Innovations in Card Acceptance

by Scott Loftesness on January 22, 2011

in Card Acceptance, Card Payments, iPhone, Merchant Acquirers, Mobile Payments, Square

Scott Loftesness - Glenbrook Partners

What Drives Innovation?

More often than not, the successful innovations that surprise us come from disrupters who focus in a laser-like way on unserved market opportunities. In doing so, they are able to successfully fly below the radar of the incumbents (to use Christensen’s familiar terminology). The incumbents, after all, have a laser-like focus on their primary customers, not on the unserved. Frankly, the incumbents typically poo-poo the disruptive innovators – “what do they know?, etc.”

In our world of payments, there’s been a lot of recent interest in mobile payments – a very broad category that’s frankly ill-defined and mostly misunderstood. But there is disruptive innovation happening – especially on the card acceptance side. A leading example is Square, Jack Dorsey’s startup focused on enabling iPhones and iPads for use as merchant POS devices.

Square’s cool iPhone/iPad app technology is part of the magic – but the other part is business model innovation. Much like what PayPal did a decade ago, Square’s focusing on the unserved – folks like you and I who have iPhones in our pockets and/or iPads in our backpacks – but who can’t get traditional merchant accounts. Square’s willing to take us in and allow us to accept credit/debit cards on our mobile devices. Voila, suddenly things begin to happen.

The lethargic incumbents, who could have been innovating in this unserved acceptance market for years but haven’t (because they’re chasing bigger fish instead) suddenly realize that wow, there just might be a market here. After all, why are the VCs willing to write big checks at high valuations to Jack otherwise?

Slowly, the payments incumbents have become sensitized to how this kind of innovation has happened. After all, they’ve had a decade to study PayPal’s success! Maybe they too need to have an iPhone/iPad mobile POS application in their kit bag? Maybe they need to re-examine the gauntlet of traditional merchant underwriting they currently impose and try to find a more streamlined approach that doesn’t either turn us all off in terms of the experience or end up disappointing us in underwriting? They’re restless, aroused and seem to have begun converging on the target of the unserved they had previously ignored.

Meanwhile, it seems like we may be on the cusp of a pivot in the acceptance market. Is the real market for this kind of mobile POS acceptance innovation with the unserved – where Square started – or, instead, might it just be with the big customers? Or both?

Have you bought anything at an Apple retail store lately? Were you impressed by the experience? Did you notice how the consummation of payment for your purchase was almost seamless? No standing in line in front of some “cash register” – you just paid the person who’s been serving you the whole time. Paper or email receipt? Email PLEASE! You’re done. It’s a delight!

If you’re the head of marketing for any significant retail chain, you have to be in awe of this shopping experience Apple has created in-store. All enabled by mobile POS acceptance devices that bring the payment interface to the consumer in the right place at exactly the right time.

So, we’re talking about at least two market opportunities here – the unserved market who would like to be enabled for card acceptance – how big do you think that market is? – and a redefinition of the checkout experience for larger merchants who value a high touch customer relationship – how big might that market be?

Think about the multiple innovations happening here. This isn’t just about developing a mobile acceptance app for iOS devices – there’s more to it than that (receipts, etc.).

This is going to be fun to watch! What do you think? Share your comments below!

5 Responses to “Innovations in Card Acceptance”

  1. AisleBuyer is an interesting new company to watch in this space. Their smartphone app enables an end-to-end in-store shopping experience, including product reviews, couponing, self-checkout, payment, and digital receipts. Also, take note of Chapter 5 of the NRF’s ‘Mobile Retailing Blueprint: A Comprehensive Guide for Navigating the Mobile Landscape, Version 2.0.0.’ I led the committee that developed the mobile payments content for this book, but we elected to include Mobile POS in the Mobile Operations chapter. There is some great content there for anyone interested in the topic.

  2. Dave Birch says:

    I was also impressed by the way Apple integrated their online and physical presence. When I went into the Apple Store in New York and bought something, the clerk said “paper or e-mail receipt” and I said e-mail and off I went. Then I wondered: how did they know my e-mail address? So I went back to ask: turns out that I’d used my Amex card to buy something from the Apple Store online before. Since they knew my card number, and already had all my details, there was no need to ask me for the details again in store.

  3. I’m excited reading your post! 🙂

    I was reminded by a recent BankSimple post on interchange that Retailers actually were the ones extending credit in the “old” days… it really stopped me in my tracks for a second — its true! Even when I was a kid I remember my parents having an “account” at the local hardware store and having the merchant extend the credit. It was an awesome checkout experience when buying a snow shovel, or a new light bulb — just put it on the account. Done.

    I think the retail experience angle, as you mention, is actually going to be heavily influenced by the online like Apple/Starbucks are doing — and I think it could be big. If you change the payment experience you can change the average spend most likely and the long-term value of that customer — we see that type of dynamic all the time online.

    Plus — All those debit interchange savings can be used to invest in some whiz bang Apple/Starbucks like experiences. 🙂 Why shouldn’t rewards be more directly powered by merchants any way instead of via higher MDRs? Since there are probably going to be changes around debit card rewards, for example, it creates a great opportunity for retailers to offer custom rewards. Exciting times, as you say!

  4. Yes! All these points are completely valid, and it is now our task to
    make online payment as smooth and seamless as your Apple Store
    experience. We are at the dawn of a time, where the payment process is
    part of the (online) shopping fun, rather than the horrid
    end-of-shopping-bring-down that kills all the endorphines that the
    (virtual) aisle browsing have released.

  5. Very good post! It seems that finally most of businesses are now aware of the how important is to take payments into the slot they deserve. I say so, as what is the point of having a great product if you do not offer the right payment solution for that particular user/market, or simply do not plan what sort of fraud you as a merchant can suffer from one payment solution or the oher? Saying that, I would like to raise my concerns about systems like the one Squre is proposing, not because it is not a great idea, which it is, but because as a user I may not trust my card being swapped into a “card reader” I am not familiar with and therefore I think my card could be skimmed… (i will expect to solve that query at the Barcelona MWC)

    As a final note, I would like to tell Daniel Mattes, that I am very much looking forward for Jumio to reveal their plans, as the expectation and team of advisers are definetely paying off the wait.

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