The POS Bubble…
Not that this is a gigantic surprise to anyone who reads this blog, but the industry is changing, and the POS bubble is going to burst. Payment companies are buying POS companies at an alarming rate. There are so many new POS companies companies each year that fail, and so many established companies that have been around for years. There’s no way the marketplace can afford to have this unstable an infrastructure for long.
In the old days…
Like any market, the payment processing market is ever changing and evolving. Traditionally it’s worked in tandem with the POS software industry side by side. These partnerships were profitable enough for most.
From this, emerged POS resellers. Resellers were making their money on installing POS systems. But POS companies started to become more user friendly. Offering cloud based interfaces, and much smoother installs. POS companies also started selling directly to clients. This disrupted the normal reseller’s business.
So POS resellers need a new way to make money. And many of these POS systems will integrate with different payment processors. So many of the resellers got in the payment processing game.
So, this increasing number of payment companies, and resellers was creating some revenue. But larger companies like Heartland, and Vantiv/Worldpay, started to look around. They started to wonder how they could take the next leap to increase revenues. And the lightbulb went off, why not buy the POS company, and make them use us for processing? The move is genius.
Thus begins the cycle. The POS bubble is soon to burst.
Right now there are so many POS providers. And they’re earning their keep on the monthly/annual subscriptions they sell. But these are pretty small companies, generally speaking. Then you have big companies like Revel Systems, Lightspeed, Micros, Aloha, etc.
Then there are new companies, like Toast, Square, Touch Bistro, and Revel Systems. They have their own in house credit card processing right off the bat, so you get hooked early.
So, what happens now?
In the next few years, you’ll see payment processors buying some of the smaller POS companies. And big payment companies merging/buying the bigger POS brands.
Then the object will be to force out any of the remaining players. My best guess is that they do this with some kind of price war. The thing payment companies know, is that they make money on processing alone. So, the subscription fee you pay for your cloud based POS is icing on that cake.
Big companies will drop the cost of POS until the small companies can’t compete. And until the other POS giants have to follow suit. Then the only money being made in the industry, will be via credit card processing.
That sounds pretty gloomy…
It doesn’t really need to sound gloomy. As I said before, markets change. This change might be good for the market. Now we might see the technology improve with exponential speed. So many companies coming together under the same roof, we might see an amazing refinement of the tech. We could also see the price of processing payments fall. Since this will be the last thing companies have to lure in customers.
It’s going to be a few interesting years in the POS business, but we’ll do our best to keep on top of the changes.
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