Dongles are a serious business. They are transforming the point-of-sale industry as higher rates of mobile penetration, the growth of e-commerce, and advancements in digital payments lead to a much-needed overhaul.
Today, Javelin Strategy and Research released a report that found mobile point-of-sale (POS) technology poses a significant and growing threat to terminal-based solutions.
Despite the popularity of online shopping, in-store retail still “towers above” the online market with 92.6 percent of total retail dollar volume in the U.S.. However, mobile devices have fundamentally changed the way brick-and-mortar businesses accept payments. Javelin’s report involved interviews with executives at 14 mobile POS providers, as well as data from a random survey of 6,651 consumers, and identified some key trends and themes in the market.
Javelin estimates that mobile POS could expand payment card acceptance by up to 19 million businesses, which could account for up to $1.1 trillion in annual new-card payments. Most of the mobile POS companies offer bundled solutions (hardware + software + services) and charge a fixed percentage fee per transaction, with no hidden costs. Since margins in this area are “razor-thin,” simple sign-up and setup, fast access to money, and strong customer support are necessary for survival. Strategic distribution partnerships, such as Square’s arrangements with Starbucks and Walmart, also help with adoption.
Security is another important concern because without it, neither businesses nor consumers will be willing participants. Javelin found that only 28 percent of consumers consider processing card payments on a mobile device to be secure, and financial institutions require high security standards.
Along with security, convenience is another strong driver of consumer use. A recent report by ComScore found that most consumers are not aware of or actively using digital wallets, but 36 percent of the vendors surveyed still offer one. This is driven by the desire to offer “360 degrees” of services and lock down both the business and the consumer side of the marketplace.
Square was identified as the catalyst in the industry, but there is a significant amount of competition at home and abroad. Clones like iZettle and Payleven have adapted mobile POS to European markets, and PayPal even rolled out a triangle dongle to poke at Square.
As this sector takes off, mobile POS companies are evolving as well by targeting “bigger fish.” Mobile POS systems were first adopted by micro-businesses but have increasingly attracted customers from all parts of the spectrum, ranging from individual craftsmen to massive national chains like Starbucks. By catering to larger businesses, mobile POS startups are able to process a higher volume of transactions. This also requires a greater level of integration, more advanced capabilities, and features like loyalty programs, offers, and online ordering.
Mobile POS solutions provide more cost-effective, convenient and easy-to-implement alternatives to legacy payment systems. They are connected to the Internet, portable, and offer management tools and data analytics. Furthermore, the cloud architecture opens up constant opportunities for iteration.
Shopping is not an either-online-or-offline experience anymore. People commonly browse the Internet before going into a physical shop or search for competitive prices on their phones while standing in the checkout line. Mobile POS is not only changing the POS industry, it is also changing the retail industry as a whole. The possibilities for integrating the online and offline experiences are endless. Javelin said this technology “will change the way Americans think about the shopping experience.”
Dongles, it seems, will soon take over the world.
Photo Credit: Square