Square, PayPal, and Groupon all made news today with the common goal of getting small businesses to junk their cash registers for Internet-connected devices that promise to bring the simple act of settling accounts into the future.

Change With Your Coffee

I work from home, but every morning I wake up, take a shower and go straight to work from my local coffee shop. About half of those days I stop at the neighborhood ATM kiosk to grab some cash. Call it quaint, call it archaic, but my local coffee shop only takes hard currency.

The coffee shop, 1369 in Cambridge's Inman Square, is really the only reason I bother using cash at all. 1369 is a little old school, a little hipster. Cash sales were kind of its “thing.” That’s why I was surprised the other day when I ran into 1369’s owner, Josh Gerber, and he told me that the coffee shop was going digital with the Square Register.

To me, this is disruption personified. No longer are we talking about some abstract concept of how smartphones and tablets could change businesses at the local level. We are seeing it in action on a tangible scale on the street, in our neighborhoods and, yes, at our local coffee shops. 

Mobile Reshapes Main Street

Leading the charge in this changing business landscape are companies like Square, PayPal, LevelUp, Intuit, Groupon, Revel and a variety of others. The task these companies have taken on is no easy challenge – each aims to redefine the point of sale and replace one of the most common items for Main Street business: the cash register.

The chosen vehicle to replace the cash register? The iPad.

Call it the iPad-ification of the point of sale or the mobilization of American’s businesses. We are now starting to see distinct results from several years of ecosystem growth and product releases intended to change the way that basic commerce is conducted. 

Square is the leading disruptor. It was the company that made the original card-swiping device for the iPhone and, later, the iPad. With its Square Register software, it introduced one of the first connected point-of-sale solutions. Today, Square took that a step further by announcing the Square Stand, a full replacement for the cash register that holds an iPad, includes a built-in credit-card swiper and allows business to connect cash drawers and receipt printers. The Square Stand, due out in July, is available for pre-order for $299.

Not to be outdone, PayPal announced at the same time a new program called “Cash For Registers” where it will buy old registers from businesses that wish to install PayPal Here, its own iPad-oriented point-of-sale system—and it's waiving payment-processing fees for the rest of the year.

Groupon also unveiled a new iPad-friendly version of its Breadcrumb point-of-sale software today.

Already, Revel Systems uses the iPad and Intuit can install any variety of smartphones or tablets into an effective register replacement. 

Conceptual To Implementation

Four factors are driving the implementation of iPad point-of-sale systems in small and medium-sized businesses:

• Install cost: It is often cheaper to buy an iPad and a couple of accessories that it is to go through a major point-of-sale vendor like Aloha or Micros, whose devices can cost thousands of dollars apiece.
• Interchange: The classic credit-card readers often have a variety of hidden costs for the business. They take a few percentage points of the total sale and often have a monthly fee or minimum that must be reached by the merchant, driving up their take to an effective rate of 3 to 5 percent for many merchants. Square charges interchange of 2.75% with no hidden fees on swiped transactions. A company like LevelUp does not charge interchange, but rather makes money as a marketing and advertising platform, offering incentives to users. 
• Mobile acceptance: A couple of years ago (even last year, when we first noticed the iPad point-of-sale trend), smartphone and tablet adoption were still in relative infancy. That has changed in a big way extraordinarily quickly. In just a few years, smartphones are now the norm. Second and third wave mainstream consumer adopters are now looking at them not as some weird fad but as practical tools for solving problems.
• Ease of use: Anyone can hit a few buttons on an iPad and swipe a credit card. Proprietary register systems pose a training nightmare. 

Square's new Stand product promises to be more durable than the older plug-in card swiper. Square merchants like Blue Bottle were known to stock multiple replacement swipers in case one went bad—but no one wants to fiddle with hardware while customers are waiting.

PayPal is taking a less prescriptive approach than Square's integrated hardware and software, but it too is pushing iPad-based solutions. It rolled out an iPad version of PayPal Here in March, with one nice feature from its parent company, eBay: Merchants can scan barcoded inventory for easy input into the register's list of items for sale.

"The reason the iPad is such a great device is it's touchscreen; you can integrate it with devices like receipt printers; it's relatively affordable," says PayPal president David Marcus. "It's the ideal device."

Marcus says PayPal's seen many merchants upgrade from the smartphone version to the iPad version.

"We just want to accelerate the inevitable," Marcus says of PayPal's move to offer free payment processing to merchants who take it up on the register turn-in offer. The cash register "is a dumb device," he says, that doesn't handle features like loyalty tracking or remote ordering.

At 1369, Gerber knew that he would eventually need to go digital, at least to the bare minimum of accepting credit cards. Yet, the average check at 1369 (or really any other coffee shop) is in the $4-$5 range. When you are processing a lot of small transactions, that interchange rate becomes painful. That is why it is good for businesses when payment processors battle on interchange and lower rates for everybody.

We are now in a phase in the Mobile Revolution where we are seeing concepts become reality. This is not just some startup CEO saying, “I am going to change the world” or a huge gadget manufacturer telling us that this is the next big thing. These are real implementations we can see, feel and touch, in our neighborhoods and at our coffee shops. 

Photo via 1369 Coffee House

Owen Thomas contributed reporting to this story.

The term “mobile payments” has been around for several years now. Really though, who knows what it actually means?

Different aspects of the payments industry want you to think different things. PayPal wants you to think of mobile payments as when you pay for something on your smartphone through an app or a website. Startups like Square think more along the lines of location-based payments, where you actually use your smartphone to process the transactions. Then there is the ability to transfer funds, pay bills or bank with your smartphones. To the payment processing sector, they all fall under the notion of “mobile payments.”

By this logic, PayPal can claim that it is one of the biggest mobile payment processors in the land, when really, it has next to zero physical infrastructure in existing retail environments. It is looking to change that with its recent NCR deal, but it will take time for the payment processor to create the necessary infrastructure. When PayPal touts its mobile payment numbers, what it is really saying is that it is the transactional arm of mobile commerce – mCommerce – the fledgling little brother to eCommerce, popularized on the Web by Amazon more than a decade ago. 

3 Kinds Of Mobile Payments

In a new report, research firm Forrester has broken down the definition of mobile payments into three categories:

• Mobile proximity payments: In-store or location-based payments with a smartphone to a point of sale. This could include a taxi driver using Square, a burger joint using LevelUp or a gas station using Near Field Communications (NFC) and a payment processor like Google Wallet. 
• Peer-to-peer payments and remittances: Sending money between two people through a mobile device. 
• Mobile remote commerce: Buying an item (digital or physical) through a mobile device from an online retailer. 

Forrester’s broad definition of mobile payments is, “a transaction in which the transfer of funds is initiated using a mobile phone – excluding the 'voice' function of the device.”

When the media talks about mobile payments, it is almost exclusively talking about proximity payments, usually tied to the potential (or lack thereof) of NFC. Mobile commerce is something completely different from actual mobile payments. In 2012, more than 90% of mobile payments (as defined by Forrester) were mCommerce related. 

Forrester notes that mobile payments will reach $90 billion by 2017, a compound annual growth rate of 48% from the $12.8 billion in 2012. Of that $12.8 billion, only 4% were proximity payments ($549 million). Forrester predicts that by 2017 that mCommerce will drop from its current rate of 90% of the overall mobile payments industry to 50% while proximity payments will grow to 45% of the toal ($40.8 billion). 

Getting More Realistic

Forrester’s predictions are more realistic than what we have seen from other research groups. Juniper Research had predicted that mobile payments would be a $670 billion industry by 2015. Granted, Juniper’s prediction took into account other aspects of the payment industry on a global scale, such as direct-to-carrier billing and mobile bill pay along with proximity payments and remote mobile commerce. Still, Juniper predicted exponential growth that was completely unrealistic given the limitations of building mobile payment infrastructure and the chicken-or-egg nature of the digitization of mobile payments. 

When it comes to proximity payments, Forrester notes the standoff between consumers and retailers when it comes to setting up point-of-sale services to pay via smartphone. Consumers do not care to make mobile payments until a significant portion of retailers have the capability - while retailers do not want to set up the capability until a proven number of consumers are willing to pay via their phones. As such, 2013 will be the proving ground for mobile payments with many pilot programs being tested by payment vendors and retailers before true growth starts to ramp up in 2014.

How Much Extra Would You Pay?

Seth Priebatsch, founder of mobile payments startup LevelUp, told me once that he would pay an extra 10% just to pay with his smartphone because, essentially, he thought it was cool. Most (heck, all) consumers are not likely to share that sentiment. Forrester notes three directives that will need to occur for proximity payments to begin accelerating:

1. Increased benefit and convenience
2. The ability for payment systems to scale among retail bases
3. Reduced barrier to entry for early adopters.

Essentially, it should be really easy to pay with your phone and it should be good for you and the merchant.

Cash, plastic cards, checks and other forms of payment are not going away any time soon (well, checks may be on the way out). According to Forrester’s predictions, despite mCommerce and proximity payment rates, mobile payments will be only a drop in the bucket of the overall transaction landscape.

If you were hoping that a mobile-payment-driven cashless utopia would arrive by the end of the decade, you might want to start dreaming about something else.

Top image courtesy Shutterstock.

Hey kids! This week’s theme is “shop till you drop!” Brought to you by the letter “M” for “mobile.” 

As expected, online sales, purchases and deals were much bigger for Thanksgiving, Black Friday and now Cyber Monday than they were a year ago. Also as expected, people are turning more to their smartphones and tablets more and more for their shopping experiences. 

It seems like we have heard this story before. 

Oh right, we have.

The Song Remains The Same

From a reporter's perspective, few things are more infuriating than writing basically the same damn stories year after year after year: "Online shopping is super popular this year, way more popular than last year! Now look! More people are using their smartphones to shop too!"

There is a Thanksgiving glutton’s amount of data surrounding the increase in online sales and mobile shopping this year. PayPal and its parent eBay tout that eBay saw a 153% increase in mobile volume transaction on Black Friday with PayPal seeing a 193% in mobile payment volume that day. It is interesting to note what PayPal considers a “mobile payment” since the company is only now building out its presence in brick-and-mortar retail spaces. The “Pay with PayPal” button has long been on many e-commerce websites, but if this counts as mobile payment volume, then there is little difference between shopping using your smartphone or tablet and using your PC. One way or another you are using a device to connect to the Internet and shop. A PayPal spokesperson notes that the company considers a mobile payment to be, “any payment made on a mobile device, including tablets.”

According to IBM Digital Analytics Benchmark, shoppers in the United States took advantage of early promotions this year, constituting a 21% increase in online sales over 2011. The one-fifth growth in online shopping is impressive, indeed, but not surprising or jaw dropping. For years we have watched people turn to the Web for deals and shopping - it would be shocking only if those online and mobile sales numbers dropped.

IBM notes that mobile sales reached 16% this year, up[ from9.8% for 2011. Nearly 24% of consumers used a mobile device to visit a retailer's online website this year, compared to 14.3% last year. The iPad generated more traffic than any other tablet or smartphone, reaching 10% of online shopping and 88.3% of all tablet shopping traffic. The Barnes & Noble Nook was second, with 3.1% of volume, ahead of the Kindle Fire at 2.4%. Those numbers likely discount Amazon’s own internal data of people using Fire tablets to shop specifically on Amazon as opposed to traffic to retailers’ websites. 

"Showrooming" Still Zooming

The buzz phrases that we saw take root during the 2011 shopping season have grown proportionately with the rise of mobile usage in 2012. “Showrooming,” the act of looking up prices from your smartphone when at a physical retail space, has grown significantly this year. IBM notes that 58% of consumers used smartphones on Black Friday (41% used tablets) to shop. It is likely that many of those consumers were using their smartphones to shop while standing inside a brick-and-mortar store, checking prices online against what was posted on the shelf.

The concept of “couch commerce” has also taken off in the past two years. This is usually specifically tablet-related as consumers use their slates to peruse deals from their couch, often on Thanksgiving Day itself. Several research studies and surveys have been conducted, by Pew among others, studying how people use their tablets on a day-to-day basis. The consensus has been that tablets are considered to be the quintessential couch device as people interact with news, media, games, social and other activities from their couches. It is then understandable that people would shop from their couches with their tablets as well. 

Fundamentally, what we are seeing from all of this Black Friday (and probably Cyber Monday) shopping data is that people are performing the same activities they historically would, just from a different device. As the Digital Age and the Mobile Revolution collide, we see more services (such as apps, mobile-specific websites, price checkers, shopping companions and deals sites) converge and grow. 

Deja Vu All Over Again

Here's the thing. A year from now, when the 2013 Holiday shopping season rolls around, we are going to be bombarded with the exact same types of stories about changing consumer behavior and growth statistics. The bottom line is that better tools for consumers make for more savvy shoppers. A high tide raises all boats, as the saying goes. 

Did you use your smartphone or tablet to augment your shopping experience this year? If not yet, are you planning to? How so? Let us know in the comments.

Top image: Breakdown of mobile shopping by device courtesy of IBM.