RSR has talked a lot about mobile payments, usually in the context of consumer mobility. Most recently we discussed the news that Apple would offer NFC-based payment capabilities on next the iPhone (NFC & Mobile Payments: Is Apple Behaving like ‘70’s Era IBM?, 2/1/11). But what about mobility for the merchant for payment handling? There’s plenty happening on that side of the payment process too, and competition is heating up.

Consumers who shop at the Apple Store have experienced mobile payment processing. Apple’s iPod touch POS system enables store employees to quickly accept a credit card transaction right on the sales floor. Since late 2009 rumors have circulated that Apple will sell its POS system to other retailers. In the meantime, other technology companies have emerged that want to enable Apple-like mobile payments at least. For example, about the same time as the Apple rumors hit a crescendo, Twitter creator Jack Dorsey formed a new startup, Square, to offer a little square credit card swipe device for the iPhone, Android, and other smart mobile devices, plus the enabling application — and the cloud-based service to handle the transactions.

In December 2009, CNN called Square “smartphone PayPal for credit cards. “ Although CNN focused on how individual sellers could use the payment capability, it seems more focused towards smaller merchants. Fast forward to 2011: on March 2, Square reported (of course, via Twitter) that it reached the $1M-per-day milestone; In January, Silicon Valley venture capitalists pegged the company value at $200M, according to Techcrunch.

From Little Acorns

The reason this story is interesting for all retailers is because the small retailer market may be giving the big boys an indication about the future of Point-of-Sale. One might go so far as to conjecture that POS, as we have known it (that expensive, stationery collection of gear physically attached to a LAN and back-office redundant controllers), is finished. After all, what POS systems really do is, 1) decrement inventory, and 2) take money. Why not mobile? Although there’s plenty of skepticism when it comes to dangerous notions like this, mobile payments are real — just look at the who is promoting the idea.

For one, there’s VISA. The company recently blogged that

… with Square’s product,… small merchants can use a mobile device as a gateway, making a transaction over Visa’s global network and gaining the security, speed and reliability that come with it. Enabling easy card payments on-site can help increase sales, reach new customers and involve the merchants in the larger electronic payments community. We believe there are countless ways that innovative tools like Square, coupled with the unparalleled experience and performance that Visa offers, will allow the global electronic payments industry to continue innovating and evolving, making the consumer’s life a little easier, quicker and more secure. We are committed to working with innovative companies, like Square and others, as the world shifts to electronic payments. “

Why would they care? After all, VISA is also working with such companies as Devicefidelity to make consumer phones contactless payment capable when used in conjunction with any merchant pay-pad device that can handle NFC (near field communications). That seems to be the way mainstream retail payment technology is going — for example, Verifone just announced in March that all of their devices will now be NFC-capable.

Heating Up

Perhaps the reason for VISA’s endorsement of the Square option is because it offers another alternative to Intuit’s GoPayment service Verifone’s Payware Mobile. VISA doesn’t lose no matter which technology wins the hearts and minds of smaller retailers. Square heated up the competition a few weeks ago by lowering its fees to a flat 2.75% per transaction (dropping a $0.15 additional fee such as that charged by Intuit). It doesn’t take The Wall Street Journal to do the math for us, but they did anyway: “it means that for a $100 purchase, they will now pay $2.75, rather than $2.90. The impact will be much greater for smaller purchases, like a $3 cup of coffee that will now cost the merchant 8 cents, down from previous 23 cents. ” Expectations are that Intuit will be forced to follow suit.

Because It’s There

As mentioned earlier, this whole story is interesting because it points out how new technology is challenging traditional ideas about how retailers can interact with consumers. POS has been untouchable when it comes to ideas that in another context might make perfect sense. For example, few retailers we’ve talked to are ready to consider a cloud based POS architecture, even though that same concept gains more acceptance when talking about task management.

Payment systems are another sacred cow — almost always the most over-engineered part of a POS system. As one store manager said to me a long time ago, “we don’t ever want a piece of technology to get in the way of taking customers’ money when they offer it to us “. But the truth is that mobility works, and better every day. It used to be that small shops had to learn what they could from big shops as they sought to automate their stores, albeit with cheaper and less robust technologies. Now, if big companies can figure out how to make what’s available in small shops today more industrial strength for their high-volume operations, big changes could be the result.