The mPOS hype is over. Micro-merchants proved an elusive market so the industry is taking its technology upmarket in partnership with the burgeoning tablet EPOS sector. That’s my main conclusion from two days in Frankfurt participating in mPOS World 2015. The new approach has already been named SmartPOS.
In 2012, the payment world went wild for mPOS. The success of Square in the US, sparked an investment frenzy in Europe. Analysts forecast an additional 5m merchants would begin taking money on cards for the first time thanks to these cheap and flexible devices. One hardware manufacturer reported receiving 30 enquiries/day as interest peaked.
Although the reality didn’t meet the hype, the proposition has made steady, if unspectacular, progress.
Miura, alone, claims to have shipped more than 1m mPOS devices worldwide although First Annopolis estimate that just 350K, from all manufacturers, are active in Europe. Only a handful of service providers have more than 5K units in the European field of which it is estimated that 200K are supplied by iZettle with most of the remainder by Payleven and SumUp.
The banks and traditional merchant acquirers have made very little impact although many have launched products. All Spanish banks have an mPOS proposition but have sold a total of 500 units between them. There are 82 mPOS services available in Italy but with collectively negligible market impact. See here for my presentation to the conference which explains some of the background to this disappointing performance.
Yet, mPOS is growing, albeit at a measured pace, supported by several major trends:
- The steady march of regulation is diminishing the attractiveness of cash. For example, certain French and German towns are now forcing taxi drivers to accept plastic. Italy requires electronic payments to be provided as an option for all transactions over €30.
- The cost of taking money with cards is falling as reductions in Interchange pass through the system. Longer term, charges will be closer to 1% than 3%.
- Tablet based electronic point of sale systems (EPOS) are beginning to take significant share and these often include mPOS as standard
- High street retailers are beginning to use mPOS as part of a technology tool kit that helps to improve customer service by getting more staff talking to customers and taking orders on the shop floor
Responding to these factors, and with a consensus that servicing the very smallest merchants is not economically viable, the industry segmentation model has evolved to focus on larger customers which normally have both staff and premises. Here’s how iZettle (and its competitors) are now viewing the world:
From single outlets upwards, many retailers/restaurants are seeking to replace traditional fixed payment terminals and cash registers with tablets linked to mPOS devices – a combination we’re now calling SmartPOS. These merchants require:
- a rich software platform (with APIs allowing people with no knowledge of payments to integrate payments into their business applications),
- docking capabilities,
- easy connections to a range of peripherals
- personalisations such as bright colours with branded designs to match a particular retailers’ environment
Tablet based EPOS is cheaper and more flexible than a Windows-based till system and is now proven to be reliable in the field. Innovation hasn’t been slow in arriving and ther are now over 100 start-ups commercialising tablet based EPOS for retail and hospitality. Of course the established vendors haven’t stood still and many of them are now offering their software on tablets of various kinds.
The excitement for parts of the payment industry is that integrating an mPOS device to Android/iOS app on a tablet, to create a SmartPOS, is much easier than integrating a traditional payment terminal with Windows based EPOS software. This allows the tablet EPOS vendors to make integrated payments available to large volumes of SMEs who, hitherto, would have bought a till system and payment service separately.
The new SmartPOS bundle looks like this:
The EPOS software is the element of the bundle that delivers the most value and its selection drives the merchant’s choice of which SmartPOS bundle to purchase and when to buy it. Merchants need a till with a payment terminal attached; not the other way around, and this has serious implications for the payment industry:
- mPOS-focused PSP’s need to partner with the tablet EPOS vendors to ensure their service is embedded as standard in as many SmartPOS bundles as possible
- The EPOS vendor owns the customer relationship. PSP’s will become trade brands and shouldn’t be investing in direct-to-merchant above the line activity unless they really believe in the nano-merchant opportunity
- EPOS vendors need to focus on their user experience. To succeed, PSP’s will need to innovate to keep pace with evolving merchant expectations – form factor, periperhals etc – but also ensure that payments does not intrude into the standard processes of retailing. A demonstration by iZettle that showed the screen-flow on an iPad EPOS provided by Inventorum that switched back and forth between the two applications was, in my view, not meeting these standards.
- Banks/acquirers with large estates of stand-alone payment terminals are vulnerable. As the market shifts to tablets/mPOS devices, merchants will direct their processing to providers offering the best deals via the PSPs, possibly sold as part of the SmartPOS bundle. Banks/acquirers will lose their direct relationships with merchants unless they can offer something beyond a mechant account and a card machine. They need to be in the SmartPOS bundle or to offer their own one. Two good examples: First Data commercialises its own SmartPOS with the Clover proposition; Concardis is inside Order Bird’s SmartPOS bundle with a jointly branded mPOS device linked to a merchant account.
A nano-merchant will ask “will your payment service work with my phone?”
A larger merchant will ask “will your payment service work with my tablet EPOS?”
Banks, acquirers and PSP’s need to decide which market they want to be in and which question they want to anwer.