Mobile point of sale systems could expand card acceptance by adding as much as 19 million merchants, resulting in a potential $1.1 trillion uptick in annual card payments, Javelin Strategy and Research says in a new report.
The real "eye opener" from the report is that bigger merchants are embracing mobile card acceptance technology, says report author Mary Monahan, executive vice president and research director for mobile at Javelin.
"Mobile point of sale is an innovation that started at the bottom of the payments food chain and worked its way up," Monahan says. "Larger merchants are now seeing it as an opportunity for better use of physical space."
Mobile card readers, which attach to smartphones and tablets, are "changing how large retailers operate their business," Monahan says. The trend is partly triggered by high-income consumers, who generally say they are "very interested" in the convenience of a mobile point of sale, she adds.
"That is why we are seeing Nordstrom and JCPenney incorporating it," Monahan says.
Javelin used data collected from online surveys of more than 12,000 consumers over the past year and from interviews with executives at 14 mobile point-of-sale vendors, two related payment firms and at the Payment Card Industry Council.
Square Inc. was the initial catalyst in bringing mobile technology to the point of sale, mostly because of its straightforward pricing and its practice of offering its card reader for free, the report states.
As new mobile point of sale players emerged, conventional terminal makers and acquiring businesses were forced to adapt, invest or acquire. "Serving micro businesses requires extensive retooling of existing processes and market innovation relative to legacy acquiring systems," the report says.
As such, VeriFone's "hasty entrance and exit" from the U.S. market with its Sail card reader illustrated the difficulty established vendors have adapting to new arenas, the report says.
Security of mobile devices plays a key role, as only 28% of all consumers consider processing a card payment on a mobile device to be "very or extremely secure," the report states.
"Initial implementation of mobile point of sale wasn't secure," Monahan says. "Now the data is encrypted, and the industry has guidelines from the PCI Council, MasterCard and Visa."
But security has to keep up, she adds.
"If your brand is known for security, the merchants will trust you," Monahan says. "If the consumer sees a brand they trust, they will give the merchant their card."
As vendors are "heading upstream" to accommodate multi-store and larger retailers, they must offer a greater level of integration and service, the report says. Operating within front- and back-office retail systems, as well as consumer mobile wallets, will be important.
"Early on, providers were giving the reader away," Monahan says. "But it's a numbers game, so at what point can you keep doing that?"
No matter how deep their pockets, vendors eventually have to recoup costs, Monahan says.
"Adoption first, that's the game," she says. "They generally try to get big numbers before changing pricing structure."