Beyond Square: The Evolving Mobile POS

Driven by the runaway success of Square in the US, the mobile point-of-sale (mPOS) has recently experienced a surge in popularity, with a throng of new players looking to carve their role in the emerging industry. For small businesses that previously operated on a cash-only basis, and larger retailers looking to enhance the in-store customer experience, the mPOS has increasingly become an integral piece of the retail ecosystem. As the mPOS space becomes more crowded, however, how can key stakeholders – from retailers to technology providers – ensure success?

Why are retailers turning to mPOS?

Integrating mPOS platforms into existing payment systems is a logical step for many retailers. For small and medium-sized businesses that previously operated on a “cash-only” basis due to high card-processing fees, mPOS platforms open an affordable channel to accept alternate forms of payment, from cards to mobile. For large retailers, mPOS systems offer value-added features beyond tradition point-of-sale hardware, such as mobile-based inventory management and loyalty programs.

Given the widespread availability and affordability of mobile phones and tablets, mPOS platforms require less up-front investment and are far more affordable to repair or replace than traditional POS systems. According to Calvin Hollinger, CIO of Urban Outfitters, which has phased out cash registers in favor of iPads, the tablets cost about a fifth of the price of cash registers. Using mPOS platforms, sales associates will also be able to process sales from anywhere in the store – enhancing the consumer experience.[1]

While other emergent payment technologies, such as NFC mobile payments, have experienced a “chicken-and-egg” challenge in spurring adoption by both consumers and retailers, mPOS platforms avoid this issue by seamlessly integrating into existing retail ecosystems. Rather than requiring the purchase of specific NFC-enabled phones, for example, many mPOS readers enable use of the plastic cards that consumers already carry and use.[2, page 14]

As mPOS Grows, So Does Confusion

Drawn by a promising value proposition and increasing retailer demand, the number of players in the mPOS space has grown rapidly. Beginning in October 2012, PYMNTS began tracking new entrants to the space in the form of their mPOS Tracker. Since that time, the number of players surveyed has doubled. Further, many players have developed new levels of service that enable them to reach new types of merchants and gain more consumer ‘stickiness’.[3, page 1] The most recent version of the tracker, published in February, includes 49 companies, from mPOS technology providers to merchant-facing service providers.[4]

But as more players enter the mPOS space, confusion grows and a few challenges come to light. Merchants, for instance, must sift through the influx of mPOS players to identify which platform best suits their specific business objectives, how to use it, which features are important and how to integrate the platform within their existing payment infrastructure.[5] Consumers, who may face a different mPOS at each of their favorite retailers, must decide which apps to download (if any), and if they should trust the platform with their private financial information.

From Licensing to Data Protection, Regulatory Challenges Facing mPOS

As in any emergent industry, mPOS providers have come up against a number of regulatory barriers. In January, a cease-and-desist order was filed against Square by the State of Illinois, claiming that the mPOS provider must obtain a license for “transmitting money,” which it has yet failed to do.[6] The suit illustrates that there is a ways to go in creating an enabling regulatory environment for mPOS platforms, and that the regulatory waters are still a bit murky.

Further, the shift to mobile-based POS systems has opened up an array of new streams of consumer data, from location-based information to shopping history. While retailers can use this robust data to analyze consumer behavior and develop more targeted marketing schemes, it can also threaten consumer privacy.  Thus, the rise of mPOS systems must be accompanied by regulations to ensure protection of consumer information.

Cardholder data, specifically, must be well protected by mPOS platforms.  In 2012, 96 percent of all data targeted by fraudsters and hackers was cardholder data, and credit card fraud cost an estimated US $5.55 billion globally.[7] In response to this threat, the PCI Security Standards Council recently published a set of guidelines for developers, merchants and payment solutions providers to ensure consumers are protected in the age of mPOS.[8] However, writing the guidelines is only the first step. Now, players across the value chain must work in coordination to ensure the guidelines are actively followed.

The rise of mPOS must also take into consideration industry standards in card authentication. In Europe, where payment platforms must abide by chip-and-pin requirements, Visa blocked the use of mPOS provider iZettle across three European markets, claiming that the platform did not meet their “standard acceptance device requirements.” The Visa clamp-down affected about 15,000 iZettle merchants operating across Denmark, Finland and Norway, stalling the start-up’s growth trajectory.[](http://techcrunch.com/2012/07/30/visa-europe-not-squares-investor-visa-inc-puts-brakes-on-izettle-as-mpowa-expands-to-android/) [9]

The Future of mPOS in Retail

To become successful, mPOS platforms will need to be capable of accepting a range of different credit and debit cards, as well as other emerging payment methods.  Therefore, the platforms must ensure compliance with security standards set by governments and card companies. In Europe, this means all point-of-sale devices must accept EMV smartcards with an embedded chip, and enable customers to enter their unique PIN code. Facing restrictions from Visa, iZettle accomplished this by launching a new solution that offers a wireless chip-and-PIN reader.[10] Other mPOS providers such as mPOWAPayleven and Intuit Pay have similarly developed EMV compliant chip-and-PIN solutions for use in Europe.

While the US has yet to require EMV chip authentication, and has historically relied solely on less secure, magnetic stripe technology, the country is gradually shifting towards the global EMV standard. Spearheaded by card companies, the migration to EMV in the US aims to reduce the fraud associated with existing security technology, prevent inconvenience for Americans travelling abroad, and speed up adoption of mobile and contactless payments.[11] This transition could impact emergent mPOS providers in the US, who will need to ensure they integrate the new security standards into their platforms or risk becoming obsolete.

Beyond evolution in security standards, mPOS systems are likely to change in form as well. While dongle-based offerings are by and far the most popular mPOS technology – made famous by Square and Intuit, among others – new technologies are also emerging. These include app-enabled “scan the card” schemes, and offerings that make traditional POS systems more “mobile.”[12] As competition rises, stakeholders have realized that the mPOS business is not only about the technology itself. Providers will need to offer valued-added features that boost merchant acquisition and consumer usage. They may also attempt to enter into strategic partnerships with large retailers or merchant aggregators (such as Square with Starbucks and Angie’s List).

As new players continue to enter the space, the future of mPOS is very much in flux. While some innovations will flourish, others may fizzle if they are unable to gain adoption on a sizable scale. Strategic partnerships, and differentiation through value-added services, will be essential to preventing market fragmentation, and the resulting consumer/merchant confusion. It is definitely a space to watch, as companies continue to push the boundaries and develop more affordable, innovative solutions.

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