Mobile Payments Create Opportunity for Small Business
When Locals Seafood opened for business in the summer of 2010, cofounder Lin Peterson knew it would be beneficial for the company to accept credit cards. But selling seafood at farmers markets and on roadsides in the Raleigh, N.C., area meant a traditional point-of-sale setup wouldn’t be ideal.
While looking for alternatives online, Peterson and his partner, Ryan Speckman, found Square, which makes a free card reader and mobile app that processes credit-card payments on iPhone and Android smartphones and the iPad.
Square is among the more high-profile examples of how mobile-payment technology is creating new opportunities for small businesses. The field is growing rapidly, with big names such as Google getting into the mix.
Introduced in May 2010, Square’s main selling point is that it allows even the smallest of businesses to accept credit cards. Keith Rabois, Square’s chief operating officer, says more than 800,000 card swipers are in use at all types of businesses, ranging from T-shirt vendors to SAT tutors to plumbers.
“If people have to go to the ATM machine they may never come back,” Rabois says, adding that when a business uses Square, “anybody can accept credit cards anywhere. That will grow your business anywhere between 15 and 50 percent, most likely.”
Traditionally, a business that wanted to accept credit-card payments would need to invest in a cash register, as well as pay the ongoing cost of leasing a credit-card terminal. Square eliminates those costs and charges a flat rate of 2.75 percent per transaction. It’s that simplicity that appealed to Peterson.
“With our bank, it was going to be up to $800 to invest in a unit,” he says. “This one is straightforward. We liked the ease of use and the fact that it was mobile, like our business.”
he Square app also includes reporting tools that allow merchants to track sales, including cash payments. Locals Seafood uses Square on iPhone and Android smartphones, and Peterson says he’s interested in using Square’s Register app for the iPad, which enables businesses to track inventory, analyze buying trends, and create virtual storefronts that customers can browse.
Peterson acknowledges that for some customers, seeing their credit cards swiped on a smartphone takes them out of their comfort zone, as does the lack of a paper receipt (merchants can e-mail receipts to customers). But he says the technology has been overwhelmingly positive for the company, and that currently about one-third of Locals Seafood’s revenue comes from credit card transactions.
“People spend more on higher ticket items, because they can put it on their card versus cash,” Peterson says.
"We liked the ease of use and the fact that it was mobile, like our business."
In June, Square secured $100 million in a Series C financing led by Kleiner Perkins Caufield & Byers. The company is reportedly valued at more than $1 billion, but it’s not the only game in town. Intuit’s GoPayment mobile card reader includes the ability to integrate with Intuit’s Quickbooks accounting software. VeriFone Systems’ PAYware Mobile and AppNinjas’ Swipe also pair card swipers with smartphones.
Another technology is promising further innovation. Near-field communications, or NFC, allows consumers to tap a smartphone on a specially designed terminal to make a payment. Google Wallet is probably the best-known NFC payment system. Currently available only on the Samsung Nexus S 4G smartphone, it works with Citibank’sMasterCard PayPass and the Google Prepaid Card.
eBay’s PayPal is also exploring this space by allowing Android users to make person-to-person mobile payments using NFC technology, a solution that could also appeal to small, local merchants.
Analysts say for most small businesses, however, NFC isn’t ready for prime time, mostly because so few merchants and consumers have access to the technology.
“NFC payment won’t be adopted by the mass market before 2015,” says Sandy Shen, research director at Gartner. “NFC requires users to change payment behavior, relies on the service providers to support the wallet infrastructure, and relies on merchants to invest in POS [point-of-sale] terminals. Small businesses should be clear about how they can benefit from different technologies and not rush to new technologies because everyone is talking about them.”
Charles Golvin, principal analyst at Forrester Research, notes that the hurdle a person-to-person NFC solution such as PayPal Mobile faces is the fee it charges users to make a payment. In the long run, he says, NFC will dominate payments as it becomes more widespread and point-of-sale NFC readers become more affordable for businesses of all sizes. Erply, a maker of retail point-of-sale and inventory management software, recently introduced a $50 card reader for the iPad that also accepts NFC payments.
Golvin adds that the key will be how small businesses use the intelligence behind NFC to generate business.
“You could walk by an NFC-enabled billboard and wave your phone over it, get the promotion delivered, be driven directly to the merchant website to tell you more about what you just expressed an interest in,” Golvin says. “The challenge for the small merchant isn’t so much having the payment acceptance of this technology. It’s going to be much more in the back end, in these intelligence systems that can connect to that reader and say, ‘I recognize you as a loyal customer, here’s something I’d like to offer you.’ ”