By Nicky Koopman
It's easy to get locked into a market segment when it comes to consumer payments. Past successes and experiences may cause payment solution services providers to focus on broad business segments, such as Main Street retailers, food and hospitality, or health and beauty salons. Many other niches are ripe for innovation, but what works for a broader segment may be overly generalized when it comes to more specialized merchants.
A large number of SMB consumer service operations don't easily fit within larger segments. Think of some of the services you utilize in the course of a year: automotive repair and service garages; plumbers, electricians, and a host of other contractors; and leisure activities, ranging from arcades, to travel and tourism agencies. These types of SMBs are even more in need of innovative payment solutions, according to a survey conducted by PYMNTS in collaboration with AEVI.
The survey polled more than 700 consumer services merchants; almost half were contractors with physical storefronts. The PYMNTS innovation score for this broad segment averages 25.5 points, considerably lower than three earlier surveys involving, respectively, general retail, food and accommodations, and health and beauty. But smaller SMBs are in even worse straits, with those making under $250,000 in annual revenue scoring just 18.2 points on the innovation index, on average.
While consumer services SMBs are lagging other sectors in implementing new technologies, almost half indicated they view innovation as essential to their survival. That makes them a compelling opportunity for ISOs and agents.
Historically, smaller market segments have tended to attract niche service providers. Large players are OK with servicing those markets when they can sell a general market product. But when those SMBs ask for solutions more specific to their businesses, larger players tend to veer off, as they don't see a profitable path in tailoring more specialized solutions.
Smaller payment solution service providers can build a handsome business focusing on these smaller segments, but they often find it difficult to grow their businesses – for example, how many arcades can you find in one town? If they want to add a new specialized segment, they find that much of their skills and expertise doesn't transition easily, and must create parallel workforces or technology providers, all of which make it costly to expand.
Selling a single-purpose card acceptance device into specialized market segments is relatively easy when that's all the merchant needs. But when they want to add value-added applications to help automate their businesses and enrich the consumer experience, life for the service provider becomes more complicated.
At least, that's the way it used to be. Now with the availability of smart POS devices and app marketplaces, it's possible to mix and match solutions to meet the needs of a diverse customer base that spans different merchant types. Naturally, payment acceptance tops the list of payment applications desired in a smart POS solution, according to the PYMNTS survey, and more than half across each vertical segment and revenue size category see the value in digital receipts. After that, key differences start to become apparent:
App developers are increasingly interested in smart POS as they see the growing use of devices and app marketplaces that embrace open standards. That makes it easier to develop apps that are easy to adapt to run on devices from multiple vendors. More and more developers will be emboldened to develop apps for select verticals when they realize they can tap into a larger overall market because they're not limited to developing for one or two specific device vendors.
Smart POS solutions can transform the traditional merchant countertop into a dynamic point of interaction (POI) that can integrate purchases with consumer-pleasing features such as coupons, promo codes and QR scans, and online features like enabling customers to book appointments and services, order products and track deliveries.
They can also transform payment solutions into business management tools to improve customer loyalty, manage inventory, know when promotions are likely to be most successful, and identify top performers in their workforce. But a plumber's inventory and supply chain likely will be remarkably different from that of a roofer, or an entertainment venue. The more often payment service solutions providers can find an app or two specifically targeting such a specialized segment, the easier it will be to increase sales across segments.
Customization and adaptability are crucial to increasing sales of payment solutions and services. Service providers who can transform their classic payments proposition into a new world of value-added apps and services will be able to expand into new merchant types more readily.
They'll be better equipped to help SMBs compete in an increasingly digital world, while generating new and recurring revenue streams in new market niches that have previously been closed to them.
Nicky Koopman is senior vice president of content and value-added services with AEVI. She is a pioneer in digital innovation with an entrepreneurial mindset who is responsible for bringing together AEVI's digital value-added content. Nicky works with AEVI's App Developer Community to lay the foundation for the next generation of value-added content. Contact Nicky at firstname.lastname@example.org.
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