The rise of Mobile POS

Contents
1. Key messages 3
2. Introduction 4
3. mPOS in Context 5
• mPOS overview
• SMEs form the initial market
• SME transaction volumes are variable
• Growing competition
• Commoditization of the POS market
• Payment related services as a route to differentiation
4. Evolution of mPOS 9
• mPOS payment related services
• mPOS is being embraced by larger merchants
• mPOS will expand beyond retail
• VAS would need high degree of customization
5. The mPOS Ecosystem
• Merchants
• Banks
• Mobile operators
13
6. Recommendations 14
• Merchants
• Banks
• Mobile operators
The rise of Mobile POS 2

Key messages
Basic mPOS-enabling hardware is now a commodity, and the key to revenue growth and
differentiation lies in mPOS value-added services (VAS). mPOS service providers need to take a
more sophisticated, innovative approach to VASs, abandon the “one size fits all” approach, and
instead develop applications that better match the needs of specific verticals.
There is increasing interest in the potential for mPOS in emerging markets, and we can expect to
see an acceleration of mPOS activity as service providers seek to gain first-mover advantage in
the more mPOS-ready emerging markets. Characteristics to look out for include growing smart-phone
penetration, a large base of SMEs and micro-merchants, low penetration of traditional
POS terminals, a core base of card users that is expanding, and bank and government schemes
to encourage card adoption.
Mobile operators with existing mobile payments businesses will need to take a position on mPOS
and determine how they can participate in the ecosystem. Although mPOS will not be a core
m-payment revenue stream for operators, it could provide some incremental benefits via distribu-tion
partnerships or the provision of bundled services.
Banks are coming late to the mPOS market, they are nonetheless in a good position to offer
mPOS services. Bank acquirers have advantages due to their strong merchant base and their
expertise and long experience in supporting merchant needs.

Introduction
Mobile point of sale (mPOS) has introduced a
new dynamic into the mobile proximity
payments market. Between 2010 and 2011,
approximately 1.2 million mPOS solutions were
shipped to MasterCard merchants globally; and
75% of those merchants had not previously
been able to accept card payments.
This early mPOS growth was driven by adoption
among micro-merchants and while still an
important segment, there are further opportu-nities
for mPOS with larger merchants as well.
mPOS allows larger merchants to create
efficiencies and enhance the in-store shopping
experience for consumers, as well as to equip
their field salesforce with an integrated
payment capability. Another benefit to all
merchants, big or small, is the ability of mPOS
solutions to gather customer data.
Although growth in mPOS has predominantly
been in mature markets, there are several
opportunities for mPOS in emerging markets
that typically have a very large base of small
merchants, and where there is low or limited
penetration of traditional POS terminals.
However, the mPOS opportunity in emerging
markets will be dependent on a core base of
card users and where consumer demand for
cards is increasing, as is the case in India and
China. We expect to see an acceleration of
mPOS activity in the more mPOS-ready emerg-ing
markets, as service providers seek to gain
first-mover advantage.
We also expect the consumer-facing mobile
commerce and merchant-acceptance ecosys-tems
to converge going forward. Merchant
participation is a critical component of any
consumer-facing mobile payment service, while
on the mPOS side service providers are putting
increasing emphasis on consumer-facing appli-cations.
Who will lead this convergence is not
yet certain, although it is likely to be those
service providers that have a well integrated
consumer-facing and merchant acceptance
offering.
The rapid growth of the mPOS market in terms
of the number of players and services is
producing a highly competitive market where
many solution providers are struggling to
achieve meaningful differentiation. mPOS hard-ware
is already a commodity proposition, while
mPOS value-added services (VAS) are increas-ingly
being used for differentiation. The tradi-tional
micro-merchant target market for mPOS
might be growing in terms of the number of
people/firms, but it is characterized by low,
unpredictable transaction values. In order to
grow their businesses, mPOS solution provid-ers
will need to achieve scale. But this means
expanding beyond the core micro-merchant
base into larger merchants, where mPOS
service providers will have to compete with
traditional point-of-sale (POS) vendors. This
would be challenging, particularly for smaller
mPOS vendors without a well-defined value-added
service offering.

mPOS in Context
mPOS overview
Providers of mPOS services supply solutions
directly to merchants, or on a partnership or
white-label basis to third parties that service
merchants (primarily banks and, in a few rare
cases, mobile operators).
mPOS solutions allow merchants to accept
credit and debit card payments or even
proprietary payments schemes like mobile
money from mobile devices, where the
payment is initiated from, and executed on a
mobile device belonging to the merchant.
This is in contrast to consumer-facing mobile
proximity payment services that are initiated
by consumers from their own devices, and
which are increasingly offered as part of a
digital wallet service.
An mPOS solution basically consists of a
card-reader hardware accessory and an
associated mPOS application that manages
the transaction. The merchant uses their
card-reader-enabled mobile device to take a
consumer’s card details. In the US and a few
other markets card readers support mag-netic
swipe cards, while in the India and
elsewhere card readers must support the
prevailing EMV (Europay, MasterCard, and
Visa) standard chip and PIN cards. The card
data and transaction details are encrypted
and sent over a wireless network for authen-tication
and authorization, and once this has
been processed the consumer is sent a
digital receipt or provided with a paper
version via a linked printer.
mPOS solutions are characterized by very
low-cost hardware compared to traditional
card processing equipment. For example,
mPOS dongles can cost as little as $10 and
are frequently given away for free, although
standalone EMV units can be more expensive
(in the $50 to $100 price range). The first
iterations of mPOS card-readers hardware
took the form of a small dongle designed to
attach directly to smartphones and tablets.
These are still extremely popular but have
been joined by standalone card reader units.
The enabling technology for mPOS is typically
Bluetooth and audio jack and with Wi-Fi or
GPRS used as the transmission channel.
mPOS solutions should be able to process all
type of instruments like magstripe, contact
and contactless including NFC as well as
scan QR codes and barcodes etc. to enable
payment processing.

SMEs form the initial market
SMEs are the key target for mPOS solutions,
especially the micro-merchant segment of
businesses with fewer than 10 employees. The
SME sector is large and growing in terms of the
number of companies and employees, and
within this sector micro-merchants account for
the largest portion of the base.
Data from the US Census Bureau from 2008
(the latest available) reported that there were a
total of 5.91 million SMEs in the US. Of those,
3.61 million had between one and four employ-ees,
while 1.04 million had between five and
nine employees (see Table 1 for further
details). We expect that by 2014 the base of
US SMEs, including the micro-merchant
segment, will have experienced further growth.
The SME and micro-merchant segment is
equally robust in Europe. The EC’s 2011/12
annual report on SMEs in the EU found there
were 20.70 million such firms, of which the
lion’s share (19.14 million, or 92.2%) were
firms with fewer than 10 employees. The
20.70 million SMEs cited by the EC employed
more than 87 million people (see Table 2 for
further details).
The proportion of micro-merchants and SMEs
in many emerging markets is very high, and
eclipses the number of large enterprises. In
Brazil, 99.7% of companies are SMEs and
micro-merchants, according to mPOS provider
iZettle, which has launched in Brazil in partner-ship
Banco Santander. Likewise, in India there
are 1.5 million SMBs contributing between
15% and 20% to GDP (see Table 3).
Table 1: US SME and micro-merchant data
Employment size of enterprise Firms Paid employees Annual payroll
Firms with one to four employees (or with no employees as of March 2012)
Firms with five to nine employees
Firms with 10–19 employees
3,617,764
1,044,065
633,141
526,307
90,386
6,086,291
6,878,051
8,497,391
20,684,691
17,547,567
($1,000)
$232,062,907
$222,504,912
$293,534,352
$774,589,335
$706,476,693
Source: US Census Bureau, Ovum
Table 2: EU SME and micro-merchant data
Micro
merchants
Enterprise Small Medium SMEs Large Total
Number
Employment
19,143,521
38,395,819
1,357,533
26,771,287
226,573
22,310,205
(total)
20,727,627
87,477,311
43,654
42,318,854
20,771,281
129,796,165
Source: Eurostat, national statistics offices of member states, Cambridge Econometrics

Table 3: India SME and micro-merchant data
Enterprise Micro merchants Small Medium SMEs (total) Total
Number
Employment
14,850, 000
6, 534,000
760,000
2, 343,000
SME transaction volumes are variable
The SME base is large but the transaction values
generated by micro-merchants and small
businesses can be unpredictable and low
compared to larger merchants. Micro-merchants
typically process low-value transactions, or higher
value transactions on an infrequent basis. There
can also be risks associated with the high attrition
that can characterize the micro-merchant
segment (many micro-businesses disappear as
quickly as they appear). The variable nature of
SME transaction volumes is a key reason why so
many mPOS providers are trying to gain traction
with larger enterprises.
Growing competition
The number of mPOS providers and services is
growing rapidly – there are now well over 100
globally, and more will follow. mPOS hardware is
already a commodity and some service providers
are attempting to compete on price by driving
down processing fees, but this a short-term tactic
rather than a long-term fix.
Something will have to give, and the most vulner-able
mPOS providers will be those with basic
solutions that are reliant wholly on
30,000
434.000
20,727,627
87,477,311
15,54,000
93,000,000
Source: Ministry of Small and Micro Medium Enterprises India
micro-merchants, a base characterized by low,
unpredictable transaction values or those without
the backing of a trusted brand like a bank. In order
to grow their businesses, mPOS solution provid-ers
will need to achieve scale. They will have to
expand beyond the core micro-merchant base
into larger enterprises, where they will have to
compete with traditional POS vendors, many of
which are powerful, resource-rich companies.
This will be difficult for smaller mPOS service
providers in particular.
Commoditization of the POS market
The commoditization of basic mPOS is prompting
solution providers to compete on price by driving
down the transaction processing fees they
charge merchants. In July 2013 PayPal launched
a headline-grabbing “Cash for Registers” scheme
in the US, whereby for a promotional period it
waived fees on transactions up to a certain level in
order to encourage merchants to adopt its
PayPal Here tablet-based mPOS solution. It was a
bold move from PayPal, but unlike most mPOS
providers, it can afford it. PayPal is large
company, and its financial resources allow it to
absorb the cost with minimal impact on its
business. For the vast majority of mPOS

providers, competing on price should be viewed
only as a short-term tactic – anything more than
this is unsustainable, particularly for smaller
mPOS players.
Payment related services as a route to
differentiation
In this context, mPOS VAS become essential
from both the monetization and differentiation
perspectives. A few forward-thinking mPOS
solution providers such as Comviva made
specialist VAS their unique selling points from
the start in the belief that mPOS service provid-ers
should focus on leveraging the mobility
advantage of mPOS to cater to merchant
advantage of mPOS to cater to merchant
business needs. This could mean enabling the
overall buying and stocking life cycle or enabling
how they reach out to their customers and
conduct commerce. This will help them deliver
higher value to merchants and hence become
more efficient, thereby providing a differenti-ated
offering to merchants. An associated
trend is the provision of integration services for
larger merchants looking to implement mPOS
alongside existing POS systems.

Evolution of mPOS
The mPOS market has developed rapidly over
the past four years, as Figure 1 highlights. The
commodity nature of mPOS hardware means
that service providers have to compete and
differentiate on the strength of their VAS. But
mPOS VAS are becoming increasingly uniform
across service providers; as soon as one
service provider innovates, others follow.
Providers of mPOS services must have
well-defined road maps for service develop-ment.
This means that if certain features are
not required immediately or by all merchants,
mPOS providers need to be able to vary those
features and enhance their VAS portfolios.
mPOS - an overview
Smartphone
Card reader
dongles.
Basic, horizontal
VAS - e.g.
Invoicing,
Inventory
control
Card reader
from factors
diversify,
cradles,
dedicated units
mPOS VAS
expands:
consumer
facing
apps, specialist /
vertical apps,
increased range
of back office
VAS
Table based
mPOS takes
off, gains
traction with
larger
merchants
Consumer facing
mCommerce
mPOS start to
converge,
e.g. Square Register
& Square Wallet
More mPOS provides offer system
integration & consultancy with larger
merchants in mind
Introduction of EMV compliant
solutions helps drive growth in Europe
Flexible, competitive merchant
fee structures proliferate
Few early mover exceptions have
sophisticated, specialist VAS, e.g. Intuit
Bredth & functionality
2010 Service evolution 2014

mPOS payment related services
The range of potential mPOS payment related
services can be clustered around the following
core service categories
Back-office services:
Applications that support the operational
processes and administrative needs of
merchants’ businesses.
Consumer services:
Front-of-house, consumer-facing services
geared toward customer-relationship market-ing,
customer support, and, more generally,
applications that enhance customer engage-ment.
Professional services:
Specialist services that help merchants
navigate, plan, implement, integrate, and maxi-mize
mPOS technology and solutions. This can
also extend to managed services.
mPOS is being embraced by larger
merchants
A growing number of medium-sized and even
some large merchants are starting to take note
of mPOS, with early adopters having rolled out
tablet-based mPOS implementations as a comple-ment
to traditional POS or, in a few cases, as a
replacement for cash registers. Starbucks, Nord-strom,
JCPenney, Gap, Home Depot, and
mPOS VAS types
Bank-office services
- Accounting
- Banking Services
- Stock and inventory management
- Ordering and invoice creation
- Data analytics
Consumer services
- Customer-loyalty programs,
coupons,and offers
- Customer receipts
- Order taking
- Stock checks
- Product discovery
- Location and navigation services
- Social shopping apps
Professional services
- Consulting
- System design
- Systems integration
- Security
- Device/infrastructure management
and maintenance
- Managed services
Sephora are all using or experimenting with
mPOS alongside traditional POS, integrating
mPOS platforms into existing payment systems.
ICICI Prudential in India is working with Comviva to
equip its agents with the capability to issue new
policies at the customer's doorstep, including the
ability to scan and upload documents for "know
your customer" and policy payments. The interna-tional
fashion chain Urban Outfitters has gone a
step further: it has replaced cash registers with

iPad-based mPOS solutions in selected US stores, and has plans for a wider rollout. Some large FMCG
companies are also considering mPOS to complement their direct to consumer initiatives.
For larger merchants,
mPOS solutions offer
value-added features
and benefits not
available when using
traditional POS
Queue busting – mPOS can be particularly valuable during peak shopping hours
(lunchtimes and after work) and peak periods such as seasonal holidays, when retail-ers
can supplement their fixed POS with mPOS.
Fast inventory checks – it can be used to help customers find desired items.
Space saving – if mPOS is used as a POS replacement, it frees up valuable store
space for other uses.
Promoting greater customer interaction generally.
Enabling associated marketing services. For example, mPOS can be used to encour-age
Allowing merchants to reach out to their customers more effectively e.g. an insur-ance
customer using a tablet and a dongle.
Sophisticated services like analytics that can sift through payment transactions and
make recommendations to merchants on issues such as optimal inventory, ordering
cycle or even make recommendations to customers based on previous buying
patterns and preferences.
Integration with merchant's existing IT and CRM systems like loyalty, inventory to
seamlessly integrate with existing business processes.
Use of technology like BLE (Bluetooth low energy) and location-based services to help
provide real-time accurate information to consumers about store layout, or location
of articles.
mPOS will expand beyond retail
pre- and post-sale shopping activities through discounts and reward schemes.
agent being able to complete a policy sale in a single visit to the doorstep of a
The retail sector has been the prime target for
mPOS, but there are many other merchant
segments and organizations that mPOS can
address. Basically, any business or organization
that would benefit from its staff being able to
process card payments while mobile is a potential
candidate for mPOS. This could also include large
enterprises and public service organizations that
at the moment are not typically viewed as mPOS
candidates, from everyday scenarios such as
police services that issue on the spot fines, to a
stem cell banking company signing up customers
at their home or local clinic.

mPOS could also be used at sporting and other
events in fixed venues to prevent queues and take
payments at additional, flexible locations. Essel-
World, one of India's premier entertainment
destinations, is experimenting with mPOS to allow
customers to buy entry tickets at a venue's car
park or while they are travelling on a bus to an
event. mPOS could be used in a similar fashion at
conferences and conventions, and also at events
such as outdoor concerts and festivals that take
place at temporary locations.
VAS would need high degree of
customization
At the moment there is a tendency to adopt a
one-size-fits-all approach to merchant solutions.
Although merchants have certain common
requirements (e.g. inventory and sales manage-ment),
this top-down approach is out of step with
the fact that merchants’ needs differ depending
on the verticals they serve – small coffee shops’
requirements will be different from those of lone
traders, which will be different from those of high
street chains. Given the diversity of the merchant
base, the underlying platform should be highly
customizable to meet requirements of specific
industry verticals.

The mPOS Ecosystem
Merchants
Most mPOS solutions have experienced strong
growth among micro-merchants, and for good
reason. Most micro-merchants operate on a
cash or check-only basis out of necessity
rather than desire, because they cannot afford
the high costs associated with traditional
card-processing equipment, processing fees,
and maintenance. Adopting mPOS provides
them with a low-cost solution and flexible
pricing models that make credit card accep-tance
feasible where previously it was not. At
the same time, mPOS also provides opportuni-ties
for larger retailers to create efficiencies
and enhance the in-store shopping experience
for consumers.
Banks
Merchant acquiring banks have often been
reluctant to take on micro-merchants because
of their unpredictable transaction volumes, the
risks associated with underwriting very small
businesses, and the cost and lengthy payback
period related to installing payment card
processing terminals.
However, the much lower cost of mPOS
solutions means that acquiring banks can
now build the business cases they need to
facilitate credit card acceptance among
micro-merchants, opening up new opportuni-ties
in this market. Banks are also in a strong
position to cross-sell mPOS solutions to
larger merchants with which they have
strong, trusted relationship.
Mobile operators
Mobile operators are pushing consumer-facing
digital wallet services in a bid to drive new
revenues, but so far few have embraced
merchant-facing mPOS solutions. This is
because operators have very limited merchant
experience, while at the same time most
operators believe there is more value in
consumer-facing digital wallets rather than in
mPOS.
However, there are opportunities for mobile
operators in the mPOS market. The most
straight forward tactic is for operators to act
as distributors for mPOS hardware, offering it
as a way to add value to an existing portfolio of
financial services. An example of this approach
is AT&T’s retail partnership with Square,
whereby it sells Square Card Readers in more
than 1,000 stores, offering a rebate on the
dongle to merchants that sign up. There are
additional higher value options for operators,
which are put forward in the Recommenda-tions
section of this whitepaper.
.

Recommendations
Merchants
mPOS is a young, fast growing market with
multiple players, many of them start-ups, which
from a merchant perspective makes selecting
the right partner particularly challenging. We
advise merchants to favor mPOS solution
providers with the following characteristics:
mPOS solution providers that have a
well-defined portfolio and road map for
value-added services (this includes support
for horizontal payment related services
solutions required by all merchants such as
inventory control, mobile marketing applica-tions)
and VAS tailored for the needs and
requirements for specific industry verticals.
Data analytic capabilities. A key benefit of
mPOS is its ability to capture customer
data, a capability lacking in traditional POS
equipment. Customer insights are invaluable
to small merchants that cannot compete
with the wealth of customer data that larger
online merchants are able to gather,
particularly global online players like
Amazon.
mPOS solutions providers that support
tablet-based solutions. These are starting to
be used by larger merchants as a comple-ment
to existing POS, or in some cases as a
replacement.
mPOS solution providers that have strong
service partnerships which benefit
merchants - for example, PayPal Here
comes with pre-integrated partner solutions
including ShopKeep, Vend, and Erply. Associ-ated
with this, mPOS solution providers
should offer open APIs to support integra-tion
with third-party applications.
Larger merchants and other organizations
in particular will need partners that have the
ability to integrate mPOS solutions with
existing front-office and back-office systems.
There can be an assumption that payment
related services are of most importance in
attracting larger retailers to mPOS. While
this group does increasingly expect innova-tive
services, it is a mistake to think that the
traditional micro-merchant base does not
have an appetite for sophisticated payment
related services. If anything, the need for
VAS is more acute in the micro-merchant
segment, where it can play a key role in
building their core business.
mPOS solution providers that have experi-ence
and expertise in secure payment
systems should be favored, as even minor
security flaws have the potential to shake
merchant and consumer confidence in this
new technology.
Merchants should have the flexibility to be
able to subscribe to custom VAS bundles,
selecting applications such as loyalty
programs, or catalog management.

Support for SDK development environment
is desired as it accelerates creation of
custom applications (IPOS) to meet distinct
requirements of merchant categories or
individual merchants.
For large merchants using mPOS as a
complement to existing POS solutions,
prebuilt-connectors facilitate integration
with critical backend IT systems used for
CRM, inventory, billing and loyalty – allowing
merchants to better manage their business.
Support for mPOS APIs is also desirable as
it gives merchants an option to embed card
acceptance functionality within existing
payment applications, saving time and
money.
Banks
Most banks are arriving late to the mPOS
market and need to move quickly, but they also
need to consider very carefully the models they
use. The easiest route is for banks to partner
with an established mPOS product provider
and focus on merchant acquiring and servicing
rather than on technology. An alternative is for
banks to source and provide their own mPOS
solutions. A white-label product like payPLUS
from Mahindra Comviva is lower risk and
affords greater speed to market than a
scenario where a bank tries to develop its own
mPOS in-house.
Launching a bank own-brand mPOS service is
clearly the most challenging strategy. It
requires banks to re-engineer their merchant
sign-up process and risk-management models
(merchant onboarding) to suit the require-ments
and constraints of micro-merchants.
This is a major undertaking, and the effort
required should not be underestimated. The
merchant onboarding process established by
mPOS providers has set a new benchmark and
is very different from the processes used by
banks for the larger merchants they typically
target.
Mobile operators
The most straightforward way for operators to
participate in the mPOS value chain is by acting
as distributors for basic mPOS hardware, but
there are higher value opportunities available. A
more strategic approach is for operators to
offer mPOS as part of a service bundle, for
example a package comprising a smartphone,
dongle and data plan.
Operators could build on this by offering more
sophisticated cloud-based VAS such as account-ing
software or analytics as part of the package,
or integrating mPOS with their existing enter-prise
solutions. They could also add tablets into
the mix. This sort of “out of the box” proposition
would appeal to both micro-merchants and
larger enterprises. AT&T has taken a step in this
direction by offering GlobalBay’s mPOS solution
to SMEs. In the UK O2 is doing something
similar, offering an mPOS solution in partnership
with Visa Europe and Global Payments.

Appendix
This white paper was researched, authored and produced by Ovum in association with
Mahindra Comviva, as part of a series of papers assessing the current state and future
market direction of mobile broadband services for mobile operators.
About Mahindra Comviva
Mahindra Comviva is the global leader in providing mobility solutions. It is a subsidiary of
Tech Mahindra and a part of the USD 16.7 billion Mahindra Group. With an extensive port-folio
spanning mobile finance, content, infotainment, messaging and mobile data solutions,
Mahindra Comviva enables service providers to enhance customer experience, rationalize
costs and accelerate revenue growth. Its mobility solutions are deployed by 130 mobile
service providers and financial institutions in 90 plus countries, transforming the lives of
over a billion people across the world. For more information, please visit
www.mahindracomviva.com.
Ovum Consulting
Ovum has an enviable and hard-earned reputation as a provider of telecoms consult-ing
services. Our consulting customers tell us that, above all else, it is Ovum's industry
knowledge and at tention to detail that puts us ahead of our competitors. This is
directly related to the expertise of our consultants and analysts, and the project and
research methodologies we use. We work across the globe with business leaders of
telecoms operators, service providers and ICT vendors and with investment banks,
governments and industry regulators. We hope that this analysis will help you make
informed and imaginative business decisions. If you have further requirements,
Ovum’s consulting team may be able to help you. For more information about Ovum’s
consulting capabilities, please contact us directly at consulting@ovum.com.
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