According to The Wall Street Journal, Forrester Research estimates that Americans will spend $90 billion through mobile payments by 2017, up from $12.8 billion in 2012. As a result, a land grab continues to ensue as companies try to extol the benefits of their mobile payment platforms to consumers, merchants and financial institutions alike.
This article will specifically focus on the evolution of mobile, as it will soon likely become the primary POS technology. I will discuss Spindle Inc. (OTCQB:SPDL) as a way to play the micro/small-cap space, while Apple Computer (NASDAQ:AAPL) is a way for large-cap investors to do the same.
Since mobile point-of-sale, or mPOS technology, was first introduced, it has completely redefined the limitations of what was once believed possible in the payments industry for both merchant and consumer. Technology and wireless communications infrastructure finally caught up with our imagination, and not only has on-the-go sales of goods and services become easily and conveniently enabled, but small and micro merchants in remote locations now have a solution that levels the playing field with their counterparts in metro areas.
Despite the advances the industry is seeing, the full potential of mobile commerce is still to be realized. For example, the mobile wallet is an important step forward in terms of convenience, but it ultimately provides only a more simplified experience to the traditional card swipe method, which still occurs at the same physical point-of-sale.
Also, the prevailing wisdom that mass adoption of a true, interactive mobile commerce model is incumbent on consumers and their devices is a false paradigm. While consumers may well indeed want to pay for merchandise using their phones and tablets, the issue lies on the merchant side, where businesses have been very slow to understand - much less adopt - the necessary point-of-sale capabilities. For merchants to really become immersed in the mobile economy, it is imperative that they understand the changing role of point-of-sale.
Thanks to the widespread proliferation of mobile devices, such as tablets and smartphones, we are at the cusp of the next frontier in mobile payments, one that could influence the merchant-consumer experience from initial engagement and interaction straight through to purchase. It represents the next progression of POS technology: pPOS, the "personal" point-of-sale solution.
Bringing POS to the Consumer
The true promise of mobile commerce is to create a new dynamic that brings genuine innovation to the consumer and enables a series of purchasing opportunities that redefine the experience for both consumer and merchant. The defining characteristic of pPOS moves the point-of-sale directly onto the consumer's mobile device, personalizing the experience. The concept of pPOS can be compared to the groundbreaking change offered by eCommerce when that breakthrough first hit the market, which presented a whole new paradigm for shopping. The potential of pPOS is similarly groundbreaking.
Personal POS creates a total redefinition of the point-of-sale. In the restaurant, at the retailer, at the service location, it can leverage the power of today's mobile devices to introduce new capabilities and purchasing opportunities at the physical brick-n-mortar locations that were simply not possible before - and could help these businesses combat some of the challenges they face from eCommerce competitors.
Fulfilling Unique Purchasing Capabilities
With a pPOS system located basically in their pockets, consumers can use a smartphone or tablet to purchase items from a display window, magazine, or even a television advertisement, simply by scanning an accompanying product tag. The technology will allow users to interact with the retailer to get information about the product or service, and to understand availability of inventory, matching or related items, and even installation or user guides. This interaction is done without the assistance of a busy or hard-to-find sales clerk, and it will enable true self-checkout without any in-store register lines. Ideally, customers will be able to purchase an item with a snap of their mobile devices, arrange home delivery with a few clicks, present an onscreen receipt to a clerk, and move on with the rest of their day.
For merchants, pPOS can facilitate sales they might have otherwise lost. It enables them to offer consumers new and innovative purchasing functions that follow them wherever they go - as opposed to simply replicating yet another version of existing mobile POS technology, one that is still tied to a register.
Collapsing the Gap Between Engagement and Purchase
Personal POS significantly closes the gap between product discovery and product purchase, empowering the consumer with new, self-sufficient payments tools. Consider the consumer who browses through a magazine and comes across an ad for a wristwatch. The traditional purchasing process would require the shopper to remember the pitch and later go online or head to a store to seek additional information, which may eventually lead to a purchase, or not. These are the normal behavioral steps of faith every merchant hopes the consumer takes.
Now, what if that consumer, through embedded pPOS technology, were able to utilize his or her mobile device to investigate further and buy that same watch directly from the magazine ad, on-the-spot, all in one dramatically collapsed purchase cycle? Suddenly, what was once a costly product or brand image ad for the merchant has been transformed - thanks to a mobile-device-driven pPOS - into a direct response marketing tool, reinforcing the whole purpose of advertising in the first place: to provoke a purchase. This single aspect of pPOS alone radically changes the ROI that merchants can expect to recoup from the millions in advertising they invest.
There's a similar experience to be had in-store. For example, a washer/dryer combination interests a consumer couple. They have already visited their neighborhood home improvement center at 1:00 p.m. on a Saturday afternoon - prime time for this type of purchase - and there is no available floor clerk to be found. Time ticks on, pending errands begin to apply pressure, and their frustration level starts to rise.
Rather than risk losing that sale to a competitor and further compromise the relationship with this couple, what if the merchant had deployed a pPOS model in-store? With a simple scan of a responsive tag or merchandising tool, this couple would have had all their questions answered about the washer/dryer, including market-competitive information, instantly in the aisle. The merchant can "push" a digital discount to those shoppers right there in real-time.
In effect, the couple can purchase the set with a credit or debit card of choice, or even apply for micro-financing on the spot, be prompted to apply for the extended warranty, arrange delivery for the following Tuesday, and have an electronic receipt immediately emailed to them. This all happens independently, without ever having to engage with an employee or stand in a checkout line at a register. This consumer-driven purchase cycle has been collapsed to a fraction of the time, and everyone in the process wins. Most importantly, pPOS is an excellent solution for correcting the pervasive problem of "showrooming," where consumers do all their research in-store, but then purchase with another retailer online. The streamlined pPOS experience is certainly more conducive to on-the-spot sales.
Instituting the New Norm
There are admittedly a few challenges yet to overcome in the marketplace, primarily on the merchant side, before pPOS can become commonplace. It is not enough to simply provide a comparable mobile payment option if we hope to see widespread acceptance for mobile commerce. The merchant community has a vested interest to put the infrastructure into place to create a unique and improved engagement. If merchants pursue this direction, they can deliver a catalyst that can propel mobile commerce.
That said, I believe there is no obstacle that cannot be addressed with the right value proposition that in this case is a benefit to both the consumer and merchant. pPOS presents a progressive real step in the development of the shopping experience, and one that is beginning to take a foothold in the market even now as mobile permeates every aspect of our daily life.
In this world of instant gratification, consumers want what they want, when they want it, and merchants find themselves playing catch-up with ever more demanding consumer expectations. The substantially reduced purchase cycles that pPOS creates, from engagement to transaction, can offer merchants innovative new opportunities for meeting high consumer expectations, delivering a customer-focused experience that the market will embrace as the new norm.
How to Play it in the Large-Cap Space
Apple is mostly known for its impressive suite of hardware products, iPhones, iPads, AppleTV and iPods. There is excitement brewing around an eventual rollout of the iWatch and a new version of AppleTV. But Tim Cook has been quietly moving Apple in another direction, eCommerce. While we are all aware that Apple generates revenue from an app store, iTunes and iBooks, many of us may not be aware that this side of its business is growing at about 20% y/y, and is currently at a $17.6 billion per year run rate, based on 4Q2013 results.
As stiff competition over the past few years from Samsung's (OTC:SSNLF) Android and tablet products and Amazon's (NASDAQ:AMZN) Kindle readers has slowed the growth of Apple's "core" business, now there is a move afoot to tap into one of Apple's biggest assets, its 800 million users with stored credit card information, that Tim Cook has been bragging about profusely, thus expanding eCommerce into mCommerce, driven by mobile payments.
There has been some reorganization within Apple in the past few months, further highlighting its interest. According to the Wall Street Journal, Eddy Cue, Apple's e-commerce chief, is focused on building a mobile payments business for Apple right now. He and VP/Online stores, Jennifer Bailey, have met with PayPal, Google (GOOG, GOOGL), Square, Stripe, Braintree and Venmo in their efforts to put this together.
Apple already has many of the pieces necessary to become a major force in mobile payments, and its entry will be a scary proposition for those companies established in the payments space, like Square, PayPal (NASDAQ:EBAY) and Stripe. "Apple is absolutely the sleeping giant in the payments world," said Denee Carrington, analyst at Forrester Research. "They have the capability - they just haven't tied it all together."
Two of those pieces include Touch ID and iBeacon. Touch ID is a fingerprint app originally thought to be a security feature meant to protect someone from stealing your iPhone. The fact is that this is indeed a theft-preventing app, but one more powerfully oriented towards providing authentication of mobile payments in retail transactions.
Apple just introduced its iBeacon into its stores in late 2013. iBeacon works on Bluetooth low-energy (BLE) transmission that can be used to efficiently push ads, special offers and product information to mobile phones, in this case iPhones, in indoor areas where signals can be poor, and with much more accuracy than GPS. While beacon technology does have some hurdles to overcome, according to Business Insider, "they are poised to transform how retailers, event organizers, transit systems, enterprises and educational institutions communicate with people indoors. Consumers might even want to deploy them as part of home automation systems."
iBeacon could be a holy grail for Apple mCommerce, in which mobile payments are used to close the loop on an expansive retail marketing infrastructure already in place in a way that immediately attributes a specific sale to a specific phone or owner.
Finally, on the last earnings conference call, Cook said, "In general, we're seeing that people love being able to buy content, whether it's music or movies or books, from their iPhone, using Touch ID. It's incredibly simple and easy and elegant, and it's clear that there's a lot of opportunity there. The mobile payments area in general is one that we've been intrigued with, and that was one of the thoughts behind Touch ID. But we're not limiting ourselves just to that. So I don't have anything specific to announce today, but you can tell by looking at the demographics of our customers and the amount of commerce that goes through iOS devices versus the competition that it's a big opportunity on the platform." How coy.
It might seem odd to select Apple over others in the space like PayPal, but its intrinsic assets of technology, user data, stored credit card information and tenacity make me believe that it will be a major mobile payments force to be reckoned with.
How to play the Micro/Small-Cap Space
I have and would continue to point investor attention toward a small company called Spindle, which I previously wrote on. You can find my last article here "Why Carl Icahn's Battle With eBay Is A Sign To Buy Spindle Inc." I believe the company and its management team, with 80 years of collective marketing and payments experience, uniquely posses the vision and talents to make the above a reality.
Ultimately, I believe the company is acquired by a larger player looking to gain quick entrance in the space, as well as ownership of an actual PSP "Payment Service Provider."
Why? Because the company leverages its propriety platform for mobile marketing and payments to help other companies enter the mobile economy without the stress and confusion of mastering technology and trends. The company has been in the forefront of developing and distributing its technology for the past 19 months, culminating with the launch of its MeNetwork 360 product at the Money2020 show last October in Las Vegas. In January, the company closed its acquisition of Yowza!!. Currently, the company is integrating the two platforms, which now boasts almost 2 million consumer downloads and approximately 95,000 merchant locations. Just last week, the company introduced Yowzaa!! POS - a comprehensive retail management platform, which is a cloud-based suite that allows merchants to manage operations from mobile devices.
Spindle is a mobile commerce company that helps its merchant customers grow their business with couponing, advertising and loyalty. It also provides payment processing combined into a single platform. Neither PayPal nor Square approaches the market from this angle.
To the best of my research, it remains one of, if not the only, small domestic publicly traded pure play that someone like me can currently invest in, and it trades at a valuation of just a mere fraction of many of its venture capital counterparts.
Spindle, from a 30,000-foot view, has PayPal, Braintree (both now owned by eBay), Foursquare and Groupon (NASDAQ:GRPN) features, and perhaps more. Spindle is not a daily deals or a display ad tool, but rather a merchant tool for consumers to discover merchants by allowing them to publish desirable incentives and promotions to consumers in real-time.
It was just a short few months ago that eBay bought Braintree for $800M. While Spindle does not currently generate comparable revenues to Braintree, my research indicates it does offer far more functionality and value to an ultimate acquirer, as Braintree itself is not a PSP. Spindle also has a much more comprehensive and attractive solution for merchants with the inclusion of mobile marketing.
Combining its payment technology with mobile marketing creates the concept of "brilliantly simple" commerce. Model companies, such as eBay, Amazon and others have been successful with online, but have struggled from a mobile perspective, along with Google, ISIS and others. These companies seem to be consistently evolving their go-to-market strategy based on large retail rollouts, while Spindle focuses on the largest business sector in the United States: small-to-medium businesses (SMB). SMBs represent over 99% of firms, 86% of business locations, 55% of employees and 43% of sales receipts.
A player such as Spindle can focus on the challenges of a smaller business and be agile to changing behaviors. Part of Spindle's positioning, however, is in its proprietary financial services platform architected and developed in-house.
As Bob Dylan said, "the times, they are a changin'." The day is coming where what was once just a phone will now be your own personal point-of-sale device. As an investor seeking to cash in on this technology revolution, you and your portfolio would be well served to "pay" close attention to this evolution and those companies that could cause your mobile wallet to swell.
Disclosure: I am long SPDL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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