The days of the cash register and the stand-alone payment terminal may be counted. The arrival of cloud-based electronic POS (ePOS) applications has brought enterprise-level business intelligence and integrated payments within reach of small and medium-sized enterprises (SMEs). ePOS provides tablet-based applications tailored to specific merchant verticals, with payments pre-integrated as part of the solution. That means that the choice of ePOS will sit at the top of the merchant’s priority list, while the acquirer, as the provider of the payment solution, will just be an option that the merchant will select mainly based on cost.
The evolution of POS
The evolution of POS for SMEs and large enterprises (LEs) is presented in Figure 1.
Source: Handpoint, with minor changes by Aite Group
Many SMEs still use the stand-alone payment terminal, providing only the ability to receive card payments. Enterprise merchants can integrate payment software through APIs into their business applications, but such integration used to be out of reach for SMEs.
That changed with the arrival of mobile POS (mPOS). mPOS provides a card reader connected to a basic ePOS app running on a tablet or smartphone. Merchant onboarding is simple and fast, and the service is delivered on a ‘pay-as-you-go’ model. mPOS was initially targeted at micromerchants, but it has been quickly adopted by larger SMEs for its convenience, competitive pricing, and value to the business. Large enterprises are also integrating mPOS into their business for new store concepts (think of the Apple Store, for instance) or applications that require mobile solutions, such as deliveries.
The next stage in this evolution is the availability of dedicated tablet-based ePOS software for SMEs, provided in the cloud on a subscription model. This development empowers SMEs with access to business intelligence similar to that of large enterprises, with payments integrated as just one of the many functions that the business needs. mPOS providers, such as Square and iZettle, are now offering more advanced ePOS apps, but they also provide integrations with popular ePOS systems.
Is there a future for the hardware terminal?
In 2018, the PCI Security Standards Council published the specifications for PIN entry on commercial off-the-shelf devices (PIN on COTS).
This standard enables EMV card transactions with PIN entry on the merchant’s consumer device, using a secure PIN entry application in combination with a secure card reader. Before the development of the PIN on COTS standard, only dedicated devices approved by PCI allowed PIN entry ‘on glass’. Such Smart POS solutions consist of a purpose-built, tablet-style device with an integrated card reader. Providers offer an app store or marketplace to merchants, allowing them to compose their own POS environment and business applications. Examples of Smart POS providers are First Data Clover, Poynt, and Verifone Carbon. However, smaller Smart POS solutions come to market as well, integrating a payment terminal, a cash register, and a printer into a portable device. Examples are EVO Payments’ PosPay, and Yello.
The question is if, or when, the final step can be made and the hardware terminal will disappear. Payment acceptance will then become as easy as downloading an app, with all functionality and security programmed within the software. This could be called ‘Soft POS’ as the next step in the evolution of the payment terminal (Figure 2).
Source: Aite Group
The first steps to make that possible have already been made. PCI is working on a new standard for contactless payments on COTS, which is due for publication by the end of 2019 and has been shared with stakeholders for comments in April 2019. This standard will allow the acceptance of contactless card payments on the merchant’s device, using NFC, without the need for a separate card reader. The solution is already piloted by a few acquirers, such as WorldPay in the UK and Elavon in Poland.
The jury is still out on whether the hardware terminal can be replaced altogether. However, fact is that the value chain and distribution model of traditional acquirers and independent sales organisations is already challenged by fintech providers of mPOS solutions, particularly for the SME segment. Acquirers must focus on the business needs of their customers, offering solutions that centre around business intelligence, not payments alone.
About Ron van Wezel
Ron van Wezel is a senior analyst for Aite Group’s Retail Banking & Payments practice. His research covers market and regulatory trends in the payments space, with a focus on Europe.
About Aite Group
Aite Group is an independent research and advisory firm focused on business, technology, an dregulatory issues and their impact on the financial services industry. Headquartered in Boston, Aite Group works with itsclients as a partner, advisor, and catalyst, challenging their basic assumptions and ensuring they remain at the forefront of industry trends.
Every day we send out a free e-mail with the most important headlines of the last 24 hours.
Subscribe now