Point-of-sale terminals five years from now may not look much different from today’s devices, but big changes are anticipated for the software running on them, new research suggests.

The proliferation of payment form factors, including magnetic stripe, EMV chip-and-PIN, and Near Field Communication and other contactless methods, plus merchants’ desire for more value from their payment systems, is prompting a major reconsideration of what a payment terminal should do, David Fish, senior analyst at Mercator Advisory Group Inc., notes in a recent report “The ‘World Terminal:’ Preparing the POS For The Multi-Form Factor Future.”

Payment-terminal makers should plan for “application-centric” devices, where the focus is on the software residing inside the terminal instead of on the hardware, Fish says.

Some of this change already is evident. For example, Sage Payment Solutions, a McLean, Va.-based transaction processor, plans to install its Sage Exchange software that enables merchants to combine financial and transaction data into Ingenico S.A. terminals by the end of the year (see story). 

“The movement is away from a great deal of information and intelligence that drives the terminal being resident in the terminal itself to a more-hosted model, where the intelligence that drives the terminals resides in the cloud,” Fish tells PaymentsSource. The “cloud” refers to delivering services via servers on the Internet.

One example of that today is remote key-injection services that update a terminal’s encryption without the need to send the device to a shop for the service.

Retailers reap benefits from this new model, Fish says. “Merchants are hungry for integrated technology that creates a richer user or customer experience at the point of sale,” he notes, citing as examples improved marketing and loyalty efforts and back-office integration for inventory and loss-prevention processes.

Consumers also may benefit from a better POS experience, says Fish, citing the Starbucks integration with Apple Inc.’s iTunes store. A Starbucks customer with an iPhone can walk into a Starbucks and buy the song playing in the store and download it to the phone, he says.

The core physical characteristics of a POS terminal–the screen, PIN pad and mag-stripe reader–will not change, but devices likely will be built from scratch with other acceptance technology, such as smart card and contactless-payment readers, Fish says.

Migrating to a services model, with the attendant change in the terminals to accommodate multiple payment methods, also suggests the potential for replacing terminals, he says. “The cost involved with re-terminalization for both the merchant and acquirer are fairly substantial,” Fish says.

Though the U.S. has yet to migrate to chip-and-PIN payments, merchants already are deploying EMV-capable devices as they replace older terminals, Fish says.

“The future isn’t processing; the future is services,” he says.

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