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Can Amazon translate its online marketplace success to the physical store?

Amazon kicked down the door to the mPOS world last week, and will now attempt to dominate it.

The rapid growth of Square (on target to process $30 billion in 2014) set them to corner the mPOS market. It hasn’t, and now Amazon – among others – will attempt to take over. Despite this colossal transaction processing number, Square actually lost $100 million in 2013. They will also lose money from their recent, high-profile deal with Starbucks.

The deal (signed for three years in 2012) gave Square exclusivity in all of Starbucks’ US stores, yet Square lost $25 million. The reason is simple, no margin. The plethora of processing costs gives Square no room for profit.


So, what is Amazon getting itself into? Well, the mPOS market has exploded since 2011, and in 2014 sales of mPOS devices is expected to grow by 95%. In addition, it is estimated that shipments of installed POS terminals will be overtaken by mPOS devices by 2016.

A Forbes.com piece on the ‘wallet wars’ – specifically on the battle between PayPal, Square and Amazon – described mPOS as bringing “the speed and simplicity of Internet shopping into the physical store.”

The same article encapsulated what is at stake in the so-called ‘wallet wars’:

“Money is going mobile, and the race is on to control the flow of bits and cash across a billion smartphones, and at millions of online and physical locations. Research firm Gartner estimates that mobile payments will top $720 billion a year by 2017, up from $235 billion last year. The upside remains enormous: Humans made $15 trillion worth of retail transactions in 2013. Whoever ends up with controlling interests in this new digital ecosystem will reap billions in transaction fees, collect massive amounts of consumer data and control the type of targeted advertising that makes marketers drool.”

That’s a $15 trillion market, with the mPOS sector growing rapidly. Which is why there are over a hundred (123 to be precise as of August 2014) mPOS devices in use around the globe all seeking a slice of the pie.

The mPOS revolution

A recent Smart Insights report, titled ‘mPOS expansion shakes the Point of Sale industry’, stated that 52 million mPOS devices will be shipped in 2018. Despite this explosion in the number of mPOS devices, they will still rely on the traditional payment card processing systems.

New mPOS channels are still reliant on traditional systems. These systems have been in place for nearly half a century. They have evolved as a plethora of new message types have been implemented. ISO 8583 is the message type of choice in the US and Asia; APACS 40 the dominant type in the UK while GICC is Germany’s most used message type.

Will Amazon win on price-point?

Amazon – with their Local Register mPOS device – is undercutting the likes of Square and PayPal, but the payment processor’s share of a transaction has also been diced up. Amazon aims to dominate the face-to-face market in the same way it has dominated online payments since the introduction of their ‘1-Click’ payment solution in 1999.

Some commentators view Amazon’s new mPOS device as a Trojan horse for small and medium businesses. The thought process is that Amazon wants all of a merchant’s data so that Amazon can use the information to put them out of business. Is that a stretch too far? Amazon’s business model has always been: beat them on price.

Undercutting is its modus operandi. With the Local Register mPOS device Amazon will charge merchants 1.75% (until January 1, 2016, if the merchant signs up before October 31) per payment card swipe, beating Square’s 2.75% and PayPal’s 2.7% hands down. This will obviously mean less money for the payment processor operating, as always, in the background.

Payment processors need a safe, reliable and fast solution

Payment processors now need the most cost-effective and least time-consuming payment switching platform. This is where Aviso’s Novate platform comes in. Due to this margin squeeze, it is crucial that payment processors implement a switching platform that enables easy acceptance of all payment message types. Novate is developed to be the solution to this very problem.

No matter how many new channels enter the payments ecosystem the processing of transactions still has to be safe, reliable and fast. We may get new cars, but we’re driving on the same old roads.

Novate is easily integrated into any payment processing system. It accepts and processes all message types, is extremely reliable, cost-effective, and fast: there is no ‘downtime’ with Novate.

While much of the focus in mPOS has been on the front-end of the service – that is to say, the mobile apps and the dongles to enable mPOS transactions at the point of sale – Aviso provides a compelling, easy to implement and rapid back-end solution for mPOS companies looking to start accepting mPOS payments in different markets worldwide.

Novate can enable mPOS providers to seamlessly integrate with either acquiring banks or card schemes in order to start accepting payments. Novate provides a robust, secure platform on which the next generation of innovators in the payments space can build their businesses.

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