The m-POS story starts in 2010 with a small startup that offers a mini card reader, almost for free, allowing any individual or company in the US to transform its smartphone or Tablet into a payment terminal (m-POS: mobile Point of Sales). Its business model is easy: a 2.75% fixed fee charged to any transaction. Nothing else.
3 years later – you’ve recognized this startup – Square has acquired more than USD 10 billion of transaction flows and has more than 3 million users, while still showing a breathtaking growth…
European banks are watching carefully, because Square relies on its own payment facility, depriving banks for a portion of their current added value to bank acquiring flows.
Can Square succeed with the same model in Europe / France ?
Obviously, the development of their solution was made possible by US market specificities which are not the same in Europe. There are at least two major differences: the technology – Square does not meet regulatory requirements ‘chip and pin’ EMV mode for « card present » transactions – and the economic model – commissions to acquire universal payments in Europe are much lower than Square’s one.
Square-like solutions cannot address the European market. However, it shows great opportunities for European banks.
- On the technical point, Visa Europe is currently evaluating over 20 m-POS candidate solutions, trying to meet EMV level 2 European requirements. It means having a specific device designed for secret code (PIN) entry associated with the card (CHIP) security keys reader. Ditto MasterCard announced 19 m-POS certified solutions at the mobile World Congress in Barcelona.To be more precise on the requirement, let’s point out that European legislation differs from that of US because the risk of fraud is borne by issuing bank, so they will require strict security measures for bank transactions which they guarantee.
mPOS Chip & Pin
Several hardware solutions are already considered meeting the right security level for Europe and should be available on the market in the coming weeks.
Thus, the first barrier to market entry should fall, even if the m-POS systems has to be fully separated to the related smartphone or Tablet terminal, so the “look and feel” of the European m-POS solution is fundamentally less ergonomic – and likely to be more expensive – than a cheap reader plugged on the mobile device.
This is obviously an obstacle to European m-POS success but, on the other hand, the security of payment is totally guarantied.
- On the economic models, the acquiring commissions for universal payments are much lower in Europe than in the US, and have been further cut down for smaller amounts in France, following a decision of the French parliament.
Therefore, European Banks are question the possibility of a valid business model…
The answer is probably positive, and here are some arguments:
- Sometimes merchants pay higher commissions for real business advantages.
As an example, PayPal acquiring fees are higher than those of current CB transactions (CB : Carte Bancaire French scheme), and comparable to Square’s one. Despite the significant additional costs compared to CB fees, one third of e-commerce merchants use PayPal in Europe. The current customer experience with PayPal for a « OneClick » payment is much better than a standard credit card purchase process on the internet. This fact is demonstrated by 5 million PayPal users in France.
Also, short-lived sales retailer (city markets, clearance sales,…) and some B2B markets such as liberal professions (doctors, experts, lawyers, etc.) or route sales vendors are currently underequipped due to the inadequacy of the offer to acquire through conventional payment terminals meeting their business needs. Those are new markets to conquer.
- Cross channel sales associated to mobile services deliver a strong value.
The challenge for retailers is the ability to manage cross channel marketing strategies providing consumer benefits or services with an expected good effect: satisfaction, loyalty attendance, up-selling… Several retailer’s chains equip their vendors with Tablets: m-POS is a missing wheel to complete the proximity sales process, from end to end. As an example, Square has just completed its “Square Register” m-POS offer by proposing a “Square Wallet” app to consumers.
- Increasing regulatory constraints to cash use will drive dematerialized transactions.
Already “contactless” payment card allow substitution of cash for small amounts, providing greater use experience: simpler, faster, more secure… Similarly, with mobile payment – secure EMV or remote – new practices facilitate dematerialized monetary transactions – both from issuing and acquiring aspects. With the new cash use constraints anticipated in France which intend to fight fraud and money laundering, the use of card and mobile payments should grow.
More globally, m-POS devices – which are facilitating exchanges between cards and mobile in any circumstances and with a high security level – meet European market needs for the next few years:
- On the one hand, merchants must deal with the mobile consumer’s wave and process transactions resulting from omni-channel relationships. In certain kind of shops, the number of cashier may decrease in favor of interactive sales solutions (screens and Tablet) handled by vendors, linked to acquiring m-POS systems.
- On the other hand, even when shopping is performed in omni-channel, the consumer remains attached to his physical credit card due to a solid capital of confidence. As such the power to mix dematerialized payments (coming from all channels) with the universal card payment European schemes is a strong value proposal.
With m-POS solutions, European banks are prepared to transform what, at first glance, appeared to be threatening their market share, into competitive benefits. They will increase their market share in acquiring transactions and bring more services to add value to their customers, both in issuance by managing the duality between cards and mobile wallets, and in acquisition by delivering m-POS solutions adapted to the universal payment cards, and mobile to mobile transactions.
As in the US, the m-POS market is about to explode in Europe generating hard battles at all levels to win market share. That’s why we can measure how visionary Square were.
François Lecomte-Vagniez
Partner and founder of Lobary www.lobary.com
Chairman of the program Committee of the NFC World Congresswww.nfcworldcongress.com
Member of the EESTEL, European Experts in Electronic Transactions Systems www.eestel.com
This article has been published in French on March 08, 2013.
http://lobary.wordpress.com/2013/03/08/le-m-POS-evolution-ineluctable-en-europe/