Research | Fintech

COVID recovery and consumer change boosts the POS evolution

RBC’s sixth annual, and second virtual, Fintech Conference hosted 32 public and private companies with a very positive outlook as the economic recovery post-COVID takes hold.

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By Dan Perlin
Published July 6, 2021 | 3 min read
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Disclosures and Disclaimers

There were winners and losers in the economy during the global pandemic and, worldwide, fintech has been a winner. Now, as the recovery takes hold, fintech firms are entering a new era of cashless and often contactless payments, along with point-of-sale (POS) extras like buy-now-pay-later (BNPL).

The compression cycle is real

The biggest trend shaking up the industry is the compression of three to five years of consumer behavior change into mere months. Appetize offers digital commercial solutions for the food, beverage and retail industries, including cloud POS and is used across sports entertainment venues in the US. Its co-founder and chief strategy officer, Kevin Anderson, told the conference that the change was remarkable.

“Fundamentally, the consumer is moving further and further away from cash. We saw that over the last two years. According to a Worldpay report this year, over the last two years, cash has gone down by over 40%,” he said.

“In stadiums, cash historically has been about 50-60% of all transactions. Now you're seeing actually the majority of our customer base in Major League stadiums go completely cashless. What happened in two or three months of COVID was anticipated to happen over four or five-years’ time.”

Visa has noticed the same trend with its users, who are shopping online and using contactless payments in far greater numbers.

“There's a huge number of new Visa cards being used online for the first time,” says Oliver Jenkyn, Executive Vice President and Regional President of North America at Visa.

“Then you've got category expanders, people who already bought things online, but only in a couple of categories, and only up to a certain size. That group significantly expanded what they were willing to do online and how often they were willing to do it. Then you've got the digital natives. They thought they were all in, but now they've gone even further. So, no matter where you started in that continuum, every segment that we've looked at has gone significantly deeper, and they've liked it.”

It’s a fintech world

When it comes to changing how people transact with money, inertia is often the prime inhibitor. Consumers tend to resist change, hesitating to use new technologies like contactless payments or ecommerce. COVID drove change out of necessity, and now that the new habits are bedded in, people won’t look back.

For payment providers and vendors, it’s also clear that businesses have to be able to move fast to adapt to changing consumer behaviors. That puts fintech providers, particularly cloud-based solutions, at a distinct advantage, as they can quickly pivot to new expectations.

“When consumers come back to venues, they want a mobile website to order from, they want a kiosk to order from, they want to order online beforehand, or they want to use Apple Pay. And those are all payment types that legacy POS can't move quickly enough to offer and integrate into,” says Anderson.

“So I think the change of the pandemic, which was the interest and ability in introducing new payment types or new ordering types, taught these big businesses that they have to be able to be on a platform that's open, a platform that's API-driven, that's modern, that's cloud-based and that can be accessed really quickly.”

Buy now, pay later

The change at POS isn’t just about how people pay. It’s also about the additional services and solutions being offered, including the option to spread out the cost. This year’s conference heard from four different companies in the buy-now-pay-later (BNPL) space, as well as other firms outside the space, and the conclusion is that the whitespace around POS services remains large.

“I think there's a disruptive nature evolving in payments, so it's not just processing payments anymore, it's the foundation for the combination of a lot of functionality,” says Joel Leonoff, CEO and chairman of JOFF FinTech Acquisition Corp.

“So there's pay later, merchant cash advance, embedded payments and more and more. All of these apps that are doing all these wonderful things are going to have integrated payments as the foundation of the services that they're offering.”

For BNPL specifically, there are unique competitive dynamics playing out in the US. The most crowded arena is the low average order value, short duration, split pay products, where, for example, consumers can spread the cost of a shopping basket of clothes over three months. But the sector as a whole is becoming much more nuanced. Companies are starting to deliver a wide breadth of products with a keen eye on what the customer wants and increasing customer engagement.

That includes a division in the sector that’s willing to take on longer duration, higher average value customers. Our pre-conference analysis noted that there were some firms offering loans up to $17,500. Ease-of-use is still likely to become a key differentiator in the sector, particularly since players in the industry don’t believe that merchant exclusivity is a likely outcome in the long run. However, they do think that each merchant will probably prefer to limit the options at checkout to two to three providers.

A one-stop shop for merchants

Merchants will probably extend that desire for provider consolidation across varied points of sale, says Anderson.

“Big businesses don't want to have to go to a mobile ordering provider, a kiosk provider, a point of sale provider, an online and mobile web provider, an inventory manager, etc. They don't want seven or eight vendors, they ideally want a one-stop shop,” he says.

His fellow panelist Don Gray, CEO of Givex, sees the same trend in its clients, which are usually small- to medium-sized businesses.

“It's important for clients to have one source where they actually can get everything they need,” says Gray. It's expensive to manage a bunch of different products and there's a lot of IT resources necessary. You need to have a lot of in-house expertise to manage five or six different apps over five different locations. If you can actually have one partner that's looking after all of it, then I think it's attractive.”

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