Characteristics of the Financial Payment Market Enhanced by the Internet of Things

Globally, there is a shift from traditional payment methods like cash and checks to digital payments. Digital payment terminals are widely used devices across various industries, especially in retail. In recent years, the number of payment terminals has rapidly increased, particularly due to the convenience of mobile payment terminals, allowing a broader range of small and micro enterprises to benefit and providing them with better payment experiences and other value-added services. Among these, IoT technology has become a widely adopted technology in payment terminals, especially wireless IoT modules that provide remote connectivity services for mobile payment terminals. Currently, financial payments have become one of the top-ranked IoT-connected scenarios, supporting rapid development in the IoT industry, particularly in IoT chips and modules.

The Role of IoT in Payment Terminals

IoT technology provides not only wireless connectivity solutions for financial payment terminals but also allows related businesses to leverage IoT-enabled payment terminals to create more application scenarios. Payment is inherently a core function of multiple industries, especially retail, and the payment function is currently deeply integrated into various aspects of enterprise management, enhancing operational efficiency. The IoT is an important element behind payment functionality, facilitating new applications. The main aspects include:

1. Extending contactless payments, which is a direct capability brought by IoT, enabling non-contact payment options at payment terminals, enhancing customer safety and convenience while reducing physical contact during transactions.

2. Supporting inventory management, by integrating IoT-enabled financial payment terminals with enterprise resource management software, businesses can track inventory levels in real-time, helping them manage stock effectively, prevent shortages, and automate reordering.

3. Assisting customer analysis, by collecting customer transaction behavior data, such as purchase history and preferences, the payment system can provide insights for targeted marketing and personalized experiences.

4. Enabling remote monitoring, payment terminals equipped with IoT sensors can facilitate remote monitoring of devices, allowing for proactive maintenance and minimizing downtime.

5. Supporting loyalty marketing, IoT-connected payment terminals can automatically enroll customers in loyalty programs, reward points, and offer discounts or rewards based on purchase history.

6. Enhancing consumer experience, such as mobile ordering and payments, allowing customers to order and pay using their mobile devices at IoT-enabled terminals, thus improving efficiency and reducing physical contact.

7. Increasing promotional scenarios, such as driving the integration of payment terminals and digital signage to display dynamic content, promotions, and advertisements based on customer preferences.

8. Improving energy efficiency, IoT technology can optimize the power consumption of payment terminals, reducing energy costs and environmental impact.

9. Supporting security scenarios, IoT-enabled payment terminals can integrate security cameras and sensors to monitor theft at points of sale and employee safety areas.

Previously, a large number of mobile payment devices were connected via WiFi, but in recent years, the rapid development of cellular IoT has formed certain advantages over WiFi in various aspects of mobile payment terminals, promoting the application of cellular IoT in the financial payment industry. Additionally, payment terminals that previously used 2G/3G connections are undergoing upgrades. For example, in recent years, LTE Cat.1 related modules have seen a significant increase in shipments, with one of the largest fields being financial payments.

The Vast Ecosystem of Payment Terminals

The ecosystem of payment terminals involves numerous participants, and the main players in the industry chain include:

Terminal Suppliers: These are manufacturers of physical devices, with domestic companies currently becoming mainstream in this field.

Distributors: These vendors hold inventory of payment devices, providing transportation, merchant supplies, terminal repair services, and overall support.

Independent Service Operators: These operators can be local or global, supporting payment processing businesses through partnerships with financial institutions (like banks or large payment processing entities). They can also provide physical payment terminals, payment software, and any technical support that businesses may need.

Retailers: Retailers are the end consumers in the payment terminal value chain, using terminals to operate their businesses. This group ranges from the largest global retail chains to the smallest individual merchants, with the number of retailers reaching tens of millions domestically, forming the market foundation for payment terminals.

Moreover, payment terminals are carriers of cash flow and handle extremely sensitive data, which means they must comply with numerous regulatory requirements regarding how payment and customer data are collected, processed, and stored. Therefore, regulatory bodies are also important participants in this ecosystem.

Depending on the location of the payment terminals, terminal holders must comply with different data protection laws and regulations, such as GDPR regulations in Europe and CCPA and UCPA regulations in the United States. Meanwhile, suppliers must also obtain specific certifications, including operator certifications, to use local operators’ networks.

Global Payment Terminal Market Situation

The COVID-19 pandemic in recent years has had both positive and negative effects on the payment terminal market. On one hand, it led to the closure of many businesses, reducing the demand for payment terminals; on the other hand, the pandemic made contactless payments and mobile payments mainstream, with cash transactions continuously decreasing, which will likely remain a trend. Ultimately, these new trends will inevitably create new demands for payment devices.

Taking POS devices as an example, a report released by market research firm ABI Research in 2023 indicates that global POS device shipments will grow by 4.6% in 2023. From a global regional perspective, the installed base of POS devices is as follows:

1. Asia-Pacific Market: This region dominates the POS device market, accounting for 54.7% of the global POS terminal installed base, with 102 million terminals by the end of 2022. ABI Research predicts that the overall shipment volume in the Asia-Pacific region will far exceed that of other regions, reaching 32.56 million units annually by 2027.

2. European Market: In 2022, POS terminal shipments in Europe decreased by 7.1% year-on-year, but began to rebound in 2023. ABI Research predicts that annual shipments in Europe will exceed 6 million units by 2027.

3. Latin American Market: The Latin American market experienced rapid growth from 2020 to 2022. ABI Research predicts that annual shipments in the Latin American market will reach 6.56 million units by 2027.

4. North American Market: North America accounts for 10.6% of the POS terminal share. Due to replacement cycles, POS terminal shipments in North America declined consecutively in 2021 and 2022. ABI Research predicts that this market will experience sluggish growth in the coming years, with shipments expected to reach 4.26 million units by 2027.

5. Middle East and Africa Market: This region saw strong growth in POS terminal shipments from 2019 to 2021, especially in 2021, where the growth rate exceeded 30%. The year-on-year growth rates for 2019, 2020, and 2021 were +17.6%, +16.8%, and +30.4%, respectively, followed by declines to +7.6% and +1.9% in 2022 and 2023. ABI Research predicts a CAGR of 2.2% for POS terminal shipments in the Middle East and Africa from 2022 to 2027, reaching 5.56 million units by 2027.

Of course, POS devices come in various forms, including fixed wired terminals, portable wireless terminals, and terminals integrated with multimedia devices, as well as various types of payment terminals. Among these, mobile payment terminals have become one of the trends in this field, especially suitable for small and micro enterprises and small merchants. ABI Research predicts that the stock of portable mobile POS terminals will grow from 57 million units in 2022 to 77 million units by 2027.

From the domestic market perspective, data released by the People’s Bank indicates that as of the third quarter of 2023, there were 43.043 million connected POS devices in the country, with 304.89 devices per 10,000 people nationwide. In recent years, regulatory agencies have introduced multiple policies to regulate the payment market, among which many policies have directly impacted payment terminals, leading to significant declines and rapid increases in POS devices over the past few years.

In the context of continuous development of IoT technology and its ongoing penetration into various industries, the transformation driven by IoT in the financial payment field is not limited to POS devices but may extend to all connected terminals. Coupled with the current technological advancements promoting the implementation of digital assets and the expansion of the pilot scope for digital currencies, IoT payments will exhibit more forms and become one of the most typical scenarios for IoT applications.