In recent years, companies have aggressively reinvented the card-reading dongle to fit their brands and absorb new technologies like EMV and NFC. But few have succeeded in doing away with the dongle entirely.

xPressTap Inc.'s new Tap2App system, now in pilot in Australia and New Zealand, is a new approach to the mPOS model. xPressTap's patented technology turns any NFC-enabled smartphone or pad into a virtual card reader and can reduce merchant fees by as much as 25%, the company claims.

There are a handful of market forces that are converging to make this model possible for the California-based provider.

NFC phones tapping
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Firstly, there are a number of geographies where contactless EMV is becoming the norm. In the U.K., for example, one in five transactions is now contactless, a factor that has helped push card transactions to outnumber cash for the first time. In Australia, one of the markets where Tap2App is being piloted, cards also account for more than half of all payment transactions. With contactless tailwinds pushing card penetration and usage, the timing could be right for mobile POS without the clunky dongles.

Another significant factor that may contribute to the success of Tap2App is that Apple is finally loosening its control over NFC, which would presumably mean that iPhones will also be candidates for usage of Tap2App, although reliance on Apple opening up hardware to third parties could be dangerous given its history of developing closed-loop systems such as iTunes and on occasion restricting previously open capabilities, such as background geolocation information used by apps such as Domino’s and Waze.

One obvious question relates to how Tap2App will be able to fend off competitors that are deeply vested in the mPOS environment such as Square, as well as purely NFC initiatives such as Apple Pay and Android Pay.

Joe Lynam, CEO of xPressTap, sees protection from competition in the form of two U.S. patents and three International PCT patents pending for their hardwareless technology. Lynam also intends to gain share based on cost savings due to reduced hardware requirements.

XPressTap will focus first on Australia and New Zealand before moving to other contactless-friendly destinations such as Canada and the U.K.

In Australia, “We’re going direct to market with micromerchants, we’re recruiting pilot merchant and we’re partnering with a bank that’s yet to be named," Lynam said.

The U.S. is considered to be further off in market readiness for contactless mPOS, and xPressTap expects it could take 18 months to two years for there to be enough contactless cards to make the U.S. a viable market for Tap2App.

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Nick Holland

Nick Holland

Nick Holland is a Senior Analyst at PaymentsSource. He has previously held analyst roles at Javelin Strategy & Research, Yankee Group and Aite Group.