By Dale S. Laszig
Long before there was an app marketplace, the grandfather of all apps freed merchants from paper-based credit card processing. Designed to send and receive payment card data over phone lines, the app marked the beginning of electronic transactions. Through the years, merchant level salespeople (MLSs) have helped business owners use electronic processing technology in increasingly nuanced and sophisticated ways.
Modern cloud-based, mobile POS solutions bear little resemblance to first generation payment terminals. Even a smartphone has more computing power than a traditional countertop terminal, underscoring how profoundly technology can change in a relatively short period of time. Emerging technologies combined with regulatory, compliance, and technology milestones have wreaked havoc on incumbent merchant service providers.
Each time technologies have disrupted the merchant acquiring landscape, it has caused consternation among MLSs, who question how changing business models and incoming players will affect their livelihoods and job security. Others would argue that its capacity for reinvention makes the payments industry a great place to work. Thirty years after the original payment app came to market, the sky is not falling. MLSs can leverage their experience and relationships to stay connected with customers and ahead of competitors.
Following are industry leaders' recommendations on how MLSs can retain their hometown advantage in the ever-changing payments sphere.
A research report titled Merchant Acquiring's Ecosystem: Evolving Beyond Transactions, published by Mercator Advisory Group in June 2016, examines new and traditional players and their impact on the U.S. acquiring landscape. "Merchant acquiring remains a fragmented and overlapping industry," wrote report author Raymond Pucci, Associate Director of Research Services at Mercator Advisory Group. "An influx of recent entrants is adding layers to the ecosystem."
In a recent interview with The Green Sheet, Pucci cited three top-level trends attracting new players to payments: mobile, omnichannel, and ecommerce. "Independent software vendors [ISVs] are playing an active role in the transformation of online retail," he said. "Value-added resellers [VARs] are leading the EMV transition, helping merchants purchase, install and certify a new generation of smart card readers." Pucci expects changing market dynamics to drive further challenges and innovations. For example, enhanced protections provided by EMV (Europay, Mastercard and Visa) are pushing counterfeit fraud and ID theft to online, card-not-present environments. Mobile platforms, such as newly launched Walmart Pay, are driving industrywide hardware and software changes.
"MLSs need to understand the services that VARs and ISVs are providing to merchants," he said. "Legacy acquirers and equipment manufacturers have forged strategic alliances with ISVs, VARs and API developers to deliver market-specific solutions." He recommended observing new products and services to see what problems they are solving. ISOs can then decide whether to build similar capabilities in-house or acquire these emerging players.
ISVs and VARs have traditionally played an integral role in payments, from the time the first PIN pad was attached to a terminal and the first gift card was added to a core processing system. As the industry matured, popular value-added solutions evolved from add-ons to core service offerings. Payments analysts expect this trend to continue as payments become more embedded in day-to-day business and personal activities.
While the concept of integrated payment solutions has been around for a while, bundled services are in high demand by merchants of all sizes, Pucci noted. Demand for real-time solutions has upgraded some apps from value-added to essential requirement status. For example, many merchants expect their inventory management systems to automatically decrement with each in-store and online sale. Large and small merchants alike rely on global and cross-currency solutions that enable customers to transact in their preferred payment methods and currencies.
Pucci also observed an industrywide migration from manufacturing to service models ‒ even among original equipment manufacturers ‒ largely driven by what he called the "appification" of shopping and dining. These service models facilitate a range of consumer services and offer relief from margin compression. Ingenico ePayments, formed by Ingenico Group's 2013 acquisition of Ogone and folded into the company's Global Collect division in 2016, is an example of this trend.
"Supplying merchants with terminals and basic payments processing services is a mature market with consequent shrinking margins and declining growth," Pucci wrote. "To meet the threat of commoditization, acquirers are making strategic bets on specialization in higher-margin, value-added services, including fraud management, analytics and vertical market applications."
The app marketplace is a vast, digital commons where consumers can make in-app purchases and merchants and developers can cross-promote service offerings. Many popular apps were created by merchants who needed to solve a problem and went on to certify and sell the solution within a marketplace platform such as First Data Corp.'s Clover, Ingenico Group's Telium or Verifone Inc.'s Engage.
"MLSs have been payments consultants for years," said Shan Ethridge, Vice President and General Manager, North America Financial Services Group at Verifone. "The Verifone Engage platform, when used to its full extent as a commerce-enablement platform, will empower MLSs to be business consultants." The Engage line of devices will have built-in beacons, designed to help merchants recognize consumers entering their stores and send them targeted offers, he noted.
"The Engage platform may be relatively new but has been years in the making," added Erica Bass, Head of Product Management, North America at Verifone. "MLSs can use the Engage platform to guide small and midsize business owners to available products and services designed to improve operational efficiencies, enhance security, increase spend, and deepen relationships between merchants and consumers."
Data analytics is another exponential growth area cited in Mercator's report. In addition to driving a variety of customer relationship management (CRM) programs, analytics is being folded into other services to provide merchants with a real-time, dimensional view of sales volumes, customer demographics, accounting data and business intelligence. Some analytics solutions are tailored for specific vertical markets.
Despite numerous advances in machine learning and artificial intelligence, there is no substitute for human interaction. MLSs work closely with merchants; their proximity to showroom floors, restaurants and hotel settings where POS happens is a major strategic advantage that helps them understand their customers and their respective markets.
"When you're selling in a business-to-business situation you should know quite a bit about your customer's customer; that's the key to understanding how your customer makes money," Pucci said. "If you're focusing on a particular vertical, like the restaurant industry, it's easy to find publications dedicated to restaurateurs, and even mainstream press, that make mention of trends, such as the growth of casual dining or the rise of take-out."
He found it ironic that leading ecommerce retailers such as Amazon.com, Warby Parker and Bonobos, are opening brick-and-mortar stores. "My sense is they need to understand what customers want and how they use their products, and they can't get that online," he said. "Even online retailers need to look beyond algorithms and recommendations to get a feel for customer behavior."
Despite an epidemic of high-profile data breaches, many merchants continue to request least-cost security systems, according to Mark Gazit, Chief Executive Officer of ThetaRay, a global data analytics and cybersecurity provider headquartered in Tel Aviv, Israel, with offices in New York. The company uses patented algorithms in its advanced technology platform. Gazit considers perimeter security a moot point in a world of mobile devices and cloud-based technologies.
"Whether you're working with the largest bank or smallest insurance company, if you're using your own device to connect to their network in the cloud, there is no inside or outside anymore," he said. "And effective security protection combines machine learning with human intelligence."
"We rely on our Ninja experts to identify root causes of fraud; too many things can fall through the cracks with fully automated systems," added Srii Srinivasan, co-founder and CEO at Chargeback Gurus, a risk mitigation firm. "MLSs need to educate merchants about all forms of fraud, including friendly fraud, which in our experience is more prevalent that true fraud."
As consumers become more comfortable shopping on smartphones and connected devices, they expect to have a continuous, uninterrupted shopping journey as they travel among ecommerce sites and brick-and-mortar stores. Merchants are motivated to provide that experience by optimizing their mobile websites, enabling cross-border commerce and simplifying all facets of the in-store and online checkout experience.
Line-busting strategies are becoming popular among retailers as tablet-carrying sales associates roam aisles and showrooms, helping customers check out from anywhere within a facility and eliminating the need to wait in line at a checkout lane. Similarly, ecommerce sites are using single-click checkout and buy buttons to expedite the online checkout process.
These omnichannel strategies are no longer limited to big-box retailers; small and midsize business owners are also adapting their POS systems to accommodate customers and suppliers.
"When you're in any type of business, you don't get to choose how your customers will interact with you, or their likes, dislikes and preferences," Pucci said. "Everyone has a smartphone, and customers are choosing to shop with their smartphones. Even mom-and-pop retailers are beginning to automate to stay apace with vendors and suppliers using tech-driven systems." Focusing on customers' successes, pain points and top concerns is the key to providing the right omnichannel mix, he added.
Looking back over the last 30 years in payments, some of the biggest disruptions have arguably come from inside the industry. The trend of giving away terminals, initiated by New Jersey ISO United Bank Card Inc. in 2004, upended what had long been considered a source of annuitized revenue for ISOs and MlSs. The same company then introduced a second wave of free integrated POS systems. Founder and CEO Jared Isaacman saw limitless potential in tablet POS solutions and renamed the company Harbortouch to reflect its flagship offerings.
Zero POS, a service offering by retailcloud has built on the giveaway tradition by launching a freemium model for cloud-based POS services. Merchants can use the EMV-ready POS freeware on Android and Windows devices. ISOs can brand and sell the solution, which includes inventory control, CRM and email marketing.
"Why would an ISO buy a POS company, when we provide everything they need for free?" said Kevin Colaco, founder of retailcloud. "That's what a partnership should be about." He expects other solution providers to adopt the model, monetizing premium services and sharing the revenue with ISOs, distributors and channel partners. "Start with zero pricing and build in optional premium services for merchants to adopt," he said. "That's a great approach for building long-term merchant relationships."
In New Rules for the New Economy, published in 1998, Kevin Kelly wrote, "Over time, any product is on a one-way trip over the cliff of inverted pricing and down the curve toward the free." The best-selling author and former Executive Editor of Wired magazine accurately predicted the connected world's impact on the business community. "As the network economy catches up to all manufactured items – from cell phones to sofas – they will all slide down this slope of decreasing price more rapidly than ever."
Kelly's prescription for dealing with this environment is to make sure the pace of innovation exceeds the pace of commoditization. "We will create artifacts and services rapidly, as if they were short-lived bubbles," he wrote. "Since we can't hold back a bubble's drift toward popping, we can only learn to make more bubbles, faster."
Through all the changes, MLSs have been a resilient lot, with a hometown advantage that has helped them overcome internal and external challenges. The gold rush of electronic payments of the 1980s and 1990s may be a distant memory, but emerging technologies are still creating opportunities for enterprising, entrepreneurial salespeople, just as they were back then.
Today's MLSs have considerable equity in their industry's infrastructure, knowledge base and merchant portfolios. Their hard-won customer relationships are built on mutual respect and trust. The influx of new businesses entering their space is a testament to the magnitude and profitability of the installed merchant base.
To modify a line from the movie Field of Dreams, for our industry: you built it; they have come. VARs, ISVs and app developers are bringing a collaborative spirit to the conversation. Device-agnostic subscription services and freeware are replacing expensive, proprietary systems. Consumers, merchants and service providers have moved beyond formerly static roles, bringing ideas and solutions to the app marketplace. And MLSs are helping merchants recognize and reward customers in their stores and websites, so they can say, "Welcome back; here's your offer. How would you like to pay?"
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