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Are You Ready for the Fast Lane? By Michelle Graff

Seems like just yesterday that all you needed to win a merchant's business and stay competitive was good sales intuition, a strong portfolio and a terminal solution that had a mag stripe reader, display and printer. Swipe a card, get an approval, print a receipt. Of course, business as usual meant high merchant turnover since the only differentiator in the minds of many merchants was price.

While selling refurbished equipment or re-programming installed terminals helps with short-term revenue, over time it simply results in shifting merchant business from one ISO/acquirer to another and doesn't move the entire industry forward.

Wow, have times changed. It's a whole new world in the payment industry. A challenge exists for ISOs to implement solutions and services that eventually will result in the wholesale replacement of aging terminals. And real opportunities exist for ISOs to differentiate their services on much more than price. It's about value, it's about speed and it's about new revenue streams. So get ready to shift into high gear and enjoy the ride!

Simple Quiz: Alphabet Soup, Certs and Specs

  1. See how many of these terms are familiar to you: PED, 3DES, EMV, Ethernet/IP, SSL, CDMA, GPRS. Do you understand their importance in the future of payments? Do you know if the associations have officially certified the solutions you're selling for PED, 3DES and EMV? Are you still stuck on CDPD for wireless, and are you aware it's a dying technology?

  2. Do you know the terminal requirements that are necessary to support more robust solutions? Do you understand why you need a 32-bit processor, application separation, more memory, modular communication options, standard communication protocols and a powerful security architecture?

How did you do? Let's take a look at the changing payment landscape and the road ahead. It's important to understand what needs to be designed in the solutions today to keep them from running out of gas tomorrow.

The Value of Value-add

One of the most effective means of differentiation surrounds non-payment solutions for merchants. Value-added applications do three things for ISOs: They help attract merchants by offering new services, they improve retention by supporting more hooks into a merchant relationship and they provide new sources of revenue through the sale of additional hardware and services to support the business models. We're seeing real industry traction primarily focused in the areas of check conversion services, gift cards, loyalty and prepaid telco.

Challenges exist for implementing value-added applications on the same terminals used for payment.

  • Security is important - it is imperative that the new applications not corrupt the core payment functionality of the device. Hardware and software separation protect corruption across applications. Also, true separation results in the ability to add and enhance value-added applications to a solution without re-certifying the core payment application.

  • You need plenty of memory for now and the future. The last thing you want to do is limit your revenue opportunities by running out of space in a terminal.

  • Fast transaction processing speeds are imperative. You simply can't effectively run payment and value-added applications on an eight-bit processor; 32-bit processors are best suited to manage the software and device-driver demands of multiple applications.

IP Communication Flexibility and Speed

Bringing the speed, reliability, affordability and versatility of IP-based technologies to the point-of-sale is arguably one of the most important technological advancements to touch the payment industry. ISOs and processors who are quick to embrace IP-enabled POS terminals will gain the greatest market advantage.

The Internet has had a profound effect on the point-of-sale - it isn't about "surfing the Web" on a terminal. It's about supporting standard communication protocols and taking advantage of their flexibility and speed.

IP is the underlying technology used to move data across today's modern networks. It relies on the standard-based networking protocols (such as TCP/IP) on which the Internet was built.

TCP/IP was designed to make it easy to communicate across different networks (i.e., PSTN, LAN or WAN) using different platforms such as computers, cell phones, and cable boxes. It is now possible to connect IP-enabled payment terminals to existing IP networks, including the Internet, corporate networks, retail LANs, wireless packet networks and satellite networks.

Using a wired IP or wireless IP-enabled POS terminal to route POS data offers important benefits, including:

  • Speed - The bandwidth available to an IP terminal using a LAN connection is typically 10 times greater than the bandwidth of a standard dial-up. Wireless CDMA and GPRS terminals use an "always on" IP data packet network to achieve average transaction times of 3-5 seconds. Faster IP-based networks are ideal for data-intensive applications like check conversion with imaging.

  • Security - IP technology offers security not available with typical dial-up: end-to-end SSL security to enhance the encryption already used by wireless networks. And advanced security such as SSL requires a powerful 32-bit processor.

  • Versatility - IP-enabled terminals that use the thin-client browser with SSL for data communication have the speed and bandwidth to support a variety of value-added applications at the POS.

Standards and Certifications Matter

The addition of value-added applications and the connectivity to open data networks translates to a heightened need for security in terminals. In order to reduce your exposure to fraud or corruption, it's important to make sure that the solutions you deploy meet the latest industry standards.

  • 3DES: Triple DES ("3DES") is the new encryption standard being adopted by the card payment industry as a proactive measure against potential attacks to "crack" standard DES keys. A more secure encryption method is necessary to stay one step ahead of the bad guys.

  • PED: Visa has published standards for PIN-entry devices (PED). It is important to deploy solutions that are PED compliant. The specifications define requirements to protect the inner workings of terminals from fraud by ensuring important PIN physical and logical security characteristics. These features are important in protecting financial data and payment applications. The specifications along with a listing of PED-certified terminals can be found at www.visa.com/pin.

  • EMV: As we all know, smart cards are far from being in most consumers' wallets. However, chip cards offer increased security. Fraud can be dramatically reduced because chip cards are much more difficult to counterfeit than magnetic stripe cards. In addition, the chip itself can be used to store information that positively identifies the cardholder and presents a major obstacle for would-be thieves. Visa has estimated that counterfeiting can be decreased by at least 70% with a switch to smart cards.

EMV is the global industry standard that has been established for smart card credit and debit transactions. EMV establishes a single approval process for payment terminals and smart cards to ensure cross-payment system interoperability through compliance with the latest specifications.

Interoperability is achieved by granting two levels of "EMV Type Approval:"

  • Level 1 - Applies to the mechanical, electrical and logical interfaces between chip cards and payment devices.

  • Level 2 - Governs all application software.

A list of Level 1 and Level 2 approved devices can be found at www.emvco.com.

Around the Bend

Since you can't predict what's around the bend on the payment road to the future, make sure you're ready with solutions that are designed to give you the freedom to upgrade on your schedule with modules and applications that will help you easily shift from PIN-based debit to solutions like gift card, chip-based loyalty programs or fully automated check imaging using IP communications.

The last thing you need to do is throw money out the window. Make sure you partner with a provider that can get you over the bumps in the road and provide a smooth and smart migration to the future. Get ready to shift your business into high gear.


Michelle Graff is Director of Global Marketing for VeriFone.

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