Page 36 - GS190201

Education

Struggling with constraints

A closed environment is constrained by a relatively small
universe of developers familiar with the unique code
base, which drives up development costs. That extends to
support in the field, where fewer skilled technicians are
available to help customers solve their unique problems.

This worked when merchants and acquirers were limited
in their choices of terminal devices and operating
environments. But as we've seen in other markets ‒
mainframes, PCs, operating systems ‒ when a market is
Is the countertop too constrained by proprietary locks, innovators in open
systems communities will find a way to break out. That
terminal dead? leaves legacy providers struggling to compete against
a new breed of competitors who are more agile and can
leverage a less costly business model.

By William C. Nichols The first crack in the legacy market surfaced when Square
AEVI recognized that a vast number of people were unable to
obtain or afford merchant accounts. By aggregating many
echnology solutions must continually evolve of these small businesses and enabling them to swipe
or die. We're seeing this play as smart POS cards with smartphones and tablets, Square was able
systems turn the traditional POS into a vibrant to corral a very respectable user base. But there's a vast
T point of interaction (POI). But legacy counter- gap between the Square model and the traditional, ISO-
top payment terminals won't disappear overnight, pre- supported legacy model. Small business owners, for the
senting acquiring banks, processors, ISOs and merchant most part, need a more robust payment solution and the
level salespeople (MLSs), typically referred to collectively expertise and support of ISOs and MLSs.
as "acquirers," with the challenge of managing two vastly
different device estates. Limits of one-size-fits-all solutions
Many new entrants thought they could one-up the Square
Forward-thinking merchants are looking for cost-effective model by introducing more sophisticated solutions relying
solutions that will let them innovate as needed, when on low-cost Android-based devices. They can deliver
needed, to keep pace with consumer demands as well as solutions with relatively low prices, but they're unable
competition from the digital world of ecommerce. The to provide a cohesive infrastructure for distribution
POI must accommodate multiple forms of payment and and support. These new entrants primarily seek to lock
leverage data such as loyalty and demographics, locations merchants and partners into proprietary back-end support
and times, buying habits, customer satisfaction, logistics, systems or wrap "open systems" devices with a proprietary
and inventory. layer so that merchants and distributors have no freedom
to swap in other devices that may better fit their needs.
Merchants and acquiring institutions cannot afford to
ignore innovation occurring in support infrastructure POS systems are quickly evolving into customer
to support robust digital platforms that are increasingly relationship management solutions capable of fulfilling
compelling. This includes omnichannel management, consumer needs and just as capable of integrating with
bilateral communication for monitoring and data other functions, ranging from inventory management to
collection, and even seamless integration of value-added staffing and payroll management. But demand for these
apps targeting agnostic devices. systems is vertically driven, requiring the acquiring
channel to manage tailored bundles that swap in hardware
The legacy model depends on proprietary devices and apps that meet the needs of merchants across those
and support platforms. Most old platforms provide vertical segments. This new concept of an integrated,
simple download tools, basic remote monitoring and multifunction POI requires smart, adaptable devices with
proprietary payment applications, which essentially lock substantial computing power. But it also requires expertise
in distributors and merchants by making it too costly to ease the on-boarding process, provide guidance in
and/or painful to switch terminal vendors. But reliance selecting apps to meet specific requirements.
on proprietary technology slows innovation and keeps
costs high. To maintain credibility as solution providers, Companies pursuing Square's model are banking on a
acquirers and the industry's feet on the street need to general purpose, one-size-fits-all approach that leaves
offer new, more flexible devices even as they continue to merchants to assemble their own suite of payment and
service older legacy devices that some merchants are not value-added apps and little ability to choose among
yet willing to give up.
36