What POS Dealers Might Look Like in 10 Years

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It’s no secret the point of sale (POS) dealer model is under attack. We’ve written about it numerous times and we’re surely not the only ones.

What we wanted to do was think about what a dealer model might look like in 10 years and why it would look that that. This comes on the heels of our predictions for the biggest trends in brick and mortar over the next decade.

The elephant in the room is the consolidation of POS and payments. This phenomenon would likely have the largest impact on the dealer of the future. Let’s walk through why.

Payments residuals are only coming down. They already have been for some time, and the intelligent among us will contend that, eventually, the cost to move money will be zero. Reaching the bottom will likely be many decades in coming (because of vested incumbent interests) and will require widespread uptake of digital payment methods like those that exist in China.

As residuals fall, payments companies will need revenue from other sources. This means that payments companies, for the first time, will actually need to care about selling other products for their financial future. In today’s market many payments companies pretend to differentiate but let’s call a spade a spade:

Payments companies are interested in the residual and that's where concern ends Click To Tweet

Under this new model it’s conceivable that the payments channel will acquire the skills that today’s POS dealers have: installing, programming, training and supporting the POS (more specifics on these realities below). It’s also conceivable that the payments channel will learn to sell bolt-ons, which is what only a very small number of POS dealers can successfully do today (maybe 10-20% of POS dealers are VARs in the literal sense that they add value).

If the payments companies adopt ownership of their POS assets, what happens to today’s POS dealer?

Let’s put this specific question aside for a minute while we focus on market trends.

The POS is becoming commoditized. It’s all moving to the cloud, and they’re all going to have the same features. The differentiation among them in a decade (assuming consolidation doesn’t occur by then) will be what third party services they connect into. What’s the difference between an iPhone and Android? Mostly, it’s the apps.

This means a local sales representative will be able to sell – and service – any of the POS systems fluently. When this happens there’s little economic incentive for POS companies to have their own dealer channels; this becomes a race for who’s willing to lose the most amount of money to earn a customer. As POS prices continue to fall and more merchants discover and buy POS directly online, can the ISV afford to pay the dealer a percentage of their dwindling revenues?

POS ISVs will make up those revenue shortfalls over time with bolt-on products… but why wouldn’t they sell bolt-ons directly since they’d have the merchants’ data in-hand already? Doesn’t it make sense that the POS ISVs, with data access and analysis, would have a better understanding for what’s going on with a particular merchant than does the dealer?

What instead might make the most economic sense is for local experts to crop up in the major metro areas, or for “local merchant support” franchises to erupt.

Think of it this way.

Dealers are going to consolidate because revenues are drying up. Installation, training, programming and support revenues are shrinking as cloud POS proves it’s more stable and can be supported remotely. Merchants are going to shun the perpetual use of dealers in larger numbers as the POS products they use prove more reliable. Smaller merchants are already buying directly around dealers, and larger merchants will only pay dealers to set systems up once. In an ironic turn, dealers who don’t change their business model will revert to a break-fix model where they’re only needed when the system goes down.

Dealers are fishing in a drying pond.

To combat this dealers will need to sell a larger number of POS products, and since POS will be commoditized this won’t be an issue. Dealers will also need to sell services that ISVs can’t easily replicate, like business consulting or in-person support… but only expect larger merchants to pay for it.

Therefore dealers will need to broaden what they do if they want to see the same amount of revenues. Remember, in this view of the future payments residuals are simultaneous declining…

Which brings us back to the question,

If the payments companies adopt ownership of their POS assets, what happens to today’s POS dealer?

The payments companies might rely on a federation of “local merchant support” franchises to help them service accounts, or they might bring it all in-house and punt any local needs to the ISOs (who will obviously need to acquire new skills to do this successfully). Maybe the payments companies rely instead on a market-maker like Boomtown to find local technical resources, but without enough steady demand the local resources (likely the POS dealers of old) would move to greener pastures.

There are a lot of what-ifs, but the why’s are pretty clear.

  • POS is only getting cheaper and more stable
  • Merchants, like consumers, are buying direct more frequently
  • Payments residuals are falling
  • POS ISVs can sell bolt-ons directly with data access

Dealers should look to align themselves with solution providers that understand these realities and are actively investing in business models for dealers to make more money. We’re huge proponents of new services divisions for dealerships that cannot be usurped by the ISV or some new startup.

Ultimately dealer survival will be based upon their own actions, and the world as the payments companies see it. They have all the money, after all.

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  • Jerry D Wilson

    I think what you are saying is that the buy/sell era of POS is coming to a close something like the break/fix type of dealer is either struggling now or soon will be. The small business owner is making their POS purchase decision before they begin construction/renovation of the new business. This is being done without the help of a POS dealer. Quite often, they get their POS from their banker.

    Businesses already open who are ready for their 2nd POS system may opt to go this route if a POS dealer does not get to them first. The Internet is quickly becoming the enemy of those POS dealers who do not enthusiastically engage it.

    Traditional dealers must morph into a different business model that gets away from the buy/sell revenue model where they must sell X number of systems per month in order to stay in business. Instead, the new dealer must find multiple streams of revenue from credit card processing, SaaS POS revenue and support services both from recurring revenue and break/fix/bill.

    At it’s core, BASIC POS is becoming a commodity. Add-ons or Apps are where future revenue is to be recognized. Apple has done a magnificent job of convincing consumers and business owners that Apps are the way to go. Download and use what you need. Look for POS to follow a similar path.