Companies offering smartphone-enabled point-of-sale hardware and software applications are unlikely to capture business from providers of traditional wireless-payment terminals. The more likely outcome is that the two types of wireless devices will compliment each other, with the smartphone-enabled card acceptance attracting small mobile merchants that have avoided purchasing wireless terminals because of the cost, observers say.

Smartphone-based payment applications and devices are enabling a “much wider group of merchants, typically referred to as micro merchants, to accept electronic payments,” says Paul Rasori, senior vice president of marketing at VeriFone Holdings Inc., a San Jose, Calif.-based terminal maker. “In the past, those merchants couldn’t justify paying for electronic payments. By enabling the cell-phone technology they are carrying with them anyway (to accept card payments), the cost of entry into the payment system is much less costly for them.”

Before smartphone-enabled payment card acceptance emerged in the market, merchants’ only alternative was to buy a dedicated wireless-payment device, which typically includes a higher upfront cost, says Rasori.

A merchant may pay between $600 and $800, depending on the reseller, for a traditional wireless terminal, says Rasori. In addition, wireless devices typically need their own network connections, which may cost an additional $15 to $20 each month, he notes.

In contrast, VeriFone’s PayWare Mobile service includes a free application merchants can download from Apple Inc.’s online application store and a card reader available at Apple stores for $149. The reader is free for many merchants if they sign a long-term contract, according to VeriFone.

VeriFone’s suggested pricing plan is a $15 monthly gateway fee and a one-time $49 sign-up fee for merchants with existing accounts. Merchants also pay VeriFone 17 cents per PayWare Mobile transaction. Resellers, including acquirers, set their own rates, VeriFone says.

A market exists for both types of wireless products, agrees Scott Holt, senior vice president of business development for ExaDigm Inc., a Santa Ana, Calif.-based terminal maker.

Some merchants, such as concert t-shirt vendors who process a large number of transactions over a short period of time, may find a smartphone-based product does not meet their needs, says Holt. Other mobile merchants that process fewer transactions, such as a plumber who may complete only one or two transactions daily, may find a smartphone-based product more helpful.

Mobile phones are “not designed to be treated in the same way as something built specifically” for conducting transactions, says Holt. Accepting payments is another business tool the phone can perform, but it is not the phone’s sole purpose, he says, noting many mobile merchants use their smartphones’ other applications and features frequently throughout the day and cannot have the phone tied up with constant transactions.

Because smartphone-enabled devices are not the right fit for every merchant, the products may drive additional merchants to purchase traditional wireless terminals, says Tim McWeeney, vice president of North American sales at Way Systems Inc., a Woburn, Mass.-based provider of mobile-payment terminals. “I predict there will be a tremendous fallout of people who are unhappy with the limitation of processing on a cell phone. It will give me a market I didn’t have before,” he says.

Overall, smartphone-enabled payment acceptance is “opening up the market for millions of people” and are helping to “expand the entire pool of merchants,” says McWeeney.

The traditional U.S. terminal market is saturated, and many sellers of card-acceptance products say smartphone-enabled devices and the mobile-merchant market represent new sales opportunities, agrees Rasori.

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry