Current and future challenges of Mobile POS solutions

On March 20-22nd 2013, Innopay organized the yearly EPCA payment summit, this year held in Brussels at the stunning Egmont Palace, in the heart of the city. On the first day of the event we organized the Mobile Acquiring expert session, a workshop about the current and future challenges that Mobile POS players are facing in this interesting and rapidly evolving space.

The aim of this session was to gather relevant stakeholders in this specific area of payments and share thoughts and opinions with the audience in an intimate and informal environment. 

The speakers contributing to this workshop were: Caroline Drolet (Visa Europe), Petter Made (SumUp), John van der Heyden (BNP Paribas Fortis). Unfortunately Konstantin Wolff from PayLeven couldn't participate due to last minute changes, but we would still like to thank him.

During this session, we devoted the first part to presentations from the speakers about their view on mobile POS solutions. We had the privilege to have representatives of three major stakeholders types in this area: the card schemes, the banks, and the device/software manufacturers.

After the three speakers took the floor to highlight what they think the most important challenges are in this space for every single one of them, the session took a more interactive approach, with the audience asking their questions in an open and informative fashion.

I would like in this post, to summarize the key takeaways for the benefit of our readers that couldn't attend the workshop. 

1. Card schemes welcome Mobile POS solutions as they enable more transactions to become cashless and for more cards to be used. With this in mind, security and trust for the brand must be guaranteed  at all times. As for 'traditional' terminals, the favorite technology for allowing credit card transactions is by using the Chip, but in order to 'honor all cards', even the ones that only have the magnetic stripe, Mobile POS solutions have to enable transactions for those ones. 

Visa Europe in this case requires the manufacturers to allow m-commerce transactions for magnetic stripe card holders. This way the security of having an electronic routed transaction is still guaranteed.

Visa also highlighted the importance of the fact that any mobile acceptance solution should cover both chip and mag stripe cards in a bid to preserve consumer trust by keeping the card acceptance solution familiar for the customer.

As a key takeaway, Caroline Drolet also reminded the audience that around 25% of the cards circulating in Europe are still 'mag stripe' only. 

2. Enabling card transactions on users' devices is a great way to enable more transactions to be carried with cards. Compared to 'traditional' terminals, these mobile devices are cheaper (usually already owned by the merchant/individual) therefore the fees applied by solution providers can be lowered. Enabling secure transactions through a device which can be used for multiple purposes, that could potentially have many apps installed, is anything but a given. Card schemes require transaction's data to be encrypted before it gets from the dongle to the mobile device itself. This is important as confidential information could be captured by other apps and used for fraudulent purposes. Card schemes are however not in the certification business, and they require manufacturers to apply for relevant certifications issued by the dedicated bodies (PCI Council in this case).  “Investments should be going into developing mPOS solutions that meet security (PCI) requirements and are cost-effective” said Caroline Drolet of Visa.

3. The technology used by device manufacturers is not important as long as security is guaranteed. For this reason, devices that make use of audio jack technology, Bluetooth or NFC are treated equal. The 'honor all cards' idea is still valid whatever the technology used though. Visa Europe endorses any solution that proves to be convenient for the user and for the merchant, especially as some solutions still require the merchant to hand their (expensive) mobile device in the hands of clients, whom could potentially walk away with them. Hardware, Visa says, is just 20% of a manufacturer’s problem – the rest has to do with providing the correct value-added services that answer merchants’ needs. 

4. Banks like BNP Paribas Fortis endorse electronic payments instead of cash transactions as they allow money to flow directly from one bank account to another, therefore increasing traceability and information about spending behavior. Mobile POS solutions thus help expand card use and card acceptance among existing bank customers. By having more information about the money flow, banks can help merchants reconcile their statements, and give more detailed information back to their account holders regarding their expenditure. For consumers, having this level of detail, together with developments in mobile banking user experiences is key. BNP Paribas estimates that there are currently twice as many people willing to pay by card in Europe than what currently happens. “Banks want a payment terminal that is chip & PIN and offers consumers the confidence to employ cards in familiar environments” said John van der Heyden of BNP Paribas.

5. Even for a bank that doesn't offer acquiring services to merchants, Mobile POS solutions are important to remain the #1 trusted payment party for merchants. It is also important as small merchants have usually high acquisition costs that can be more easily returned if the device doesn't have to be subsidized by the bank. In order to acquire smaller merchants, that usually rely mostly on cash and therefore have to visit the local branch often to deposit their money, banks also have the advantage of already being one of the parties mostly visited by merchants in regards to their payment needs.

6. Startups look at the Mobile POS area as an attractive one due to the slowness of 'traditional' players. However, startups like SumUp are more focused on the overall innovation that could be brought by new solutions, rather than competing head to head against terminal manufacturers. The startup's focus is currently on offering an easy and complete solution to the merchants, a solution which includes an easy to understand POS terminal interface that includes not only payment solutions but also inventory services, data analytics and future upgrade options. “Payments have grown to become the primary point of interaction between merchants and consumers. Mobile card accepting devices put processing power in the hands of the consumers and merchants, which is a once-in-a-generation opportunity” said Petter Made of SumUp.

7. Startups are also focused on the client's side, developing virtual wallets for users to store their credit card information and to enable frictionless transactions (that therefore won't need the physical card to be completed anymore). This also moves in the direction of m-commerce, as the payment would be routed through a card-not-present transaction. For SumUp delivering a consumer app is also key to enabling all the value added services that merchants could benefit of in order to increase their business. SumUp's COO Petter Made admitted that the phrase 'closing the loop' probably describes all these services, even though he wasn't a big fan of it.

8. Ticket sales for Mobile POS vendors are on average quite high. SumUp cited their average transaction to be around 100 Euros, which they are experiencing is growing over time, as merchants get used to these solutions and use them ever more, for more transactions and for different sales. the verticals where SumUp is currently experiencing rapid growth (plumbers, taxi drivers, locksmiths and various 'other retail' merchants that are mostly on the move) play an important role in this average transaction fee. The types of services that plumbers or locksmiths perform are usually high in value and therefore they have been struggling with the payments in the past: many transactions were lost as the client didn't have cash on hand, or invoices are hard to get paid once the service has been completed.

9. The most successful type of merchant for a startup is currently the 'hipster' popup store. This shouldn't come at a surprise and mostly confirms the idea that mobile pos solutions appeal motley the small and micro merchants that only occasionally do (card) business.

10. Banks, card schemes and startups all agree that in the near future there will be various apps for payments, with customers getting various offers from different app developers and different merchants. What will be important is that all the solutions will prove to be secure and safe, in order to safeguard the reputation that card schemes have built over the years and users will still use and recognize them as safe and reliable.