When iZettle and Payleven launched in the UK in 2012, they caused quite a stir. Coming so soon after Square’s apparent success in the US, pretty much all the existing payment companies were quick to launch similar products, also designed for micro-merchants. These include WorldPay Zinc, Barclays Anywhere, First Data Pogo, Elavon Mobile Merchant and PayPal’s Card Reader.
The offers are all fairly similar with mini PIN pads c. £50, a free of charge smartphone app and transactions priced at c.2.5% with no contract.
The big marketing story is normally about democratising card payments by allowing market traders, plumbers and babysitters to take money with Visa and Mastercard. There’s a strong financial story too as m-POS could enable the payments industry to service high margin but hard to reach small business customers.
However, none of these products appear to have been especially successful. No UK providers have published sales or usage figures. The market has not yet developed as expected and losses are mounting. For example, WorldPay noted £7m start-up costs for Zinc in its 2013 annual report; Payleven UK a further £2.5m.
Here are nine reasons why the market hasn’t developed and one good reason to hope for better.
- Card machines haven’t been hard to get and don’t cost a lot. Pretty much every UK business that wanted to take money on cards already has a card machine. This limits the potential market for m-POS. A retailer can have a machine for £20/month with a minimum merchant charge of a further £25/month. You need to be a very, very small business to be priced out by these fees.
- Cash is resilient. Trying to move card payments to micro-merchants means selling to sectors that take payments in cash and there’s a good reason many sole traders don’t like electronic money. Try offering a tennis coach a cheque. Just saying. Even where micro-merchants are happy to take money through the books, they have to break years of habit; their own and their customers.
- Customers don’t yet know they need this so a market needs to be created and that costs money. Research from Kalixa has shown that just 2% of micro-businesses know what m-POS is. That’s not an opportunity; it’s a marketing mountain to climb.
- Finding the right customers is really hard. m-POS gross margins are high but cash margins are low if the machines aren’t used much. Yet unit profitability is are not large enough to support direct sales to even potentially high usage micro-businesses. So, go-to-market is critically dependent on distribution partners who often have short attention spans and high listing fees.
- Being on the shelves is not enough. Putting m-POS devices in John Lewis, Apple or Wickes is a great way of getting distribution but it’s not cheap and not particularly targeted. There’s a strong risk of attracting large numbers of low-usage, loss making customers.
- Initial use cases have often been implausible. For example, m-POS doesn’t work once you’ve hired a second employee. Nor does it work for many market traders. Have you tried to type someone’s email address into your phone when wearing gloves?
- Prices are still too high. 2.75% with no contract or hidden charges may be a pretty good deal but many businesses used to trading in cash don’t see it that way.
- The form factor doesn’t work for retail. The majority of transactions are in retail outlets of one sort or another but a payment service that requires two devices – and two hands – won’t work. An all-in-one device that acts as till and payment terminal is a better approach.
- m-POS products aren’t integrated. Many larger businesses that have existing card machines would want to supplement these with m-POS devices, typically for resilience or for taking payments on the road. Yet, it’s a struggle to find a UK provider that offers m-POS with the same merchant account and price plan as its conventional card machines.
m-POS for micro-merchants will never get to scale in the UK. Despite the 2012 hype, it’s clear that it’s just not an economic business for the payment providers to invest the marketing dollars required.
Yet the launch of these propositions gives strong grounds for hope for the industry. That is because it’s demonstrated what’s possible with the new thinking.
Today’s payment industry is still stuck in a rut of lengthy approval cycles, needless bureaucracy, pointless form-filling and excessive focus on selling. The new m-POS products have been designed afresh with straight-through-processing, great user experience and simple terms and conditions. And, because they’re built for mobile, they offer fantastic platforms for launching new products and services fully integrated with payments.
It’s a shame they are wasted on micro-merchants.