The Green Sheet Online Edition
May 28, 2012 • Issue 12:05:02
The POS of tomorrow
The POS is undergoing change not seen since the payments industry's early days when the first electronic swipe devices replaced manual "knuckle busters" on merchant counter tops. Today, stationary POS terminals are being replaced by mobile and virtual POS devices. While the standard terminal will remain a viable solution for years to come, the future of the POS is upon us.
There is a general consensus about how that futuristic POS will function. It will be device agnostic, standardized and mobile; it will accept virtually all types of payments; it will save merchants on transaction fees; it will function as both a customer relationship manager and back-office bookkeeper; and, of course, it will be highly secure.
Maybe that last point is more a fervent hope than a cold hard fact. But it is a given that to continue to thrive in the payments sphere, ISOs and merchant level salespeople (MLSs) must fully understand the capabilities of emerging POS solutions and become expert consultants advising merchants on which technologies are best suited to their distinct business needs.
The ascendancy of mobile
Scott Henry, VeriFone Inc. North American Product Marketing Director, told The Green Sheet the industry will see some "very creative ways to build on platforms" in the next 12 months. Henry expects to see more full terminals built "on the back of" the Apple Inc. iPhone. He also foresees terminals that are secure mobile devices, have interactive PIN pads, and can take cards that utilize mag stripe, PIN, chip, EMV or NFC technology.
Bill Gajda, Visa Inc. Head of Mobile Products, spoke at the Strategic Solutions Network's Mobile Contactless Payment Innovations Summit in San Jose, Calif., in April 2012. He said the payments industry is "witnessing the transformation of commerce based on the ubiquity of mobile payments." However, he doesn't see card-enabled transactions disappearing.
"The need for global payment networks isn't going away," he said. "I don't see mobile replacing global payment networks because in developed markets they take the [card payment] system for granted."
Richard Oliver, a payment consultant and retired Executive Vice President of the Federal Reserve Bank of Atlanta, assessed the Fed's view of evolving payment options in the United States for a U.S. House Financial Services Committee hearing titled "The Future of Money: How Mobile Payments Could Change Financial Services."
In March 2012, he testified that the Federal Reserve banks in Atlanta and Boston concur that the open mobile wallet has the best chance of succeeding as a payment system in the current environment. "The open wallet would support the use of any number of payment credentials, just like the physical wallet does today," he said.
Oliver also said leading mobile platforms "should leverage existing payment system rails (debit card, credit card, prepaid card), including the ACH network for noncard payments, and support new payment types that meet emerging needs. This implies the use of traditional clearing and settlement systems."
Richard Crone, Chief Executive Officer of Crone Consulting LLC, believes mobile payments will be integral to the POS of the future, which will entail much more than a payment acceptance device or system.
"Mobile payment is not just about lower transaction costs for merchants, though that could be a big incentive," he said in a March 2012 interview with The Green Sheet. "It's about customer relationship management. The mobile phone provides two-way interactivity that allows customer self-service, self-marketing and, yes, payment."
Security and the push for EMV
After many years of being poised for takeoff but never lifting off ground in the United States, EMV received a major boost from the card companies in 2011, when Visa took steps to accelerate EMV adoption here. Merchants in most categories will be required to have a POS that supports EMV card acceptance by 2015 or face increased fraud liability. Of course, acquirers and processors must be able to support the technology as well.
Gajda said he strongly believes EMV will have a placein the POS going forward because of its importance as an authentication device. Will Graylin, founder and CEO of payment technology company ROAM Data Inc., concurs. In an interview with The Green Sheet, he said the primary driver for the inclusion of EMV at the POS is countering fraud and that the POS of the future will support payment cards.
"It has been 40 years since the credit card industry began, and we still have cash," Graylin said. "We have to support legacy payment systems. EMV standards have to be supported, but we don't know yet if the EMV transport mechanism will be a traditional account number or something else."
Graylin noted that other solutions may supersede EMV at the POS. "The processor, the ISO, the MSP [Member Service Provider] has to watch to see they don't get out flanked," he said. "You don't want to get blindsided [by new technology]." He added that if incumbents in the industry "don't wake up," they will soon be at a disadvantage.
Whatever technologies become dominant, the POS of the future will also include dynamic data authentication (which authenticates the payment card itself) with standards "designed, adopted and complied through an industry certification program to ensure... interoperability," Oliver said.
He called for more education for bank and nonbank regulators "to clarify compliance responsibilities" and for trusted service managers to "oversee the provision of interoperable and shared security elements in the phone."
Another concern is that complying with the Payment Card Industry (PCI) Data Security Standard (DSS) is problematic for many merchants. "Merchants should not have to deal with data," Graylin said. He predicted end-to-end security will be an integral part of the POS, along with a cardholder authentification mechanism. "It may be some other form of physical identification might be required," he said.
Bob Russo, General Manager of the PCI Security Standards Council (PCI SSC), believes tomorrow's POS environment will come with known security challenges. "Generally convenience trumps security every time at the POS," Russo said. "Here our job is to push security to a place where it is uppermost in everyone's mind.
Our job is to get people constantly thinking about security. We want them to remember when they are building their payment products that it is easier to build security in than it is to bolt it on."
NFC for contactless payments
It appears the industry is embracing contactless NFC solutions. Many POS manufacturers are already adding NFC functions to their products, and more mobile phone manufacturers are including NFC hardware in their products.
Gajda said he believes NFC will be at the center of the POS but not the only option. "We believe NFC will take off because it is based on a global standard and supported by global eco-standards," Gajda said. "We think NFC will take off because nobody wants to develop on a dead-end technology," which is what an unsupported technology is.
Gajda predicted NFC will become more popular as other uses for NFC are developed. "NFC centers around the POS but goes far beyond to person-to-person and other wireless options," he said.
Oliver said the Federal Reserve believes NFC contactless technology will be the likely infrastructure on most smart phones and terminals. "Other technologies might exist in parallel, but NFC appeared to be the likely approach due to experiences overseas, evolving standards and current technology investments by key players," he said.
Crone noted that although POSs will need to include EMV or NFC technology, or both, merchants and customers will not necessarily have to use those technologies. He also pointed out that NFC payments are more expensive for merchants because retailers are charged higher card-not-present interchange rates.
"Why would merchants pay for new NFC hardware that makes it easier for consumers to pay with more expensive tender types?" Crone asked rhetorically. "Merchants should be careful about solutions that are not agnostic when it comes to the phone-to-POS interface.
"The success of the Starbucks mobile payment solution suggests bar codes may play an important role in mobile payments at the POS. Starbucks was the most successful launch of a new payment type in the history of mankind."
Crone pointed out that "several very well-funded mobile payment startups have been working in stealth mode for some time now to provide mobile payments at the physical POS with no new hardware required by merchants, including avoiding the need for NFC chips on the handset." However, traditional payment companies don't appear ready to concede any ground to new competitors.
Henry said VeriFone is integrating an advertising network with its POS technology through its acquisition of the global outdoor advertising network Clear Channel Outdoors Inc. Advertising over the POS network is a way to "infuse capital into the payment system," he said.
He believes VeriFone is adapting well to the shifting payments ecosystem. "One thing we had to do as an organization is we had to learn to break away from tradition," he said. In keeping with that, VeriFone released its new SAIL platform for mobile devices on May 8.
According to Henry, SAIL integrates with popular social networking platforms; offers merchants the ability to push customers toward tenders offering cheaper transaction rates; comes with a software developer kit; provides sophisticated analytics; includes bar code scanning capability; and integrates with VeriFone's traditional POS terminals.
Henry said SAIL supports EMV and NFC technologies, mobile wallets and other emerging payment vehicles. It boasts a secure gateway with end-to-end encryption, real-time merchant fraud detection and processing services.
It also works with third-party marketing and loyalty tools. Henry also said SAIL is good news for ISOs because the company is issuing SAIL through its processor-ISO channel partner network.
According to Gajda, among the technologies causing the industry to "think differently about what constitutes a POS" is a mobile shopping application developed by AisleBuyer LLC, a mobile shopping technology company acquired by Intuit Inc. in April 2012. AisleBuyer's solution allows shoppers to scan and pay for merchandise using their phones - no checkout line needed.
V.me, the digital wallet in development at Visa, will allow customers to free themselves from cards and pay at a POS using only phone numbers and PINs - similar to the service PayPal Inc. is offering on Home Depot Inc. POS terminals and at other national retailers.
"The key to our success here is linking the phone number with the [consumer's account number]," Gajda said. "This will create whole new categories of transactions. V.me is a platform that may communicate with consumers, but the financial institutions will drive the distribution."
First Data Corp. is in the POS innovation game, too. It recently partnered with Affinity Solutions Inc., a rewards program provider, to create a high-tech payment card that allows consumers to link reward offers to their credit cards and redeem the rewards in real time as they pay.
The need to solve or delight
Farhan Ahmad, Discover Financial Services Global Head of Prepaid and Emerging Payments, also spoke at the mobile technology conference held in San Jose in April. "Payment does not define commerce; commerce defines payment," he said. "The face of commerce is changing, necessitating a different kind of payment.
"Credit cards are not conducive to the new environment [however] credit card payments are not difficult and there has to be an incentive to change. From the payment application perspective, the new payment method has to be easier than a credit card, and it has to add significantly more value."
He added that for mobile payment adoption, the solution either has to solve a problem or it has to delight someone. A solution "should be cheaper than the one it is replacing," he said. "It's not about wallets. It's about consumers buying something.
"We don't want to force people to use [mobile payments]; we want people to be able to use every channel, no matter where they are or what they want to buy. Apps make consumer payment so frictionless they drive consumers to the mobile environment."
Crone believes that in the emerging payments environment, "a big upside" exists for merchants who choose to integrate advertising and customer data in "their own mobile payment offering rather than ceding it to third parties such as Google, Isis ... and other intermediaries."
Merchants now compete against mobile check services, bar code reader price-comparison apps, and other technologies that tend to drive business away from traditional brick-and-mortar retailers, Crone noted.
"Without their own branded mobile payment app that works at the point of sale, retailers risk being disintermediated and losing out on the new, valuable revenue streams such as POS payment-triggered advertising," he said.
The upside for ISOs and MLSs in the new POS world is the increased opportunity to help merchants keep costs down, boost sales and enjoy more customer loyalty while also enhancing consumer convenience.
There is much to learn, but this approach holds the key to ISO and MLS longevity as today's POS evolves into what was the stuff of science fiction to merchants equipped with manual "knuckle busters" for card acceptance in our industry's early days.
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