At a corner cafe not far from the Forbes office, the owner began accepting credit card payments a few months ago. Currently, a tablet with a built-in credit card reader from mobile payment company Square is placed on a counter that is not cash-checked. Whenever I use it, I will think that during my credit card spending, why is Square actually losing money?
Mobile payments have become a low-margin and highly competitive business because start-ups such as major issuers, PayPal and Square want to get a slice of it. Even with the support of large VCs, and the founder Jack Dorsey's reputation in the tech world, Square has a hard time building partnerships that really help increase its profits, such as Enter the juice store in Whole Foods instead of the whole food supermarket itself.
A huge obstacle to building a payment system in a coffee shop or retail store is the merchant's cashier terminal system (POS system). It should help merchants pay for the payment of goods, in addition to being able to punch and manage inventory, but if you are not an employee in the store, these trivial functions are unknown to outsiders. It is also a traditional business, with more than 80 products still using Microsoft's XP system, and sold throughout the United States, there are giants such as MICROS Systems and NCR in this industry, all of which are revenues of billions of dollars. The company's products are distributed in thousands of retail stores, restaurants or hotels.
Some of Square's products are already in the dark to the POS system market. However, like it, it is found that the payment systems currently used by retailers are outdated and there are a lot of companies that want to reverse this situation. On the one hand, the signing of big orders is slow, while on the other hand, small suppliers are either limited by current contracts or are not accustomed to using software to handle employee salaries or store inventories.
In this cafe near Forbes, the card reader installed in Square is very convenient to use, but if there are other companies that can make my payment as convenient, the merchant can also enjoy additional convenient services, such as through the software management. With the import and export of coffee beans, I don't really care which brand of the paying company is attached to the tablet that pays the payment. Some investors think so too, they are looking forward to finding a POS system with both functions, and it is still a tablet computer in front of consumers like me.
The POS system does make money – last year, MICROS Light received $330 million in service fees in the US and Canada – but the profit margins were as pitiful as paying for business.
One of Square's competitors in Silicon Valley, Revel Systems, claims to grow its customer base by as much as 250% and its annual revenue is estimated to be around $20 million. However, since Revel was founded four years ago, its growth rate may not meet the expectations of its investors. The company has partnered with the fast-food chain Pizza Patron and even added a bitcoin payment function in February this year, trying to make a stir in this way.
There is also New York-based competitor ShopKeep, which has just announced a $25 million Series C round of financing, led by venture capital firm Thayer Street Partners, Canaan Partners, Tribeca Venture Partners, Contour Venture Partners and TTV Capital participated in this round of financing. ShopKeep said that sales have doubled every year for the past few years, but are reluctant to disclose specific revenue. The company's founder and CEO, Jason Richelson, insists that he can build a billion-dollar revenue company by selling software to small businesses rather than chain stores.
Richelson said he took the initiative to reject the agreement from more than three local retailers or cafes, and that is why ShopKeep is taking a different approach, avoiding the chain of traditional suppliers or the competitors such as Revel. Smaller businesses competing for. The company has now received support from 10,000 micro-enterprises.
“It’s not easy to compete for micro-enterprise customers because you have to manage everything from helping them install software to managing how they use and handle every little problem,†Richelson said. “From a core perspective, this is a service business. And it's hard."
The profit margin of each sale is not going to be high - many potential customers are barely maintained - but Rickerson, who had been a wine store owner before, said that ShopKeep is making money every time he installs a piece of software. , but the company allows customers to pay in installments monthly.
Rickerson said that the POS system will not be the same as before. After the cloud management software became popular, it has been shortened a lot compared to the original 5-7 year upgrade cycle. Since Microsoft will no longer provide software support or release bug fixes for XP systems, it is estimated that retailers will abandon such POS systems in large numbers, and it is expected that there will be a big increase in future business volume.
Like Revel, Richelson said the customer churn rate for this business is very low. However, traditional suppliers seem to enjoy the same advantages. Even though Intuit's QuickBooks software costs $5,000 or more, compared to ShopKeep for about $1,200, plus some software and service fees, but a customer accustomed to a solution will still There are other concerns. It is very difficult to proactively capture market share.
"Unless you really don't like it, you won't be rushing to change the system," Rickerson admitted. "It's good for us, not good."
Several investors who are concerned about this field told Forbes that it is very difficult for companies like ShopKeep to expand their profit margins and capabilities to a considerable scale, let alone become a billion-dollar company. . Richelson said he chose to accept Thayer's investment, in part because they "really focus on long-term development," and the company will seek to go public in the next few years instead of exiting. The company has set up Belfast, Northern Ireland, as the base for its expanding engineering team.
However, not to mention the development bottleneck that ShopKeep may encounter as a company, its growth once again shows how difficult it is to succeed in the payment business. ShopKeep has partnered with PayPal to launch mobile payments in some of its stores, and is currently processing $1.8 billion in the next year, based on weekly trading flows. This number is many times that of ShopKeep's actual revenue – which is why ShopKeep still needs to win thousands of corporate customers, rather than relying on consumers to swipe credit cards to get a $1 billion revenue milestone.
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