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Insights Tag: UPI

PAX Revenues Cross $1 Billion in 2022; SmartPOS Adoption Supports Growth

  • The growth was primarily driven by the strong performance of Android-based payment terminals.
  • PAX’s expertise in Android SmartPOS technology and its MAXSTORE platform offers a centralized and seamless way for merchants to navigate an increasingly complex business.
  • PAX is expected to maintain its leading position in Android SmartPOS payment solutions.

PAX Global Technology, one of the world’s leading providers of electronic payment terminal solutions and related services, posted strong revenue of $1,003 million in 2022, showing great resilience in a period of economic challenges such as interest rate hikes and higher inflation. The growth was primarily driven by the strong performance of Android-based payment terminals. Fintech is playing a central role in the advancement of digital and cashless economies by providing greater efficiency, convenience and accessibility to consumers. However, PAX’s software-as-a-service (SaaS) solutions such as the MAXSTORE platform are enabling payment service providers (PSPs) and acquiring bank (financial institution that processes credit or debit card transactions on a merchant’s behalf) to combine core payment services with financial and non-financial applications in a much more flexible and cost-effective way.

PAX Revenue by Segment - Counterpoint Research

Merchants can operate digitally and process orders more efficiently with the use of Android SmartPOS terminals. These terminals also provide valuable insights into consumer behavior, enable the development of automated marketing campaigns, and help to manage inventory more effectively, among other benefits. PAX’s expertise in Android SmartPOS technology and its MAXSTORE platform offers a centralized and seamless way for merchants to navigate an increasingly complex business. The MAXSTORE platform had well over 8 million managed devices by the end of 2022.

PAX Revenue by Region - Counterpoint Research

Key regional developments

Europe, Middle East and Africa (EMEA)

  • EMEA region clocked $319 million in revenue in 2022, an increase of 5% compared to 2021.
  • The growth was primarily driven by the large-scale adoption of Android SmartPOS devices across EMEA, primarily in Europe and the Middle East.
  • PAX’s partnerships with leading acquiring banks, PSPs and independent sales organisations (ISOs), and tailored solutions for the European market drive its growth across the region. The UK, Italy and Germany have increasingly become important growth drivers for PAX. Significant gains were made in France, Greece, Scandinavia, Balkans, Poland, Spain and Turkey.
  • Saudi Arabia’s ‘Vision 2030’ program for economic reform and the Saudi Arabian Monetary Authority’s (SAMA’s) openness to innovative technology finance across the Gulf Cooperation Council (GCC) and North Africa continues to accelerate the upgrade of legacy point-of-sale (POS), driving a big growth for PAX Android SmartPOS devices.

Latin America and Commonwealth of Independent States (LACIS)

  • LACIS region posted $385 million in revenue, a decline of 8% YoY. PAX experienced strong growth in this region in 2021, a major reason for the dip in 2022. However, PAX has a diversified product portfolio and a well-established channel partner network which can help increase its footprint in the region.
  • Brazil, Chile and Argentina are the major contributors to the growth in the region with increasing demand for Android SmartPOS solutions in sectors like multilane, hospitality and parking.

Asia Pacific (APAC)

  • APAC region recorded steady growth of 5% YoY with $172 million in revenue. PAX has expanded its footprint to more Asian countries.
  • India and Japan continued to show positive demand for Android-based smart payment terminals, which is expected to propel further growth.
  • Indonesia, Singapore and Thailand were the major contributors with double-digit revenue growth compared to the previous year. In Indonesia, sales were driven by the government’s ‘Payment System Blueprint 2025’ initiative, which is helping improve the nation’s core payment infrastructure.
  • PAX Technology, established as a Singapore subsidiary in 2021, focuses on local merchants and financial institutions. Singapore government’s ‘Retail Industry Transformation Map 2025’ is encouraging retailers to adopt innovative business models, which is expected to drive the demand for smart payment terminals.

United States and Canada (USCA)

  • USCA region posted a robust revenue of $127 million, up 35% YoY driven by PAX’s partnerships with PSPs and ISOs, and its expertise in Android SmartPOS solutions.
  • PAX Android smart payment terminals offer seamless integration and diversified payment methods such as mobile wallets, online ordering, curbside pickup and self-service ordering and checkout, which adds convenience for businesses operating in the retail, supermarket, hospitality and unattended segments.

Key takeaways

  • PAX is expected to experience greater adoption in the future, thanks to its ongoing investment in the research and development (R&D) of Android payment terminal technology. PAX spent $72 million on R&D in 2022, which was nearly 7% of its total revenue. Its terminals are user-friendly and offer a range of payment options, which makes them attractive to merchants.
  • However, POS vendors are now focusing on cloud-based software solutions to earn recurring revenue, increase profitability and offer better solutions to customers.
  • Along with strong payment solutions, partnerships play a crucial role in the fintech industry. PAX is also determined to strengthen its international sales network and customer relationships across geographies.
  • Due to ongoing economic challenges like interest rate hikes and high inflation, and geopolitical tensions, PAX is expecting flattish or lower-single-digit revenue growth in 2023.
  • With its strong portfolio across different sectors catering to different needs of merchants and businesses in different regions, PAX is expected to maintain its leading position in Android SmartPOS payment solutions.

 

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New Umbrella Entity to Refine India’s Digital Payment Ecosystem

The Reserve Bank of India’s (RBI) move to allow private players to set up, manage and operate retail payment systems [officially described as a New Umbrella Entity (NUE)] can be described as a significant step in the evolution of the country’s digital payment ecosystem. Currently, all digital transactions in India are processed by the National Payments Corporation of India (NPCI), a non-profit umbrella body backed by a group of over 50 banks.

The introduction of private players will quicken the scalability of India’s digital payment network and the growth of the base technology. Among the many advancements, the NUE will make intra-wallet transactions possible. Also, unlike NPCI, the NUE licence allows the players to earn profit.

Why NUE?

In India, over the last decade and especially after the demonetization of 2016, innovations in payment modes have picked up the pace, from the online payment mode to Unified Payments Interface (UPI) apps. NPCI’s RuPay cards now allow offline transactions in areas with low internet connectivity. The lockdowns and social distancing triggered by the COVID-19 pandemic have accelerated the shift to digital methods. With the MSMEs (micro, small and medium enterprises) and mom-and-pop stores also joining the digital retail payment mainstream, there has been a big jump in such transactions.

Against this backdrop of rising volumes and to protect the country’s only digital retail payment system from monopolies and other threats, NPCI introduced a set of guidelines this year under which third-party app providers “are required to ensure that the total volume of transactions initiated through their respective UPI applications does not exceed 30% of the total volume of transactions in the country during the preceding three months.”

Being a non-profit organization, NPCI’s ability to improve and expand its technological base or build a more robust and dynamic digital payment network is limited. It has been five years since the development of UPI in India, but it has not seen much technological progress. Therefore, on August 18, 2020, the RBI announced a framework for authorization of a pan-India NUE for retail payment systems. Further, it invited applications for an NUE licence by February 26, 2021. However, this deadline was extended to March 31, 2021, because of the pandemic. Six consortiums of businesses have applied for the licence (see chart). However, there is no clarity yet on how many licences the RBI will allocate.

Consortiums in Race for NUE Licence

Counterpoint Research - India Digital Payments (NUE) - Consortiums in Race for NUE Licence

Source: Counterpoint Research

What is NUE?

The introduction of the “for-profit” NUE will open business opportunities for domestic and foreign players. Unlike before, the players will earn interest on the balance that the consumers maintain for their daily shopping. Further, the players will be allowed to charge fees for online transactions. A single domestic player will not be allowed to hold more than 40% investment in the capital of an NUE. A foreign entity can hold only 25%.

NUEs can improve the digital payment ecosystem in the following potential areas:

  • The shared responsibility between NPCI and NUEs will open opportunities for an improved digital payment ecosystem.
  • Moving towards a privately-held setup with government guidelines will promote healthy competitive efficiency.
  • The competitive atmosphere will also encourage research, development, and innovation. The players will work towards customer convenience and safety. The payment system will be more interactive and interoperable.
  • The introduction of an alternative to NPCI will dilute the latter’s monopoly characteristics and concentration of risk due to cybercrime and other threats.

Challenges

  • The state-owned banks are trying to double-dip into the payments space by enlisting as applicants for the NUE licence while already being NPCI stakeholders. This puts a question mark on the competitive spirit which the NUE seeks to promote.
  • How the RBI will tackle any conflict between NPCI and NUEs is still unclear.
  • The ruthless competition among multiple NUEs will eventually lead to zero-pricing scenarios. Therefore, the banking parameters need to offset the cost.
  • Banking entities will always dominate in these consortiums due to their payment infrastructure.

While we will have to wait for the RBI to allot the licence(s) before commenting further on the issue, one thing we are sure about is that this framework will be an international milestone for the digital payment ecosystem, defining standards for subsequent such endeavours.

Related Posts

  1. COVID-19 as a Catalyst in the Deeper Acceptance of Digital Payment Platforms
  2. PayPal Second Quarter Numbers Get COVID Push
  3. Smartphones as PoS Terminals Fill Digital Gap But Face Challenges

Smartphones as PoS Terminals Fill Digital Gap But Face Challenges

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.

Counterpoint Research PoS evolution
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.
Counterpoint Research Smartphone as PoS Terminal
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.

Related Posts

  1. 35% of Smartphones Sold in H1 2020 Had Embedded Hardware Security, Apple Leads With 39% Market Share
  2. COVID-19 as a Catalyst in the Deeper Acceptance of Digital Payment Platforms
  3. Kenya, Prioritizing Banking Over Banks

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