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The power of mPOS

The power of mPOS

The rapid growth of the mPOS sector worldwide is making a profound impact on the wider industry, with banks, vendors and non-bank players all fighting for a piece of the action – by Victoria Conroy, Editor, Payments Cards and Mobile.

Although mPOS only emerged as a distinct category of payments around three years ago, the global mPOS industry has experienced exponential growth, particularly from 2011 onwards. A May 2013 report from Timetric found that globally, the number of mPOS terminals grew from 4.5 million in 2011 to 9.5 million by 2012, representing a compound annual growth rate of 111%.

Over the forecast period of 2011 to 2017, mPOS terminal adoption is expected to increase from 4.5 million to a staggering 38 million by 2017, with a forecast CAGR of 42.7%, largely driven by growth in the retail sector, increased online trade and more smartphone and card users. The report also forecasts that by 2017, the adoption of mPOS terminals over standard POS terminals will be 46%, as opposed to the 17% that was seen in 2012.

A world map showing growth rate of mPOS

The global mPOS market has grown exponentially since 2011

Meanwhile, mPOS is also impacting the wider POS market, according to Javelin Strategy & Research, which states that the growing popularity of the digital realm has altered the nature of the POS, as brick-and-mortar retailers have had to embrace elements of mobile and online channels in order to remain competitive.

Although mobile POS proximity payments made up just 0.01% of total retail POS volume in 2012, mobile devices have altered the in-store shopping experience, acting as both a payment option and a channel for purchasing.

Over the next six years, an industry-wide push for mobile technology is expected to help propel mobile payments to higher growth and is set to allow mobile POS proximity payments to reach $5.4 billion by 2018.

The most recent map of mPOS providers from Empiria Group, organiser of the mPOS World event in June 2013, has found 210 companies providing different types of mPOS services and solutions around the world.

The interactive global map of mPOS provider monitors the increasing complexity of the mPOS ecosystem, outlining the fact that traditional payment providers are currently missing out on the mPOS opportunity. Only 33% of reviewed mPOS solutions are being offered by traditional acquirers, payment service providers, independent sales organisations and processors.

Merchants lagging behind consumers

But despite the growth in mPOS devices, in some markets it appears that merchants are

A bar graph showing mPOS proximity payment value

mPOS proximity payment value

less enthusiastic than consumers when it comes to adoption. A September 2013 report by consultancy I Love Velvet has found that US consumers are more willing to make the switch – 51% of US consumers surveyed stated that they believe traditional cash registers are outdated, while 35% of respondents said that they would shop at a store more often if it offered an mPOS solution.

According to the report, 26% of consumers feel most comfortable using mPOS in retail, 14% would use it in the food/beverage industry while 10% would use it at airlines/car rental companies.

However, although more than half of respondents thought that cash registers were outdated, many of them were a little hesitant when it came to mPOS. One in five consumers had allowed a retailer to check them out with an mPOS system, and one in ten say they would be more likely to if they had more information about them.

Some 57% of respondents said security was their primary concern with mPOS. while 88% had doubts about merchants’ ability to protect their personal payment information.

“We find that most Americans view traditional cash registers as outdated because more and more retailers that are known for innovations are moving away from cash registers and going more towards mPOS,” said Pascale Juan, chief operating officer of I Love Velvet.

“We do think traditional cash registers are facing extinction as more and more of the larger retailers begin to implement mPOS and are replacing traditional cash registers. Smaller retailers will start to adopt the same strategy, and you will start to find less and less traditional registers in retail.”

These findings are backed by another survey from IHL Group, which stated that 28% of North American merchants plan to adopt mPOS in some form by the end of 2013. Overall, the mPOS market will surpass $2 billion in hardware and software sales in North America in 2013, while globally, that figure rises to $5.7 billion. According to IHL Group, mPOS is the fastest moving trend in retail since the internet was added to stores.

mPOS pricing moving quickly

The fast-moving pace of the mPOS market is leaving traditional payment industry incumbents struggling to catch up – but even amongst specialist mPOS providers like iZettle, Square and so on, they are also having to adapt quickly to market competition.

Analysis conducted in May 2013 by Cardswitcher, a European payment processing aggregator, found that the vast majority of mPOS solutions in the UK marketplace comprised pay-as-you-go models with no monthly fixed fees or contracts, although many require the purchase of a mobile terminal or dongle upfront.

For merchants with low volumes but with high annual card turnover, they can be significantly more expensive than a traditional terminal contract. Other providers operate a tiered pricing structure, with the option to pay a monthly fee and no transaction fee up to a set amount of transactions per month, with standard transaction fees applying thereafter.

Cardswitcher found that as of May 2013, transaction rates fell into a 2.65% – 2.95% range and upfront one-off costs between £49.99 and £124.  Many provided card readers for free.

However, by September 2013, a price war had definitely begun in earnest. Most players have maintained the status quo when it comes to transaction rates while others have altered the upfront cost of their device.

Adyen’s mPOS proposition Shuttle was highlighted as having a unique pence-per-transaction pricing model for debit transactions which none of the other providers did. To put this in context, a £50 debit transaction with one of the other devices at 2.75% would cost £1.38, whereas the Shuttle is 1/10th of this at £0.14. However, the Adyen Shuttle devices is more expensive in terms of upfront costs at £99.

Meanwhile, iZettle has introduced tiered pricing which offers a reduction on the standard 2.75% for card turnover above £2,100 per month, reducing to 1.5% if the merchant’s card turnover is above £12,835 per month. SumUp have also joined in with a rate reduction to 1.95% for all cards.  However, SumUp’s mPOS proposition is not a chip and PIN solution but a card reader, making it less attractive to UK merchants.

But there is no doubt that Europe remains an attractive market for mPOS, even though the likes of Square and PayPal have yet to enter the UK market. Because the market is at such an early stage, it’s no surprise that mPOS is not yet profitable, particularly in the UK.

But as has already been seen, pricing is being challenged as more entrants come into the market place, and some players are being forced to alter their approaches, such as the Judo Payments proposition from PaymentSense being withdrawn from the UK market and being retargeted at developers, and mPowa, which decided to revitalise its initial card reader proposition into a chip and PIN proposition in order to gain better traction in the UK.

According to Neil Brennan, an analyst at GX which recently conducted a study into the mPOS area, the market opportunities for mPOS in Europe will be significant going forward, but providers need to focus on building trust with consumers.

“We believe that growth may move more slowly than hoped by many unless certain factors are addressed, particularly for those SMEs that are not using mPOS devices currently. One of the key findings from our study was that security was an overriding concern for non-users. 90% of potential users are considering security issues when making decisions about whether or not to adopt mPOS.

Clearly the industry message that there is no fraud has not resonated with these individuals and that security messages are not hitting their targets. Building trust in mPOS devices is a critical step that needs to be taken before their enormous potential can be realised. If the trust bridge can be crossed then it is far more likely that smaller retailers will adopt these devices.”

The post The power of mPOS appeared first on Payments Cards & Mobile.

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