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Lead Story

Tight credit markets lead to new ISO, MLS financing options

News

Industry Update

Major retailers reject proposed interchange settlement

LevelUp offers interchange-free mobile solution

Google Shopping to take on Amazon?

Trade Association News

Features

GS Advisory Board:
New times, new strategies: What are you doing? - Part 2

Meet The Expert: Mark Cerminaro

The game in the name

Selling Prepaid

Prepaid in brief

Prepaid, mobile and money laundering

Understanding merchant needs is critical

Views

The card company settlement: What's next?

Brandes Elitch
CrossCheck Inc.

Education

Street SmartsSM:
The secrets to overcoming objections

Jeff Fortney
Clearent LLC

The best prospects are in your portfolio

Peggy Bekavac Olson
Strategic Marketing

Fifty little things I've learned

Jeff Broudy
Total Merchant Services

MFA: The acquirer's role in taxing online sales

Adam Atlas
Attorney at Law

Are you ready for mPOS?

John Biscevic
retailcloud

Company Profile

National Benefit Programs LLC

New Products

Rapid PCI compliance for merchants

PCI Rapid Comply
First Data Corp.

Cloud-based POS platform for SMBs

NCR Silver
NCR Corp.

Inspiration

A handshake with that cup of Joe

Departments

Forum

Resource Guide

Datebook

A Bigger Thing

The Green Sheet Online Edition

August 13, 2012  •  Issue 12:08:01

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Are you ready for mPOS?

By John Biscevic

Simply put, mPOS is point of sale combined with a mobile device. But don't confuse it with mobile payments or think it is about the device. It's not. As a matter of fact, lose that idea right now, lest ye be stuck in 2010.

Mobile payments allow for nothing more than card processing. On the other hand, mPOS is about commerce and the functionality of its enabling software. It combines the features of a POS system with the freedom of a mobile device, but not a specific device.

Square Inc. would want you to confuse the two. Square is in the mobile payments space, right? Wrong. Look at its Register product, new loyalty rewards program and inventory management updates. The company clearly understands commerce and is planning to capitalize on commerce-related functionality.

Square, like any successful startup, continues to evolve. It is capturing market share by offering low-cost processing. Square isn't lowering processing rates because it has to, but because it can.

The company's long-term strategy will be to offer a significant merchant base - which it wins by offering thin-margin processing - expanded commerce-related functionality, either for a fee or by capitalizing on the underlying consumer shopping data.

At Macworld 2007, Apple Inc. founder Steve Jobs quoted hockey great Wayne Gretzky: "I skate to where the puck is going to be, not where it has been." That concept also applies to this industry. While the proverbial puck may be in the payments space right now, it is definitely on the move.

Mobile payments have been readily available via Square for a year. PayPal Inc.'s Here and VeriFone Inc.'s Sail have also entered the space. Those provide the ability to process card transactions, for now.

Focus on functionality

Innovation creates a constantly changing market. Understanding the value of something not yet available and believing in it enough to invest time and resources is deemed "visionary." Thus, only 16 percent of people are early adopters or innovators in the technology lifecycle. And while those people typically carry the biggest risk, they also reap the greatest rewards.

Square's executives are counting on you to miss the boat on mPOS by viewing mobile devices as just a way to process card transactions.

Square's product creates a new sales paradigm for merchants by putting commerce-related software on a tablet or smart phone and directly into the hands of a salesperson. It helps merchants make more money, better manage their businesses, engage with customers and create positive shopping experiences. Square is adding more commerce-related functionality, while many other providers are just barely getting to mobile payments.

Square may take even more processing business from ISOs. Every transaction processed by Square is a transaction lost by an ISO. The more you, the competition, focus on where the proverbial puck was (in this case, payments), the better off Square is.

According to the company, merchants using Register are five times more active on a weekly basis than users of the Square Card Reader, and they process approximately twice the revenue.

Tim Munto of Total System Services Inc. (TSYS) recognizes this as the new direction. In a recent interview, he said, "All the new entries are causing some to speculate that the traditional ISO ... is not going to be successful, and that's true. But those that embrace change and bring to market all the innovation that is occurring will continue to be quite successful.

"Those who stick to the old ways of doing business are most vulnerable. Those who continue to sell on price and price alone or want to give away free terminals - that value proposition is definitely ineffective."

He gets it, and TSYS is partnering with third-party solution providers to bring commerce-related functionality to ISOs and merchants. TSYS is looking ahead.

Be a Sherpa, not a pied piper

Retailers want a relationship with someone in the know. To help them evaluate available options, retailers want someone following industry trends to recommend appropriate solutions. They want someone to help them make more money, grow and better manage their businesses. Square won't readily tell them about encryption and security issues or mention that under certain circumstances it will hold merchants' money for 30 days.

That is why merchants rely on you to stay abreast of industry developments and make them aware of what they need. I'm not telling you anything you don't already know, but your merchants trust you and look to you for recommendations. In many cases, they will do what you recommend because of that trust. I'm not suggesting that you abuse it, just that you understand it for what it really is: the most important factor in the equation.

I asked one of our partners what his merchants buy. "They will buy whatever I tell them to buy," he said, not because he's cocky, but because he knows they trust him. He has a history of taking care of them and steering them in the right direction.

Concentrate on sales growth

Do you imagine your merchants staying awake at night wondering how they're going to reduce their processing costs by 20 basis points? Probably not. They're more interested in making more money. They care about processing only when you or your competition brings it up.

Engage merchants in conversations about commerce-related functionality, such as a solution that includes a recommended-items function - think Amazon.com - that will help them sell more. Amazon claims its recommended-items engine is responsible for 35 percent of its revenue. Even a 10 percent boost could mean thousands of dollars every month in sales to a retailer.

Square, PayPal and VeriFone all offer solutions that allow a merchant to get in front of their customers without a counter between them. Sure, they can process payments away from the store, but retailers find more value in the ability to engage customers.

For me, data really unlocks some cool functionality. Think about what can be done with currently available data. Imagine you're a merchant, and your ISO tells you about an advertising platform that combines the purchase history of consumers with publicly available social information and location awareness.

Independently, these types of information don't offer a lot of value, but together they can. If that same system has a merchant's inventory, we can enable the merchant to determine which consumers near them will be most interested in their available products.

Merchants could buy extremely targeted ads delivered only to the specific consumers most likely to be interested in their merchandise. Now, layer an instant coupon service on top of the ads and other data.

Merchants who have bought in to the ad network get exponential marketability with the added value of instant gratification. I don't know how much research Square, PayPal and VeriFone have done, but I suspect it is a considerable amount.

Don't dismiss the new kid on the block

That's all fine and well, but what is an ISO to do? First, don't underestimate Square. It's coming for and getting your merchants. Excite.com underestimated Google. In 1999, the Google founders reportedly offered the fledgling search engine to Excite@Home CEO George Bell for $1 million, but he declined.

Google now has a market capitalization of about $200 billion, while Excite lost market share and was, itself, acquired.

The lesson of the Excite story is to not underestimate Square. Many times I have heard, "Square is focused only on kiosks and farmers' markets." But with a $4 billion valuation, Square has much bigger plans than that. Square is going down Main Street.

Silicon Valley investors are savvy. They understand their portfolio industries, do a lot of due diligence and have subscribed to Square's growth plans. And so, you too must find solutions to offer Main Street. Knowing the threat is only half the battle. The other half is doing something about it.

That's where mPOS stands now, but where is it going? What does mPOS look like, longer term? Perhaps the next iteration will be called POSm and will be integrated into cloud commerce solutions with social buying data.

And perhaps ad networks will integrate into mobile POS with inventory availability layered on top. Three things are certain:

  1. mPOS will be defined by features and functionality, not devices.
  2. Square will offer something like it.
  3. ISOs must offer more than just processing if they are to survive.

What are you doing to survive?

John Biscevic is retailcloud's Vice President of Strategic Relationships. He is a Silicon Valley technology entrepreneur who came from Skaboosh.com Inc., a company that connects merchants and consumers in the activities space. He founded several technology startups and has held senior technology and management positions at Bank of America Corp., Chiron and Chevron Corp. Contact John at jbiscevic@retailcloud.com.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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