Hi Abhishek,
As with all market sizing questions, you want to choose a framework or formula to begin with. In this instance, we’re probably thinking about the POS terminal market in terms of volume and price. Volume appears to be the tougher segment to think about, as you can make assumptions about price changes (e.g. it’ll only increase by inflation under a business-as-usual scenario). Make it clear to your interviewer that this is the approach you’d like to take, and then the exercise becomes about segmenting volume.
How would we do this? We can keep it broad and consider new and replacement sales. Or, you could consider different merchant segments, according to the data provided. Keep it to two/three segments to be simple. Your market size is then:
Market size = (segment 1 + segment 2 + segment 3) * price
From this framework, what information is relevant to which segment, and what other assumptions would you need?
You currently know the # of merchant accounts and # of POS transactions. If you can, use this to calculate the # of POS transactions per merchant type.
You also know the installed base of POS terminals and general macroeconomic outlook. Are we expecting more or less people to use POS terminals? Roughly how much more? If the market penetration of POS terminals is high, then growth will depend on macroeconomic factors. If it is low, or is likely to compete with other types of payment, then you have to consider how competitive POS terminals are compared to other technologies.
Hope this provides you with a first pass. Plenty of interviews are more interested in your structure and approach rather than the actual figures you come to. They may also try to trick you by over-providing you with data. Choose the relevant information and form a view, while making sensible assumptions where necessary.
Any questions, feel free to drop me a PM.
All the best,
Edmond
