The Payment Journey: from Hardware to Software
All roads lead to Rome and modern-day Rome is the mobile phone. From radios to alarm clocks, calculators and maps, the final destination of all these clunky devices has been architected into one device that lives in our pocket.
Payments are no exception. Point-of-sale devices (POS) are being dematerialised. They are being replaced by SoftPOS or software-based point-of-sale devices. This is a software solution that allows anyone to accept payments on their mobile phones.
Why does the hardware to software journey matter?
According to Craig Leppan from Halo Dot, a first-in Africa tap on phone payment technology, “Converting expensive hardware into a digital app means anyone can now accept payments on their phones - many more players can get paid.”
Digitalisation opens doors and reduces costs says Leppan. “If you can take pictures on your phone, bank and arrange your calendar, why not accept and make payments – that is an obvious game changer.”
For small businesses, accepting card payments can be a struggle. It’s a process to apply for a device. The devices can require training, maintenance and paper for receipts. These additional costs act as barriers.
Hardware also reduces flexibility. If a person is inspired by a business idea, they need to wait for the POS device to be delivered. With an app on their phone, they can trade instantly as the idea and opportunity strikes them. They can also open a side hustle without concerns of additional costs.
“They can wake up, download an app (which is available through third parties such as Nedbank) and accept payments from their friends or clients. There is no delay in waiting for an EFT either,” says Leppan.
Why move to software?
Slowly, more and more functionality has moved away from the POS device and onto the phone. Tap on phone payments is the next step in the journey where everything sits on the mobile phone as software.
This evolution makes sense. According to monitoring firm, App Annie, people spend an average of 4.8 hours on their phones a day. This was up by 30% since 2019. Apps were downloaded 230 billion times in 2021 with $170bn spent. By moving payments to apps, providers seamlessly integrate with consumer behaviour.
Is software as safe as hardware?
“The sole purpose of hardware-based POS terminals was to secure card transactions” explains Pierre Aurel at Halo Dot, “In the case of SoftPOS, we use features of a mobile phone that are equivalent to what POS hardware offered. Your phone has secure elements like the keystore which is used to generate secure encryption keys in the phones hardware.
Previously, a terminal would be preloaded with an encryption key. Now a phone can dynamically generate these keys in a secure way. Modern smartphones provide the necessary hardware functionality, plus an open platform where a whole world of software that can be built - the sky the limit of what is possible. But software providers need to keep building layers of security and protection mechanisms to ensure the App remains secure and trusted. This is a continuous process.”
How does SoftPOS work?
Firstly, an NFC-enabled card is needed. This is a contactless payment card that enables communication between the card and a payment device within less than four centimetres. Most payment cards now have this feature.
Inside the card is an antenna that connects to the chip on the front, and when a card is moved into the field of a device or a terminal, it powers the NFC antenna and allows communication to take place between the device and the card. Alternatively, you can use virtual cards running in a ‘wallet’ – think about Samsung Pay or Apple Pay running on your phone or smart watch.
Secondly, a person needs to download an app with SoftPOS technology. The card would be tapped at the back of the mobile phone and the app would extract the payment details from the card and process that onto the bank – tap and go, quick and easy.
Businesses need to be tech forward to serve customers and tech forward is mobile.
Onwards to Rome.
