The End Of Card Terminals Is In Sight

It only took a year for software and hardware innovators to completely disrupt the Point-of-Sale industry forever. In 2009 AirPOS in Belfast, Square in California, Lightspeed in Toronto and Vend in Auckland had started to create a new category of cloud-based point of sale applications.

Meanwhile in 2010 Apple and Google had created a new generation of computing hardware with the debut of the iPad and a wide range Android tablets. What Point-of-Sale setups cost, how they were built, how they were distributed and how they took payments would never be the same. Chunky and clunky Windows terminals were on their way to recycling plant of history and now in 2023 Apple and Google are completing the job.

If merchants had to choose a relationship status for their relationship with card processing companies they would doubtlessly choose ‘it’s complicated.' And that's because typically it is. Costs are often obscure, support is often very poor, contracts are a minefield and invariably most merchants somehow, and they rarely know how, end up paying much more than they agreed for card processing.

Even the formerly open and transparent payment companies like Square and Sumup, who used to advertise a simple flat fee like we do here at AirPOS, have started the practice of adding paywalls and subscriptions all over their products with the aim of squeezing their merchants for every last drop of revenue. And then there’s Lightspeed who forced their customers to either sign up for Lightspeed’s payment processing or be penalised with a further $200 a month in subscription charges for using a third party payment processor or Shopify who’ll bill you an extra 2% for every transaction if you put it through a third party payments company on their Point-of-Sale app. No wonder the Payment Systems Regulator felt the need to step in early in 2023 and introduce legislation to hamper contract lengths and force companies to clearly display their pricing. That’s great for the UK but elsewhere it’s still the Wild West.

Companies can only get away with such practices while they believe it’s very diffilcut for their customers to leave. Lightspeed’s big gamble with their merchants was that, when they pursued this aggressive adoption policy for their payment processing, the pain of leaving them would outweigh the pain of staying with them. This is the same gamble for Square who are adding subscriptions to almost every level of their product and in many cases adding them where the feature was previously available for free.

These calculated risks are based on two things. Firstly your Point-of-Sale provider holds a lot of your data, making it hard for you to leave, and secondly, and the most presuasive of all, is the hardware lock-in. If you’ve invested thousands into hardware across your business, and that hardware only works with one software provider, you’re definitely going to think twice about replacing all of this out. Advantage the software vendor and modern cloud-based companies like ePOS Now and Square have adopted this retention tactic from the legacy Point-of-Sale industry. Time will tell if these gambles work out in their favour, the tech industry is strewn with the wreckage of startups who got their pricing wrong and didn't live to tell the tale.

Payment companies too have long since relied on the lock-in from their specific card terminals and also the terminal rental fees that they produce, enabling them to rely on what is effecitvely a subscription coming in every month further allowing them to massage their card processing rates making them look more affordable. Merchants have been stuck, locked in from multiple sides. That’s not in their favour and they know it and this leads to a fractuous at best relationship with companies who should be their trusted partners.

Thankfully all of this is changing. Enter Tap To Pay, the latest payment innovation from Apple and Google. Tap to Pay allows customers to pay for items and services by tapping their phone or tablet on the merchants phone or tablet, no card processing terminal is required. What does this mean? Well a few things and thankfully they’re all in the merchant’s favour.

Firstly, and simply, no terminal means no up-front costs to start processing payments but it also of course means no terminal rental fees taking a large long-term expense out of the equation for business owners. Can you imagine what that alone will save across the lifetime of a business? And it will also have the knock on effect of forcing card processing companies to advertise their actual payment processing fees, no more hiding it behind the guaranteed income of a terminal rental. They’ll have to become honest (or at least more honest) brokers.

Take the contract out of the equation and the last thing tying merchants to their current card payments provider is the frankly annoying blob of plastic on the counter top, the card reader. While they’ve got a lot more affordable and attractive over the years they are quite simply a device guaranteeing one thing; that you can only process payments with a single provider.

Remove the card reader and take payments via Tap To Pay and you put the software creator in charge and this means they can do all manner of interesting things. Firstly, much like the sort of payment orchestration that is growing in the e-commerce world with companies like Gr4vy, it would be possible to have an infinite amount of card processors hooked up to a Point-of-Sale app for example and it could be very smart in choosing which provider to process which payment through.

For example in the case of higher value transactions you might want to go with a bank provider like Barclays to save on the card processing fees. And for those tiny micro transations that you might see on a train for example, the sub £2 transactions for a cup of tea, you’d be wanting to route those through Open Banking if possible through TrueLayer for example as the current Mastercard and Visa interchange and network fees make it almost impossible for most card providers to process these at any acceptable margin.

With smarter processing the software providers can still get their cut while streamlining costs for the merchants, a win / win scenario all round. Unless you make card terminals of course…

Tap To Pay is coming soon to AirPOS Pay