If you lack familiarity with the payments space then you might describe ‘mobile pay’ as simply paying for a latte at Starbucks with your smartphone. In reality, mobile has a far greater reach in payments, from purchasing movie tickets on the Fandango mobile app to settling fantasy football fees amongst friends. Now consider the mobile point-of-sale (mPOS) transaction, which, like your Starbucks purchase, takes place at the physical POS. However, mPOS entails a vastly different payment experience – one that impacts merchants of all kinds, yet will have its most lasting effects on in-store commerce.
In contrast to consumer-led mobile pay, merchants supply the mobile device in the mPOS transaction, equipped with a ‘payment dongle’ (detachable card reader) that processes credit card swipes. These card readers have become commonplace in urban settings, allowing merchants to accept credit cards anywhere he/she does business. And while the technology encourages continued use of plastic by consumers, it is a crucial building block in the evolution of retail and the mobile wallet.
Reshaping SMB and Retail Strategy
Because of their portability, mPOS card readers have been invaluable to independent merchants such as cab drivers, contractors and freelancers whose lack of a brick-and-mortar presence formerly presented challenges in taking alternatives to cash and check. Now, rather than having to turn down cashless commuters, cab drivers can run credit cards on their smartphone, sending a digital receipt to the passenger’s e-mail address.
Oddly enough, the use of card readers has also become popular in small and mid-sized business (SMB) establishments like physicians’ offices where portability of POS terminals isn’t even necessary. Many SMB owners have chosen to forego bulky and complex POS solutions in favor of iPads that save desk space and require minimal installation and maintenance effort. The favoristism of mPOS in these settings is telling.
Even more striking is the use of mPOS at large-scale retailers, which are famous for sizable cash wraps (checkout counters) preceded by checkout lanes. Traditionally in favor of more sophisticated payment-taking hardware, retailers have been dazzled by the benefits mPOS provides from a logistics perspective. While certain retail transactions must be confined to a stationary POS terminal, the simple purchase of a t-shirt should be able to occur anywhere in the store.
Rather than conducting all checkout operations at a central cash wrap, retailers can position tablet-equipped associates across the sales floor to handle more than just POS tasks, such as pulling up product and loyalty information for shoppers. The inventory-packed and ever-busy Apple stores are a prime success story, using mPOS to free up floor space, educate consumers on new products and cycle them through outlets more efficiently.
Bringing Mobile Wallets into the Equation
With strong demand for mPOS from merchants of all sizes, the space has become highly competitive and increasingly commoditized, now crowded with late market entrants like Groupon. As such, many mPOS providers have expanded product portfolios into the mobile wallet space, where development efforts are strenuous but payoff has potential to be huge. Not even twelve months since its release, Square’s mobile wallet has received extensive buy-in from Starbucks customers.
The overcrowding of mobile payments as a whole is a catch-22 as merchants and consumers are presented with more options but must decide which solution to adopt. This does not present an issue for mPOS as card readers of all kinds are generally able to accept any type of credit card. However, mobile wallets require merchants to commit to a common payment-accepting technology (whether it be QR codes, NFC or the cloud) and for consumers to trust that their wallet will be accepted at the vast majority of merchants.
This chicken-and-egg scenario is a primary reason for the mobile wallet’s slow takeoff. No merchant or consumer wants to invest time and money in a transient solution that fails to hit the critical mass. Minimal investment is required by the two parties in mPOS, which explains its quick uptake. But one can’t ignore the enriched buying experience of a mobile wallet. The potential for financial, social and loyalty applications in a wallet provide payment intermediaries with an opportunity to differentiate their products.
The Road Ahead
If intermediaries can’t push wallet solutions on merchants, they may be forced to rely on external factors; it just so happens that the deadline for merchants to meet EMV standards in their POS terminals is approaching. Typically only replacing POS terminals once every six years on average, merchants may see the deadline as an opportune time to pony up funds for new POS technologies that are compatible with mobile wallets. Any prior experience a merchant has had with mPOS could play a role in continuing down the mobile path.
There is no doubt that mPOS has given consumers a preview to the wallet-based future through features like digital receipting and general exposure to the use of mobile at the physical POS. An increasing number of consumers are surely thinking, ‘If the store associate is using a tablet to take my payment, I should be able to use my smartphone to make one’. As margins decline in mPOS payment processing, intermediaries will likely migrate to the wallet. Until then, mPOS will remain a stopgap solution for payments that inadvertently reshapes retailers’ in-store strategies.