Startup joins dongle-free mPOS trend
By Robin Arnfield
After initially gaining a foothold with small merchants, mobile point-of-sale solutions are moving to larger retailers.
As noted in the Yankee Group Technology Roadmap report "Revolutionizing Retail With mPOS," large U.S. retailers are increasingly issuing mobile POS payments devices to sales staff.
One possible impediment to mPOS adoption has been the need for a dongle, the attachment that plugs into a mobile device and allows cards to be swiped. But that barrier is eroding as many companies find a way around that requirement.
Jumio's Netswipe solution, for example, lets consumers scan their credit cards into their smartphones using the device camera, then pay the merchant without the need for card swiping. Flint Mobile also enlists the smartphone camera to scan cards.
Now the dongle-free mPOS segment has another entrant. Dallas-based start-up Tantrum Street has developed software that enables small merchants to scan payment cards onto a mobile device instead of swiping them through a dongle.
The company's Cartwheel Register mobile app includes number-recognition technology that scans an image of card numbers and expiration dates without storing the information on the merchant's tablet or smartphone. "Cartwheel recognizes card numbers and scans them in the way human eyes do, but, unlike check capture systems, it doesn't take a picture of the numbers," said Zilvinas Bareisis, a senior analyst at Celent.
Cartwheel Register includes analytics software to help merchants better understand their sales patterns and manage their book-keeping, Tantrum Street co-founder and CEO William Cervin said.
Tantrum Street has also developed Skip Wallet, a cloud-based mobile wallet that consumers can load with any credit or debit card, gift card or loyalty card. Consumers can make Skip Wallet payments at any merchant using Cartwheel Register by entering their Skip Wallet payname and PIN.
In mid-November, Tantrum Street launched a trial of Cartwheel Register with 15 small merchants in Dallas, offering them free transactions during the pilot. The list of participants includes a furniture store, a hair salon, food trucks, a coffee shop and handymen.
"All the participants are already using payment acceptance technologies such as Square, PayPal or traditional card-readers that are integrated with a point-of-sale terminal," Cervin said. "But they will all be replacing these payment devices with Cartwheel Register."
In addition to plastic card payments, the Cartwheel Register pilot will also involve payments via Skip Wallet.
Currently, Cartwheel Register and Skip Wallet are only available for iOS-based devices, but Tantrum Street plans to develop versions for Android- and Windows-based devices.
"We will make the Cartwheel Register app available on the Apple App Store in the first quarter of 2014, either in late January or early February," Cervin said. "Initially, we will focus on rolling out the app nationwide in the U.S., but we're very interested in international opportunities, given that we aren't supplying card-swipe hardware. Obviously, we would need to set up partnerships with foreign acquiring banks."
Cervin said Tantrum Street's technology complies with PCI DSS (Payment Card Industry Data Security Standard) 2.0 requirements for Level 1 merchants, the highest standard of PCI DSS compliance. Once they are scanned by Cartwheel Register, card numbers are instantly encrypted and tokenized. Tokenization involves replacing a card number while in transit and in storage with a randomly generated number that can't be deciphered by criminals.
When cardholders use Cartwheel Register for the first time, they are required to enter their CVV (card verification value) number, to prove their card is not counterfeit.
Because Cartwheel Register doesn't involve swiping a card's magnetic stripe, Cartwheel Register transactions are treated by Tantrum Street's processor as card-not-present payments. The card schemes charge higher interchange rates for CNP transactions than for card-present transactions where a card is swiped.
Due to its high level of security controls, Cervin said, Tantrum Street has been able to negotiate a merchant transaction fee with its processor that is very close to a card-present fee. "We have very sophisticated fraud controls at the back-end to detect counterfeit cards, and we check all transactions, not just transactions above a floor limit," he said. "We also work with several technology partners to provide fraud controls."
Companies such as Square that issue dongles, have two different merchant transaction fees, depending on whether cards are swiped or card numbers have to be keyed in. "The problem with using a dongle attached to a mobile device is that, if the card's mag-stripe is damaged, it won't swipe through the dongle," Cervin said. "Then the merchant has to manually enter the card number onto their smartphone, and processors charge a much higher merchant fee for transactions involving keyed-in card numbers. With Cartwheel Register, there's just the one merchant fee."
U.S. card issuers and acquirers will migrate to EMV technology over the next few years in order to combat card fraud at the point of sale and in ATMs. This will require acquirers to provide their merchants with POS payment devices that are capable of reading EMV chip cards.
In October 2015, Visa and MasterCard will introduce a counterfeit card liability shift in the U.S. From that date, if an EMV card is used fraudulently at a U.S. POS device that doesn't support EMV, the acquirer will be liable for the issuer's fraud losses.
Because Cartwheel Register has no way of reading an EMV card's chip, it will be unable to detect the fraudulent use of EMV cards. Similarly, in an e-commerce transaction involving an EMV card, the online merchant is unable to read the card's chip and must rely on back-end fraud detection technologies.
Nikki Baird, managing partner at the U.S. consultancy Retail Systems Research, thinks the EMV issue may not be too major a problem, at least initially, for Tantrum Street. "Small retailers won't be nearly as valuable targets for card fraud as bigger merchants, so they're going to be slower to adopt EMV anyway," she said. "In mature EMV regions, the cards industry is working hard to figure out how to make CNP payments as secure as EMV chip-and-PIN or NFC payments. When that gets figured out, then there will be a clearer path for solutions that play in the mobile and CNP space such as Cartwheel Register."
As Tantrum Street uses an open cloud-based platform, merchants using Cartwheel Register can use their existing processor instead of using Tantrum Street's processor, Cervin said. In addition, large retailers can integrate Cartwheel Register with their existing point-of-sale systems. This means they could provide sales associates with mobile devices running the app so they can accept customer payments anywhere in their stores.
That bears out the trend identified in the Yankee Group report.
And Sirpa Nordlund, executive director of the mobile payments standards body Mobey Forum, said she observed many new players during the recent CARTES exhibition in Paris.
"There are more and more mPOS technology providers entering the market," says Nordlund. "When I attended the CARTES exhibition in Paris recently, I saw dozens of mPOS vendors, many from Asia."
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