Fin-Tech

POS, New Approach!

Syed Hashim Ali

 Transforming Behaviour

 The retail industry has set its sights on mobility, and in particular, the growing popularity of mobile devices like
tablet computers and smartphones that are Internet-enabled for comparing, researching, purchasing, and
reviewing products and services.
 As customers become comfortable with technology, merchants have had to adapt. The Internet was originally
used merely to do research on products and prices, and then the actual transaction was done in person.
 As people started to feel more comfortable about submitting their information online, they began to buy. The
emergence of mobile phones and tablets meant purchases began to shift to these devices. The introduction of
near field technology on phones has also created a new trend of people using devices such as phones, watches,
and bracelets to pay in physical stores.
 Mobile commerce constitutes a major part of electronic commerce transactions. According to a forecast by
Goldman Sachs, mobile commerce will account for almost half of all electronic commerce transactions by 2018.
 According to a survey of 5,000 consumers, shoppers using mobile devices behave differently to shoppers using
computers. As such, retailers must have different services, marketing, and sales strategies aimed at them. There
are also differences amongst mobile shoppers. For example, customers who are aged 18 to 34 use their mobile
devices to shop late at night, and most of these are women. Men, on the other hand, are 27% more likely to
subscribe to retailer alerts near their location. Mobile shoppers are willing to provide information for a more
personalized shopping experience and enroll in loyalty programs
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 Point of Sales (POS) Evolution

 At the moment, POS units are dramatically underutilized from a customer experience point of view.
 The technical side of the requirement is that these POS terminals need to integrate with NFC technology, talk to apps
as they present themselves at the POS, or as they enter the store (via geolocation), plus merchants need to integrate in
real time with the bank or retailer’s system
 “Today, if you used RFID [or NFC] in its purest form, you could walk into a store, load your cart and walk out without
talking to anybody, because they would know who you are.” Randy Carr VP marketing Shift 4
 Mobile point-of-sale or mPOS consists of a portable mobile device that processes customer transactions. Fixed modern
POS systems are most beneficial to retail stores and restaurants. Since most transactions are now done through debit
and credit cards, a point-of-sale system must have a card swipe machine attached to it. A mobile point-of-sale system
performs the same functions but can work remotely
 The mPOS acts as a bridge between electronic commerce businesses and point-of-sale systems. A retailer can use a
mobile device as an alternate point-of-sale system if they want to save on upfront investment
 mPOS systems can help prevent delays and queues at the checkout. In retail stores, long queues at the checkout
sometimes mean customers decide not to make a purchase. By having employees armed with mPOS systems, they can
serve and charge customers more quickly
 A generic handheld mobile point-of-sale system can become a portable register with a slot for card swiping. An mPOS
with a card reader, on the other hand, is a mobile device with a USBport or audio jack for attaching card readers. The
mobile device can be anything, for example, an iPod Touch, smartphone, or tablet with a POS system that can scan an
item’s barcode, or the transaction can be entered manually. It must be able to accept card payments, recognise 3
electronic signatures, and generate a receipt through a portable printer. SQUARE E.G
 mPOS Business Model
 Retailers need customizable and robust mPOS platforms. They must be able to integrate these platforms with
their present payment systems. mPOS platforms must be able to generate foot traffic to their physical stores
that convert into sales. Therefore, mPOS providers focus on creating personalised solutions to meet the
requirements of retailers, like in-store geo-location, consumer data analytics, omnichannel integration and most
recently bespoke loan products
 The GSMA forecasts that size of global mobile payments will increase to 3.08 trillion or more by 2024. This
means about $2.8 billion transactions via mobile money a day. This will be the primary instrument for
payments in coming years
 When Square introduced the Square mobile card reader, a little square device that attaches to a mobile phone,
the payments industry started considering mobile point-of-sale to give small retailers a chance to accept
payments from credit and debit cards. Many companies offered mPOS applications, but most of them struggled
to find a way to profit effectively from them
 Small retailers take advantage of mPOS systems, but because of the low volume of transactions, mPOS
providers face the ongoing challenge of how to be sustainable. Currently, the mPOS business model is moving
towards software-based value added services. mPOS suppliers upsell to existing customers instead of acquiring
more merchants. For example, they sell other business applications like payroll and marketing to small retailers
that are accepting credit and debit card payments

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 Phase I: Chip and PIN (Current evolution)

 Smartcard-based credit cards, otherwise known as Chip and PIN, are based on the EMV standard for interoperation of
IC cards or “Chip cards”, and IC-capable POS terminals and ATMs. The name EMV comes from the initial letters of
Europay, MasterCard and Visa, the three companies that originally cooperated to develop the standard.
 In the UK, Chip and PIN was rolled out nationwide in 2004, with advertisements touting the “Safety in Numbers”
slogan. As of 1 January 2005, the liability for signature-based transactions in the UK was shifted to the retailer. This was
designed to act as an incentive for retailers to upgrade their POS systems
 The year 2011 showed the lowest figure for UK card fraud in more than 11 years, and was the third consecutive year
with a decrease (17 % decrease in 2011 alone). Estimates by UK Payments claim the introduction of EMV Chip and PIN
in the EU has resulted in a 50–75 % reduction in domestic card-not-present fraud
 After widespread identity theft due to weak security in the point-of-sale terminals at Target, Home Depot, and other
major retailers, Visa, Mastercard and Discover in March 2012 – and American Express in June 2012 – announced their
EMV migration plans for the United States. Since the announcement, multiple banks and card issuers have announced
cards with EMV chip-and-signature technology, including American Express, Bank of America, Citibank, Wells Fargo,
JPMorgan Chase to name a few
 As of Sept 2019, 3.7 million US merchants accept EMV cards, an 815% increase since 2015. Counterfeit fraud losses
decreased by 87% for merchants. The number of credit and debit cards with EMV chip now exceed 1 billion for US, and
10 billion globally as of 2019.
 Previously in 2016, 70% of U.S. consumers had EMV cards and as of December 2016 roughly 50% of merchants were
EMV compliant. However, deployment had been slow and inconsistent across vendors. Even merchants with EMV
hardware were not able to process chip transactions due to software or compliance deficiencies 5
 Phase II: Mobile integrated payments
 Workarounds for smartphone integration with credit cards and POS systems are already underway. The issue
with the integration of these with POS terminals is twofold. Firstly, how does the app phone communicate with
the POS terminal, and secondly, how does the consumer authenticate or provide proof of identity
 There are two current technologies in place that would enable app-phone payment. The first is NFC, which
means that the phone contains the IC (Integrated Chip) or smartcard that enables it to be used identically to the
Chip and PIN credit card and second is a physical device attachment that simply plugs into existing hardware

Phase III: Cardless, phoneless, personalized?

 While Phase I and II deal largely with the evolution of the payment device (i.e. mag-card, IC card, NFC and
smartphone), Phase III requires an evolution in the POS and store environment itself. Once again cloud computing
could be the vehicle that breaks this platform right open for greater collaboration and more interesting application
 The most likely short-term improvement is that we could have roaming advisors or cashiers in the store with a hand-
held payment terminal that can process our payments in real time. Apple already uses this methodology and most
customers never even see a cash register in the Apple Store at all.
 Moreover for Apple Pay you just need to hold iPhone near the contactless reader in store. Apple Pay then switches to
your default payment card to pay for the purchase.
 The biggest evolution in payments is, in fact, when the modality of the payment itself disappears. There may still need
to be some authentication methodology, but the key is all about getting rid of the friction
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 Square

 Based in San Francisco with the tagline “Making Commerce Easy”, Square Inc (SC) markets various hardware and
software payment products, like Square Reader and Square Register. It also has a programme for financing small
businesses known as Square Capital and Square Payroll. Founded in 2009 by Jim McKelvey and Jack Dorsey, it launched
its first app in 2010 and commenced trading on the New York Stock Exchange in November 2015.
 Square Register accepts offline credit and debit cards payments on a merchant’s or individual’s mobile device. The app
enables the user to enter their card details manually or swipe their card through the Square Reader, which is
connected to the mobile device through the audio jack. More than 33 million downloads.
 Square’s main business comes from mobile point-of-sale. According to Square’s CEO Jack Dorsey, the $49 chip card and
contactless reader that started to be distributed during the first quarter of 2016 already has cumulative orders of at
least 2 million. With every new reader, a retailer receives two mPOS devices, one for contactless and chip and pin card
transactions, and the other for magnetic stripe payments
 Square could change things for small retailers, who are hesitant to use new payment technologies because of the costs
associated with terminal upgrades. Many of Square’s clients are micro and small businesses.
 Square Capital facilitated $873 million in PPP loans. Borrowers use the money to buy equipment, employee payroll or
for other long-term investments
 Square also offers Square Instant Deposit allowing retailers to immediately transfer funds from their revenues to their
bank accounts for a 1.5% fee. Square also has a digital invoicing platform, Square Invoices, allow merchants to get paid
the same day.
 Square's seller ecosystem consists of various hardware and software solutions designed to empower merchants, and 7
the ecosystem has expanded rapidly in recent years
 Klarna

 Klarna is a payment solutions provider, which is safe and easy to use. It

allows buyers to possess products before paying for them, shop now pay
later model. Established in Stockholm by Victor Jacobsson, Niklas
Adalberth, and Sebastian Siemiatkowski in 2005, it is active in 17
markets, 200,000 active merchants and has more than 1,400 employees.
Popular international clients include ASOS, Wish, Samsung, Disney, and
Spotify
 In the United States, Klarna decided to offer separate apps for buying and
selling. According to Klarna CEO and co-founder Sebastian Siemiatkowski,
a user can purchase an item on a Klarna-powered site by merely entering
their email and zip code. They can pay Klarna within a month through a
chosen payment scheme. Klarna has offices in Columbus, Ohio, New York,
and San Francisco
 In May 2016, Klarna unveiled an in-store solution. According to
Siemiatkowski, they expect their physical commerce solution to outgrow
their online business. With this move, Klarna will be competing with big
banks, and Android, Samsung, Apple, and PayPal
 Klarna now is one of Europe’s largest banks providing payment solutions
for 60 million consumers across 100,000 merchants in 14 countries
 Klarna and other BNPL services make most revenue from merchant fees. 8
Popular POS systems and trends