, a webinar hosted by Inetco Systems Ltd., the marketplace for mobile and micropayments is expanding, which opens up opportunities for sellers. While potential profits from offering alternative payments are undeniable, significant hurdles must be overcome.' />
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Table of Contents

Lead Story

All aboard the processing train

News

Industry Update

Credit card spending increases

Reading the tea leaves on Apple and NFC

Weighing in on alternative payments

Trade Association News

Features

GS Advisory Board:
Game changers for 2011 - Part 2

ISOMetrics:
Salaries in the payments industry

A checklist for advertising effectiveness

Selling Prepaid

Prepaid in brief

Rewards expand with BillShrink

The value of stored-value for ISOs and merchants

Views

Bold steps needed on fraud front

Patti Murphy
The Takoma Group

Retaining merchants during a portfolio acquisition

Daniel Federgreen
Analyst

Education

Street SmartsSM:
POS systems, yea or nay?

Ken Musante
Eureka Payments LLC

Selling in the digital age

Dale S. Laszig
Castles Technology Co. Ltd.

The decreasing primacy of price

Theodore Svoronos
Merchant University

Referrals: Do you play the numbers game?

Bill Pirtle
MPCT Publishing Co.

Marketing basics

Nicholas Cucci
Network Merchants Inc.

Company Profile

VeriCheck Inc.

New Products

Upward mobility, no strings attached

Pay Anywhere
North American Bancard

An app to cinch the deal

POS Portal Mobile App
POS Portal Inc.

Inspiration

The fine art - and science - of selling

Departments

10 Years ago in
The Green Sheet

Forum

Resource Guide

Datebook

Miscellaneous

2011 Calendar of events

A Bigger Thing

The Green Sheet Online Edition

February 28, 2011  •  Issue 11:02:02

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Weighing in on alternative payments

A three-part webinar series exploring the ripple effects of alternative payments on the payments industry is being presented by Jim McIntosh, Vice President Strategic Initiatives at Inetco Systems Ltd. In part two, Alternative Payments: What's Your Opportunity or Risk?, McIntosh identified the potential benefits and risks facing merchants, payment processors, network providers and issuers when considering alternative payment solutions.

The ability to easily charge for applications and services or to process micropayments was not an option a few years ago, McIntosh said. "The growth of mobile and the ability for applications to charge are key drivers for creating more transactions, often replacing checks and cash." He believes that, in the future, the multitude of devices, channels and new POS options created by the developer community will "produce more ways to pay than most people can imagine."

"I think one of the key drivers is this economy has produced a lot more sole proprietors, and they all need to process," said Ken Musante, President of Eureka Payments LLC. "We're working with smaller merchants that have been shut out of card processing. It's very easy now to set up a merchant. You don't have the compatibility issues with the phone. It's no longer an oddity to go to a farmers market or street fair and have them accept Visa or MasterCard. Previously, it was odd to see that. Now it's expected."

Merchant perks and pitfalls

McIntosh likened the relationship between merchants and alternative payment providers to their existing ties with Visa Inc., MasterCard Worldwide and other established payment networks. With each new payment alternative, he said, merchants must evaluate the cost, speed, convenience and security involved with processing transactions.

"Merchants have the opportunity of adopting an alternative payment offering, either by accepting NFC, bar codes and/or QR codes," McIntosh said. "Adopting an alternative payment product would allow merchants to expand their customer base, provide more payment options, provide more efficient service and position themselves as a leading merchant and preserve a share of the early adopter consumers."

McIntosh referred to Starbucks Corp. as a prime example of a larger merchant reaching out to early adopters with a mobile payment application that links to its prepaid cards. In 2010, Starbucks reportedly loaded $1.5 billion onto its prepaid cards. He said the new app offers customers a quick payment method, and cards can be managed either online or via mobile devices, similarly to mobile banking solutions today.McIntosh revealed that potential risks for merchants include possible reduction of processing speed, less reliability, lack of hardware certification, changes in liability and increased investment costs. As a cautionary note, he said many merchants are concerned about backing the wrong technology.

Reality check for processors

Payment processors must overcome significant fixed costs, and the relationships established with alternative payment providers will either be cooperative or competitive, McIntosh said. Once fixed costs have been recovered, he believes processors will profit from revenue generated by the increased transaction volume available through alternative payment channels.

"Their business is all about scale and optimization," he said. "They allow the ability to keep their customers on the traditional rails, and they have the opportunity of generating additional services and being able to charge additional fees for alternative payment transactions." He believes what may complicate matters for processors is dealing with additional messaging protocols and interfaces, managing more clients, and navigating through a certification process that could become more difficult or nonexistent in the future.

Network and issuer relationships

McIntosh sees little change for network providers that embrace alternative payment providers. "All alternative payments must travel on existing networks' infrastructures used by credit, debit, signature or PIN charge; ATM; or the ACH network." Brand recognition will favor network expansion into new markets, he added.

Due to its low or nonexistent fee structure, McIntosh considers the automated clearing house (ACH) network a viable option for mobile payments, as well as for POS integration. However, for this to occur, settlement speed must improve, he said. A shift in liability could also expose networks to increased risk.

McIntosh described the relationships among issuers and alternative payment providers as either integral or nonexistent. Alternative payment products linked or integrated with a checking account will be interconnected, whereas products designed specifically for the unbanked or underbanked will have no connection to issuers. He believes opportunities exist for issuers to introduce new payment products and potentially reduce the risk of losing interchange revenue.

The endgame

While the opportunities and risks may differ for each segment involved in the payments sphere, a consistent thread among all is that alternative payments will generate more transactions, McIntosh said. He added that the "complexity of the transaction path, the multitude of devices and wireless technologies and payment options will add a layer of complexity to the transaction environment," that will emphasize the need for accurate transaction-level information.

Inetco will present its next webinar, Why Do Alternative Payments Require New Business Transaction Management Tools, on Thurs., March 17, 2011. To register, visit www.inetco.com/alternative_payments_part3/.

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

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