It might be helpful to rethink mobile payments as "mobile acceptance." Mobile acceptance puts the focus on a critical, and perhaps underappreciated, aspect of the mobile payments ecosystem: mobile solutions must be offered at virtually every POS to realize their full potential.
In Mobile-Acceptance at the Point of Sale, U.K.-based consultancy Galitt said that in 2013, 32 percent of U.S. merchants with more than 500 employees had instituted mobile acceptance solutions, while 29 percent of merchants in the same class planned to implement mobile payment solutions in the next 12 months.
At the other end of the spectrum, very small retailers, otherwise known as micro-merchants, have been a hard market to penetrate with traditional electronic POS solutions. Galitt said micro-merchants dislike the traditional registration process to accept electronic payments, including the cost of POS terminals, confusing merchant service contracts and interchange rates.
Then along came Square Inc. With its dongle-based mobile POS offering, Square provided micro-merchants an easy solution that reduced the merchant registration process to a few minutes. "The success met by these m-POS solutions can be explained by the initial positioning of the actors involved," Galitt said. "Their marketing claims perfectly fit the basic needs of small merchants."
The aggregation business model popularized by Square helped boost mobile acceptance among micro-merchants. In this scenario, the mobile POS provider takes on the designation of super merchant with the processing relationship with the card brands, while micro-merchants become sub-merchants leveraging the super merchant's account.
"The super merchant model is absolutely essential for m-POS solutions, since it prevents small merchants from the tedious registration process at an acquirer," Galitt said.
Mobile acceptance also received another boost because of the cloud-based, value-added services that mobile POS providers can offer merchants. "These services enable small merchants to benefit from sophisticated tools, improving their productivity and customer relationships," Galitt said.
Among these value-added services are big-data analytics employed to target specific consumers with discounts and other special offers based on their purchase histories. "M-acceptance solution providers understood there was a lot of revenue to gain from these additional services," Galitt said. "They managed to raise interest among national chains, such as Apple, Home Depot, Jamba Juice, and Starbucks."
Thus, m-POS providers are moving up-market to larger retailers and expanding the mobile-acceptance footprint.
In April 2013, Javelin Strategy & Research reported in Mobile Point of Sale (POS) Business and Market Impact 2013 that gains in mobile acceptance were expanding the overall market for electronic payments at a potential clip of $1.1 trillion annually. Most of that expansion is coming from the small merchant and micro-merchant categories.
Javelin said 8 million U.S. merchants accepted card payments at the time of the study, but 20 million did not. Of those 20 million, most were in the Tier 3 and Tier 4 categories. "Mobile POS has the capacity to attract all merchant tiers: from small, self-employed, cash-only vendors to the largest big-box U.S. retailers," Javelin stated. "And the allure of mobile POS reaches both sides of the counter – the majority of consumers currently view mobile POS acceptance as very or extremely convenient."
But Javelin added that cracking the mobile POS market is not easy. "[T]ranslating mobile POS's strategic benefits and consumer appeal into broad adoption requires an understanding of both the crowded mobile POS acceptance marketplace, feature set and pricing, and the consumer segments to target for early adoption," the research firm said.
An October 2014 First Data Corp. white paper, Cards and Payments: Seeing Past the Hi-Tech Hype: Digital Solutions that Benefit Issuers and Cardholders Today, said that by 2020 the majority of consumers will be considered tech-savvy "digital natives." Mobile acceptance strategies therefore seem all the more important for merchant service providers to adopt.
But First Data cautioned against getting too far ahead of the curve. Instead of jumping in to "wearable contactless payment suits, injectable chip technology, or retinal scan authorization," the acquirer recommended incremental improvements in the user experience. For example, digital wallets can be made more user friendly by eliminating the need to manually enter card numbers.
"A combination of capabilities that add more and more value, such as this added convenience, could substantially increase the uptake and usage of these wallets," First Data said. 
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