By Alain Fernando-Santana, CAO, Spire Payments.
mPOS seemed like a straightforward business model. High street stores and other smaller retailers were able to take card payments through a terminal. But what about the smaller businesses that didn’t operate out of fixed premises or for whom a fixed terminal just isn’t practical?
Taking card payments was only possible for those who were either making large transactions or a large number of transactions. This left a lot of potential businesses out. A typical mobile hairdresser, for example, or a merchandise stall at a music gig or plumber in a white van, all still relied on cash for the majority of transactions.
A massive niche
This market of micromerchants is potentially huge. It was originally intended to be a ‘long tail’ proposition with the idea being that sum of all terminals required by micromerchants will equal or exceed those currently deployed with tier 1 and tier 2 merchants. Although, these micromerchants would rarely use more than one terminal, the sheer number of them made it a niche worth pursuing. Moreover, the new generation mPOS terminals were – by definition – mobile, low cost and flexible, and would reduce micromerchants reliance on cash and mean they wouldn’t have to turn away people who only wanted to pay by card. Other benefits include loyalty, analytics and reporting that was usually only open to much larger merchants.
In 2012, analysts were confident that six million mPOS units would be installed by 2020.
Today, revised forecasts put the market at around one million by 2020, Why?
A very very long tail
The mPOS market did show initial promise but it just hasn’t grown at the rate expected. The long tail idea, it turns out, just doesn’t work with micromerchants and mPOS. If you see micromerchants as a ‘slice of the pie’ that remains unclaimed, and target them with a single solution, it simply won’t work because they are difficult to reach and the contact will be primarily physical rather than digital..
Indeed, Micro-merchants are incredibly diverse. As well as the hairdresser, plumber and band examples above, there are micromerchants in agriculture, professional services, arts and crafts and every other vertical you can think of. Along with the massive diversity of services, these micromerchants also have a massive diversity of needs. So a band selling merchandise may need a breakdown of what payments belong to them and what the support band has sold. A plumber may want analytics to make sure he or she is billing correctly for both parts and labour. Pop-up shops may find inventory management useful. And so on – the promise of mPOS is in more than just accepting payments. To be compelling, an mPOS solution needs to create a digital experience that helps a micromerchant solve their business needs. Unfortunately, the technology today does not allow for a turn-key, feature-rich and purely digital experience, so the micromerchant is content to live with the limitations of only accepting cash and cheques.
There is also the issue that acquiring these micro-merchants is extremely difficult. Target a high street retailer and a POS provider can put their devices in dozens, possibly hundreds of outlets, all through a handful of decision makers. But each micromerchant will likely buy just one device and each micromerchant is his own decision-maker meaning thousands of personal interactions are needed to sell thousands of devices versus a handful of interactions to sell tens of thousands of devices. Finally, there is the whole issue of education. Most small businesses and, even more so, micromerchants, are not tech savvy and don’t really know what mPOS is all about, and when they find out, there are very practical questions and concerns around security and usability that make it a hard sell. Fundamentally educating the public that putting your bank card into a device connected to a phone you don’t know if you can trust for a merchant you may have just met is a difficult sell.
A vicious circle
The issue of mPOS and micromerchants is best summed up by the UK market. The UK has the highest concentration of mPOS service provision, but only 2% of micromerchants have adopted the use of mPOS. 74% of UK businesses have no employees and are sole traders – that’s a huge untapped market of businesses who have not adopted mPOS (MobileSquared, 2014).
The problem is circular: mPOS service providers are only providing card acceptance, and are failing to provide wider value-added services that would both increase top-line revenues and generate greater micromerchant interest. Providers are also struggling to acquire enough customers and build enough scale to give the adoption of mPOS by micromerchants some momentum. Service Providers need to offer value-added services to attract these customers and benefit from economies of scale, but find themselves forced to look to cost-reducing measures as the market fails to take off.
Victims of the yet-to-be-determined mPOS business model who had raised significant private equity are starting to make headline. One very public example was Powa Technologies Group PLC who went into administration in February 2016 after raising almost two hundred million of dollars. VeriFone dropped its highly publicized mPOS solution Sail within 12 months of it being announced.
The net result of the lack of a clear business model, is that the mPOS environment of today is still predominantly occupied by potentially flash in the pan start-ups who are burning through their funding while some of the more established payment players like Spire Payments and Ingenico have capitalized on their payment expertise to offer well-thought out solutions but with diametrically opposed approaches – Ingenico requires customers to buys its full mPOS solution end-to-end while Spire Payments offers the merchant the flexibility inherent in a modular solution from which different elements can be selected.
In spite of this very fluid context there is light at the end of the tunnel and a potential to break this cycle.
A shining light
Increasingly mPOS Service Providers are able to offer out-of-the-box value added services – simple to set up and easy to use. Micromerchants, without the IT support departments that bigger businesses can rely on, need something that is consumer-grade when it comes to user experience – they don’t have time to be trained on new technology, it has to ‘just work’. At the same time hardware providers are making it much easier and cost effective to expand across multiple markets and drive scale despite complexity and regulatory barriers.
Plus, there is the increased pressure on all merchants to offer card payments. In the UK last year consumers used £18.3bn of cash for their transactions, down from £21.4bn in 2009 – despite an increase in overall spending. Given the choice, most people will pay by card. Those who offer goods and services but only accept cash will increasingly be seen as archaic.
There is still potential for six million mPOS units to be in use – perhaps by 2020 or perhaps earlier if the mPOS solution is easy to use and can be bundled with value added services that meet the specific needs of micromerchants, if the mPOS devices have the form factor and flair that we are now accustomed to having in an iPhone world but, most importantly, if smart marketers can identify a digital technique to reach out to micromerchants and sign them up to the service “en masse”.. The micromerchants’ demand for better payment methods, a better understanding of their customer spending patterns, and the availability of high-value services will all contribute to the creation of a successful mPOS business model. Those participants in the mPOS eco-system that have the required payments skills and expertise to make a difference will no doubt reap the benefits of a working mPOS business model but those that are still discovering the technical, regulatory and cultural complexities of the payment landscape may find that, for them, the mPOS business model remains broken.