While much industry attention is focused on turning smartphones into electronic wallets for consumers, there's a quiet revolution on the other side of the equation. Today, turning a smartphone into a mobile payments-acceptance device is possible for merchants of all sizes and shapes.
Perhaps the most visible example of mobile POS in retail can be seen at Apple stores, where there are no traditional checkout lanes or cash wraps. Instead, associates equipped with iPod-based devices roam the store, assisting customers with product information and accepting payments on the spot. While Apple uses a proprietary system running on the iPod Touch, similar devices are within reach of many businesses that can afford a smartphone and a low-cost, or even free, card reader.
Mobile-payment acceptance opens up electronic payments to a segment of merchants who don't experience transaction volumes that justify signing up as a traditional acceptance location. Some merchants, in fact, may have been solely mobile, working exclusively at client sites, which made standard electronic payments impossible. For instance, Intuit equipped a Girl Scout troop with its GoPayment mobile application and card reader to support their annual door-to-door cookie sales.
In addition to small-volume merchants, mobile acceptance makes sense for larger retailers and restaurants. In many cases, mobile acceptance simply is an extension of a merchant's capabilities. It's not seen as the disruptive market force that conducting payments via near field communications, or NFC, (NFC) is expected to become when that mode is widely available in the U.S. market.
Who uses mobile payments?
While the technology and systems are still in development for NFC implementation, widespread adoption also will require a change in consumer habits. Although smartphone market penetration continues to grow, consumers have a strong affinity for using plastic cards for most transactions.
According to the Federal Reserve Bank of Boston, only about 21 percent of Americans have some form of contactless credit card. However, 80 percent of consumers currently own a debit card, 78 percent own a credit card and 17 percent own a prepaid card, according to the bank.
That means the demand for mobile payments acceptance is growing, and it needs to be in formats that are affordable and scalable to most businesses using the most common form of electronic payment available to consumers.
"Allowing a payment to be accepted on a mobile phone is a natural extension of what most of us in the payments ecosystem already do," said David Talach, vice president of global product marketing for San Jose, Calif.-based VeriFone, a leader in secure electronic-payment technologies. "We see this is as a way to target a really diverse group of people who haven't had the means or the business to justify a purpose-built device."
Retailers are hedging their bets, looking at the adoption of NFC payments by consumers in the future and also opting for mobile card acceptance now.
"Consumer smartphones and their use in-store are hardly pervasive," said Greg Belkin, retail point-of-sale analyst for the Boston-based consulting firm the Aberdeen Group. "However, their increased use has caused top retailers to stop and pause. The need for a more interactive in-store experience is becoming more defined, and retailers are looking toward mobility to deliver this experience."
A recent Aberdeen study also shows that retailers are giving equal strategic weight to both consumer-operated and retailer-operated mobile devices. For example, 76 percent of retailers are embracing employee-operated, handheld mobile POS devices, whereas 74 percent of these organizations are investing in mobile applications on smartphones, and an additional 63 percent are looking at the consumer-operated handheld device.
"Although consumer adoption of smartphones still has different issues to work out (such as lack of industry-accepted or applied standards or pricing) before it becomes pervasive, retailers know that growing interest in the smartphone platforms is likely to accelerate adoption in short order," Belkin said.
With affordable mobile point-of-sale solutions, mobile payments have come to the local plumber and the weekend craftsperson, as well as independent restaurants and specialty retailers. Card readers range from small swipe devices that plug into a smartphone's headphone jack to larger wrap-around units, often called sleds or sleeves. These larger devices, while more expensive, also offer capabilities for encrypting PIN pads and printers.
Because there are a number of mobile payment-acceptance solutions available in the marketplace, businesses face a decision process in deciding which solution best fits their situation. The obvious variables include using a smartphone-based device or a purpose-built device and the level of the business relationship with the card processor.
"If a merchant is not a sole proprietor, he may not want to use a phone but instead may want a purpose-built device for his store," Talach said. "If he's doing over a certain number of transactions he may want a lower interchange rate and may prefer a purpose-built device."
A number of companies have entered the mobile POS marketplace, including Apriva, VeriFone, Intuit, Infogain, Global Bay, TYSYS and Dev Studios, among many others. Merchants can choose from a variety of mobile POS software and hardware solutions compatible with all major flavors of smartphone operating systems, including Apple, Android, Blackberry and Windows. But in the buzz of a new payment system, retailers and restaurants may overlook one critical factor: integration with the point of sale.
Mobile Payments Today would like to thank DevStudios, whose sponsorship allows us to bring readers this information at no cost.