Industry Background and Transformation
For small and medium enterprises owning physical shops, point-of-sales (POS) systems along with payment systems are crucial technologies that support the whole operations. Before the digitalized POS system emerged, most shops in the United States used traditional client-server POS systems in combination with card swipers. In Asia, most chain stores did the similar approaches where they invested on POS and integrated with different payment methods, while standalone shops usually lacked of POS and only accepted cash. Nowadays, thanks to the improvement in technologies and cheaper hardwares, digital integrated systems for both POS and payments have become the mainstream in small and medium enterprises.
Winners – Digital / Cloud-based POS Systems
Digital POS system businesses are the winners in the transformation. These systems are cloud-based (yet support fully functionally offline mode) and integrate with payment systems including credit cards and mobile payments. Digital POS systems have several shared advantages by leveraging the integration and digitalization including simpler and aligned user interface with in-depth customization, built-in sales analytics, and built-in customer relationship management (CRM) and analytics. Square, Shopify, Clover, and Toast are named to be the major players in the U.S whereas iChef is the dominant company in Taiwan. Here, the article will discuss their value creation and value captures, and provide some highlights for selected companies.
For client (the SMEs)
A summary comparison between digital POS systems and traditional POS systems for the clients (the SMEs) is shown below.
|Digital POS Systems||Traditional POS Systems|
|Cost||$600 – $10,000 / year
Low setup cost + High monthly cost
|$3,000 – $50,000 / year
High setup cost + Low monthly cost
Digital POS systems cost less than the traditional ones for SMEs because of its charging model. Also, given the nature of cloud-based systems, digital POS systems enjoy high scalability, better back-up mechanisms, and more flexible data accessibility. Besides, since most digital POS systems fully integrate with CRM, and some integrate with finance, online ordering, marketing systems, and inventory management, SMEs can save the cost and time on dealing with integrating different softwares. Moreover, digital POS systems usually come with an user-friendly interface and hence SMEs do not need to spend much consulting fee and employee education expense on system configuration and customization. On top of that, the digital POS systems support a variety of payment methods which make the shop a more attractive and convenient place for customers to purchase. What’s more, combining CRM and POS data, the system is capable of providing SMEs with basic analytics regarding sales trend and customer behavior automatically.
Highlight vendors that create more values for clients
- iChef: Some vendors even go to extreme and offer suggestions and consultancy for clients. iChef, the dominant POS system player of restaurants in Taiwan, leverages massive valuable data from clients, and provides customized anonymous competitive analysis for sales as well as some suggested strategies to improve. Also, based on iChef’s domain knowledge and derived insights from massive POS and CRM data, it serves as a consultant for smaller businesses regarding the design of loyalty program, product proposition, marketing strategies, and so on.
- Shopify: As discussed in another blog post, Collaboration not Competition: Shopify’s eCommerce Platform, shopify, started as an eCommerce platform with its own payment system, is actually one of the main players in digital POS system. Having the same system provider for both eCommerce platform and physical shops, it is easier for SMEs to have a thorough view on its customers as well as effective and efficient inventory management. In addition, the seamless integration links customer O2O data and thus enables SMEs to serve end customers better which may lead to generating additonal revenues through sales.
Since the digital POS system is integrated seamlessly with CRM and payment systems, customers get to pay for a variety of payment methods even the shop scale is not big and enjoy higher customer services. For example, many standalone restaurants and shops did not implement credit card and mobile payment readers due to the high installation and transaction fees and thus customers were limited to pay with cash or perhaps credit cards only. Yet, now with the integration with payments, shops no longer need to worry about payment devices implementation and that the customers are free to pay in all forms. In addition, the integration with CRM systems enable the shop to collect customer data in a digital form with lower omission. End customers should be able to benefit better services indirectly through the advanced CRM system.
Depends on the law and contracts, in addition to the revenue from clients, vendors may be able to gain a more thorough and integrated end-customer and sales data. Furthermore, the integration of major systems for SMEs in one place allows the vendor to create a closer and more strategic relationship with the clients. Therefore, the client stickiness increases.
Vendors mainly earn from selling the POS systems. It composes of monthly subscription fee and a small portion in upfront fee. Vendors can also profit by providing a variety of consulting services for SMEs leveraging extensive data they have.
Loser – Traditional POS Systems
Compared to the flourish in digital POS system vector, traditional POS systems, on the other hand, are suffering and losing their margins in the wave of digital transformation. On top of the advantages of digital POS systems over traditional systems shown in the comparison table, the switching barrier from the traditional one to the digital one is low. Digital POS vendors easy system configuration and customization as well as low setup fee upfront reduces the switching barrier for small and medium enterprises. Although some previously traditional POS system vendors such as QuickBooks have tried to transform their existing product to a cloud-based one, there is no significant success spotted so far.
 Kendal Austin, “The Difference Between a Cloud-Based POS vs. Traditional POS,” Toast, June 2018, https://pos.toasttab.com/blog/cloud-based-traditional-pos-systems, accessed March 5, 2019.
 “15 Best POS Software Systems For Small Business”, FinanceOnline, https://financesonline.com/15-best-pos-software-systems-business/, accessed March 5, 2019
 Christopher Sebes, “What Is Cloud Point Of Sale, And How Is It Different From ‘Traditional’ POS?”, Forbes, May 2018, https://www.forbes.com/sites/forbestechcouncil/2018/05/25/what-is-cloud-point-of-sale-and-how-is-it-different-from-traditional-pos/#f0d4da211803, accessed March 5, 2019
 iChef website, https://www.ichefpos.com/en-sg/#ichef-ipad-pos-sg , accessed March 5, 2019