The rise of Mobile POS

Contents
1. Key messages 3

2. Introduction 4

3. mPOS in Context 5
• mPOS overview
• SMEs form the initial market
• SME transaction volumes are variable
• Growing competition
• Commoditization of the POS market
• Payment related services as a route to differentiation

4. Evolution of mPOS 9
• mPOS payment related services
• mPOS is being embraced by larger merchants
• mPOS will expand beyond retail
• VAS would need high degree of customization

5. The mPOS Ecosystem 13

• Merchants
• Banks
• Mobile operators

6. Recommendations 14
• Merchants
• Banks
• Mobile operators

The rise of Mobile POS 2

Key messages
Basic mPOS-enabling hardware is now a commodity, and the key to revenue growth and
differentiation lies in mPOS value-added services (VAS). mPOS service providers need to take a
more sophisticated, innovative approach to VASs, abandon the “one size fits all” approach, and
instead develop applications that better match the needs of specific verticals.

There is increasing interest in the potential for mPOS in emerging markets, and we can expect to
see an acceleration of mPOS activity as service providers seek to gain first-mover advantage in
the more mPOS-ready emerging markets. Characteristics to look out for include growing smart-
phone penetration, a large base of SMEs and micro-merchants, low penetration of traditional
POS terminals, a core base of card users that is expanding, and bank and government schemes
to encourage card adoption.

Mobile operators with existing mobile payments businesses will need to take a position on mPOS
and determine how they can participate in the ecosystem. Although mPOS will not be a core
m-payment revenue stream for operators, it could provide some incremental benefits via distribu-
tion partnerships or the provision of bundled services.

Banks are coming late to the mPOS market, they are nonetheless in a good position to offer
mPOS services. Bank acquirers have advantages due to their strong merchant base and their
expertise and long experience in supporting merchant needs.

The rise of Mobile POS 3

Introduction
We also expect the consumer-facing mobile
Mobile point of sale (mPOS) has introduced a
commerce and merchant-acceptance ecosys-
new dynamic into the mobile proximity
tems to converge going forward. Merchant
payments market. Between 2010 and 2011,
participation is a critical component of any
approximately 1.2 million mPOS solutions were
consumer-facing mobile payment service, while
shipped to MasterCard merchants globally; and
on the mPOS side service providers are putting
75% of those merchants had not previously
increasing emphasis on consumer-facing appli-
been able to accept card payments.
cations. Who will lead this convergence is not
This early mPOS growth was driven by adoption yet certain, although it is likely to be those
among micro-merchants and while still an service providers that have a well integrated
important segment, there are further opportu- consumer-facing and merchant acceptance
nities for mPOS with larger merchants as well. offering.
mPOS allows larger merchants to create
The rapid growth of the mPOS market in terms
efficiencies and enhance the in-store shopping
of the number of players and services is
experience for consumers, as well as to equip
producing a highly competitive market where
their field salesforce with an integrated
many solution providers are struggling to
payment capability. Another benefit to all
achieve meaningful differentiation. mPOS hard-
merchants, big or small, is the ability of mPOS
ware is already a commodity proposition, while
solutions to gather customer data.
mPOS value-added services (VAS) are increas-
Although growth in mPOS has predominantly ingly being used for differentiation. The tradi-
been in mature markets, there are several tional micro-merchant target market for mPOS
opportunities for mPOS in emerging markets might be growing in terms of the number of
that typically have a very large base of small people/firms, but it is characterized by low,
merchants, and where there is low or limited unpredictable transaction values. In order to
penetration of traditional POS terminals. grow their businesses, mPOS solution provid-
However, the mPOS opportunity in emerging ers will need to achieve scale. But this means
markets will be dependent on a core base of expanding beyond the core micro-merchant
card users and where consumer demand for base into larger merchants, where mPOS
cards is increasing, as is the case in India and service providers will have to compete with
China. We expect to see an acceleration of traditional point-of-sale (POS) vendors. This
mPOS activity in the more mPOS-ready emerg- would be challenging, particularly for smaller
ing markets, as service providers seek to gain mPOS vendors without a well-defined value-
first-mover advantage. added service offering.

The rise of Mobile POS 4

mPOS in Context
digital receipt or provided with a paper
mPOS overview
version via a linked printer.
Providers of mPOS services supply solutions
mPOS solutions are characterized by very
directly to merchants, or on a partnership or
low-cost hardware compared to traditional
white-label basis to third parties that service
card processing equipment. For example,
merchants (primarily banks and, in a few rare
mPOS dongles can cost as little as $10 and
cases, mobile operators).
are frequently given away for free, although
mPOS solutions allow merchants to accept
standalone EMV units can be more expensive
credit and debit card payments or even
(in the $50 to $100 price range). The first
proprietary payments schemes like mobile
iterations of mPOS card-readers hardware
money from mobile devices, where the
took the form of a small dongle designed to
payment is initiated from, and executed on a
attach directly to smartphones and tablets.
mobile device belonging to the merchant.
These are still extremely popular but have
This is in contrast to consumer-facing mobile
been joined by standalone card reader units.
proximity payment services that are initiated
The enabling technology for mPOS is typically
by consumers from their own devices, and
Bluetooth and audio jack and with Wi-Fi or
which are increasingly offered as part of a
GPRS used as the transmission channel.
digital wallet service.
mPOS solutions should be able to process all
An mPOS solution basically consists of a
type of instruments like magstripe, contact
card-reader hardware accessory and an
and contactless including NFC as well as
associated mPOS application that manages
scan QR codes and barcodes etc. to enable
the transaction. The merchant uses their
payment processing.
card-reader-enabled mobile device to take a
consumer’s card details. In the US and a few
other markets card readers support mag-
netic swipe cards, while in the India and
elsewhere card readers must support the
prevailing EMV (Europay, MasterCard, and
Visa) standard chip and PIN cards. The card
data and transaction details are encrypted
and sent over a wireless network for authen-
tication and authorization, and once this has
been processed the consumer is sent a

The rise of Mobile POS 5

 SMEs form the initial market The SME and micro-merchant segment is

SMEs are the key target for mPOS solutions, equally robust in Europe. The EC’s 2011/12

especially the micro-merchant segment of annual report on SMEs in the EU found there

businesses with fewer than 10 employees. The were 20.70 million such firms, of which the

SME sector is large and growing in terms of the lion’s share (19.14 million, or 92.2%) were

number of companies and employees, and firms with fewer than 10 employees. The

within this sector micro-merchants account for 20.70 million SMEs cited by the EC employed

the largest portion of the base. more than 87 million people (see Table 2 for
further details).
Data from the US Census Bureau from 2008
(the latest available) reported that there were a The proportion of micro-merchants and SMEs

total of 5.91 million SMEs in the US. Of those, in many emerging markets is very high, and

3.61 million had between one and four employ- eclipses the number of large enterprises. In

ees, while 1.04 million had between five and Brazil, 99.7% of companies are SMEs and

nine employees (see Table 1 for further micro-merchants, according to mPOS provider

details). We expect that by 2014 the base of iZettle, which has launched in Brazil in partner-

US SMEs, including the micro-merchant ship Banco Santander. Likewise, in India there

segment, will have experienced further growth. are 1.5 million SMBs contributing between
15% and 20% to GDP (see Table 3).

Table 1: US SME and micro-merchant data

Employment size of enterprise Firms Paid employees Annual payroll
($1,000)

Firms with one to four employees (or with no employees as of March 2012) 3,617,764 6,086,291 $232,062,907

Firms with five to nine employees 1,044,065 6,878,051 $222,504,912

Firms with 10–19 employees 633,141 8,497,391 $293,534,352

Firms with 20–99 employees 526,307 20,684,691 $774,589,335

Firms with 100–499 employees 90,386 17,547,567 $706,476,693

Source: US Census Bureau, Ovum

Table 2: EU SME and micro-merchant data

Enterprise Micro Small Medium SMEs Large Total
merchants (total)

Number 19,143,521 1,357,533 226,573 20,727,627 43,654 20,771,281

Employment 38,395,819 26,771,287 22,310,205 87,477,311 42,318,854 129,796,165

Source: Eurostat, national statistics offices of member states, Cambridge Econometrics

The rise of Mobile POS 6

Table 3: India SME and micro-merchant data
Enterprise Micro merchants Small Medium SMEs (total) Total
Number 14,850, 000 760,000 30,000 20,727,627 15,54,000

Employment 6, 534,000 2, 343,000 434.000 87,477,311 93,000,000

Source: Ministry of Small and Micro Medium Enterprises India

SME transaction volumes are variable micro-merchants, a base characterized by low,

unpredictable transaction values or those without
The SME base is large but the transaction values
the backing of a trusted brand like a bank. In order
generated by micro-merchants and small
to grow their businesses, mPOS solution provid-
businesses can be unpredictable and low
ers will need to achieve scale. They will have to
compared to larger merchants. Micro-merchants
expand beyond the core micro-merchant base
typically process low-value transactions, or higher
into larger enterprises, where they will have to
value transactions on an infrequent basis. There
compete with traditional POS vendors, many of
can also be risks associated with the high attrition
which are powerful, resource-rich companies.
that can characterize the micro-merchant
This will be difficult for smaller mPOS service
segment (many micro-businesses disappear as
providers in particular.
quickly as they appear). The variable nature of
SME transaction volumes is a key reason why so Commoditization of the POS market
many mPOS providers are trying to gain traction
The commoditization of basic mPOS is prompting
with larger enterprises.
solution providers to compete on price by driving

Growing competition down the transaction processing fees they

charge merchants. In July 2013 PayPal launched
The number of mPOS providers and services is
a headline-grabbing “Cash for Registers” scheme
growing rapidly – there are now well over 100
in the US, whereby for a promotional period it
globally, and more will follow. mPOS hardware is
waived fees on transactions up to a certain level in
already a commodity and some service providers
order to encourage merchants to adopt its
are attempting to compete on price by driving
PayPal Here tablet-based mPOS solution. It was a
down processing fees, but this a short-term tactic
bold move from PayPal, but unlike most mPOS
rather than a long-term fix.
providers, it can afford it. PayPal is large

Something will have to give, and the most vulner- company, and its financial resources allow it to

able mPOS providers will be those with basic absorb the cost with minimal impact on its

solutions that are reliant wholly on business. For the vast majority of mPOS

The rise of Mobile POS 7

providers, competing on price should be viewed
only as a short-term tactic – anything more than
this is unsustainable, particularly for smaller
mPOS players.

Payment related services as a route to

differentiation

In this context, mPOS VAS become essential

from both the monetization and differentiation
perspectives. A few forward-thinking mPOS
solution providers such as Comviva made
specialist VAS their unique selling points from
the start in the belief that mPOS service provid-
ers should focus on leveraging the mobility
advantage of mPOS to cater to merchant

advantage of mPOS to cater to merchant

business needs. This could mean enabling the
overall buying and stocking life cycle or enabling
how they reach out to their customers and
conduct commerce. This will help them deliver
higher value to merchants and hence become
more efficient, thereby providing a differenti-
ated offering to merchants. An associated
trend is the provision of integration services for
larger merchants looking to implement mPOS
alongside existing POS systems.

The rise of Mobile POS 8

 Evolution of mPOS
The mPOS market has developed rapidly over Providers of mPOS services must have
the past four years, as Figure 1 highlights. The well-defined road maps for service develop-
commodity nature of mPOS hardware means ment. This means that if certain features are
that service providers have to compete and not required immediately or by all merchants,
differentiate on the strength of their VAS. But mPOS providers need to be able to vary those
mPOS VAS are becoming increasingly uniform features and enhance their VAS portfolios.
across service providers; as soon as one
service provider innovates, others follow.

mPOS - an overview

Consumer facing
mCommerce
mPOS start to
converge,
Table based e.g. Square Register
mPOS takes & Square Wallet
mPOS VAS off, gains
expands: traction with
consumer larger
facing merchants
apps, specialist /
vertical apps,
Bredth & functionality

increased range More mPOS provides offer system

Card reader of back office integration & consultancy with larger
from factors VAS merchants in mind
diversify,
Smartphone cradles,
Card reader dedicated units
dongles. Introduction of EMV compliant
Basic, horizontal solutions helps drive growth in Europe
VAS - e.g.
Invoicing,
Inventory Flexible, competitive merchant
control fee structures proliferate

Few early mover exceptions have

sophisticated, specialist VAS, e.g. Intuit

2010 Service evolution 2014

The rise of Mobile POS 9

mPOS payment related services mPOS VAS types

The range of potential mPOS payment related

Bank-office services
services can be clustered around the following
- Accounting
core service categories - Banking Services

Back-office services: - Stock and inventory management

- Ordering and invoice creation
Applications that support the operational
- Data analytics
processes and administrative needs of
merchants’ businesses.

Consumer services: Consumer services

Front-of-house, consumer-facing services
- Customer-loyalty programs,
geared toward customer-relationship market- coupons,and offers
- Customer receipts
ing, customer support, and, more generally,
- Order taking
applications that enhance customer engage- - Stock checks
- Product discovery
ment.
- Location and navigation services
Professional services: - Social shopping apps
Specialist services that help merchants
navigate, plan, implement, integrate, and maxi-
Professional services
mize mPOS technology and solutions. This can - Consulting
- System design
also extend to managed services.
- Systems integration
- Security
- Device/infrastructure management
and maintenance
- Managed services

mPOS is being embraced by larger Sephora are all using or experimenting with

merchants mPOS alongside traditional POS, integrating

mPOS platforms into existing payment systems.
A growing number of medium-sized and even
ICICI Prudential in India is working with Comviva to
some large merchants are starting to take note
equip its agents with the capability to issue new
of mPOS, with early adopters having rolled out
policies at the customer's doorstep, including the
tablet-based mPOS implementations as a comple-
ability to scan and upload documents for "know
ment to traditional POS or, in a few cases, as a
your customer" and policy payments. The interna-
replacement for cash registers. Starbucks, Nord-
tional fashion chain Urban Outfitters has gone a
strom, JCPenney, Gap, Home Depot, and
step further: it has replaced cash registers with

The rise of Mobile POS 10

 iPad-based mPOS solutions in selected US stores, and has plans for a wider rollout. Some large FMCG
companies are also considering mPOS to complement their direct to consumer initiatives.

Queue busting – mPOS can be particularly valuable during peak shopping hours
(lunchtimes and after work) and peak periods such as seasonal holidays, when retail-
ers can supplement their fixed POS with mPOS.

Fast inventory checks – it can be used to help customers find desired items.

Space saving – if mPOS is used as a POS replacement, it frees up valuable store

space for other uses.

Promoting greater customer interaction generally.

For larger merchants,
Enabling associated marketing services. For example, mPOS can be used to encour-
mPOS solutions offer
age pre- and post-sale shopping activities through discounts and reward schemes.
value-added features
and benefits not Allowing merchants to reach out to their customers more effectively e.g. an insur-

available when using ance agent being able to complete a policy sale in a single visit to the doorstep of a
customer using a tablet and a dongle.
traditional POS
Sophisticated services like analytics that can sift through payment transactions and
make recommendations to merchants on issues such as optimal inventory, ordering
cycle or even make recommendations to customers based on previous buying
patterns and preferences.

Integration with merchant's existing IT and CRM systems like loyalty, inventory to
seamlessly integrate with existing business processes.

Use of technology like BLE (Bluetooth low energy) and location-based services to help
provide real-time accurate information to consumers about store layout, or location
of articles.

mPOS will expand beyond retail candidate for mPOS. This could also include large
enterprises and public service organizations that
The retail sector has been the prime target for
at the moment are not typically viewed as mPOS
mPOS, but there are many other merchant
candidates, from everyday scenarios such as
segments and organizations that mPOS can
police services that issue on the spot fines, to a
address. Basically, any business or organization
stem cell banking company signing up customers
that would benefit from its staff being able to
at their home or local clinic.
process card payments while mobile is a potential

The rise of Mobile POS 11

mPOS could also be used at sporting and other
events in fixed venues to prevent queues and take
payments at additional, flexible locations. Essel-
World, one of India's premier entertainment
destinations, is experimenting with mPOS to allow
customers to buy entry tickets at a venue's car
park or while they are travelling on a bus to an
event. mPOS could be used in a similar fashion at
conferences and conventions, and also at events
such as outdoor concerts and festivals that take
place at temporary locations.

VAS would need high degree of

customization

At the moment there is a tendency to adopt a

one-size-fits-all approach to merchant solutions.
Although merchants have certain common
requirements (e.g. inventory and sales manage-
ment), this top-down approach is out of step with
the fact that merchants’ needs differ depending
on the verticals they serve – small coffee shops’
requirements will be different from those of lone
traders, which will be different from those of high
street chains. Given the diversity of the merchant
base, the underlying platform should be highly
customizable to meet requirements of specific
industry verticals.

The rise of Mobile POS

12
The mPOS Ecosystem
Merchants micro-merchants, opening up new opportuni-
ties in this market. Banks are also in a strong
Most mPOS solutions have experienced strong position to cross-sell mPOS solutions to
growth among micro-merchants, and for good larger merchants with which they have
reason. Most micro-merchants operate on a strong, trusted relationship.
cash or check-only basis out of necessity
rather than desire, because they cannot afford Mobile operators
the high costs associated with traditional
Mobile operators are pushing consumer-facing
card-processing equipment, processing fees,
digital wallet services in a bid to drive new
and maintenance. Adopting mPOS provides
revenues, but so far few have embraced
them with a low-cost solution and flexible
merchant-facing mPOS solutions. This is
pricing models that make credit card accep-
because operators have very limited merchant
tance feasible where previously it was not. At
experience, while at the same time most
the same time, mPOS also provides opportuni-
operators believe there is more value in
ties for larger retailers to create efficiencies
consumer-facing digital wallets rather than in
and enhance the in-store shopping experience
mPOS.
for consumers.
However, there are opportunities for mobile
Banks operators in the mPOS market. The most

Merchant acquiring banks have often been straight forward tactic is for operators to act

reluctant to take on micro-merchants because as distributors for mPOS hardware, offering it

of their unpredictable transaction volumes, the as a way to add value to an existing portfolio of

risks associated with underwriting very small financial services. An example of this approach

businesses, and the cost and lengthy payback is AT&T’s retail partnership with Square,

period related to installing payment card whereby it sells Square Card Readers in more

processing terminals. than 1,000 stores, offering a rebate on the

dongle to merchants that sign up. There are
However, the much lower cost of mPOS additional higher value options for operators,
solutions means that acquiring banks can which are put forward in the Recommenda-
now build the business cases they need to tions section of this whitepaper.
facilitate credit card acceptance among
.

The rise of Mobile POS

13
Recommendations service partnerships which benefit

Merchants merchants - for example, PayPal Here

comes with pre-integrated partner solutions
mPOS is a young, fast growing market with
including ShopKeep, Vend, and Erply. Associ-
multiple players, many of them start-ups, which
ated with this, mPOS solution providers
from a merchant perspective makes selecting
should offer open APIs to support integra-
the right partner particularly challenging. We
tion with third-party applications.
advise merchants to favor mPOS solution
providers with the following characteristics: Larger merchants and other organizations
in particular will need partners that have the
mPOS solution providers that have a
ability to integrate mPOS solutions with
well-defined portfolio and road map for
existing front-office and back-office systems.
value-added services (this includes support
for horizontal payment related services There can be an assumption that payment

solutions required by all merchants such as related services are of most importance in

inventory control, mobile marketing applica- attracting larger retailers to mPOS. While

tions) and VAS tailored for the needs and this group does increasingly expect innova-

requirements for specific industry verticals. tive services, it is a mistake to think that the
traditional micro-merchant base does not
Data analytic capabilities. A key benefit of
have an appetite for sophisticated payment
mPOS is its ability to capture customer
related services. If anything, the need for
data, a capability lacking in traditional POS
VAS is more acute in the micro-merchant
equipment. Customer insights are invaluable
segment, where it can play a key role in
to small merchants that cannot compete
building their core business.
with the wealth of customer data that larger
online merchants are able to gather, mPOS solution providers that have experi-

particularly global online players like ence and expertise in secure payment

Amazon. systems should be favored, as even minor

security flaws have the potential to shake
mPOS solutions providers that support
merchant and consumer confidence in this
tablet-based solutions. These are starting to
new technology.
be used by larger merchants as a comple-
ment to existing POS, or in some cases as a Merchants should have the flexibility to be

replacement. able to subscribe to custom VAS bundles,

selecting applications such as loyalty
mPOS solution providers that have strong
programs, or catalog management.

The rise of Mobile POS

14
 Support for SDK development environment clearly the most challenging strategy. It
is desired as it accelerates creation of requires banks to re-engineer their merchant
custom applications (IPOS) to meet distinct sign-up process and risk-management models
requirements of merchant categories or (merchant onboarding) to suit the require-
individual merchants. ments and constraints of micro-merchants.
This is a major undertaking, and the effort
For large merchants using mPOS as a
required should not be underestimated. The
complement to existing POS solutions,
merchant onboarding process established by
prebuilt-connectors facilitate integration
mPOS providers has set a new benchmark and
with critical backend IT systems used for
is very different from the processes used by
CRM, inventory, billing and loyalty – allowing
banks for the larger merchants they typically
merchants to better manage their business.
target.

Support for mPOS APIs is also desirable as

Mobile operators
it gives merchants an option to embed card
acceptance functionality within existing The most straightforward way for operators to
payment applications, saving time and participate in the mPOS value chain is by acting
money. as distributors for basic mPOS hardware, but
there are higher value opportunities available. A
Banks
more strategic approach is for operators to

Most banks are arriving late to the mPOS offer mPOS as part of a service bundle, for

market and need to move quickly, but they also example a package comprising a smartphone,

need to consider very carefully the models they dongle and data plan.

use. The easiest route is for banks to partner

Operators could build on this by offering more
with an established mPOS product provider
sophisticated cloud-based VAS such as account-
and focus on merchant acquiring and servicing
ing software or analytics as part of the package,
rather than on technology. An alternative is for
or integrating mPOS with their existing enter-
banks to source and provide their own mPOS
prise solutions. They could also add tablets into
solutions. A white-label product like payPLUS
the mix. This sort of “out of the box” proposition
from Mahindra Comviva is lower risk and
would appeal to both micro-merchants and
affords greater speed to market than a
larger enterprises. AT&T has taken a step in this
scenario where a bank tries to develop its own
direction by offering GlobalBay’s mPOS solution
mPOS in-house.
to SMEs. In the UK O2 is doing something

Launching a bank own-brand mPOS service is similar, offering an mPOS solution in partnership
with Visa Europe and Global Payments.

The rise of Mobile POS

15
 Appendix
This white paper was researched, authored and produced by Ovum in association with
Mahindra Comviva, as par t of a series of papers assessing the current state and future
market direction of mobile broadband services for mobile operators.

About Mahindra Comviva

Mahindra Comviva is the global leader in providing mobility solutions. It is a subsidiary of
Tech Mahindra and a part of the USD 16.7 billion Mahindra Group. With an extensive port-
folio spanning mobile finance, content, infotainment, messaging and mobile data solutions,
Mahindra Comviva enables service providers to enhance customer experience, rationalize
costs and accelerate revenue growth. Its mobility solutions are deployed by 130 mobile
service providers and financial institutions in 90 plus countries, transforming the lives of
over a billion people across the world. For more information, please visit
www.mahindracomviva.com.

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