By Paul Rasori
Just when you think you've got things figured out, somebody changes the rules. In a report issued in September 2007, market research firm Mercator Advisory Group predicted that the POS market will undergo more significant changes in the coming five years than it did in the past five.
"The last five years have seen evolutionary changes that have improved cost, reliability and capabilities especially in terms of [Internet protocol-] IP-enablement and wireless connections," Mercator's report stated.
So what can top that? Some changes will result from continuing consolidation of terminal suppliers, according to the research firm. Others will come from changing business and technological models. We've talked quite often of the need to focus on selling value-added services and making the case for merchants to shift towards IP-based systems that support a multi-application environment and provide enhanced security.
What does that mean for you, as ISOs and merchant level salespeople? According to Mercator, "selling value-added services will require a somewhat different set of ISO sales channel skills. Selling software and services ... requires a willingness to engage in a somewhat more complex sales process and more patience."
In the 21st century, consumers and merchants have spurred a number of clear trends in payment, including:
As competition in retailing intensifies, merchants are offering consumers more payment options to help attract new customers and retain existing ones. This requires accepting an array of magnetic stripe and smart cards for payment applications such as credit, debit and electronic benefits transfer. Stored-value cards are also an important payment option, which ranges from widely used prepaid phone and electronic gift cards to innovative uses such as electronic parking cards and electronic cash.
Loyalty programs are increasingly popular. They benefit merchants because they improve customer relationships, enhance customer intimacy through better knowledge of preferences and purchasing history, and promote specific products or services. And customers clearly enjoy the special discounts and higher service levels that frequent shopper programs provide.
In recent years, payment options have expanded considerably. In addition to a broad spectrum of traditional payment methods, value-added applications _ from gift cards to prepaid phone cards to age verification and electronic bill payment _ are becoming highly attractive for both merchants and payment services providers.
Many of the value-added services running on countertop POS terminals produce additional transaction and services revenue for the organizations that develop and implement them. Additionally, these more profitable applications lend themselves to a revenue-sharing model, making them attractive to merchants and third-party service providers involved in creating or operating the solutions.
Mercator said that despite the falling prices of broadband access, it still requires familiarity with networking and "for most 'mom-and-pops' it is beyond their willingness to invest in this kind of upgrade."
VeriFone recognized this issue a couple years ago. This led to development of a turnkey service, VeriFone Connect, which enables ISOs to equip merchants with broadband and wireless connectivity for high-speed payment and value-added services at the POS.
Some larger organizations can provide these types of services on their own. But for most in our industry, that would require substantial investment in training and infrastructure. Our goal was to provide a bundled offering with which ISOs can provide merchants setup, activation, monthly data service, device deployment and management, help desk, billing, and advanced merchant-level Web-based reporting and management tools.
It will no doubt take a lot of convincing to get smaller merchants to move away from old, reliable dial communications and embrace the new world of IP.
But, IP is used today in cell phones, satellite TV, home PCs, and portable laptops and PDAs. IP-based POS solutions break the telecom bottleneck by letting merchants process transactions over a lightning-fast, always-on connection - the same type of connection many of them use in a back office to browse the Web or send and receive e-mail.
Whether smaller merchants fully recognize the benefits of broadband and value-added applications, at some point they are going to run up against the security issue. While it's tempting to believe smaller merchants will slide under the radar of security requirements, it's not realistic. The Payment Card Industry (PCI) Data Security Standard (DSS), which clearly is aimed at larger merchants, is now starting to reel in even the smallest merchants, the so-called level 4 tier. Acquirers have been given the option on how to address level 4 merchants and are seeking to identify those most at risk. They will require merchants so identified to undertake security reviews similar to the reviews larger merchants undergo.
Changing PCI pin entry device (PED) requirements are already starting to impact smaller merchants, albeit indirectly. After Dec. 31, 2007, VeriFone and other device manufacturers may no longer sell Visa PED approved devices for PIN-based transactions. Thereafter, the only PEDs available to purchase from equipment manufacturers will be those that are PCI PED approved.
While there is, as yet, no set date mandating removal of Visa PED approved devices from operation, increasing consumer awareness of card security issues, and the likelihood of increased future sanctions, make it prudent to climb aboard the PCI PED train.
ISOs and retailers should realize that, in the event of a PIN compromise, noncompliance with PCI DSS' PED requirements could result in losses, and card reissuing costs could be passed to retailers. The card Associations could levy penalties on merchants, and acquiring banks could revoke their service agreements.
Security undoubtedly comes with some costs. But from a bottom line perspective, the new world of payment processing opportunities promises increased revenues to you and your customers through additional payment options and value-added applications that help increase foot traffic, attract new customers and enhance customer loyalty.
The future Mercator predicts is available today in the form of practical, proven solutions that are already widely in use.
But it requires your knowledge and insight to bring your merchant customers face to face with the promise of tomorrow.
Paul Rasori is VeriFone Vice President of Global Product Marketing. He can be contacted at firstname.lastname@example.org
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