B of A Payment Dongle War

When asked why Bank of America Merchant Services didn't just partner with a litany of other competitors that are already established, Bell answered that Mobile Pay on Demand is an obvious extension of what the joint venture already does - facilitate transactions. "I think it started more as a customer service/customer retention opportunity, as we were talking to our existing customers. We have 300,000 customers with millions of locations. They were looking for this type of [product]," he says. "They were looking for ways to leverage smartphones."

Bank of America Merchant Services has been testing Mobile Pay on Demand for roughly the past two months, says Bell. "I think that the real game that is going to be played is changing the entire point of sale and shipping experience, allowing a merchant to think differently," he says. "The whole experience is going to change when you think about integration of the shopping experience with technology."

Bell says that what is today a "standalone system" could easily work for "more established merchants." He pointed to NCR's POS system alternative, Silver, as a potential partner. "Payments are going to move to the cloud and 'payments as a service' that you can provision via the web on the tablet," Bell says, adding that NCR is already "a good partner." "We are going to be right there in the middle of all that."

NCR just began selling its Silver system at Staples in a $499 bundle that includes a receipt printer and cash drawer. Bell says Bank of America Merchant Services is looking at similar distribution agreements for Mobile Pay on Demand. He adds that even the Mobile Pay on Demand card reader's design is an improvement on some of its predecessors.

The body - which includes a hook that can be attached to a lanyard or a key chain, which allows a user to quickly change out the dongle to accept a different method of mobile device payment - is longer than some of its competitors so as to catch an entire magstripe when a card is swiped. There is also a clip that protrudes from the edge of the device that holds securely on to either a tablet or smartphone. "I think we will look at all kinds of different models as this evolves, obviously," says Bell. "This is our first step into the space."

He says that he can envision a mobile commerce app backed by Bank of America that could potentially be sold as a service to merchants. Already the service is being packaged with a so-called iDeals marketing platform that will help merchants market their wares through promotional offers, coupons and events. That promotions is being offered to users that sign up before the end of the year.

No doubt, though, Square has momentum and will be difficult to unseat. "What Square has done is they have opened up a new category of merchant: the micro merchant, the garage sale, the church festival, the one time selling opportunity," says Philip J. Philliou, a payments consultant. "I think that will always be their niche. Do I think Square will grow to a dominant, more traditional merchant category? I think that will be more difficult for them, because merchant processing is a scale game and there are traditional competitors who are very well situated to continue to control that market."

He added that Bank of America Merchant Services could be just such a player. "They can price it cheaply," says Philliou. "There is no annual fee, and no contract. That's a big deal, and that pricing is reasonable. These are merchants, if I understand it correctly, that don't generate much volume, so for them, this is great."