How JPMorgan Chase's use of Tap to Pay puts pressure on merchant acquirers

Gabby Jones/Bloomberg

JPMorgan Chase has added technology that allows merchants to accept payments with minimal upgrades to their own devices, a move that will accelerate plans for most U.S. payment processors.  

The bank last week launched Apple's Tap to Pay, with Sephora being the first retailer to deploy the payment method across all of its stores. The feature supports Apple Pay, contactless cards and other digital wallets that enable NFC payments. 

Tap to Pay, also called softPOS, allows merchant staff to use their smartphones to accept payments without adding extra hardware. Apple, which introduced its version of the technology in 2022, does not process payments, so the tech company requires partners. Given JPMorgan's size, its endorsement raises Tap to Pay's profile, and creates a potential need for other merchant acquirers to support or expand the technology. 

"While they are not the first major acquirer to support Tap to Pay, JPMorgan is not typically an early adopter of new technology, so this shows real confidence in the concept," said Aaron Press, research director of worldwide payment strategies at IDC. "I expect other acquirers to follow suit."

JPMorgan is positioning the deployment as a way to replicate the e-commerce checkout experience in stores by allowing both the shopper and store employee to use devices to make payments and perform other functions related to shopping or running a store. 

"Consumers [have become] proficient in online shopping," said Michael Marinello, managing director and global head of communications for payments at JPMorgan. Currently, the bank is testing Tap to Pay at merchants in consumer goods as well as in travel and hospitality, Marinello said.

JPMorgan was the largest merchant acquirer in the U.S. in 2022, with about 36 billion transactions processed, according to Statista. Fiserv, the second-largest U.S. merchant acquirer with about 35 billion in transactions processed, added support for Apple Tap to Pay in April, making the technology available via its Clover point-of-sale system. 

Sephora did not provide comment by deadline. The retailer's staff can use Tap to Pay to combine payment acceptance with other job functions accessible through iPhones, such as inventory management and incentive marketing, according to JPMorgan. "Additionally, merchants are seeing Tap to Pay as a backup solution when their local internet connection is unreliable," Marinello said. 

Payments

Ten payment companies putting the point of sale into smartphones

April 7, 2023 10:03 AM

A lot of the messaging around softPOS systems has been about enabling small merchants to accept contactless payments, but Sephora's use case, which involves a larger store, is different, according to Press.   

"It shows the synergy between softPOS and other store operations where associates are likely to have a handheld device for other service functions," Press said. 

SoftPOS had some early momentum before JPMorgan's announcement. Apple's initial partners when it launched Tap to Pay included Stripe, which supplies online payments to small to midsize merchants. Adding Tap to Pay enables Stripe to support in-person payments as part of Stripe's omnichannel strategy. Stripe later added support for Android's softPOS, covering almost all of the mobile operating system market for the technology. 

Adyen added support for Tap to Pay in 2022 as the Dutch payment processor plotted its expansion to the U.S. for both e-commerce and in-store payments. The card brands and payment companies such as PayPal and Block have also begun supporting softPOS over the past year. Ingenico and Wordline, which sell point-of-sale hardware and software as a core part of their businesses, have added softPOS through acquisitions. Ingenico earlier this year acquired Phos, which develops that technology that powers softPOS; and Worldline in 2022 acquired a 55% stake in Softpos.eu, a firm with a similar model to Phos.   

Dedicated terminals have been under pressure from softPOS for years, and JPMorgan's national rollout adds to it, according to Press. 

"But there will still be demand for terminals, and for mobile-attached contact chip readers, until contactless cards and their use are truly dominant," Press said. 

JPMorgan's support of Tap to Pay as a payment option follows a decision in 2019 to deemphasize the point of sale by dumping Chase Pay, a feature that was part of the closed loop ChaseNet system that cut payment fees when both the consumer and merchant were JPMorgan customers. JPMorgan did not comment on Chase Pay or potential support for Android's softPOS for this article. 

"To serve all kinds of merchants, [softPOS] is an option that needs to be offered," said Daniel Keyes, a senior analyst at Javelin Strategy & Research, who said Tap to Pay is not a replacement for Chase Pay as much as it is a competitive move to cover multiple digital-payment options. "It's necessary to maintain and grow a position in point-of-sale technology," Keyes said, adding "every major acquirer" will announce softPOS support, and may move faster because of JPMorgan's announcement. 

In addition to reducing hardware expense, softPOS is seen as a stepping stone to checkout-free retail, which uses cameras and other sensors to track customers' movements in a store and automatically charge their digital wallets, enabling the consumer to leave the store without engaging with a point of sale. Amazon Go is the best-known checkout-free model, though the concept has been slow to develop because of the challenge of retrofitting existing stores. 

"Both Tap to Pay and cashierless tech bring a focus on mobile payments and all the ways they can improve the checkout experience by not requiring the customer to stand in line," Marinello said. "Looking toward the future, we expect to see a hybrid, omnichannel approach, where some merchants may offer shoppers the ability to pay as they walk out for smaller ticket items and offer Tap to Pay for services and higher value purchases."