately. Not everyone has an iPhone (although Apple Pay won’t be the only payment method that uses the new tokenisation methods) and it’s plausible that CLO shoppers may ignore Apple Pay in order to keep the cashback flowing.

However, CLO schemes can’t rely on PAN’s in the medium term and would be well advised to invest some time in commercialising alternative ways of tracking where their members spend their money.

Another well funded new entrant joins a very crowded market


Orderbird, a Berlin based EPOS start-up that targets the SME’s in the hospitality industry has just raised $10m taking its total fundraising to $18m. The cash will be used to expand outside its core German-speaking markets where it now claims over 2.000 customers. The UK is first on the list.

Orderbird primarily provides EPOS software that runs on iPads. It’s not cheap. Prices start from around £50/month for the software plus an upfront £599 for installation and some hardware. Over the five to ten year life of an EPOS system this is much dearer than a traditional Window-based till system which would retail at around £1200 with ongoing fees of around £50/year.

The largest investor is Concardis, a leading Germany merchant acquirer, and integrated payments are key selling point. Card processing fees – 1.7% for debit and 2.7% for credit – are rather high but a rather novel integrated card reader is free of charge.


A novel idea
A novel idea

SME commerce platforms of all kinds are very attractive to investors at the moment; partly because the payment industry is flush with cash and struggling for new ideas. However, this is a very tough market to make real money in.

SME EPOS is highly competitive and many of the new entrants struggled to differentiate themselves. Moreover, the market size frequently over-estimated. For example, Cybertill has been selling successfully selling cloud-based EPOS for over 10 years, operates in over 5.000 sites but has revenue of just £6m.

Some of the more ambitious investment cases are driven by the prospect of using an iPad EPOS system as a means of generating additional profit from signing SME’s to loyalty schemes, footfall generators, customer insight reports and payment processing.

Even well financed new entrants such as Orderbird will face three major challenges:

  • SME customers remains highly conservative in their buying behaviour. They are deeply suspicious by nature and most are not attracted by whizzy dashboards and digital loyalty schemes. They need to see a sales rep making a demonstration before buying.
  • Selling new ideas to SME’s is expensive and it’s really difficult to make the economics work with a direct approach. Businesses like Orderbird will need channel partners. This is where Vend is being smart but (of course) channel partners need paying and this eats into margins.
  • The existing EPOS industry (which has deep customer and channel relationships) will up its game. Many longstanding vendors have already begun moving to the cloud and from Windows to iOS.

The market for SME retail technology is competitive and expensive to reach. My recommendation to Orderbird and others is to target larger customers. Enterprises are less satisfied with existing suppliers (eg Micros) and and more interested in new ideas around loyalty and footfall.

How I failed the PowaTag Tesco meal deal 30 second challenge. Twice.

We all know that supermarkets are under pressure and that every little helps when you’re fighting for business in a high volume, low margin market. One problem that keeps coming up when you talk to the grocers is how to process the lunchtime trade faster.

This is why Marks & Spencer and others have been keen to adopt contactless payments and also why many are evaluating mobile-phone based payment ideas. The latest of these is PowaTag, which is on trial in Tesco’s Dean Street store in Soho. It’s a good location for trying new technology ideas – a cramped shop that needs help and which services an early adopter media crowd that embrace innovation.


This is not a full pilot. Tesco’s technology lab called it a “live experiment” from which they hope to learn more about customer reaction to the new ways of paying. PowaTag is not integrated with the store’s EPOS and you can only buy from a single aisle from which you pick your “meal deal” – a sandwich, a bag of crisps and a drink.

PowaTag Tesco Meal Deal
PowaTag Tesco Meal Deal

One the first day, the shop was bursting with PowaTag people, Tesco management and (an unexpected surprise) Barclay’s bPay team who have equipped Tesco top brass with their contactless bracelet. Helpfully, each team wore their employers’ T-shirts so that we could tell who was who.

PowaTag works like many other mobile wallets. You download the app and enter your details: name, email, street address, card number and CVV. It prompts you for date of birth and gender too but these are not compulsory. You also enter a four-digit PIN security code. This takes a couple of minutes although would be quicker if you could photograph your card to get the details uploaded automatically.

When in the store, you pick your three lunch items and then check out by opening the app and scanning a large QR code. In this live test, there was one of these positioned on a special table away from the mail till points but next to a portable card machine. Belt and braces. There was also a giant PowaTag QR code stuck on the floor.

So far, so easy. How did I fail the challenge? When I scanned the QR code and hit the “pay now” button the app asked for my CVV code. Oh dear, I’d pre-loaded my Amex card. The PowaTag folks were very helpful. Sorry, the app doesn’t work with Amex, they said. Yes, we should warn customers about that earlier in the process.


I stood to one side, let the queue pass me by, went back into the app and added a Visa card.

Then I went back to the giant QR code. I had my purchases in one hand and my phone in the other. I opened the app, scanned the code and hit the confirm button. Then the app asked for my CVV code again. So, I put the phone in the same hand as the purchases, pulled my wallet out of my inside pocket and teased out the Visa card. Running out of hands, I put my wallet in my mouth, flipped over the Visa card, memorized the CVV code, took the wallet out of my mouth, put the Visa card back in the wallet, put the wallet back in my pocket, used my free hand to pick up the phone, scanned the QR code again, hit the “pay now” button, inputted the CVV code and completed my transaction. Failure #2.

The PowaTag app next presents you with a nicely laid out receipt which sits in your “tag history” screen.

powatag history

PowaTag also emails you a receipt. This comes from a PowaTag Tesco Meal Deal account and is jointly branded. This may be good practice but I can’t think why you’d want to keep an email receipt for a sandwich. If you used the app several times a day, this would become irritating.

tesco powatag receipt

The overall user experience is okay although the requirement for CVV is really annoying for people who haven’t memorised this number. Disappointingly, PowaTag weren’t demonstrating any advance over FlyPay, PayPal, Droplet or any of the other competitors that have been around for a while. For example, there are no loyalty features, social networking, geolocation or iBeacon prompts. I’d expected more of a wow-factor from a business now valued at >$1bn.

To be fair, buying lunch at Tesco is a not good use case for mobile payments. The pressing need for both merchant and shopper is speed in checkout but the primary bottleneck is not payment at all. It’s the queuing and scanning to have the merchandise scanned. This is unavoidable, as the shop needs to know which SKU’s it’s sold so that it can replenish the shelves correctly. When it comes to paying, contactless is quicker and more consistent than a mobile app. Even if the mobile app delivered loyalty points, there would be precious few associated with a £3 lunch.

Barclays bPay contactless bracelet in action at Tesco.
Barclay’s bPay contactless bracelet in action at Tesco (via @jayadeep_nair).

The near future of mobile app based payments is not in convenience retail at all. It’s in table-service casual dining where the technology shortens checkout times by up to 10 minutes. If you want to eat lunch tomorrow, I’d try Wahaca where FlyPay’s  implementation sets a high standard.

The food is better at Wahaca too. In all the excitement today, I paid scant attention to my choice of sandwich and can report that the egg and bacon on white is not one of Tesco’s finest.

Shopper-centric end-to-end merchandise optimisation [sic]

B2B marketers are frequently challenged to describe what their businesses do in 140 characters. They need to say what their product is, who it’s for and what value it brings. Ideally, this needs to be done avoiding jargon and without using the same words as their competitors.

I’ve been doing some work around the emerging cloud-based pricing intelligence market. There are a number of players in the market and it’s been interesting to see how many different words are used to describe what is fundamentally the same service.

Retailers use these subscription services to scour the Internet to check their competitors’ price, ranging and inventory information. Sometimes the services present the information they find in an online dashboard; sometimes they integrate with merchandising systems to prompt category managers with suggested price changes.

  • Wiser is a powerful dynamic pricing engine for retailers, that helps benchmark against competitors, automate repricing strategies, and price for profit.
  • Appeagle is a multichannel repricing platform that helps online merchants capture more sales by keeping their prices more competitive.
  • Price2Spy is a highly specialized online tool intended to help ecommerce professionals keep a close eye on their competitors’ pricing.
  • 360pi derives profitable insights from product and pricing big data to help leading omnichannel retailers, etailers, and manufacturers compete and win.
  • Profitero is the leading global provider of online insights for retailers and brands, offering the largest reach and scale of online data collection in the industry.

Let’s look at how well these companies meet the three requirements of a business description.

  • What are these companies selling exactly? Wiser has a “pricing engine”, Appeagle a “repricing platform”, Price2Spy an “online tool” but 360pi and Profitero ditch the technology and sell “insights” instead.
  • Who is it for? While all five are aiming at the same customers, they are described in different ways – “retailers”, “omni-channel retailers”, “etailers” and “online merchants.” Only Price2Spy goes a step further to say that their product is for “ecommerce professionals.”
  • What value does it bring? Only Wiser uses the profit word. The others have more functional benefits like “keeping a close eye on your competitors” or “keeping prices more competitive.”

Which one would you click on first?

The clear leader in this market is not one of these five businesses. It a US company called Revionics.

  • Revionics is the global leader in End-to-End Merchandise Optimization solutions enabling retailers to execute shopper-centric price, promotion, markdown, assortment and space allocation decisions.

There are no prizes for guessing that Revionics is also the most expensive. You can tell that because it’s the only one that uses “solution” in its terminology. Unlike some, I’m ambivalent about “solution.” In the right circumstances, it remains a good word to use. But there’s never an excuse for “end to end merchandise optimisation” or “shopper-centric.”

Zapp snaps up Asda and Sainsbury’s for mobile payment: analysis

While this news is very welcome, it’s emphatically not the big announcement we’ve been waiting for.

Retailers have been rightly keen on Zapp from the outset but their enthusiasm is only half the story. Zapp works by pinging transactions into your mobile banking app for approval. This requires a pretty sophisticated level of IT integration between Zapp, the payment service providers and the banks.

We’ve heard warm words from the banks yet we’re still waiting for any of them to commit publicly to a deadline. The banks’ development queues are full to bursting and Zapp is competing with many other priorities including V.me and Apple Pay. Zapp deserves to succeed but I’ll be happier once I’ve seen a firm launch date.

Cross-posted from Essential Retail

Did Barclaycard just knock a £47m hole in the UK merchant acquiring market?

Barclaycard is the UK’s leading credit card provider. Recently, it began moving its business from Mastercard to American Express. Because Amex isn’t accepted everywhere, customers have also been sent a Visa card.

You get 1% cashback on the Amex but only 0.5% on the Visa card. This means that customers have a strong incentive to use the Amex. I know because I’m one of them. Looking at my statements, I can see that roughly 75% of my Barclaycard spending is on the Amex.

This shift is actually pretty important for the UK’s merchant acquirers. They make good money on processing Mastercard transactions but (usually) nothing at all on Amex. The numbers actually look quite scary when you work them through. If I’ve got something wrong, please shout.


Total sales on UK credit cards                         £159.6b (UK Cards)

Barclaycard share of credit sales                    13% (C&MR Research)

Barclaycard credit sales                                       £20.7b

% of transactions moving to Amex               75%

Value of transactions moving to Amex      £15.6b

Typical credit net acquiring margin              0.3%

Lost margin to UK acquirers                             £47m

Acquiring is a high fixed cost, low marginal cost business. This means that the £47m will drop pretty much straight to the bottom line.