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Table of Contents

Lead Story

Integrated systems create a new POS paradigm

News

Industry Update

Intuit's IMS ends agent program

Indictment halts the action for poker sites, processors

PayPal, Discover launch Money Messenger

Does certification without licensing make sense?

Selling Prepaid

Prepaid in brief

China's prepaid market a different world

Prepaid's unique way in India

Features

Text message marketing, the other mobile

Pal Flagg
Street Savings

Meet The Expert: John Arato

ISOMetrics:
Technology in the hospitality world

Press release power

Views

Facts and figures from the feet on the street

Jeffrey Shavitz
Charge Card Systems Inc.

Education

Street SmartsSM:
Let's reform our industry's education and training

Bill Pirtle
MPCT Publishing Co.

What tokenization is and isn't

Tim Cranny
Panoptic Security Inc.

Ask, don't sell

Jeff Fortney
Clearent LLC

How to use direct mail to build your business

Peggy Bekavac Olson
Strategic Marketing

Global opportunities mean global strategies

Caroline Hometh
RocketPay LLC

New Products

Tapping the government and education markets

ConvenuPAY
Electronic Merchant Systems

Inspiration

Learn to make use of conflict

Departments

10 Years ago in
The Green Sheet

Forum

Resource Guide

Datebook

Miscellaneous

2011 Calendar of events

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The Green Sheet Online Edition

May 09, 2011  •  Issue 11:05:01

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Integrated systems create a new POS paradigm

Recent data released by global research and advisory firm IHL Group revealed that the worldwide PC-based POS market grew by 6.9 percent in 2010, while terminal shipments in North America saw a 5.7 percent gain over the previous year. Worldwide, 87.4 percent of POS terminal shipments were embedded with Disk Operating System or Microsoft Windows platforms; Linux captured 8.4 percent of the global share of 2010 shipments.

"It was a strong year overall, but several threats appear on the horizon for this market," said Greg Buzek, President of IHL Group. "New mobile devices, inspired by the Apple iPad price point of $500, are a significant threat to the traditional POS market, particularly for specialty stores and hospitality establishments. Our recent research studies found that upwards of 50 percent of specialty retailers are looking to deploy handheld POS devices to replace many of their standard POS systems."

ABI Research projected global retail technology spending could reach $21 billion by 2014, driven by demand for customer-friendly technology and evolving security standards. Larry Fisher, Research Director at ABI Research, said in a statement, "Retailers look to technology to enhance the customer experience, drive customer loyalty, reduce costs, and to become more efficient at managing inventory, space and human resources. It is also a way to stay competitive as peers look to achieve the same goals."

Removing barriers

According to Rick Oglesby, Senior Analyst for Aite Group LLC, another potential threat to the existing structure is tunnel vision. "One of the weaknesses that I think the payment companies have is that they tend to focus so much on payment, and they leave a lot of the value delivery to third parties," he said. His concern is that payment companies with such a narrow focus could become background commodities moving data back and forth while the real value at the POS is being delivered by others.

"You're seeing a separation of those components," Oglesby said. "That separation has been there for some time, but I think it's getting magnified as POS hardware and software becomes more sophisticated.

"I'm not seeing a lot of in-house technology development around that space. It tends to be partnership agreements with third parties and they're doing a lot of white-labeling." (The practice of one company producing a product and allowing other companies to rebrand it as their own is known as white-labeling.)

According to Dale Laszig, Senior Vice President of U.S. Sales for Castles Technology Co. Ltd., proprietary policies could impede progress. "I think the right approach is not necessarily a proprietary approach," she said. "I think that the world is moving into a much more open source environment. I understand why certain ISOs would want to protect their domains, but I think the companies that have the vision for putting something out there that is truly open ... a solution that any ISO can use ... really differentiates them in the marketplace."

Taking the initiative

Two of the largest bankcard acquirers have made significant progress in expediting software integration and Payment Card Industry (PCI) Data Security Standard (DSS) compliance. Chase Paymentech Solutions LLC built Xpress Lab, an open application programming interface platform for e-commerce, retail, restaurant and MO/TO implementations. The lab's End-to-End Lifecycle Management process enables software developers to create and deliver PCI-compliant payment applications.

Fifth Third Processing Solutions LLC partnered earlier this year with cloud-computing payment platform developer, IP Commerce Inc., to launch its e-Similate open payments platform and workflow engine to facilitate rapid delivery of FTPS payment solutions to software developers.

"As a major processor/acquirer, we have fairly complex authorization systems," said Pat Moran, Senior Vice President, Product and Portfolio Management at FTPS. "From our largest clients down to our smallest, they connect to us in a number of different ways, the most basic being the dialup terminal on the low end and then you have terminals at the large merchants, but they really connect to us through either host-to-host connections or switches that come in and execute transactions with us.

Moran believes the industry is shifting from the basic terminal to software-based solutions. "It could be the Domino's delivery guy who's working off some kind of handheld device," he said.

"Lots of different software solutions are being developed to serve the payments market. We think our business partners, whether they're merchants or ISOs, or other third parties, will come up with the creative ideas and this is just the tool to help them capitalize on it."

With both acquirers the integration services, tools, modules and support are provided free to the software development community. The expenses associated with operating these open platforms are recovered when a merchant selects an integrated POS solution that is linked to the acquirer and begins processing payments.

Freeing up the possibilities

"I think that this whole phenomenon of weaving together in real time, no matter where we happen to be physically on the planet, has given us the greatest opportunity that we've ever had in the electronic transactions space, because we finally have a chance to become an integral part of the ongoing live conversation," Laszig said. "We're no longer that little POS device sitting in a corner that people have to physically want to interrupt their lives by swiping a card."

One company that has become known for thinking beyond the basic terminal is United Bank Card Inc. In January 2011, UBC President Jared Isaacman released a web video message stating the company would begin offering its fully integrated POS systems free to qualifying merchants. Before that, UBC had leased or sold its flagship Harbortouch POS systems to restaurants and retailers.

"At a time when many small and mid-sized businesses are struggling, we are providing these benefits that many business owners may not have previously been able to afford," Isaacman said. "In addition to speeding up payment transactions, POS systems automate many aspects of day-to-day business including employee management, thus streamlining a merchant's overall operations and allowing them to focus on keeping their customers satisfied and spending."

Being the first to deliver a free POS system, though risky, appears to have paid off for UBC. "We're doing over 800 Harbortouch POS Systems a month right now," Isaacman said. "I think our objective of making a free POS system that can replace the dinosaur credit card terminals out there is working out extremely well. A credit card terminal just runs a credit card sale. A POS system runs all functions of the business electronically."

However, not all software is equal. "You have to be careful how much you try and simplify the offering, because businesses are complicated, and they need flexibility," Isaacman said. "The concept of having super-simplified solutions out there is great, but the reality is that what we've learned is that there is a balancing act. You do need to have a lot of functionality in it. Some complexity will have to exist in order to accommodate the vast majority of potential merchants for the product."

Even with the best-laid plans, growing pains are inevitable. "The POS space is nothing like the credit card terminal space where you just put in a merchant number and go," Isaacman noted. "It is programming intense. Our programmers spend four hours minimum with every system in programming it to the exact merchant specifications."

Another consideration when switching to providing integrated POS systems is tech support time. "If you get a phone call in tech support on a broken credit card terminal, the average call is maybe 8 to 12 minutes," Isaacman said. "The average time on a POS system call is probably 17 to 35 minutes. We're realizing that we need a lot more people to get the job done." UBC plans to move to a larger facility to house its expanding operations.

Bringing it under one roof

According to Bryan Daughtry, Vice President Sales and Marketing for UP Solution Inc., merchants with POS systems have previously had to deal with at least three providers: a hardware provider, a software provider and a merchant credit card processing provider. And working with multiple vendors often made it difficult for merchants to determine who was liable when a problem with the system occurred. "We founded UP Solution based on years of requests from our customers for a one-stop shop," Daughtry said. "A merchant can come to us and get their hardware, software and credit card processing, and if there ever is a problem or opportunity at the POS, they have one phone call to make."

Daughtry said one of the advantages of selling an integrated POS system is that "when looking at a traditional POS account from a revenue generation standpoint versus a traditional mom-and-pop using a credit card dial-up terminal, there is typically 30 to 50 percent more volume processed at these locations. So we've now positioned these agents to win bigger, more profitable accounts."

He also believes the market for POS hardware and software has become saturated, which means merchant level salespeople (MLSs) can be more selective. He urges MLSs to form alliances with providers that can manage all of the technical aspects of the sale, including software configuration, installation, training and ongoing support.

Considering merchants' options

For most merchants, one of the core decisions will be whether to purchase, rent, lease or sign up for a free POS system. Many POS system providers today offer a combination of upfront fees for the equipment with ongoing fees for system maintenance and support. For MLSs who may be straddling the field of choices, industry expert Ken Musante, President of Eureka Payments LLC, recommends taking a long-term approach.

"The system that I find to be generally the best for both the merchant and the integrated POS system provider is one that has an ongoing fee, because inevitably the ones where they just buy the system, there is going to be an expensive upgrade at some point down the road," Musante said. "The merchant never wants to pay that, and the integrated POS system provider doesn't commit to upgrading it unless [the merchant has] purchased the upgrade."

A problem Musante pointed out is that merchants typically must use a POS system's most current version to be PCI compliant. Thus, merchants unwilling to pay for upgrades fall out of compliance, which increases their exposure to security risks.

Since upgrades are an inevitable part of the product lifecycle, Musante feels web-based software-as-a-service solutions offer merchants better service in that automatic upgrades are built into the monthly fees.

Musante warned MLSs that some POS system vendors prefer to work exclusively with one processor. "Even if you can integrate to them, they're going to steer them to another provider," he said. "I've seen that, whether it's beneficial to the merchant or not. In fact, I've seen it happen where it's detrimental to the merchant." On the other hand, he said certain components, like the electronic cash register, are more flexible because they're not necessarily acquirer-specific.

Sizing up the opportunities

From a bird's-eye view, the integrated POS market appears split between hospitality and retail. "There are obviously large SIC codes where somebody can truly dominate," Oglesby said.

"When you look at restaurant software, there's Aloha and Micros. These guys have done a pretty good job of gathering significant share. But if you want to talk about the merchant landscape as a whole, I think you're still going to have lots of VARs [value-added resellers]. It's a great opportunity for entrepreneurial activity."

UBC's Isaacman agrees that the advantages and the efficiency gains for a business are substantially more for hospitality. Restaurants, for example, he said can speed up table-turn to serve more customers, calculate orders more quickly, or even communicate with chefs, all thanks to the functionality of today's integrated POS systems. In the retail space, he said the advantages come more from inventory control, rewards management and payroll management.

However, as with all technologies, there is clearly a size where having an advanced POS system doesn't make sense. Smaller merchants with limited inventory or sporadic sales may not require an advanced system to manage their business. "There is definitely a floor where just having a simple credit card machine makes sense," Isaacman said. "But once you're above that the market is just massive."

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

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Spotlight Innovators:

North American Bancard | Harbortouch | USAePay | IRISCRM.COM | Humboldt Merchant Services