Fintech Startups Make Noise in Point-of-Sale Segment

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Fintech giant Paytm recently launched a new version of its Soundbox, called the Paytm Card Soundbox. The new tool provides audio alerts for not only the UPI transactions but also processes 'tap-and-pay' card payments across Visa, Mastercard, Amex and RuPay networks. And, the launch comes after the July launch of the Paytm Pocket Soundbox and the Paytm Music Soundbox.

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Pine Labs also recently unveiled a pocket-friendly version of its standard Point-of-sale (PoS) terminal called 'Mini'. This also can accept both UPI and 'tap-and-pay' card payments across many networks. In fact, many fintech startups including Razorpay, BillDesk, PhonePe, BharatPe, MobiKwik, JusPay, Mswipe Technologies and CCAvenue are making waves in the PoS segment today.

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"Indian merchants are aspirational. They want this, plus that," Amrish Rau, CEO of Pine Labs, tweeted ahead of the recent device launch.

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"Merchants are seeking more than just transaction processing. They are looking for integrated PoS solutions that offer inventory management, customer data analytics, and other value-added services. Fintech startups are thus focusing on delivering comprehensive PoS solutions to meet these needs," Sougata Basu, executive committee member, India Fintech Forum told us.

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Besides adoption and demand by merchants, the emphasis on the PoS segment by many fintech startups in the payments space can be attributed to several factors.

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Convergence of tech advancements, market demand, others , the widespread use of smartphones, increased internet penetration and e-commerce adoption have led to a shift towards cashless transactions. And, PoS systems act as the bridge, enabling merchants to accept electronic payments effortlessly. "With a growing number of retailers and consumers preferring digital payments for convenience and safety, especially post the COVID-19 pandemic, there's also a rising demand for reliable and efficient PoS solutions," said Basu.

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The Indian government has also been promoting digital payments to foster financial inclusion and reduce dependency on cash, say experts. " The Indian government's unwavering support for digital payments has played a pivotal role. Initiatives like the Unified Payments Interface (UPI), a real-time payment system facilitating smartphone transactions, showcase the government's commitment to fostering a digital economy," said Karan Verma, co-founder and director, FAAD Network.

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Further, increasing competition in the fintech space has also pushed startups to focus on the PoS segment. "Startups are leveraging the PoS segment to differentiate themselves and address the untapped market segments, including small and medium-sized merchants, who may not have been able to afford traditional PoS systems," said Basu.

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Experts also say that since traditional PoS systems were often outdated and cumbersome, it was time for disruption. "Fintech startups recognized the need for more efficient, user-friendly, and technologically advanced PoS solutions. Additionally, the growth of e-commerce and the digitization of payments have made it essential for businesses to have robust PoS systems that can seamlessly integrate both online and offline transactions. This convergence of online and offline commerce is a significant driver for fintech innovation in the PoS space," said Somdutta Singh, LP angel investor, founder and CEO, Assiduus Global Inc.

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However, the PoS market in India, despite its vastness, remains underserved. With an estimated 55 million merchants, only around 7 million possess PoS terminals. "This glaring gap provides a lucrative opportunity for fintech startups to offer innovative PoS solutions to a multitude of merchants. Also, the affordability of PoS terminals has seen a significant improvement in recent years. This increased accessibility not only benefits merchants but also opens doors for fintech startups to seamlessly integrate PoS solutions into their offerings," said Verma.

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PoS, the long-hanging fruit

Fintech startups in the payment space need to beef up their revenue and expand margins. POS provides a natural avenue to do that.

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"The PoS segment is a confirmed sale and hence low-hanging fruits for conversion. If the fintech is able to crack the PoS then customer acquisition cost (CAC) reduces and conversion is high. Hence, it makes sense to focus on the PoS segment for partnership," said Anil Joshi, managing partner Unicorn India

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The PoS segment also provides a steady revenue stream through subscription models, transaction fees, and value-added services. "It also gives them a hook they can use to ensure the loyalty of merchants, provides additional sources of revenue and profit through MDRs and access to data that can be leveraged for lending and other purposes," said Fazal Ahad, managing director, Merisis Advisors.

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He added that many of the fintechs are also using the data from POS for credit underwriting and giving loans to merchants as well as POS financing (BNPL) to consumers.

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Factors enabling high margins and recurring revenues

"The CAC is low for PoS business, hence there is margin improvement. Also since the customer has availed the finance the LTV increases and the chances of repeat sales would be high. Hence, PoS segment offers better margins and repeat sales possibility," said Joshi.

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The factors enabling high margins and recurring revenues for businesses in the PoS and payments industry in India, as shared by all the experts quoted above, include:

Increased demand for essential services: India's expanding population and rising middle class are fueling a robust demand for fundamental services like healthcare, education, telecommunications, and food. This surge not only empowers businesses in these sectors to command higher prices but also allows them to sustain impressive profit margins.

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Growing subscription economy: India is witnessing a rapid ascent of the subscription model. Consumers are progressively favoring subscription-based approaches for goods and services, moving away from outright purchases. This shift ensures businesses a consistent and recurring revenue stream, establishing a resilient financial foundation.

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Transaction Fees: Earning a fee per transaction processed through their PoS systems provides a direct revenue source.

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Value-Added Services: Offering additional services like analytics, loyalty programs, or lending solutions can generate extra revenue.

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Cross-Selling Opportunities: Integrating with other services allows for cross-selling opportunities, enhancing revenue streams.

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Strong government backing: The Indian government is actively supporting businesses through various initiatives, including tax incentives, subsidies, and infrastructure development. These measures are instrumental in helping businesses trim costs and enhance overall profitability.

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Reduced Operational Costs: Digital transactions can significantly reduce operational costs associated with cash handling.

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Up-Selling Hardware/Software: Up-selling or leasing upgraded hardware or software to merchants can also contribute to higher margins.

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Market Expansion: Tapping into underserved markets like small and medium-sized merchants expands the customer base, driving higher revenues.

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Access to Data: Lastly, data analytics and AI-driven insights derived from PoS transactions allow businesses to make informed decisions, boosting their profitability and creating a win-win situation for both the fintech providers and their clients.

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