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The Green Sheet Online Edition

March 09, 2009 • Issue 09:03:01

Exploring vertical channels

By Scott Henry

Amid the current economic malaise, it's easy to lose sight of the fact that consumers continue to make purchases regularly, even if their overall level of spending has tapered off. And it is possible to compensate for this decrease by exploring vertical pockets of opportunity.

In this article, I'll explore different types of vertical segments in which:

  • The conversion from paper to electronic payment is not as advanced as in other markets

  • Merchants may not yet realize the potential savings a PIN debit option offers

  • Savvy business owners are able to focus on the needs of people with more disposable funds and may be more open to upgrades and new technologies

Have you ever considered the towing market, for example? There are thousands of towing companies in the United States, not to mention gas stations that also operate tow trucks. A relatively small percentage of towing businesses use electronic payments, and those that do are primarily doing offline, card-not-present transactions.

Since average tickets in this sphere are well over national ticket averages and each location processes about 30 transactions per month, a good business case can be made for a wireless device that can turn high-cost, nonqualifying transactions into cheaper, card-present ones.

Carpentry and floor-laying services are additional categories in which card penetration is relatively small. Combined, these companies may represent 100,000 businesses, or more. Where cards are used, average ticket prices are $1,000 or more, so the opportunity for interchange savings for merchants is huge.

Other home-oriented service segments include plumbing and HVAC (heating, ventilation and air conditioning) contracting. These service providers also have a relatively low penetration of electronic payments and, thus, a significant opportunity exists to offer them terminal-based systems.

With primarily offline payment and high average tickets, there is a strong business case for wireless payment in this sphere. Tremendous per-transaction savings can be realized by converting what are typically batched, or called-in, transactions to those qualifying as card-present and online.

On a $550 ticket, savings would be over $5.00. The return on investment (ROI) calculation is simple: If the company currently does 25 monthly transactions, the savings would be more than $125 per month.

All that glitters

Let's look at some additional segments. Art dealers and jewelers focus on consumers who by nature (wealth, culture or hobby) or by circumstance (marriage, anniversaries or romance) tend to be committed to acquisition regardless of economic headwinds.

Due to the nature of the merchandise, sales in these verticals tend to be of high value. In this type of sale, merchants could enjoy substantial savings by moving their card-paying customers to PIN debit.

These segments are already highly penetrated but may be ripe for replacement of existing equipment or additions to current hardware.

Store operators in these segments often keep their card terminals in areas that are not easily accessible to customers, which makes it hard, if not impossible, to access PIN pads.

Providing additional systems for countertop devices within reach of customers, or putting in a General Packet Radio Service (GPRS) or Wi-Fi terminal with an internal PIN pad could generate savings of over $3 per transaction when customers use PINs rather than signatures to initiate transactions.

In an art gallery, it may be as simple a solution as updating a countertop with a system sporting an attachable PIN pad for debit card, PIN-based processing.

Beyond credit and debit

In the case of jewelry stores, especially, there may be opportunity to move beyond credit and debit to also provide gift and loyalty card programs. Particularly in the current economic downturn, an opportunity exists to sell merchants on the benefits of implementing programs that will encourage customers to return to stores for subsequent sales.

It's also a good idea to build a portfolio of other value-added services that may cut costs or increase productivity for merchants in a given vertical. Check authorization, time and labor management, even background check applications may be suitable to replace relatively expensive service bureaus merchants currently rely on.

The GPRS option also represents an opportunity for recurring revenue through resale of cellular services. GPRS provides Internet connectivity that is fast, as well as easy to set up and operate.

With this instant broadband solution, all it takes to have high-speed transactions is a power source - no network installation, no digital subscriber line modem and router, no Ethernet cabling. Some of these retailers will likely already have a broadband connection, either to handle e-mail requests, send out marketing promotions or manage Web sites.

It's easy to leverage that with a Wi-Fi option that not only provides merchants with a more portable option, but allows them to eliminate existing phone lines. And that makes for a great ROI argument.

Mining for gold

It's all well and good to discuss new market segments, but then the issue becomes figuring out how to tap into them. Doing so could be as easy as going through the local Yellow Pages or tapping into some of the following resources:

  • National and regional/state trade associations for market segments of interest to you. For example, plumbers have the Plumbing-Heating-Cooling Contractors Association (www.phccweb.org), and towing services have the Towing and Recovery Associations of America (www.towserver.net)

  • Industry trade publications, such as Contractor magazine and Plumbing & Mechanical magazine

  • Labor associations, such as the United Brotherhood of Carpenters and Joiners of America

  • National and regional tradeshows

Times may be tough right now, for you and your customers, so provide your merchants innovative solutions to help them be competitive.

For more information on these vertical markets, check out the Market Solutions section at VeriFone Zone at www.verifonezone.com. end of article

Scott Henry is Director, North America Product Marketing, for VeriFone. He can be contacted at scott_henry@verifone.com.

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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