By Ken Musante
Eureka Payments LLC
I want to thank Steve Norell for the following post, which was the catalyst for this article: "Is the traditional dial terminal on life support? Dial terminals are inexpensive and being given away to obtain the sale but lack many of the features requested by merchants. Integrated POS systems, on the other hand, are much more robust and pricey.
"Many gateways are both inexpensive and able to accept retail transactions.
"ECRs [electronic cash registers], POS systems, virtual terminals are all replacing dial terminals. Some integrated point of sale vendors are becoming ISOs and integrating their products within our industry. Given the above, is the traditional dial terminal headed for extinction?"
Of course, the dial terminal fueled our industry's growth. Specifically, growth from ISOs was driven by the sale, lease or placement of the dial terminal. The card brands incented merchants to convert from manual imprinter drafts to electronic capture terminals. The card brands' incentive was reduced interchange.
While banks were indifferent to the method of processing, sales driven ISOs seized the opportunity to provide merchants with Zon Jr's and later Tranz 330's and P-250's.
The placement of dial terminals provided revenue streams for ISOs and merchant level salespeople (MLSs) through equipment leases. As competition increased, terminals became less expensive, and some ISOs began giving the terminal away in exchange for processing contracts.
The percentage of terminals leased dwindled, and many ISOs today do not even offer leasing as an option. But with the furious rate of industry change, despite the dial terminal's resiliency and durability, it will inevitably be replaced. Here are comments from some of our contemporaries.
CLEARENT started us off with the oft repeated point on the relative security of the dial terminal: "The terminal is definitely not on life support. ... As more and more merchants add Internet to their locations, the ability to eliminate the extra phone line - or to convert phones to VoIP [voice over Internet Protocol] - is becoming more and more advantageous.
"Terminals will survive, if for no other reason than they are still more secure (think PCI) than the best POS system. The costs for an IP terminal are dropping, and the savings in an analog line (plus improved speed of transaction) will make it the choice sometime in the future."
Both AMSPROCESSING and CREDITCARDMN also believe the Payment Card Industry (PCI) Data Security Standard (DSS) will extend the terminal's life span.
CREDITCARDMN stated, "Many merchants want more and more integration, but not [integrated] POS because of the PCI mess. I think mobile solutions will continue to gain more and more popularity and, if the terminal manufacturers were smart, they would start producing terminals that can integrate with other software solutions and gateways to provide integrated reporting and sales.
I don't think merchants are pushing for less 'boxes' on the countertop; rather integration."
JDECKARD was more specific, saying, "I think the next evolution will be toward integration as well. Think USB connection between the POS and a stand-alone. Sale information is transferred from the POS to the terminal. Approval or decline is transferred from the terminal to the POS. Other than that the transaction stays in the terminal. Much easier to be PCI compliant. Best of both worlds."
When thinking about this, I wonder if greater integration can coexist with greater security. The reason some folks gave for the terminal having a long life span is the relative security.
That security exists, in part, because the terminal is stand-alone - not integrated into the merchant's software or servers. If the greater functionality leads to greater integration, then we have effectively produced the same issues as that of the POS system.
MARINESTEBAN provided another reason for the terminal's longevity - ease of use. "I think that dial-up and IP terminals are more alive than ever," MARINESTEBAN wrote. "They are easy to use, easy to train personnel, easy to install and cheap. And best of all, the PCI guidelines are easier to meet and they are easier to reprogram than a POS. Long live the Tranz!"
EMPIRE pointed out the extra costs from the integrated POS systems keep merchants on terminals. "With XXXX charging an upgrade fee for a POS system in the neighborhood of $15,000 for one of our restaurants, they've asked that we give them dial-up terminals," EMPIRE wrote. "They will use their POS only for orders and the kitchen, not for credit cards."
MTY MSI supported EMPIRE's comments, writing, "Logical conclusion is if POS resellers continue to maintain indifference to compliant installations and/or want large software upgrade fees, voila, the return of the terminal."
CCGUY, echoing the same perspective, wrote, "I can tell you that after the last month I will tell you terminals are making a comeback. Restaurant called: choice: upgrade POS system for $10K or put in a few terminals. Owner chooses terminals.
Another restaurant: become PCI compliant on POS system - cost $50K. Owner chooses terminals. After a large retailer looked at the cost of doing PCI compliance and the liability, merchant chooses terminals. If anyone thinks terminals are going away, you are wrong."
CCGUY went on to say that at a PCI DSS breakout session held during the 2009 Midwest Acquirers Association Conference, when attendees were asked where most of the breaches come from, the top three answers were POS systems, restaurants and retail; participants were in agreement that those three categories represented where 80 percent of all breaches occur.
STEVE NORELL had a slightly different take. "I doubt that the terminal will ever go away, but I do feel that they will continue to diminish as time goes by," he wrote. "Yes, the PCI thing is clearly making merchants make decisions to use a terminal versus paying the piper for PCI issues.
"However, consider this: VeriFone is concentrating on gateways and some sort of repeating payment product. The little merchants could care less about spending money on a POS. However, the ECR costs peanuts as a matter of fact; it is a hair over the cost of a terminal."
WWW.PAYMENTLOGISTICS.COM provided one of the few counterpoints, writing, "I believe dial terminals won't become totally obsolete overnight like the VCR did, but they will be significantly marginalized over time, and ... they will be obsolete at some point within my lifetime.
"As the cost of Internet access comes down and both wired and wireless technology continues to improve, more and more merchants will move to an IP-based processing solution, whether it's an IP terminal, virtual terminal, wireless solution, software-based solution or fully integrated POS.
A dedicated analog phone line costs $20 per month or more, and many businesses are already establishing Internet connections to help them address other needs.
"I'm certain the data security issue will be resolved in ways that leverage technology rather than deleveraging it. And that's just the beginning of the reasoning behind what appears to be my dissenting opinion on this topic.
"The cost of acquiring the technology to process transactions over the Internet is comparable to the cost of dial-up solutions and, in many cases, it is less.
For instance, while the cost of an IP terminal versus a dial-up terminal is only marginally higher, the cost of a virtual terminal which supports card present along with a card reader and receipt printer, can actually be less than a traditional terminal solution.
"Then there's the overall speed of the transactions. IP is materially faster than dial-up, and that efficiency gain is something that can positively impact the merchant's bottom line in many different ways.
WWW.PAYMENTLOGISTICS.COM went on to point out the greater functionality available through IP and the lesser cost to the processor.
Furthermore, he believes that PCI security issues will begin to be addressed by developers because of the negative consequences of not doing so and that the same sort of tokenization that is being embedded in terminals will be integrated into POS systems.
GEORGE C took the forum post to an entirely new level by suggesting we were asking the wrong question. He suggested the question be revised to read, Are traditional analog phone lines going to become obsolete?
"Let's face it, every day more and more small to mid-level merchants are converting their existing analog phone lines to bundled packages, including VoIP/digital phone service and high-speed Internet broadband service," he wrote. "I imagine that everyone on this forum has had merchants experience difficulty in using their existing dial-up terminals on VoIP/digital phone service.
"As the subscribers of analog phone service vanish in the coming years and analog phone service itself becomes obsolete, ISOs and agents will need to deploy more and more IP/broadband-based terminals. The easiest fix is for the credit card terminal manufacturers to just make all their existing terminal models IP/dial-up capable."
In order to expand the viewpoints, I spoke with Terry Zeigler, President and Chief Executive Officer at Datacap Systems Inc. Datacap develops middleware for ECRs and PCs to enable them to accept electronic payments. Terry stated, "Having MLSs sell dial terminals actually has the perverse consequence of reducing their value proposition and potentially making them irrelevant in today's market.
"It's really no different than the transition from knuckle busters to electronic terminals 20 years ago. Guys that refused to sell the terminals died out. As such, MLSs who refuse to embrace integrated payments will die out. It's just a timing issue.
"All they have done by pushing dial terminals is cede the payment platform delivery to the retail systems reseller, who by default winds up with control of the merchant account.
Not only have they created a competitor, but that competitor now wants a piece of the recurring revenue in addition to the software or hardware. I find it to be a very interesting shift in dynamics that the MLSs are actually bringing on themselves."
For my part, I know many merchants are upgrading their phone lines to a package that includes fax, phone, cable and Internet, but then they add the filter device that their terminal plugs into so it emulates an analog signal. Business consultant Peter Drucker said that for a new technology to supplant an older technology, it must be 10 times better (faster, cheaper, more features) and we are not at that point yet.
Yeah, the IP terminal is faster and has more features, but not 10 times, and it is more expensive. I would like to be able to integrate the terminal into an ECR or IPOS, but then all the PCI issues that come with POS exist as well.
So until end-to-end encryption is more widely available, I do not see that as a positive occurrence. Over time, the benefits of retail gateways, ECRs and POS systems will vastly outpace those of dial terminals.
IP terminals, too, will develop functionalities that are far superior to those of dial terminals, and both of these newer generation systems will have security built in. Until that occurs, and they become easy to use and install, the dial terminal will remain at the POS.
When in doubt, sell something.
Ken Musante is President of Eureka Payments LLC. Contact him by phone at 707-476-0573 or by email at kenm@eurekapayments.com. For more information, visit www.eurekapayments.com.
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