Industry Changes Pave Way for Mobile Payment Boom

Last month, PayPal launched a new chip-card reader that will accept contactless mobile payments including Android Pay and Apple Pay. Simultaneously, credit card companies like Visa and MasterCard are changing fraud protection policies to favor chip-embedded cards over those with traditional magnetic strips.

As of October 1, point of sale (POS) systems that aren’t upgraded to accept chip technology will not be covered under fraud protection. This change creates ample opportunity for mobile payment apps like PayPal.

Many companies have built their entire business on the traditional magnetic strip technology used to make credit cards work. Small businesses like local boutiques and restaurants rely on these technologies. It’s cheap to invest in something like Square (compared to a more robust POS system) offer customers the convenience of card purchases.

However, with recent industry changes, this technology will must evolve. Retailers will be left with no choice but to upgrade their POS systems, and the companies that provide this technology will have opportunity to capitalize.

So what does this mean for the future of the mobile payments?

Small retailers will need to upgrade POS systems

Large retailers like Target and Walmart already own the hardware and software necessary for the transition to chip-embedded cards and mobile payments, but smaller startups do not. In fact, there are tens of thousands of small businesses — from local coffee shops to clothing boutiques — relying on inexpensive systems for credit card purchases. The problem is that most of these existing systems do not currently accept chip-based payment. And given the recent fraud protection policy changes, retailers that do not upgrade to enable chip readers will risk liability.

This creates an opportunity for inexpensive POS technology providers. PayPal is the first to make moves in this space with the announcement of its new chip card reader earlier this week.  Companies who do not make the same updates will become irrelevant. Small businesses using this technology are highly unlikely to accept the risk of fraud. After all, a new payment system costs a few hundred dollars, but a fraud case could cost a startup its business. These companies will be looking for technology that gives them the safest and most convenient POS options possible.

Consumers value their security too. Aside from convenience, security is the primary reason why consumers choose to use cards over cash or checks. As the use of magnetic strips becomes increasingly risky, shoppers will turn to retailers that allow them to use chip-embedded cards.

Use of mobile payment options will increase

Consumers desire convenience and efficiency, and traditional magnetic strip cards have provided that for many years. While chip cards are more secure, they do make the process of paying with a credit card slightly less convenient — the chip readers simply take more time to process payments.

With the quick magnetic strips being replaced with chip-card readers, consumers will turn to the more convenient option: their cellphones. Most of the POS systems that accept chip-embedded cards also accept Apple Pay and other mobile options, making the upgrade an opportune time to transition to mobile.

Another factor contributing to the mobile payment boom is the fact that more and more consumers are now upgrading to mobile devices that support these features. When Apple Pay and Android Pay first launched, most consumers still did not own the newest phone model, which was required to use any mobile payment features.

Simply put, the more iPhone 6s within the general population means more consumers using Apple Pay (the same with Android devices), and retailers that support these types of payments will see more shoppers reaching for their phones at POS.

Many small retailers are already reaping the benefits from the mobile payment boom. I recently spoke with the owner of a local coffee shop that just started offering mobile payment options. He said it made his business more efficient by removing the bottleneck effect between the customer and cashier, which traditional payment processing tends to produce. He also mentioned that this change will allow his small businesses to be more competitive with the large national chains.

Overall, industry shifts have forced businesses to react in a way we’ve never seen before.  Small businesses have an opportunity to invest in relatively inexpensive mobile POS systems that allow them to compete with larger chains, while POS system providers will see business boom if they can provide improved devices to make mobile payments easy.

In a world where consumers are seemingly attached to mobile devices, there is simply no reason why the retail industry should resist the big changes likely to come.

Erik Burckart is Chief Strategy Officer & Chief Technology Officer at PointSource.

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