Battle Royale in Mobile Payments
Today Eventbrite announced that they are entering the payments arena. They will now be competing against Square, Paypal, Intuit and others for small merchants seeking to accept credit and debit card payments. After being ignored for over 40 years, it is amazing how quickly this space has caught on fire - square was founded in 2009 and since then we have seen a number of major payers follow them into this arena. So, why now? Why is mobile POS suddenly the place to be?
A lot of people are writing about the reduced technical barriers, the introduction of smartphones and other “environmental” factors that are helping to facilitate adoption. However, I’d argue that the strategic rationale is most interesting (and significantly less discussed).
From my perspective, the attractiveness of this space is highly influenced by the increasingly important battle to own consumers’ digital wallets and facilitate their mobile payments. I believe Paypal, for instance, likely sees their Here product as a trojan horse, positioning them to be a more attractive digital wallet and payment “locker” for consumers. After all, if a consumer’s frequently visited stores promote Paypal mobile and offer discounts via this platform, the consumer will be more likely to store their credit card information via Paypal’s medium. I believe Square is taking a similar approach - they are using the merchant as the entry point into the consumer i.e. the square payment platform is leading to consumer facing products like Card Case. As we all know, significant money and data is to had for the players that facilitate consumer spending, so winning this battle is strategically critical.
However, selling payment alternatives into meaningful brick & mortar retailers is a 3+ year endeavor. As with all large companies, change is slow and when money is involved, change is even slower. Since, these mobile players simply cannot wait 3+ years to fully implement their offering, they must look elsewhere to test, refine and execute their vision.
Accordingly, Paypal and Intuit, for example, are migrating downward into Square’s territory, attracting smaller retailers who are quicker to change and more motivated to undertake payment innovations. These smaller merchants also represent a testing ground where the value propositions and features can be fine tuned and critiqued, making the eventual sale into large merchants that much easier.
From my perspective, this space is so hot because it represents a funnel to larger ambitions. It is a critical step, but just one step, in the journey to be a mobile payments powerhouse.
It will be very interesting to see how this competition plays out over the coming years. I believe that the space can likely support several mobile POS players - so we will not see one rise and the others fade away (although one or two may be acquired, combine or die). The more interesting development will be how Square, Paypal, Intuit, Eventbrite, etc. prevent their offerings from being commoditized. Each company’s strategic answer will dictate the long-term profitability of the segment. Right now, all of the players are tightly bunched around a 2.75% - 3.00% fee per transaction - without clear competitive differentiation, these rates could be driven down substantially. From the merchant perspective, this all is great news - competition will lead to increased innovation and reduced processing costs.