Restaurants are Drowning in POS Vendors’ Moats
An economic moat, as coined by Warren Buffet, is a competitive advantage – gained through technology, pricing power, switching costs, etc. – that a business possesses, which protects long-term profits. With the rise of cloud Point of Sale systems (POS) over the past several years, legacy POS have heavily leaned on high switching costs as their primary moat. Due to restaurants’ migration to digital technology, which the pandemic has greatly accelerated, a new moat has emerged across legacy and cloud POS vendors alike: third party access to the POS, which is primarily about control, not technical or resource constraints.
Restaurants industry-wide are already struggling to navigate a highly fragmented POS ecosystem with a stream of new entrants juxtaposed against a vast array of legacy providers. They must choose between the known vs the unknown devil, modern architecture vs scalability, owning vs renting, bundled vs unbundled payment processing and so forth. Most restaurants simply do not know that they should have third party access as a criterion or, if they do, it is low on the list. COVID-19 has highlighted why that is a huge problem for restaurants now and going forward.
As touchless payment and ordering solutions such as mobile pay at the Table and order at the Table continue to be in high demand, restaurants desperately need good solutions even though cash flow to pay for said solutions is tight. Consequently, new players have been flooding into the market including various POS providers, believing that they, too, can build compelling consumer facing product. However, for some POS, it is unclear what the timeline to roll out viable solutions is or if they are even beyond the inception phase. Moreover, those that have rolled out solutions do not have quality product, optimal functionality, or interfaces needed for a seamless guest experience such as: Apple Pay or Google Pay, split bill functionality, restaurant branding, and intuitive UI / UX.
Stop: Third Party Access
The problem is that these same POS providers are precluding their clients from working with third party solutions, either by explicitly blocking access or by making access impractical via massive fees or miles of red tape. To be clear, there is often minimal incremental work or constraint on the POS to allow access to third parties and, generally, third party solutions tend to provide superior solutions.
Of course, this makes things challenging for vendors with competing products – that is the point after all – but more importantly it is very detrimental to restaurants. The new restaurant format hinges on the ability to provide user-friendly and accessible technology that is both practical and cognizant of heightened health & safety guidelines.
The Detriments of a Closed POS
Closed POS systems can negatively impact restaurants’ bottom lines by:
- Prohibiting restaurants from working with new integrated systems that allow them to offer mobile ordering, contactless payments, etc.
- Creating roadblocks for third-party tech companies as they attempt to integrate the restaurant’s preferred contactless solutions
- Increasing the cost of using third party vendors by excessively charging restaurants for API access, charging vendors for API access, or both
When restaurants are impeded from working with other solutions or are forced to bear a much higher cost for the POS-provided solution then restaurants become collateral damage, drowning in the moats their POS providers built to keep everyone else out. Allowing third party access to POS is good for restaurants and for spurring innovation, which is good for the overall industry. And the restaurant industry could really use something good right now.
About the Author
Alan Paul is Co-Founder, Head of Strategy & BD, CardFree.
photo courtesy of Francesco Ungaro on Pexels.