Perhaps one of the greatest benefits to constantly pumping out provocative content is that you reach people who have been quietly thinking similar things but never found a public voice. These people often hold many original ideas because they approach things from a different perspective but have not developed the appropriate mechanism to share their thoughts.
Today’s post emanated from such a conversation with Gregory Puff, the founder of OrderUFO. For quick background, OrderUFO developed Patron Mobile, an ordering app that integrates to the point of sale (POS). We’ve talked about why it is important to push order data back into the POS for accounting reasons, but Patron also pushes the payments through the POS. This is an important distinction and the genesis for this article.
We begin by noting the undeniable shift in online ordering. 30% of restaurant volume is estimated to originate by phone under the “carry-out” revenue center as defined by NPD, a research company. It’s not a quantum leap to understand how people are using their mobile devices (and voice ordering) to replace the phone call with an online order to the same effect.
In 99% of situations the app/software making the online order is NOT integrated to the merchant’s POS. Therefore, all the orders coming through aggregators like GrubHub and Yelp bypass the merchant’s payments processor, lowering that processor’s payments revenue. A 2014 article by Business Insider estimated that Grubhub generated $19M in processing fees on mobile order volume of roughly a billion dollars. Considering the US restaurant industry does $700B in annual sales (we don’t count your daughter’s lemonade stand a restaurant as NRA does), a third of that (the amount NPD estimates is carry-out) is up for grabs as mobile ordering replaces that customer phone call.
Back-envelope math puts that payments opportunity at $3.99 billion a year, a billion of which will be eaten from the share of processors.
(30% of $700B is $210B. Every billion in sales represents $19 million in payments opportunity. $210 * 19 million = 3,990 million. Processors average a net of 0.5% of those $210B in transactions, or a little over a billion dollars.)
So what now?
Well, it’s obvious that the payments industry needs to seriously think this through. Are they willing to cede a third of their revenues in the restaurant vertical over the next 5-10 years? It’s certainly no better in retail as omnichannel strategies present online ordering as a preferred method of purchase for those on-the-go.
Part of the solution is to strategically lower risk on payments exposure by having a POS asset. The POS asset allows the processor to get further into data and develop (or, realistically, partner with third parties to develop) revenue streams unrelated to the processing business. In a nut shell having a POS asset increases optionality while mitigating risk. This is business 101.
But there’s another solution specific to the very real revenue erosion happening with online ordering. To hear about that solution you’re going to need to wait for a future post.
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