Point-of-sale (PoS) terminals do little more than reading a payment card and encrypting the transaction. Merchants want to differentiate their offerings at the Point-of-sale, and to provide their customers with ‘value added’ services that not only increase their customer loyalty, but also increase the potential for spending more money in their stores.
Today, acquirers, terminal manufacturers and third-party vendors that provide merchants with PoS devices do not offer much beyond payments. Merchants are very diverse in nature offering a variety of products and services and customer experiences at the PoS. The terminal providers and PoS service providers have a limited range of services for smaller and medium merchants whereas there has been a lot of value added services that have been offered to the large and mega merchants.
By creating a platform for PoS apps (or a PoS app marketplace) it is possible to provide merchants with a wide range of value added services via software solutions that are rich in functionality and aims to address the ‘must have’ merchant needs – namely:
- How can I attract new customers to my stores?
- How can I increase the basket size of my shoppers?
- How can I make sure that my customers will return?
The app marketplace is basically a digital distribution platform for computer software. Apps are designed to run on specific mobile devices, and are written for a specific operating system (such as iOS, macOS, Windows, or Android). Any smartphone owner is familiar with the app stores from Apple, Google and Windows. Over the last few years merchants have started to experience this same concept but on their PoS device.
With an app marketplace, there is an opportunity to offer a many-to-many mapping of developers to merchants, effectively tapping into the collective resource pool and creativity to design, develop and deploy new applications for merchants. New services such as the offering your customers the ability to order food ahead of arriving at the restaurant, or allow merchants to manage and create a store gift card program. Other applications give the merchants’ employees the ability to clock-in and clock-out of their working shifts; employers and merchants can manage employee schedules and timecards. Even scheduling staff cover for busy trading periods or managing a hotel property are apps that are available for a range of PoS devices, including Verifone, Clover, PAX, Aevi, Poynt, Ingenico, and many others.
As terminal manufacturers have begun to realize the importance of mobile devices to the merchant, there has been an increased focus on better security, better apps, and higher productivity for the users. App marketplaces are only one aspect of the mobile device management and app management. Security, PCI and mobility are all driving change in the mobile PoS ecosystem and there has been even a greater importance being placed on the need of a mobile device management (MDM). The importance of app version control and manging the merchant billing options is changing the ways that PoS devices operate. Ingenico, for example, has teamed up with Famoco, to provide the MDM solution for mobile devices that are Android-based – ensuring that mobile PoS devices that are lost or stolen do not present a threat in the future. It manages the security of the apps that are downloadable from a private store and not any unofficial app store. Aevi has their own MDM solution that ensures the security of the device and the security of the apps. The PoS device is about to take a giant leap from being a piece of tin that accepts card payments to a functionally rich smart device. Think of it like changing your old Nokia 3310 to an Apple iPhone 7.
How can the PoS device manufacturers make any money from the app marketplace?
The commercial proposition generally mirrors that of the smartphone app stores – the app store will charge the app developer 30% of the revenue they make from the merchant. Running an app marketplace will require meticulous definition of the terms and conditions of the sale, there are responsibilities and liabilities for software developers and the merchants for who choose to operate them. We have seen that there has been a substantial underestimation of the complexity of the legal framework around the app store.
App stores will typically involve multiple parties each requiring multi-party agreements. The commercial models are not straightforward either – some apps are monthly subscriptions, some will include the consumer and the merchant, some with include a commission (e.g. taxi ordering at the PoS), or fees can be based on a per transaction model, hybrid models also exist. It is further complicated when the app requires PCI sensitive data from the payment transaction to be part of the solution. This is where payment-related and non-payment related apps will crossover. The commercial models are evolving and are expected to further change and mature as the marketplaces grow and establish momentum.
Who will be the winners and losers in the PoS app marketplaces?
In the world of smartphones, the obvious winner is Apple. Besides giving consumers a huge reason to buy the iPhone, the company also takes in 30% of the revenue from apps sold through the App Store. Could this be the case for the PoS manufactures who are hosting their own app stores for their PoS platforms?
The real issue with a PoS app marketspace is liquidity. Liquidity is a state where there are a minimum number of producers and consumers on the marketplace and there is a high expectation of transactions taking place. Continuing with the example of the smartphone, developers and users also have a huge benefit from the existence of the App Store. Rather than having to sell their software for high prices on their own websites, developers have direct access to millions of smartphone users who are interested in buying apps. Both developers and users should be attracted to the app marketplace platform because the benefits should be clearly articulated. Furthermore, supply is not enough, demand from merchants must be there but the app marketplace is just too embryonic in the PoS environment. So, since apps have been a success story for consumer mobile devices, the expectation is that they will place a vital part of any PoS strategy for the payment service providers. Today, no single device manufacturer has the scale to support app marketplaces that will drive incremental revenues from apps. For app marketplaces to be successful, liquidity must exist, the fragmented and closed nature of the PoS app stores that exist today needs to be resolved. This alone has the potential of restricting merchant adoption. Unfortunately, the manufacturers are currently only offering closed systems. App developers must go through a rigorous process with each PoS manufacturer to get their app on the marketplace. The rich rewards expected from host an app marketplace in the PoS environment are not materialising just yet.
Is the app marketplace here is stay?
A critical measurement of success in the future will be to use the PoS app marketplace to attract and retain merchants. We have already seen that merchants using Clover, from First Data, for example, have been less likely to move to other acquirers because Clover, one of the oldest app PoS marketplaces, have built relevant and reliable services that go beyond payments.
Everybody who supports payment at the PoS for the merchant would like to differentiate their offering. Payment alone is a commodity and it is hard to differentiate in an overcrowded market. A PoS app marketplace is expected to offer value added services to a wider audience of small and medium sized merchants. This is only going to be accomplished if they are aggressively promoted for at least the next few years, or at least until that elusive liquidity between the developers and users has been reached. Therefore, the PoS app marketplace will be around for a long time and the future winners will be the merchants who are looking to offer their consumers with something that is beyond payment.