MPOS needs a new business model
I was very quiet the last two months and didn’t write any blogs. But that is probably a good thing, than that means that other things kept me busy. On the last couple of months we grew our company and hired lots of new people and opened a branch in Sydney. We also started an off-shoring facility. So, all good things.
Summer is already over and I took a couple of days off. Time to digest all the exciting news in the payment industry. And there were lots: NFC with HCE on mobile phones, the Paypass and Paywave roll out all over the world, new MPOS guys entering the market and a lot of other fuzz that is more or less interesting.
NFC cards are slowly growing and the number of transactions is growing. I personally like this NFC stuff. It is easy to use and fast, therefore it is a good thing. NFC on mobile phones is another story. Since apple is not putting NFC into their devices and HCE needs tokenization to make things secure, it might take a few more years to see some significant usage. And all the attempts of using the secure element of the Telco guys just does not work because the business model is wrong. I wrote about this earlier.
There is also the iBeacon stuff which I do not really believe in since I can’t see the connection between this technology and payments. But I might be wrong. I will do a separate blog later just to give my opinion about this technology linked to the payment industry.
The MPOS hype?
One of my favorite things still is the MPOS hype. Yes it is a hype or a bubble or whatever it is just before it crashes. I just can’t see that this business model, where a payment facilitator inflates the commissions, works over a longer period. I try to explain myself:
Retailers are usually very price sensitive. Especially big retailers are very hard on negotiating commission rates on card transactions. That is at least the experience I made over the last twenty years. Therefore I can’t see those big Retailers buying MPOS devices and pay a commission rate at 2.75% or so. I can’t even see them to pay a single cent more for a mobile transaction than for a regular retail transaction. And big retailers usually pay commission rates below 1%. They don’t want cheap terminals and high commissions. They rather pay for their terminals just to keep commission rates as low as possible. Buying terminals is an investment you can write off, commission is running cost; something you don’t like. Therefore keep it as low as possible.
Left are the small and medium merchants, and I also can’t see MPOS for medium sized merchants. Let’s assume you are a medium merchant doing 500’000 dollars of card turn over. With a regular credit card contract you pay around 1.75% commission (or even much less). With a regular MPOS contract you will pay around 2.75%. Now this is 1% difference on 500’000 which means 5’000 dollars. Per year. For this amount you can buy yourself some very nice EFT terminals or make a nice vacation.
A new business model on the horizon?
What about small businesses making less than 100’000 on card turn over? As an MPOS PSP, if you have a net profit rate of 0.5% on the card turn over you will make 250 bucks per year on 50’000 dollar revenue. Looks like a difficult model to me. Because you have to provide the service, comply with EMV and PCI, support a lot of mobile devices which means a lot of software programming and do a lot of customer support.
I strongly believe that the business model will change in the MPOS business. The acquirers will do the business directly without any payment facilitators who only inflate the commissions. The acquirers will sell an MPOS device for a couple of hundred dollars but they will keep the commission as low as for regular retail transactions. Or for very large accounts, they will even give the MPOS devices away since they make enough profit on the commission rate. How can a payment facilitator business survive in such conditions?
I think in the next couple of weeks we will work on a new business model for MPOS solutions where no transaction costs are involved. Stay tuned, leave your comment, or if you are an acquirer please call us if you are looking for a solution without transaction costs.
Comment by Ulf Mattsson |
I agree that HCE needs tokenization to make things secure.
Ulf Mattsson, CTO Protegrity
Comment by Mike |
Well, it seems that Apple is finally putting the NFC into their devices…
As for the rest, I agree – a new business model is needed here, and I don’t expect MPOS to be in common use in the nearest future. Not with the ridiculous PCI requirements.
Comment by Nico |
good post, The commission rates will go down. Our customers in the Quick Service industry and in the Gastronomy are not happy with the actual pricing structure from the Payment Providers only because it is a card not present transaction.