Before 2009, the term mobile point of sale, or mPOS, was mostly used to describe any wireless handheld device dedicated to performing traditional POS functions on the go. Such devices, save for their mobility, had very little to set them apart from their wired brethren, which sadly meant that for millions of so-called micro merchants they were just as costly and difficult to acquire as traditional machines.
However, little did the world of that time know that a revolution was just around the corner. A revolution that would lead the term mPOS to take on a whole new meaning and, for the very first time, enable millions of individuals and small businesses, until then ignored by the payment card industry, to accept card payments.
It was left to Square, a mobile payments startup founded by Twitter co-founder Jack Dorsey, to spark the mPOS revolution. Founded in 2009, Square’s take on mobile credit card processing, although ingenious, wasn’t entirely groundbreaking from a technological standpoint. Rather than try to make a dedicated mPOS device, the company chose to hitch a ride on the ongoing smartphone wave and came up with possibly the best iPhone peripheral for micro merchants: a tiny add-on card reader that converts magnetic card track data into audio form and transmits it to the phone via the headphone jack. Before long, hundreds of thousands of “Square Readers” were busy processing millions of dollars in daily transactions, and the market was flooded with new entrants, all wanting a sizable piece of the mPOS pie.
Now estimated to be worth around $5 billion, the San Francisco-based company has gone from strength to strength in the three years since its flagship product first hit the market, adding Android compatibility, broadening its product portfolio, raising more than $300 million in angel and VC capital, forging several high-profile retail partnerships, and venturing into Canada and Japan.
According to estimates, it has more than 5 million active users across the U.S., Canada and Japan. Things seem to be just as rosy on the sales front. In late 2013, the Wall Street Journal reported, citing sources with access to internal sales projections, that total sales in 2013 were expected to be around $550 million on an annual transaction volume of $20 billion, with the sales figure expected to touch $1 billion in 2014.
Amid widespread rumors of an IPO being imminent, a few concerns remain. The company has yet to launch an EMV-compliant card reader, which is something it will have to address soon if it plans to expand to other parts of the world; further, card networks have set an October 2015 deadline for merchants in the U.S. — the last EMV holdout among G20 nations — to make the switch to EMV or risk greater fraud liability. When it does launch one, it will be interesting to see if Square is just as willing to give away the more expensive EMV card readers to micro merchants as it does with magstripe readers now.
Another issue is the growing dissatisfaction among Square’s customers with the quality of customer support (or the lack thereof). Square is now far too big for it to persist with its current approach to customer service — no phone calls, only emails — and should earnestly consider providing live customer support, especially now that it is ramping up efforts to woo bigger merchants.
Not everyone in the mPOS industry is taking a wait-and-see approach to EMV compliance, though. Dubbed the “Square of Europe,” iZettle was born in 2010, when its founders, Jacob de Geer and Magnus Nilson, realized that there was plenty of room for a Square-like mPOS service in Europe. In 2011, the Sweden-based startup launched its maiden app and card reader (a chip-and-signature device unlike Square’s magstripe card reader). Although there are quite a few similarities between iZettle and its much vaunted archetype, the former has, thanks to its EMV compliance, shown itself to be signally better at global expansion. The service is currently live in nine countries (thrice as many as Square): Sweden, Norway, Denmark, Finland, U.K., Germany, Spain, Mexico and Brazil.
All that said, though, iZettle seems to be lagging far behind Square in user acquisition. Even though the company has mostly been tightlipped about the size of its user base, based on the few times that it has broken its silence on the subject it would be safe to say that the Scandinavian firm is well shy of the 1 million user mark.
Another area where iZettle trails Square is funding, having only managed to raise around $47 million. But that relative lack of funding is, to some degree, offset by the clout of some of its investors. The company counts the eminent likes of MasterCard Worldwide and American Express among its investors.
After iZettle had its chip-and-signature readers blocked from processing Visa card payments in Denmark, Norway and Finland in 2012 for failing to meet “standard acceptance device requirements,” the company debuted a second, more expensive reader in early 2013. Unlike the chip-and-signature reader, the company’s chip-and-PIN reader connects to the merchant’s phone via Bluetooth and uses PIN as the card verification method for chip-and-PIN cards.
Despite their individual strengths and weaknesses, both are effectively blazing parallel trails. However, the same cannot be said for Ingenico-owned Roam Data Inc. Instead of acting as a “super merchant” for individuals and small businesses, Roam has always been more focused on cornering the enterprise market.
ROAM, which was founded in 2005, credits itself for pioneering the magstripe-data-over-audio-jack mPOS technology now popularly associated with Square a good two years before Square even emerged onto the scene. ROAM has managed to carve out a niche for itself by going after big-ticket customers. It does not compete with the likes of Square directly. It acts as a platform provider, selling its mobile POS solutions (card readers, apps and tools) to ISOs, acquirers and other resellers who then distribute these solutions under their own brands.
This approach has proven quite effective and profitable for ROAM, with the company experiencing an impressive 600-percent growth in sales in the two years immediately preceding its February 2012 acquisition by Ingenico. As for overall mPOS shipments, last August CEO Ken Paull revealed that the company had “shipped roughly 2 million systems in the past four years [2009-2013].”
One of ROAM’s greatest assets has arguably been its vast device coverage. The Boston-based company’s current hardware portfolio — a magstripe reader, a chip-and-sign device and two chip-and-PIN machines — is compatible with hundreds of mobile devices. ROAM’s hand is strengthened further by the enormous global footprint of its parent company, which boasts more than 1,000 acquirers in 125 countries.
Square, Izettle and ROAM all have a lot going for them, from influential backers to solid foundations. However, with the global mobile POS market looking saturated and a period of consolidation looking imminent, the last thing they can afford is complacency. It is vital that they not only address their weaknesses, but also continue to build on their strengths. If they stumble now, it is only a matter of time before they get outsmarted by the dozens of other providers vying for this space.
Joseph Frisz is the president and founder of Paytroniks, a boutique consultancy that helps position companies as leaders in the offering of emerging payment solutions. The company’s areas of specialty include mobile payments, prepaid cards and mPOS (acquiring) solutions. Contact him at firstname.lastname@example.org.