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Is Apple Entering the Payment Acceptance Business?

In July, Apple acquired Mobeewave, a relatively unknown payments-technology startup in Montreal, Canada for, allegedly, $100 million. For nine decades, Mobeewave has been developing technology to convert traditional smart phones into payment-accepting devices without requiring additional hardware components.

What may appear to be just another acquisition for Apple could have broad consequences for the payments industry.

Mobeewave allows smartphones to be payment-accepting devices without additional hardware components.

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mPOS

Before digging into the Mobeewave acquisition and how it threatens the status quo appreciated by Square and many others, some background on mobile point-of-sale (mPOS) is helpful.

The”Great Recession” of 2008 prompted many merchants and the whole payments industry to discover a better way of serving clients.

Ecommerce had made enormous gains by offering improved service, better prices, and unparalleled convenience. Brick-and-mortar stores had to respond. Among the industry’s answers was mobile points available — the ability for merchants to leave the front checkout counter and accept debit and credit card payments throughout the shop.

Around this time, Square, with its own card reader that readily plugged to a smartphone’s headphone jack, made enormous strides. By allowing merchants to accept payments from anywhere, Square profoundly altered the payments industry. It was not long before others, such as Clover, enhanced on Square’s offering with mPOS services that encouraged chip-and-PIN and contactless tap-to-pay.

Conventional acquirers and payment processors were slow to react to this gigantic change in the small-to-midsize business section. Eventually, the top processors either developed their own mobile point-of-sale products or partnered with one or more mPOS providers. This is where the business stands now.

Evolution of mPOS

For all the interesting use cases and advantage that mPOS supplies, it does have one major fault: independent hardware is necessary. Merchants can take card payments on their telephones and tablet computers only if a card reader or a card-reading PIN-pad is connected either wirelessly via Bluetooth or with a dongle, cable, or plug.

Carrying and linking a small card reader or a miniature PIN-pad is not horrible, but it certainly reduces the convenience. All this hardware has to be billed, maintained, and secured. Worst of all, it is often costly.

Several startups — Mobeewave was foremost — known that mPOS is more workable with the awkward dongles, readers, and PIN-pad attachments.

Unfortunately for Mobeewave (but lucky for the standard players), the distinct hardware was necessary. That is because Visa, Mastercard, and another card manufacturers let mobile payment transactions only if the hardware was certified (for safety ) by organizations like PCI Security Standards Council and EMVco.

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And PCI and EMVco correctly understood that transmitting credit card details via a smartphone was not secure and, thus, couldn’t be certified.

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New Technology, Certifications

New engineering and certification criteria arose in about 2018 to conquer the security challenges of passing credit card information through smartphones. While the acronyms are apparently impossible to decode, the inherent benefits are clear.

  • TEE (Trusted Execution Environment). A very secure area of memory in a smartphone which protects credit card details without the need for different hardware. Mobeewave’s phone-only mPOS solution relies on TEE.
  • EMVco. A private company comprised of representatives from Visa, Mastercard, American Express, Discover, JCB, and China UnionPay. EMV is the acronym for Europay, Mastercard, and Visa — the founders and original members of EMVco. EMV generates and maintains rules and regulations for chip-and-PIN, contactless, and electronic payments.
  • PCI SSC (Payment Card Industry Security Standards Council). The independent organization which operates with EMVCo to make, maintain, test, and certify a wide assortment of electronic payment solutions, including mPOS.
  • COTS (Commercial Off-the-shelf). A fancy way of saying”a smartphone or tablet computer that was bought from a shop,” as opposed to purchasing a conventional card reader and PIN-pad from a mill (typically operated by an acquirer).
  • CPoC (Contactless Payments on a Commercial Off-the-shelf Apparatus ). A new standard and certification program from the Payment Card Industry Security Standards Council that outlines the principles for permitting tap-to-pay payments directly on smartphones with near field communication (NFC) capability. Mobeewave became a viable business once this standard was published.
  • SPoC (Software Payments on COTS). Very similar to CPoC, this standard covers PIN entrance right on the phone wherein clients can type their PIN right on the telephone’s glass touchscreen.

Mobeewave

The new standards and technology gave Mobeewave and some other startups the chance they needed.

The startups recognized that attaching card-reading hardware and PIN-pads to mobiles is a burden for most merchants. Mobeewave solved the technical problem of attachment-free mPOS quite a long time ago. But, Mobeewave’s solution was not fully certified by PCI and EMV, thereby making the solution attractive but unusable except in demos and labs.

Once TEEs (secure regions of memory in the phone) became widespread in contemporary smartphones — and when PCI introduced the CPoC specifications — Mobeewave became a market-ready mPOS product.

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Indeed, in October 2019, Samsung and Mobeewave announced a partnership and a service named Samsung POS, which enabled merchants to take tap-to-pay payments on Samsung tablets and telephones — with no cables, dongles, or other hardware. The partnership, which was confined to Canadian merchants, generated over 10,000 downloads of the Samsung POS app.

Square would have definitely been aware of this Samsung POS pilot but probably did not feel threatened. Until now.

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Apple Acquires Mobeewave

When Apple announced that it had obtained Mobeewave, a shockwave rippled throughout the payments industry. Suddenly, this tiny Canadian startup, using a persuasive but poorly advertised mPOS product, could threaten established point-of-sale producers, mPOS suppliers, and merchant acquirers.

Here’s why.

  • The proliferation of TEEs in Apple telephones and tablets. Unlike Samsung and other mobile phone makers, Apple controls and assembles the hardware and software that power its own phones. Apple has the resources (human and financial ) to develop powerful TEEs on its phones. Over time, the proliferation of Apple TEEs on Apple devices will get better at managing, storing, and transmitting credit card information. Hardly any businesses can secure an entire payments ecosystem. Apple can, and relatively easily.
  • Worldwide popularity. Despite their hefty price tag, iPhones and iPads are popular worldwide. Apple can leverage the iPhones and iPads that many merchants are using or intending to buy. Adding an out-of-the-box payments-accepting service alongside a possible point-of-sale app would be easy for Apple now that it has acquired Mobeewave. An Apple POS or mPOS application would be an additional reason for merchants to get Apple products.
  • Marketing power. Traditional acquirers and suppliers of POS and mPOS systems don’t have the advertising arsenal of Apple. With its seemingly unlimited advertising budget, Apple could out-spend other industry players — banks, processors, acquirers, and sometimes even hardware manufacturers (like Ingenico and Verifone).
  • Experience. Apple has invested heavily in payments-related goods, especially Apple Pay and the comparatively new Apple Card (a partnership with Goldman Sachs and Mastercard). The triumvirate of a payment product (Apple Pay), a payment card (Apple Card), and today, a payments-accepting app could push Apple into a leadership position in the payments sector. Many commentators feel that Apple has achieved this status.
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Companies that are probably threatened by Apple’s purchase of Mobeewave include:

  • Square and its rivals. Square, Clover, iZettle, ShopKeep, Lightspeed, and Shopify POS should feel threatened. If Apple offered a free or low-cost, feature-rich mPOS which operates on iPhones and iPads with no external hardware attachments, one would expect many merchants to depart Square. Pricing, ease of use, security, and support are the key differentiators among the competing services.
  • Acquirers and payment processors, particularly those acquirers who have partnered with mPOS suppliers like Clover. Apple can use its ability to reduce fees and enhance merchant account services. Many merchants consider their processors and acquirers as necessary evils; many would leave if there were better choices. This is particularly true for small-and-midsize companies, which can be Mobeewave’s primary target market.
  • Point of sale makers such as Ingenico and Verifone provide equipment for merchants of all sizes. Normally, acquirers and ISOs (independent sales organizations( also known as merchant account providers) buy PIN-pads and payment terminals from Verifone and Ingenico and then add custom applications before leasing or selling this equipment to merchants. Merchants using iPhones, rather, are a threat to those hardware makers.
  • Peer-to-peer payment solutions such as PayPal, Venmo, and Square Cash. Apple could create its own P2P payment service using Mobeewave’s technology. As opposed to using PayPal, Venmo, or Square Cash to send funds to a buddy, customers could use an iPhone to take a fast credit-card tap-to-pay payment. This supposes Apple can conquer the challenge of interchange and credit card charges.

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