Regulatory bodies have imposed a rule for the recertification of electronic payment systems employed by merchants and retailers. For instance, in the U.S., the EMV (Eurocard, MasterCard, Visa) liability shift rule mandates that issuers and merchants adopt EMV technology standards, failing which they will be liable to fraud charges in the case of any fraudulent transaction.

“Certification of electronic systems employed by retailers, which connect to payment networks are being mandated by financial institutions, card associations and payment processors. Certification and compliance have to meet the terms set by government and telecom companies,” said Navin Rajendra, one of Technavio’s industry managers for computing devices.

“This requires the majority of retailers to change their existing POS systems to new POS systems that will help them comply with these terms. As a result, the market is witnessing an increase in chip and PIN and NFC transactions, which are more secure than magnetic stripe transactions,” said Rajendra.

Other drivers behind the growth of the global POS terminals market include:

Rising regulatory intervention on secure payments

Increasing e-commerce transactions

Large potential customer base

Rising regulatory intervention on secure payments

The magnetic stripe technology accounted for the majority of card transactions in 2015. However, it is prone to fraud. The level of security is comparatively low, as the magnetic stripe on the cards can be replicated by fraudsters and used to produce counterfeit cards. During the forecast period, a reduction is expected in the adoption rate of mobile card readers using magnetic stripe technology. Chip and PIN or EMV standards are part of the cashless payment infrastructure in major economies, but they only have a small footprint in the U.S. However, with the liability shift policy, which was effective as of October 2015 in the U.S., increased adoption of chip and PIN standard compliance in POS terminals is expected. By the end of the forecast period, Technavio expects 72.17 percent of card transactions to be made using this technology.

Increasing e-commerce transactions

The growing adoption of mobile devices and smartphones and rising popularity of mobile commerce are driving the growth of the e-commerce market. There are more than 50 percent of online shoppers globally. They either use smartphones or tablets for shopping. While many companies are making digital sales, some are replacing their physical stores with the digital sales channel. The need to remain competitive, penetrate unfamiliar markets, meet increasing demands from customers, and respond to changing customer needs and business scenarios are some of the factors responsible for the rise in e-commerce websites.

With the increase in e-commerce transactions, the need for adopting user-friendly payment mechanisms is also rising. In countries such as India, consumers prefer paying after receiving the product; the card-on-delivery payment mode is popular. This creates the need for mobile POS that can accept cards. Multiple e-commerce companies have purchased mobile card readers for this purpose. Increasing e-commerce transactions will increase the demand for mobile card, driving the market.

Large potential customer base

Vendors are strategizing on targeting MSMEs to increase sales. There are many MSMEs that still use cash as a mode of payment transaction. Such MSMEs cite multiple banking procedures, complexity of POS terminals, and multiple fees charged by banks as reasons for not incorporating POS terminals. However, with increasing penetration of payment cards, merchants are forced to adopt POS terminals to serve their customers better.

In 2015, the number of MSMEs was 207 million, while the number of MSMEs using mobile card readers was 4.53 million, which is 2.19% of the total addressable market. Though the number of MSMEs is high in India and China, the penetration rate of POS terminals is low. This provides an immense opportunity for new local and regional vendors to enter the market, as global vendors have yet to expand their reach to these countries. The number of MSMEs is expected to increase to 308.2 million by 2020, and the infrastructure in terms of the internet, mobile devices, and contactless payment systems is also likely to improve. Hence, the vendors can easily penetrate the markets in India, China, Brazil, and other developing economies.

Source: Technavio