The Death of Terminals? Will phone- and tablet-based points of sale replace the traditional terminal?

Navigator Edition: Merchant Acquiring Special Edition
By: Marc Abbey and Scott DeHaven

The use of mobile-phone-based POS (“mPOS”) and tablet POS payment solutions to accept card payments has become a prevalent trend in the payments industry. At the same time, OEM shipments of terminals have fallen steadily in the U.S. for years and for multiple reasons, but the degree to which mobile solutions are terminal replacements and whether they will come to supplant traditional terminals is unclear.

Acquirer Expectations

Acquirers have a range of opinions and outlooks relating to mobile solutions. However, a common denominator is the opinion that mobile POS solutions have not yet had a significant impact on the traditional terminal market but will likely have a greater impact in the future.

  • “Mobile isn’t really displacing terminals. I do think tablets or tablet-like solutions will rule once the distribution model is figured out.” —Top 20 bank acquirer
  • “We are not seeing a tangible change in the number of terminals. We are seeing mobile as incremental so far. We do expect terminals may change over the next few years as tablets take off.” —Top 10 acquirer
  • “We have not seen a tangible change in the number of deployed terminals during the past year. I do believe tablets will have a greater impact in future years.” —Bank Alliance Partner
  • “Surprisingly, we are not seeing a tangible change in the number of terminals we’re putting into the field. I do expect that the days of leasing and selling equipment will come to a halt. The timing is hard to predict.” —Top 10, non-bank acquirer
  • “Terminals are still the preferred method of processing for small businesses. Tablets are being adopted by new businesses more than existing businesses, but I do think merchants will begin to shift how they sell in-store and use [tablets] more.” —Small bank acquirer
  • “We still think terminals are going to be the heavy hitter because merchants will not want to switch to tablets.” —Top 30 bank acquirer
  • “Yes, tablets and the market for them is increasing dramatically. With that said, EMV could slow the change to tablets. In the interim, I think there is still a market for terminals at the lower end of the market.” —Top 20, non-bank acquirer

Acquirers’ mPOS and Tablet Positioning

All of the top ten acquirers offer mPOS solutions and most support multiple types of solutions, some proprietary and some from third-party providers. However, the acquirers tend to position the products differently. In many cases, in acquirer marketing, phone-based solutions are positioned for small or very small merchants new to card acceptance.

  • “Vantiv Mobile Accept is perfect for small- and medium-sized businesses that do cash and check transactions today but would benefit from the ability to accept card payments at the time of service.” —Vantiv product descriptions

In other cases, phone-based solutions are positioned as an adjunct product to accompany traditional POS solutions.

  • “…you’ll benefit by having a single processing provider—with just one account, one statement, one phone call—for both in-store processing and mobile payments.” —Heartland Payment Systems product descriptions

Some acquirers positioned the tablet as a replacement for a low-end integrated solution rather than a terminal replacement.

  • “Isn’t it time your cash register did more than just ring up a sale?” —Vantiv
  • “The easy-to-use and flexible solution offers small- and medium-sized merchants a highly-functional, cost-effective cloud-based POS system to facilitate transactions as well as manage sales, inventory, staff, and customers, all from an iPad.” —Global Payments

In other cases, the positioning is more mixed and the tablet could both be a terminal replacement and an iPOS replacement.

  • “Clover Station is the first solution to meet the complete spectrum of small- to medium-sized business owners’ needs.” —Bank of America

Merchant Adoption of mPOS and Tablet POS Devices

To understand the level and nature of mPOS and tablet adoption, First Annapolis recently completed a survey of 200 card accepting merchants, well diversified over geography, merchant size, and type. Of this population, over 25% of respondents are using an mPOS and/or tablet solution. However, only ~35% of respondents who have an mPOS exclusively use it as their only acceptance device; the remaining nearly two thirds of the respondents use an mPOS and/or tablet solution in addition to a traditional POS environment.

Figure 1: Do you accept credit cards using a smartphone (mPOS)

or tablet (tablet POS) credit card acceptance solution?

Fig-1_-Do-you-accept-credit-cards-using-a-smartphone_v2Source: First Annapolis Consulting Merchant Survey (April, 2014).

Of the 35% who use a mobile solution exclusively rather than a traditional acceptance device, nearly half are accepting cards for the first time while the other half replaced a traditional POS solution with a mobile solution.

Based on these statistics, it seems clear that a significant percentage of merchants is currently using mobile solutions as complimentary card acceptance tools in conjunction with a credit card terminal or iPOS, which has lessened the impact that the adoption of mPOS and tablet POS devices has had on traditional terminals, as of yet.

Of the merchants using mPOS or tablets, the single biggest business reason for doing so was mobility, with more than 40% of the merchants indicating mobility as their principal reason for buying the solution. Of course, it makes perfect sense for the early adopters of this technology to be motivated by mobility, though not all merchants in the broader market will have such a need. Over 40% of the merchants not using mobile solutions indicated a preference for traditional POS environments. The number one specific reason for preferring a traditional POS was integration with other business functions like inventory management, time and attendance, menu management, etc.—integration that exists with traditional iPOS solutions but often not with tablets and mPOS.

In summary, though the importance of mobile acceptance devices is undeniable, the evidence is decidedly mixed on the degree and rate of displacement of traditional terminals by mobile solutions. Our expectation, based on these dynamics, is for change, albeit change that takes several years to play through.

For more information, please contact Marc Abbey, Managing Partner, or Scott DeHaven, Consultant, Both specialize in Merchant Acquiring.

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