Payment / Transaction Terminals Executive Brief

Transcription

1 Payment / Transaction Terminals 2010 Retail Automation Equipment Planning Service Track 1, Volume 3 An Executive Brief Tom Wimmer, Director Richa Gupta, Analyst Chris Rezendes, Executive Vice President

2 Executive Brief Market contraction in 2009; Recovery expected to be spurred by PCI compliance The market for Payment / Transaction Terminals experienced a severe contraction in 2009 as retail and hospitality end-users cut back spending on retail automation technologies. Enterprises put on hold the replacement / refresh cycles associated with in-store technologies already in place in a bid to avoid making significant capital expenditures during the brutal economic climate prevalent globally in Suppliers derived $1.79 billion in revenue from sales of Payment /Transaction Terminals to the Retail and Hospitality verticals with unit shipments for the same exceeding 8.1 million. VDC anticipates that hardware revenues will grow at a Compound Annual Growth Rate (CAGR) of 6.4%, surpassing $2.4 billion by In terms of unit shipments, the global market is expected to grow at 10.3% CAGR through 2014, with unit volumes approaching 13.3 million. Suppliers are optimistic about sales prospects in 2010 as they expect end-users to scramble in order to meet PCI compliance regulations, especially in the North American and Western European markets. Retail and hospitality end-users have cited compatibility with existing infrastructure and high cost of device as some of the most significant barriers to adoption of the technology. As enterprises continue investing in multiple retail automation technologies to streamline operations and manage a tremendous amount of data in order to increase customer loyalty, it is getting highly imperative for suppliers to design solutions that can be easily integrated with disparate technologies in place and provide the consumer with a seamless shopping experience across multiple touch-points VDC Research Group, Inc.

3 Executive Brief Chip-and-PIN based payment standard getting widely adopted across the globe The penetration of Payment / Transaction Terminals globally is heavily reliant on the growth of electronic / card payment. Over the past couple of years, this has been driven by: Increased acceptance of credit/debit card payment options in emerging country markets; and Allaying of consumers security fears by enforcing strict regulations that payment terminals need to be compliant with in order to protect cardholder data and minimize fraud. One of the primary deterrents to adoption of chip and PIN-based payment card standard in the US has been the significant infrastructure investment required (for the shift from magnetic-stripe card readers) in new terminal hardware, and issuing EMV-compliant credit / debit cards. EMV (Europay, MasterCard, Visa) is the chip and PIN-based standard to ensure that card information is encrypted and protected by multiple security features and specifies the mandates required to be followed to store card data. The standard has been adopted even in Canada and Mexico which has led to suppliers holding the view that investments in new technology are highly unlikely in the US unless card-related fraud increases. The overarching demand placed by enterprises for a secure end-to-end encryption solution has encouraged suppliers to provide enhanced support including remote device management and software upgrades VDC Research Group, Inc.

4 Executive Brief An expanded managed services portfolio set to address changing requirements of end-user community since the recession With automation technology budgets being heavily scrutinized since the recession, retail and hospitality end-users are finding it difficult to justify significant upfront capital investment on POS peripherals such as Payment Terminals, prompting suppliers of the technology to dole out managed services offerings thus reducing the CAPEX burden on enterprises The Payment /Transaction Terminals ecosystem is far more complex than that associated with any of the other retail automation technologies as it also involves interplay with the financial services industry. The long process involves expensive bank accreditations along with mandatory compliance of various PCI regulations, deeming it a highly unjustifiable investment for many smaller retailers, in particular. Managed services offerings allowing for outsourcing of the payment process, lets these retailers concentrate on what they re good at while eliminating the costs associated with managing compliance in-house. In order to effectively address such market opportunities, leading suppliers of this technology have amped up their managed services portfolio over the past year, offering a pay-per-transaction option, for instance. Market development initiatives have also received thoughtful consideration with emphasis placed on expansion into emerging country markets (Ingenico s acquisition of Fujian Landi, for instance), further penetration of adjacent retail vertical markets and cultivation of Tier 3 and Tier 4 retail accounts VDC Research Group, Inc.

5 Summary Observations & Expectations Business model transitioning from hardware-dependent to providing value-added services and solutions The global recession had an adverse impact on sales of Payment / Transaction Terminals in 2009 within the retail and hospitality segments. Enterprises in these segments extended their refresh cycles in an effort to refrain from making capital investments in troubled economic times. Suppliers responded with initiatives designed to lower their operating expenses while growing the revenue contribution derived from emerging markets and complementary software and services. These efforts are already paying dividends as nearly all suppliers are anticipating increased revenues over 2009, and expecting non-hardware revenues to grow in coming years, providing recurring revenue streams and a higher degree of insulation against competitive displacement. With product manufacturing completely outsourced (to Asia and Latin America) by the three leading payment terminal suppliers, efforts are underway to cultivate ODM relationships with contract manufacturers to meet the unique requirements of retailers in emerging country markets. Deploying enterprises in retail and hospitality segments must adequately secure card-holder information as perpetrators of identity fraud become increasingly sophisticated. This has prompted Payment Terminals suppliers to support standards development with an emphasis on end-to-end encryption. While securing customer information is key, so is aggregating and analyzing the information captured to learn more about the buying behavior and preferences of customers. As such, suppliers and their channel partners have begun supporting new applications with their payment terminals and are increasingly integrating these devices into a broader array of complementary POS solutions VDC Research Group, Inc.

6 About VDC Research Group VDC Research Group (VDC) is a technology market research and strategy consulting firm that advises clients in a number of technology markets including: Automatic Identification and Data Collection, Embedded Hardware and Systems, Embedded Software and Tools, Industrial Automation and Control, Mobile and Wireless, and Power Conversion and Control. Using rigorous primary research and analysis techniques, the firm helps its clients identify, plan for, and capitalize on current and emerging market opportunities. We strive to deliver exceptional value to our clients by leveraging the considerable technical, operational, educational and professional experience of our research and consulting staff. During our nearly four decades of ongoing operation, we have had the pleasure of serving most of the world s leading technology companies, many high-profile start-ups, and numerous blue-chip early and later stage investors. Our products and services consist of research reports, annual research programs, and custom research and consulting services. Founded in 1971, the firm is located in the Boston area. Please visit our website at to learn more, or call: VDC Research Group, Inc.

7 Contact Us For further information about VDC s Payment / Transaction Terminals report, part of VDC Research Group s 2010 Retail Automation Equipment Planning Service, contact: Tom Wimmer, Director, , twimmer@vdcresearch.com Richa Gupta, Analyst, x131, rgupta@vdcresearch.com Chris Rezendes, Executive Vice President, x120, cjr@vdcresearch.com VDC Research Group, Inc.