COVID-19 has led to the speedy adoption of digital payment methods across India. However, many small merchants, local vendors and self-employed individuals find it difficult to afford a mobile PoS (point of sale). At the same time, it is important for them to have such a device to match different customer preferences for the mode of payment. A new form of PoS, called Soft PoS or Software PoS, aims to fill this gap by converting a smartphone or tablet into a terminal for digital payments. Hence, no additional hardware is needed to enable digital payments.

Source: Counterpoint Research

Smartphone/tablet as Digital payment terminal

Soft POS solutions, like All Tap by Pine Labs, transform a smartphone or tablet into a payment terminal. Here are some of their basic characteristics:

• These solutions are available for free only on Google Play Store.
• They are compatible with smartphones embedded with NFC (near-field communication) chips.
• Smartphone as a PoS terminal provides all digital payment options in one application, including debit/credit cards (across all four networks), wallet, BQR and UPI.
• Based on the occupation, a transaction limit is set for the entrepreneur.
• The onboarding procedure is user-friendly, and one SIM holder can have one account.
• When changing the smartphone, the user needs to go through only the authentication step of onboarding.
• To abide by the Reserve Bank of India (RBI) regulations, PIN-less transactions of only up to Rs 5,000 are allowed.
• The solutions are cryptographically secured.

Source: Counterpoint Research

How secure are these solutions in terms of hardware?

Handling finances via cellular devices brings the security aspect under the scanner. Both hardware and software security of cellular devices have an important role in ensuring user data security and privacy. However, in H1 2020, only 4.18% of the smartphones in India were estimated to have secure hardware. This number is expected to reach 9% by the end of 2021. Further, it may be noted that this portion is mainly composed of smartphones from the premium segment. But since these solutions are targeted at those who can’t afford a PoS machine, it is more likely that smartphones with poor hardware security will be used with them.

Therefore, despite ensuring software security, which most brands claim to, the smartphones from non-premium price bands are not exactly the right fit for these digital payment solutions.

Challenges in implementing these solutions.

Apart from the above-mentioned concerns related to hardware, there are other challenges in transforming smartphones into PoS terminals:

• These solutions only work with smartphones embedded with NFC, which is still a niche market in India.
• Spreading awareness about these user-friendly solutions in all parts of a vast country like India can become challenging due to inadequate infrastructure.
• A major segment of the target population for these solutions is composed of those who prefer cash transactions. Bringing about a behavioural change in them is not easy.
• Cash transactions are often used to avoid taxes. But these solutions record all transactions undertaken through them.

Stronger Adoption of Digital Payment Ecosystem

Digitization in the financial segment brings a competitive edge to a country’s economy by amplifying the velocity with which the movement of money takes place. It also acts as a multiplier for other industries linked to it.

In India, over the last decade and especially after demonetization, innovations in payment modes have evolved, from the online payment mode to UPI apps. The lockdowns and social distancing triggered by COVID-19 have accelerated the shift to digital modes. Also, RuPay cards of the National Payments Corporation of India now allow offline transactions in areas with low internet connectivity.

Growing preference for digital payment modes like UPI, wallets, PoS and QR codes as against cash or debit/credit card transactions has put pressure on businesses and self-employed people to have PoS devices.

Conclusion

A small business or solo entrepreneur cannot always afford a PoS terminal. Besides, some may find it difficult to operate them. It is in these cases that the above-mentioned solutions come to the rescue. They transform a smartphone into a PoS terminal that provides a simpler and familiar user interface. With almost 40% penetration in India, smartphones are the best mode to promote digital payments. Further, these payment solutions do not require any additional investment.

However, the low penetration of smartphones with secure hardware in India means that users availing of these solutions may end up exposing confidential data to attacks. Therefore, apart from having a bigger market for NFC-enabled smartphones, it becomes important for smartphone manufacturers to improve hardware security to let users benefit from these solutions.