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The Next Great Love Affair: Merchants and Second Generation Value-Added Applications

By Patty Colby

Valentine's Day is often a time to reflect on relationships: those we once had, ones we have now and others we might wish for. A fine romance has been going on this past year between retailers and their customers and value-added applications at the point of sale thanks to loyalty, gift card and prepaid wireless applications.

There are data to support that this really is true love: news and survey results released at the National Retail Federation tradeshow in January 2004 stated that in 2003, 69% of consumers said they planned on buying a gift card at some point, compared with 25% in 1995. Paymentech LP also announced that transactions on its stored-value cards rose 230% in 2003 compared with 2002.

But there is even more out there to love. These first generation value-added applications are loyal, tried and true and have already become part of the payments lexicon. Since you were smart enough to take advantage of and increase revenues with gift and loyalty programs (you did, didn't you?) I'm sure you'll want to be the first on your block to learn about second generation (2Gen) value-added applications.

If you support the popular theory that the right terminal loaded with the right applications is a revenue-generating tool and not just a necessary expense for merchants, then you will recognize the opportunity this next wave of applications holds for merchants and their customers.

The 2Gen applications will entice new customers through new services, create new sales with new recurring revenue products and widen profit margins by reducing risks associated with customer and employee fraud.

Go ahead. Fall in love again.

Bill Payment

Consumers love the convenience of paying all their bills in one place, and the ability to pay different bills at one merchant location benefits all involved. For MLSs/ISOs and processors, bill payment services create opportunities for new merchant placement and ongoing revenue streams without the need to go through another Class-A certification.

Merchants can turn their payment terminals into 'revenue producers' by bringing potential new customers into their stores and earn transaction fees each time the bill payment service is used. Consumers pay bills by cash or card, get a receipt for payment and know when payment was received. The bill payee gains additional locations and transaction volume without the expense of a traditional sales force.

Pre-paid Credit/Debit

Love is everywhere, especially when it comes to pre-paid credit cards. Mirroring the convenience of pre-paid wireless applications, the ability to purchase and 'top-up' pre-paid credit cards for use wherever traditional cards are accepted is a burgeoning market.

Just look at the success American Express had this past holiday season with its consumer gift card and you'll see the potency and potential of pre-paid debit/credit cards.

Speaking directly to the needs of the huge population of un-banked consumers, there is no credit qualification necessary to get these cards. Pre-paid credit and debit cards also reduce the risk associated with Internet purchases and enhance the buying capabilities of that first generation value-added application: gift cards.

Riding the rails of the existing payments infrastructure, pre-paid Visa, MasterCard and American Express credit and debit cards are a lovefest of revenue for the merchants who provide, replenish and accept them; for the MLSs/ISOs who sell them and for the processors who facilitate the transactions.

By offering these cards to their customers, merchants add new revenue, adding a product and service without adding inventory concerns. They generate recurring revenue every time a card is used at any merchant location.

They increase the ISO/processor/merchant/sales rep success ratio and add recurring revenue streams for both processors and ISOs every time the cards are used and replenished.

Health Care Eligibility

Love may heal all wounds, but doctors and dentists still want to get paid, and are often an untapped source of revenue. As the number of medical offices with POS devices on their front counters increases, some are finding other ways, besides accepting payments for treatment, to make use of the terminals.

Trying to navigate the morass that is Medicare and Medicaid gets more difficult every day for health care providers. Health care eligibility applications, such as Insurance Benefit Spot Check, now make determining health care eligibility and deciphering co-pay information easier with the swipe of a card. These eligibility providers represent revenue to ISOs, processors and resellers through the setting up new medical office merchants or adding services to existing ones.

Currency Transfer

Love may not pay the bills, but it sure isn't cheap. The market for sending money to friends, relatives and loved ones around the world is very lucrative. Countertop solutions that enable currency transfers turn terminals into revenue producers by bringing in first-time customers, and earn merchants transaction fees every time currency transfers occur.

Currency transfers also hold benefits for MLSs/ISOs and processors by generating fees around new merchant set-up and ongoing money transfer transaction usage.

Applicant Background Query

In an ideal world, everyone would love where they work. In reality, that's not the case; employees often feel entitled to helping themselves to cash, merchandise or office supplies in order to make up for low pay, poor working conditions-or a despised boss.

In its most recent report, the National Retail Security Survey estimates merchants lose over $15 billion a year because of employee theft.

Today's labor market is broad and diverse, and an employer's ability to hire and train the best and brightest can make or break the organization, especially in an industry where profit margins are razor-thin.

Great hiring can be a competitive advantage. With the correct terminal and software, merchants can now easily and affordably determine if new or potential employees have criminal backgrounds.

This turns the traditional POS terminal into a fraud prevention tool for merchants with employees handling cash or other revenue sensitive items. Applicant background queries also offer acquirers setup and installation fee potential and ongoing reseller revenue for new merchants.

Time and Labor Management

Love can be blind and often makes people do funny things. Industry estimates show that up to 5% of payroll costs are lost due to "buddy punching" and other forms of time fraud.

Instead of using old-school, dated punch clocks and timecards, merchants can now turn their POS terminals into a client/server labor time tracking tool.

These systems provide easy-to-use Web reporting and analysis and require no additional hardware purchases; they also provide recurring reseller revenue.

Companies like Rapid Money, Cignify, Automated Verification Services and Insurance Benefit Spot Check all offer Class-A certified applications to run on multi-application POS terminals.

Whether you choose to go with tried and true value-added applications like gift and loyalty, or be an innovator offering the most current 2Gen applications, merchants will love these new services and the revenue opportunities they offer.

Don't wait for 2Gen application love to find you, get out there and grab it!

Patricia L. (Patty) Colby is the Manager of VeriFone, Inc.'s North America Value Add Program. She manages the company's strategy regarding all Value Add Program initiatives. She also coordinates the acquisition and execution of new value-add relationships and launch programs.

Colby has over 14 years' experience working with electronic payment systems and 19 years' experience in the issuing and acquiring industry. E-mail her at

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