mPOS Will Drive Omnichannel Merchant Innovation

By Kunal Patel for

One of the biggest buzzwords in commerce today is omnichannel. In the simplest terms, omnichannel means that no matter which channel is the touch point of the moment to the consumer – a payment terminal in a store, an online storefront, or a retailer’s app on a mobile device – their experience should be seamless, streamlined, secure and optimised for the needs of each channel.

But more often than not a very important piece of the omnichannel puzzle is left out: a mobile point of sale (mPOS) solution. More and more retailers are employing mPOS solutions both inside and outside stores on top of their existing payment solutions, and they need to consider how to tie those mobile solutions in with their existing POS infrastructure – otherwise, it’s impossible to provide a true omnichannel experience.

The mobile point-of-sale (mPOS) market has undergone major growth since the launch of the first “dongle” in 2009. The market has been flooded with products and services aiming to capitalise on the growth in demand now occurring in all markets. Despite the huge success of some players, including the recent IPO by Square, the market remains in a very early stage of development. Interest in mPOS is too focused on the micro-merchant space instead of the long-term implications for the wider payments space.

With mPOS there is an opportunity for merchant innovation at the POS beyond the micro-merchant space. The economics of mPOS mean providers have little choice but to develop their systems into wider payments platforms if they are to remain competitive. Meanwhile, the use of point-to-point-encryption (P2PE) with mPOS can, in theory, lead to a reduction in merchant PCI compliance responsibilities while increasing flexibility at the POS. Multichannel payment platforms combined with the flexibility of mPOS are well placed to serve as a focal point of merchant omnichannel strategies.

Bringing commerce to the consumer

When a retailer’s omnichannel strategy delivers a unified and integrated experience, both the merchant and consumer reap the benefits. For example, consider the hypothetical case of a consumer we’ll call Vijay, who recently bought a pair of jeans from an omnichannel retailer using his smartphone. Vijay has previously bought clothing from this retailer via its website, but doesn’t visit the physical stores very often. Today, however, Vijay comes into the local store to exchange the jeans he bought for a pair in a different size.

So what’s most important to Vijay? As with most consumers, Vijay wants the retailer to have a unified view of his order history and interests, so that he doesn’t have to enter in the same information at every interaction. Receiving real-time discounts and relevant offers are also becoming increasing important to consumers.

In Vijay’s example, the store’s mPOS solution is integrated with its terminals and back-end systems that hold the latest order history across all channels, making Vijay’s information and preferences visible to the sales assistant (who just happens to be able to assist Vijay using a tablet device on the sales floor). And because there’s integration between the retailer’s mobile apps, inventory system and loyalty programmes, the retailer can also send an alert to Vijay’s smartphone via its store app as he enters the store, letting him know that if he buys one pair of jeans, he can receive another pair at half off.

Vijay receives a positive omnichannel experience from this retailer because he is getting a personalised, streamlined, and high-impact experience. This goes well beyond user interface (UI) consistency – it’s about enabling an optimal and personalised interaction for both shopper and merchant.

Micro-merchant economics mean mPOS providers are now developing wider payment platforms

The ability to accept payments through a handheld device has not been the key driver of the success of mPOS. The true innovation has been in its underlying business model: significantly easier merchant enrolment, clearer pricing structures, no lock-in contracts, and more rapid payment settlement. Acquirers that have launched mPOS dongles using traditional merchant enrolment procedures and pricing report that they are struggling to gain traction with micro-merchants and SMEs, particularly as the market becomes more crowded.

The easier merchant enrolment model has helped to grow the base for payments acquiring, but the model also means providers’ risk levels are high, and with the lack of contract means the low-frequency, low-value transactions are having a strong impact on mPOS provider margins. As competition in mPOS heats up, achieving the economies of scale required to make mPOS a success is becoming more difficult, as the basic dongle-type service rapidly becomes commoditised.

To remain competitive, mPOS providers are increasingly developing wider payments platforms. By adding front-end and back-office functionality and targeting merchants higher up the value chain, mPOS is becoming more attractive to merchants of any scale. This functionality includes a range of additional peripherals and new software features such as inventory management, loyalty programs, and even online payment services. Many of these platforms are now capable of handling a variety of payment types through the dongle beyond cards, and are more adaptable to future payment innovation.

P2PE-enabled mPOS can reduce merchants’ PCI DSS requirements and provide room for innovation

The introduction of new services and functionality at the traditional POS has been restricted in particular by payment card industry data security standards (PCI DSS) requirements, which rightfully impose limits on merchants. Any system that has contact with sensitive payment information such as personal account numbers (PAN) or other credentials is heavily restricted in what it can do.

With point-to-point encryption (P2PE) technologies in their platforms, mPOS providers can capitalise on the renewed focus on merchant payment security. Using P2PE, the handling of sensitive transaction data is taken away from the merchant, which, in theory, reduces their PCI DSS responsibilities. The reduction of PCI DSS restrictions at the POS broadens the potential to connect a wider variety of systems and services to the POS experience.

Achieving P2PE accreditation remains a complex process, however, and questions remain about how easily mPOS providers can ensure their platforms are accredited. Although the official PCI Security Standards Council recommends P2PE as the base for mPOS, very few platforms are accredited to this standard so far. However, mPOS providers must continue to pursue P2PE capabilities, as they will drastically increase their functionality and expand the mPOS business case to a significantly larger range of merchants. Given the high levels of competition in mPOS, it is likely that many will continue to pursue P2PE capabilities.

Integrated online/offline mPOS acquiring will drive merchant omnichannel strategies

The development of mPOS into a wider payments platform incorporating online and physical commerce is growing the number of single source payment providers capable of providing all aspects of payment acquiring. Rather than using one acquirer for online payments and another for physical payments, the growth in these single source providers increases the scope to integrate payments into one unified and connected platform, providing merchants with low-cost omnichannel capabilities.

Services such as Square’s online marketplace and Shopify’s POS service provide SMEs and micro-merchants the tools to create shopping websites with full payment acceptance alongside physical payments through mPOS systems. This provides merchants with a simplified and scalable payments ecosystem that maintains a connection between a merchants’ online and offline strategies.

Unlike the tightly locked-down traditional POS systems, many mPOS and payment gateway providers are also offering greater access to software development kits (SDKs) and application programming interfaces (APIs) for their platforms. This is creating significant potential for new services and functionalities to be developed and deployed more easily through a technology platform better suited to frequent updates and functionality changes. As a result, mPOS provides merchants of all sizes with a truly agile environment, allowing them to experiment and innovate with omnichannel strategies.

(Image Credits: Freepik)

The article first appeared in TS