The Expanding World of Mobile Payments: Point-of-Sale (POS)

In our last post on mobile payments, we talked about how smartphone-based self-checkout solutions are changing the way we shop. Today we’re going to look at how mobile point-of-sale (POS) systems are disrupting the payments space.

By creating a product that turns any mobile device into a POS system, companies like Square, Intuit or LevelUp have drastically disrupted the POS market causing a plummet in payment fees.  The drop in costs to merchants is likely to continue as other large companies follow suit in building these systems. Here’s a short USA Today video which showcases the impact mobile POS is having on small businesses:

As a result of this shift new and interesting opportunities are arising. In a recent post, Techcrunch’s Alex Rampell noted that the data collected from processing transactions is more valuable that the transaction fees. This point reveals a great opportunity for companies who figure out how to effectively monetize this data. Some companies have recognized the writing on the wall even before that, such as LevelUp, who have started to charge  0% transaction fees and try to monetize their POS offering for merchants by selling performance-based customer loyalty campaigns. This is great news for small and medium merchants, and it’s a glaring call to action for traditional POS solution providers who don’t adapt.

Several weeks ago Square and Starbucks announced that they’ve teamed up to bring mobile POS to thousands of coffee shops across the US. Aaron Press notes in his commentary on the Squarebucks deal that Starbucks has said it will run Square on existing hardware, which signifies “a significant shift in strategy, putting Square in direct competition with a range of companies that offer specialized POS and retail management software.” Press also notes that this shift could provide flexibility to Square should they choose to opt out of the payments piece and just focus on POS software, adding flexibility for merchants who prefer “a traditional merchant acquiring relationship.” With the space changing so rapidly, this flexibility could be very valuable if business models are forced to shift. This recent WSJ interview with Starbucks CEO Howard Schultz and Square founder and CEO Jack Dorsey provides an inside look at the Squarebucks deal:

With Intuit, Paypal and Verifone already having dongles on the market, and rumors surfacing that other companies like Groupon and Amazon are working on similar devices, we think it’s safe to say that we’re witnessing a point-of-sale revolution. With the trend of falling transaction costs and more powerful POS software offered to small and medium business merchants continuing, we suspect that the successful POS companies will be those that figure out how to shift towards a data-driven business model.

In the next post in our mobile payments series, we’ll take a look at the role digital wallets have to play in the future of payments. Stay tuned!