A huge investment has been made around the world over several decades in card payment infrastructure and Point-Of-Sale (POS) terminals.  However, MasterCard research indicates that 85% of all retail transactions are still conducted in cash.  This post looks at how innovative digital cash solutions could give new life to and increase the ROI of existing POS investments.

A brief look at the history and market size of POS terminals

Introduced first in 1979, the POS terminal has become a mainstay for processing consumer debit and credit card transactions around the world.  Some research estimates there are now 10 million POS terminals within the U.S. today and tens of millions worldwide. 

The Nilsen Report provides industry data that a total of 20.2 million new POS systems shipped worldwide in 2012.  The most POS shipments went to Asia (41% of total), followed by Europe (22%) and Latin America (18%).

Over the years, POS terminals have seen various competitors come and go.  More recently, Square, iZettle and others innovated to create new solutions to enable smart phones and/or tablets to accept card payments.  In addition, newer POS technologies (i.e., NFC) or various payment-related regulatory issues (e.g., EMV adoption) have driven POS terminal usage changes.  Even with these new alternatives and regulations, research shows that POS terminals have an average life of 8 years and, overall, have been remarkably resilient.

The Business News Daily article, entitled “Why POS Systems are Still the Right Choice for Many Businesses” includes the quote:

“For many businesses, experts say traditional POS systems are still the best choice because they offer consumers a sense of security and familiarity.” 

The problem:  85% of retail payments are still made in cash

Merchants who have invested in these millions of new POS systems—to accommodate customer payments with cards—want as high an ROI as possible from their investments.  However, they also would ideally like a new form of payment that would minimize interchange fees paid to card payment networks… in order to have more of their hard-earned revenues flow to their bottom line.

In addition, merchant acquirers who provide POS terminals and payments services to merchants would like to see greater consumer usage of these POS terminals in order to maximize their revenues.  Finally, both want consumers to feel comfortable using the POS terminals and be confident about their security.

Since cash is used for payment in 85% of consumer retail transactions, this large POS terminal investment from merchants is being significantly underutilized.  Stated differently, if consumers used POS terminals more (vs. only 15% of the time), then merchants and acquirers would have higher ROI on their POS investments.

The opportunity:  New digital cash payment type to increase ROI of POS terminals

Innovative digital cash solutions—which leverage existing POS terminals and offer lower interchange fees for merchants—would increase this ROI for merchants.  With effective educational campaigns, consumers would feel comfortable using their digital cash—domiciled in their digital cash bank accounts—to pay for items in-store (or online) by simply and securely entering their mobile phone number and PIN directly into their local merchant’s existing POS terminal.  No new POS terminal investments (to accommodate more modern mobile payment solutions, like Apple Pay as an example) would be needed by merchants.

New digital cash solutions would enable merchants to significantly increase the ROI of their POS investments and, more importantly, to enable more money to flow to their bottom line.  Let us know what you think.