Why should retailers re-look at SoftPOS to overcome the 6 main pain points with traditional POS?

Firstly, let’s get one thing straight, this article assumes a perspective that retailers only accept digital payments. No cash or bank note acceptance will be referred to in this article. There is no need for a cash drawer. After all, cash is a thing of the past, it’s so pre-pandemic. Very few retailers, at least the ones that EDC work with, accept cash and the ones that do, recognise that cash has been declining in recent years as more consumers are turning to digital forms of payment such as credit and debit cards, mobile payments, and e-wallets.

Secondly, let’s ensure we are on the same page regarding the definition of POS and SoftPOS.

A question of definition

POS, or point of sale system, is a combination of software and hardware used to process transactions in a retail setting. It typically includes a computer or tablet, a cash register, a barcode scanner, and a printer. The POS system tracks inventory, processes payments, and generates sales reports. Some POS systems may include additional features such as Customer Relationship Management (CRM),inventory management, employee scheduling, and time tracking, which are essential in hospitality.

SoftPOS, also known as a software POS or confusingly, mobile POS (mPOS), is a software-based point of sale system that is typically run on a mobile device such as a smartphone or tablet. These mobile devices are standard off-the-shelf smartphones and tablets – usually based on Android or iOS operating systems. SoftPOS enables merchants to process transactions and accept payments using a mobile device rather than traditional POS hardware. SoftPOS systems are designed to be easy to use, inexpensive and can be set up quickly, making them a popular choice for small businesses and mobile merchants.

For over a decade, several manufacturers have used the term SoftPOS to refer to something that is not SoftPOS. This is like when Captain Kirk, in Star Trek, was using his “communicator” in the late 1960’s – it was a precursor to the mobile phone. However, technology, at the time, had to catch up to fiction, or in this case, science fiction.

The likes of Toast, Vend, LightSpeed, Clover, Square, iZettle, and many others, have marketed SoftPOS, but the technology and importantly, the Payment Card Industry (PCI) Data Security Standards (DSS) had to catch up to the marketing fiction. Also, although mPOS, or mobile POS, was referenced above in the context of SoftPOS, mPOS isn’t really SoftPOS, but it’s an older generation of SoftPOS before SoftPOS was officially recognised by the PCI. mPOS is a dedicated software and hardware device which falls into the category of a traditional POS.

EDC first described SoftPOS as “PIN-on-glass”, when in 2017 asked - “Is the PED Dead”. PED, meaning PIN Entry Device. We can confidently say, since 2017, the POS industry has made significant technological progress and so have the PCI.

It's all about standards

SoftPOS allows retailers to download applications from an App store and enable the acceptance of contactless payments on their mobile phones or other devices without the need for additional hardware. SoftPOS converts devices into EMV-compatible POS terminals to enable contactless EMV payment transactions. Consumers can tap their contactless card or wallet on a retailer’s device to initiate a contactless payment. This solution is also referred to as Tap on Phone or Contactless Payment on COTS (CPoC). Where COTS is a Commercial off-the-shelf device – such as an Android tablet or smartphone. CPoC is a secure solution developed to comply with the PCI-CPoC standard. Software-based PIN entry on Commercial off-the-shelf devices (COTS) or SPoC for sort. SPoC requires a separate EMV card reader where CPoC standard does not allow PIN entry. CPoC integrates the NFC capability to transform mobile devices into a contactless payment reader (hence, there is no requirement for an independent EMV card reader).

At this point, after reading the last paragraph more than once, you should have a good overview of the PCI CPoC and SPoC standards. However, it ought to be said CPoC and SPoC are not bulletproof, and there are some technical challenges and restrictions that the industry has acknowledged since their launch in 2018/2019. Hence, there is much excitement about the next generation of PCI security standards for SoftPOS as defined by MPoC.

Mobile Payments on Commercial off-the-shelf (MPoC) standard builds upon and learns from the Software-Based PIN on COTS (SPoC) and the Contactless Payments on COTS (CPoC) standards. MPoC is enabling contactless payment (NFC) acceptance and PIN cardholder verification methods to support further development of mobile payments infrastructure. The “PIN-on-glass” is the right terminology characterising the ability for retailers to accept card payments using PIN entry on a smartphone or tablet. The first MPoC certified solutions are expected to be seen on the market in Q2 2023.

That’s enough about the standards – what does this mean for the retailer? Why should retailers reconsider SoftPOS to overcome their 6 main pain points with traditional POS?

Six main paint points with traditional POS

The EDC Retail Payments Practice works with some of the world’s leading retailers and when it comes to traditional POS there are six main pain points, and these are restricting retail growth.

Long wait times

Long wait times for customers due to a slow checkout process can be because a store does not have enough staff to operate the POS checkouts, then checkout queues will be longer as each customer will take longer to process. On the other hand, if a retail store does not have enough checkouts to accommodate the number of customers, then checkout queues will naturally be longer. Not to name and shame any one store, but two of the leading Chemists in the UK are notorious for their long checkout queue times. I was recently in a checkout line at one of these Chemists which had 9 traditional POS checkouts, and only 3 were staffed - not a great customer experience.

Limited ability to upsell or cross-sell

Every retailer wants to turn a face-to-face interaction with the consumer into an opportunity to upsell or cross-sell products. There are many techniques, such as suggesting related or complementary products to the customer at the time of purchase. For example, suggesting a matching accessory to a piece of clothing they are buying. Upgrading where the sales assistance can offer customers the opportunity to upgrade to a higher-end version of the product they are purchasing. Suggesting the higher-end version of a product that has more features. Bundling where customers are offered a bundle deal on multiple items. A deal on a camera, for example, and some of its accessories – a bag or a tripod.

High maintenance costs

High costs associated with maintaining traditional POS systems. The cost of a POS system depends on a variety of factors that make it impossible to arrive at one single answer. Some businesses will pay $3,000 a year, while others will have to pay more than $10,000 depending on the size of the business, the industry, revenue stream, hardware requirements, and more.  Furthermore, traditional POS is typically too expensive for a micro and nano merchant. The maintenance costs, for example, of an on-premise legacy system and integration of the POS system to back-end systems are huge. One UK retailer EDC worked with a few years ago was spending $200m annually on POS-related maintenance.

Difficulty in providing personalized service

Retail is investing billions into improving and enhancing the customer experience. This refers to the overall perception and feelings a customer has about a retail business, based on their interactions, across different touchpoints and engagement with the business, online and offline. This includes elements such as store design and layout, product availability, customer service, and the overall atmosphere of the retail space. Retail businesses aim to create positive customer experiences to increase customer satisfaction and loyalty. There is substantial difficulty in providing a personalized service and experiences for consumers through a traditional POS system. Redeeming loyalty or rewards at the POS is a common area of difficulty at the POS. Notwithstanding many attempts, many traditional POS systems are designed and built to help the merchant not the customer.    

Limited payment options

Traditional POS can accept payment cards, gift cards, store cards, contactless payments, and smartphone wallets within which the consumer stores their payment. Beyond that, there are limited payment options and security concerns with a traditional POS. There is limited capability to add more payment methods as this will involve software maintenance and in some cases, a change of hardware. Many POS devices do not support QR codes or forms of codes that are scanned. A store that needs to upgrade software can cost between $500 and $1500 per POS device. If that same store had 5,000 devices spread across 100 locations, the cost of an upgrade would be very noteworthy at CEO and CFO level. The return on investment may not be encouraging for anyone.        

Difficulty in analysing sales data

To be able to analyse sales data and identify trends to inform the retailer of critical business decisions is fundamental. It may not be surprising that not many retailers can do this properly. There are three big problems that the retail industry can’t overcome 1) volume of data, 2) data silos, and 3) lack of data standardisation. Some of the world’s leading retailers have teams of people working on these problems. Retailers collect a large amount of data from their POS systems, making it difficult to sort through and identify patterns and trends. Data from different systems, such as inventory management, ERP and CRM systems, are often stored in separate silos, making it difficult to achieve a holistic view of sales data. Lastly, different POS systems collect and store data in different formats, making it difficult to compare and analyse data from multiple sources. It is not unusual for a large retailer to operate different POS systems from different vendors. This makes it difficult to properly analyse retail sales data.  

Now we understand the six main pain points with traditional POS – what can SoftPOS do today to alleviate these main points that it didn’t do before?

SoftPOS pain relievers  

A software-based point of sale (SoftPOS) system can help resolve some of the pain points experienced by retail businesses.

SoftPOS systems can be faster and more efficient than traditional POS systems, reducing customer wait times. Queue busting can be very effective. This is where store assistants mingle with consumers on the shop floor armed with a SoftPOS to accept payments on the spot.  

A SoftPOS system can be integrated with other systems, such as inventory management and customer relationship management, which can help retailers identify products that complement each other and offer them to customers during checkout. This is made possible because a SoftPOS solution has open APIs (think of them as software links) to other software systems.

SoftPOS systems are less expensive to purchase and maintain than traditional POS systems, which can help retailers to save money on technology infrastructure. As with your iPhone or Android smartphone, if there is a new software to be installed on the device, it is delivered via the cloud, without disturbing the function. Software can be deployed to the store’s own smartphones and tablets that are being used as SoftPOS devices. There is no need for expensive on-site hardware maintenance or a swap-out, where a POS device must be replaced by a new POS device. SoftPOS systems are easy to use, they are as easy as a smartphone app, they have user-friendly interfaces and can be configured quickly, allowing merchants to start accepting payments quickly and easily. This reduces the cost and time to train staff.

A SoftPOS can be integrated with customer data and help retailers to provide personalized service and experiences for customers. Loyalty is often the first customer experience, and value add service, that can be efficiently delivered via the SoftPOS device, allowing the sales assistant to provide the consumer enrolment, collection, or redemption as part of a retailer’s loyalty scheme. SoftPOS can provide customers with a streamlined and flexible shopping experience in which they do not need to queue at a specific Point of Sale (POS). This helps the merchant free up staff from standing around at cash registers and checkout systems to focus on enhancing the customer experience – out on the shop floor. Without the reliance on dedicated hardware at the POS, the rollout can take place much faster and at a minimal cost compared to standard payment infrastructure.

Many SoftPOS systems offer a wide range of payment options such as contactless and mobile payments and provide enhanced security features such as encryption, tokenization and fraud prevention. Through additional software that can be deployed to the SoftPOS device can open it up to alternative payment methods, such as BNPL or PayPal – many of which are easily available on online but eluded the physical store until now.

A SoftPOS system can provide real-time data that can help retailers to understand sales patterns, identify trends, and make data-driven decisions. PCI requires that merchants and service providers use only commercially available, off-the-shelf software that has been developed, distributed, and supported in accordance with industry standards, and that is properly maintained. This is intended to ensure that the software used in the payment system is secure and has been thoroughly tested and reviewed by industry experts.

Security in software - not hardware

When it comes to PCI-DSS compliance, using COTS products can help reduce the risk of vulnerabilities and data breaches, as the software or hardware has been tested and reviewed by many other users and experts, and is generally considered more secure than a custom-built solution. SoftPOS systems do not require the purchase of expensive hardware, making them more cost-effective than traditional hardware-based POS systems. The total cost of ownership is vastly reduced.

The PCI MPoC standard is more comprehensive and up-to-date than then its predecessors, as it covers a wider range of security requirements for MPoC based SoftPOS systems. It also incorporates the latest industry standards and best practices for securing mobile payments and addresses new technologies and threats that have emerged since the previous standards were published.

The replacement of CPoC and SPoC by MPoC is intended to help ensure that mobile payments are processed in a secure and compliant manner, protecting both merchants and customers from potential fraud or data breaches. MPoC is designed to be more flexible and adaptable to changes in technology and the mobile payments landscape, allowing merchants and vendors to stay up to date with the latest security standards. Without the need for specialised hardware at the retailer’s checkout.

Innovation or a revolution at the point of interaction

SoftPOS based on the MPoC standards is expected to be the crucial long-awaited innovation at the point of interaction whereby the retail industry can be let go from the constraints of traditional POS and make a massive leap forward into the 21st century. Retail can properly become a fintech. Software based. Whether you are a small independent store or an international retailer, the time is right to relook at SoftPOS.

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The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).