SoftPOS -A Revolution in In-Store Payments

Under the circumstances created by COVID-19, a new wave of Tech-savvy millennials /Gen-Z customers started using contactless cards / mobile phone for their in-store payments.

Now, smartphones can be used as a payment method using Near Field Communication (NFC) protocol. It can also be used in “reader” mode, as a 'Contactless Payment Terminal'. And to enable it, end-users would just have to download a “Soft POS” app.

#SoftPOS refers to a software-only mobile application solution enabling individuals to accept contactless payments, from cards or NFC wallets, on their personal smartphones, without the need for any additional hardware. 

Since , we are more conversant with the POS (Point-of-Sale) terminology let’s bring further clarifications. SoftPOS shall not be confused with:

• Mobile POS, also called mPOS, which refers to lightweight, wireless payment terminals
• Android POS, which is the common name for smartphone-like devices, running different multi-purpose business apps (ex. order management, payment, stocks).

A SoftPOS application can be installed on any off-the-shelf consumer smartphone, alongside other apps. The device is typically not dedicated to professional use and these solutions mostly target independent business owners.

Payment schemes like #MasterCard, #Visa, Rupay etc. are probably the most active promoters of SoftPOS, as an opportunity to onboard millions of micro-merchants, and have broadly announced a series of initiatives. Payment networks have a genuine interest in encouraging SoftPOS deployments by providing developer toolkits, subsidizing and marketing initial pilots, in order to keep increasing the number of transactions they process in underserved geographies and cash-based economies.

SoftPOS could be a strong enabler to expand financial inclusion in developing economies and meet governments’ ambitions to reduce the use of cash. Though, the history of the technology is very recent as evidenced by the aforesaid key events. Transaction volumes still correspond to a pilot-scale user base. Specifications will keep evolving as software-based security will be scrutinized. And a complete ecosystem and commercial model must be built.

It is also fair to say SoftPOS is far from being a “one-fits-all” approach. It can be used only on the newest generation of Android-powered smartphones – not on iPhones. While payment terminals have to meet specific EMV requirements in terms of contactless usability, smartphones follow less demanding standards issued by the NFC forum. In that respect, significant discrepancies can be expected in terms of phone behavior in reader mode. It is also important to stress that SoftPOS supports only contactless payments – PIN entry is not specified, which de facto excludes transactions subject to amount limits.

Besides we should reflect on the user experience, for both parties involved. The business owner has to repeatedly leave his own phone in the hands of payers. It is hard to imagine asking employees to do the same. Furthermore, commercial off-the-shelf smartphones do not meet the robustness and durability standards of professional terminals that go through extensive qualitative physical and logical testing. On the other end, customers have to tap their payment cards on the personal device of a stranger. The slow beginnings of contactless card adoption and major debates on the technology security have shown that the perception of security can also be the biggest hurdle to overcome. Under Covid-19, hygiene and safety have also been added to the list of consumer concerns.

Finally, the economics also deserve careful consideration, keeping in mind mid-range smartphones cost around $500, 10 times more than a high-performance and lightweight mobile POS. Thus SoftPOS makes sense only for low-end independent merchants leveraging their personal mobile to occasionally accept electronic transactions. Besides, a dongle-free approach does not eliminate the inherent interchange fees.

SoftPOS appears as an easy-to-deploy solution for infrequent transactors with low amount transactions. It is also highly probable that the main applications will be peer-to-peer. Though the technology, mostly security-wise, and available solutions will likely necessitate an additional 2 years at a minimum to be market ready. This timeframe could be well-used by OEMs to enhance smartphones’ architecture in cooperation with mPOS specialists, with the NFC reader mode in sight.

The most popular NFC wallets have not eliminated plastic cards: the global physical card base actually continues to grow, with some notable innovations (ex. biometric cards, crypto debit cards, all-accounts-in-one card) while contactless cards have highlighted the convenience of plastic. Likewise, we do not anticipate massive cannibalization of other physical acceptance solutions including dongles, mPOS, Android POS, or more traditional terminals. SoftPOS is a good fitting complement for micro-merchants. Different technologies, products and user experiences should prevail to meet the variety of checkout options businesses want to offer in proximity. 

The National Payments Corporation of India (NPCI), the umbrella organization for retail payments in India, has onboarded PayCore, a global payments solutions company based out of Turkey, to develop SoftPoS solutions for its card network 'Rupay'.Millions of merchants now can convert their NFC-enabled smartphones into a POS machine to accept contactless payments through RuPay SoftPOS.

This solution can be integrated into bank or aggregator acquiring systems to enable acquiring of RuPay using mobile phones enabled with NFC capability or add-ons. With SoftPoS, merchants can use their NFC-enabled smartphones as point of sale (PoS) machines to accept contactless payments. RuPay SoftPOS enables merchants to accept payments securely without any hassle from contactless cards, mobile wallets, and wearables just with their mobile phone.

NPCI aims at widening the spread of Rupay SoftPOS among micro, small and medium-sized businesses in different parts of the country by enabling smartphones and tablets to be used as POS terminals without any additional devices, the investment costs required by banks to reach over 63 million micro-, small- and medium-sized businesses will be significantly reduced.

In India, internet connectivity in tier 2-6 cities /towns & in more than 6,40,000 villages are patchy or not working at all, most of the time and hence a good number of in-store transactions are declining in absence of connectivity. NPCI should explore possibilities of using state of art solution of a Sweden based Deep Tech company-#CrunchFish.

Crunchfish’s two-tier offline vs. online settlement architecture, which is now also proposed by Visa with their Offline Payment System (OPS) protocol, leveraging the fact that there is actually little value to the merchant to have the money transferred to their accounts at the exactly the moment-of-payment in-store. No problem to wait for half an hour as long as you can trust being paid.

What is critically important though is that the in-store transaction can be a smooth, robust and secure experience that is instantly settled between the customer and the merchant. This means that it has to be an offline settlement and independent of anything that may go wrong online, such as lack of connectivity, temporary downtime of cloud payment services or that the bank servers are just overloaded as seen at most banks today. 

( Excerpts from various reports  and article from Finextra)