This is our second anonymous mailbag article. The first one generated a high volume of chatter. We’ll continue to answer these questions as quickly as we can as long as you’re aware that we don’t have the time to write a response for each question submitted. Generally we think of mailbag questions as those that can be answered off-the-cuff and don’t require the dedicated hours to write an article.
As always, send your questions to jt [at] reformingretail.com.
Why do your articles seem to cover restaurant POS more frequently than retail POS?
We have two explanations for this.
First, the payments industry is consolidating POS in the restaurant vertical. Our understanding is that hospitality is more enticing to processors than retail because restaurants rack up a per-transaction charge and have hundreds of transactions per day. This makes hospitality more lucrative to payments providers (it probably helps that these merchants are also really, really unsophisticated). So there’s more positive activity occurring in restaurant POS.
Second, retail is being Amazon’d to death. Every year Amazon adds tens of billions of dollars to its ecommerce platform at the expense of traditional retail. Over a longer timeframe, retail is in big trouble. That’s not to say restaurants aren’t going to face the very real problem of ghost kitchens in the next 5 years, but Amazon is already here.
Because of these dynamics retail is a lot less interesting to us right now.
I’m a POS dealer. Every POS I carried or want to carry is now owned by a processor. I make very little on processing anymore. What POS should I pick up?
It’s become a really tough market for independent VARs. We don’t think payments companies will continue to own all the POS assets in the long run but the pendulum has definitely swung hard in one direction.
The problem resellers have is that they can’t make as much money on payments residuals when a POS is owned by a payments company. Yes, some resellers will earn a bit more at first, but the payments companies need to earn an ROI on the POS companies they’ve acquired, and many of them solely understand economics through the payments residuals lens, sadly.
The other issue is that smaller merchants – the kind doing less than $500K in annual revenues – are selecting lighter weight POS solutions from companies like Clover, Square and other payments providers directly. VARs thusly need to focus on larger merchants but the disadvantage is that larger merchants need higher quality POS systems with more robust features than the POS systems offered by payments companies. This takes time and there aren’t many options.
Below is a list of cloud restaurant POS systems that are not (yet) owned by payments companies that also have the requisite features to support larger merchants and support reseller channels.
Brink – focuses on QSR and fast casual, has existing reseller channel
Brigade Society – focuses on table service but doesn’t have a formal reseller program, more of a referral program
Linga – runs on multiple OS types and does QSR and table service, has reseller program
Northstar – spin out of CBS, one of POSitouch’s largest resellers, has reseller program
Revel – focuses on QSR and fast casual, reseller channel in works
Please explain the math for cloud POS because I don’t see how anyone is making money. Every deal has become a market grab for payments processing and I can’t think it’s sustainable.
Maybe. We can imagine a scenario where payments is worth $1,000 and POS is worth $5,000. Taken together someone should be earning $6,000 on these two solutions. What you instead have is a company willing to earn half that amount, or $3,000, in providing both solutions.
In theory the company either ratchets payments processing rates to make up the $3,000 or POS prices bounce back. Here’s some math:
Imagine a 3-terminal business. In the legacy POS days the merchant would shell out $15K for the system. Today they’re only paying $300/mo, or $3,600 per year. Well, merchants have an actuarial life of 30 months (2.5 years). That’s only $9,000 in total revenue over that time period. The POS provider is being shortchanged the remaining $6K.
Now it’s also possible that the $6,000 difference was the cost of the middle man (reseller) and they’re being disintermediated by the internet. Software and hardware are also getting cheaper, as is support.
So are we looking at the scenario where existing providers will raise POS prices to previous levels or if the cost of POS has been axed in half forever and only falling going forward? If you’re a payments hammer then everything is a nail and the former becomes your strategy, if you could even call it that. If you’re asking us we’re leaning latter: technology has made just about everything cheaper and POS is not immune to market trends.
Catch you next week.
