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Issue 06:02:01

Industry Update

Sage Group acquires Verus Financial Management

First Data to spin off Western Union, tighten focus on card and merchant services

Card Associations lower fees for more secure online transactions

FDIC to hold hearing on Wal-Mart's bank bid


Chris Perrine

An entrepreneur with a personal touch

A renewed interest in alarms that protect hardware, users

By Tracy Kitten,

Letter from NAOPP's new President


Acquirers: Ask MasterCard to abolish annual fee

By Ken Musante

PIN debit: Facing up to consumer needs

By Paul Rasori

Wanted: A solution for all-in-one merchants

By Ben Goretsky


Street SmartsSM:
Primary goal: Keep customers satisfied

By Steve Schwimmer

Time to use Verified by Visa and MasterCard SecureCode?

By David H. Pres

Five questions to ask when converting merchants

By Kimberley Marvin

IP connectivity: Where is it headed?

By Ken Boekhaus

A closer look at Firefox

By Joel Rydbeck

Company Profiles

Acies Inc.

New Products

Conduct business meetings anywhere

Check scanning versatility for low-volume locations

A nearly virtual terminal


Making the most of performance reviews



Resource Guide


A primer on wireless POS

Wireless technology costs are plummeting; reliability and coverage are making huge leaps forward. The surge in popularity of wireless home electronic devices has made the idea of wireless POS systems more palatable for even the least tech-savvy and nonmobile merchants. This is creating a perfect storm of opportunity for those who can keep their sea legs under them.

TowerGroup, a MasterCard International-owned research and consulting firm, predicts that handheld and countertop wireless devices will account for nearly one in four new POS terminals delivered in the United States by 2009. Wireless has gone mainstream; a bewildering array of technologies and POS systems are out there.

In many industries, when a new generation of technology is born, it quickly kills off the previous generations. But merchants don't necessarily love technology for technology's sake, and the initial investment in a POS system can be substantial, both financially and in employee training. So there are probably more flavors and generations of wireless technology existent in POS systems than in any other area of wireless.

Compounding the complexity, differences between wireless POS systems lie deep in the technologies, not the logistics. Wireless payments are processed the same, no matter how they get there; the difference is only in the transmission. And, just as some of the best automobile owners can't tell the difference between a spark plug and a distributor cap, most merchants couldn't care less how the technology works as long as it keeps running.

But ISOs and merchant level salespeople (MLSs) need to have enough understanding of the underlying technologies to answer their merchant's questions, determine what is necessary to implement a wireless system, and screen through myriad of options to find the best solution for that merchant's particular needs. It's a tall order.

What's under the hood?

Most current wireless POS solutions use a wireless wide area network and technologies such as general packet radio service (GPRS), DataTAC or Mobitex to transmit transaction data from the terminal device to the mobile station. From there the data are sent through landline connections to gateways, and then to a processing center. But connectivity technologies such as code division multiple access (CDMA), wireless local area network (commonly referred to as WiFi) or Internet protocol (IP) are rapidly making huge strides in the POS arena, sometimes supplanting earlier efforts.

"Wireless network technologies have been evolving continuously since, well ... forever," said Paul D. Coppinger, Vice President of Business Development for Apriva, a wireless solution provider. "Each quantum leap in wireless technology creates a new generation."

Wireless technologies are often labeled with terms like 2G, 2.5G or 3G. The "G" refers to generation, so in general, the larger the number, the more advanced the technology.

"CDPD [recently shut down and formerly operated by AT&T and Verizon], DataTAC [Motient] and Mobitex [Velocita Wireless] are all 2G technologies," Coppinger said. "This means that they've been in use since the late 1980s. Although that sounds like a long time in 'technology years' these older networks are still reliably handling wireless transactions in much the same way that they have for years."

Most 2G technologies were built using proprietary technology and are therefore incompatible with each other. "Although these networks are still usable for wireless payment transactions, the problem is obsolescence," Coppinger said.

"Increasingly, terminal manufacturers are electing to incorporate the latest technologies into their equipment, leaving these older networks without a clear roadmap for support. Anything after 2G is going to be built using IP-based technologies."

IP technologies, because they're based on the same set of defined protocols, tend to have fewer incompatibility problems. GPRS (Cingular and T-Mobile) is considered a 2.5G network and CDMA (Verizon and Sprint) is considered a 3G network. "You can tell by the carriers associated with these two networks that there is tremendous support and momentum behind these two wireless protocols," Coppinger said. "Moving forward, any modern POS equipment is likely to support either or both of these two network types."

Ted Wallingford, author of "VoIP Hacks: Tips and Tools for Internet Telephony," agreed that much of what is currently available, particularly the 2G or earlier systems, may soon be obsolete.

"CDPD is really more of a clever 1G hack that allows very, very slow data access via cell networks," he said. "GPRS is superior to CDPD for data applications because it offers far greater data throughput, but GPRS doesn't have all the benefits of IP data transmission.

"Development for GPRS has yielded only very primitive mobile data applications, nothing particularly rich in functionality. So GPRS, while superior to packet data predecessors like CDPD, is still really only a stopgap measure on the road to wireless broadband; a stopgap that will ultimately be obsoleted just as CDPD has been. Ultimately, we're headed toward universal IP-based access via WiFi, Wimax, or something similar," Wallingford said.

OK, but what does it look like?

Wireless terminals can be countertop or handheld devices. Countertop terminals look just like wired devices (without the wire), which begs the question: Why would a fixed merchant choose wireless? Technology prophets say you might as well climb on the bandwagon; wireless is inevitable. But in the meantime, lower costs and increased speed are probably the driving factors, when coupled with dissatisfaction with their existing POS system.

"The primary advantage here is transaction speed and reduced communication costs," Coppinger said. "It's mind-blowingly fast compared to the time for a dial transaction. But cost is a real factor, too. The average cost for a data-grade phone line is, depending on where you live, between $35 and $70 per month.

"Compare this to a wireless terminal which requires on average $20 - $25 per month for a service that outperforms the older dial service by a factor of five to one. In addition, a wireless terminal comes to the merchant already activated, meaning that the merchant doesn't have to go through the expense or hassle of installing a phone line."

Handheld devices can be traditional-looking POS terminals that fit your hand, devices that look and feel very much like a cell phone, or add-on devices (such as card readers) for use with mobile phones, PDAs or handheld PCs. Handheld devices have huge appeal to merchants with limited mobility, such as restaurants (pay at table) or large retailers (line busting). They also appeal to highly mobile merchants (carpet cleaners, in-home services, taxis or limos, plumbers, event concessions, delivery services, trade show sales, lunch trucks ... the list is endless).

"Limited mobility merchants benefit from the flexibility of being able to move the POS to the customer while they are within their establishment," Coppinger said.

"We would typically consider WiFi to be the most appropriate wireless technology for these merchants. High mobility merchants benefit the most from wireless technology since the alternative, to not perform a card-present transaction, is becoming increasingly unacceptable."

Selling wireless

It's newer, faster, cooler, bleeding edge ... and no one cares. Convenience, speed and efficiency are often touted as the reasons to replace a land-line-based POS system with wireless. But only the most die-hard techno-geek will replace a system simply because something newer exists. The opportunities are there. The number of limited or highly mobile merchants is growing, at the same time that consumers are moving away from cash and check purchases. And consumers are impatient with less-than-instant service.

A show-don't-tell-approach can go a long way toward turning "speed," "convenience," and "efficiency" into benefits rather than buzzwords. For example, restaurants with handheld table service POS systems have dropped from an average table turn of an hour and 20 minutes to just an hour.

In an industry where the slightest increase in table turn can substantially increase profits, those 20 minutes can get a lot more attention than a dissertation on the benefits of GPRS versus CDMA versus Mobitex.

And there are other benefits to wireless POS processing. Mobile merchants may find that they've reduced their transaction fees because they rarely need to pay a "card not present" fee.

There is also the potential for fraud and theft reduction. With wireless POS systems, merchants don't have to relinquish merchandise before the credit card purchase is approved, and they carry less cash with them on the road. Seasonal or highly mobile merchants who previously couldn't take credit cards at all may find that the cost of these systems is more than repaid with the higher lift in average ticket that credit card transactions encourage.

"Wireless is not something that you dabble in, that's for sure," Coppinger said. "If an ISO is interested in obtaining a market advantage, then the best way to do that is to focus on wireless. The market remains virtually untapped. Sales opportunities are everywhere. Just pick a vertical and follow it like a gold miner follows a vein to the 'mother lode.'"

He cautions ISOs and MLSs to make sure that they choose their wireless vendor carefully otherwise they may face some serious challenges. "Until an ISO comes up to speed on wireless, it is best to look for vendors that provide turnkey solutions, which include everything you need to deploy: certified equipment, wireless service, provisioning and logistics, merchant help desk, etc."

Coverage concerns

ISOs and MLSs should look for the following when selecting a wireless system for merchants: "Network coverage, a financially stable network operator, network coverage, a coverage match on the coverage map, network coverage, a terminal you are comfortable selling and supporting, and, most of all, network coverage," said Paul Sabella, President and Chief Executive Officer of ChargeAnyWhere LLC/Comstar Interactive.

"The three factors that slowed down the adoption of wireless in the past were convenience, cost and coverage," said Marc Shultz, Vice President of Sales for WAY Systems.

"But those concerns are fading quickly. Early devices weighed 10 pounds; they were mobile, but not portable.

"Costs have dropped dramatically, and during the last two years CDMA and GPRS have entered the market, offering a significant improvement over the spotty coverage of the past. These new wireless products basically work anywhere your cell phone works."

Reliability concerns

Because so many things can interfere with wireless signals moving between the terminal and the network, wireless tends to be inherently less reliable than land lines, according to Coppinger.

"Unless a solution is specifically designed to operate in a wireless environment, it may not be reliable enough to use for payment processing," he said. "The network by itself cannot ensure that your POS transactions will be properly handled in a reliable manner. Reliable solutions need to be specifically crafted for wireless; they must detect and correct the problems which result when the underlying communication medium cannot be 100% trusted."

"I believe the most important thing to do is explain to the merchant ahead of time that wireless isn't perfect," said Neil Mink, an agent with United Bank Card Inc. "The key is telling the merchant the truth and not just what he wants to hear. Anyone considering wireless processing will certainly already have a cell phone. Explain to the merchant that just like with the cell phone there are going to be times they work great and other times you want to drop them in a toilet."

Since WAY Systems' wireless POS terminals are based on cell phones, Schultz also used the cell phone analogy. "I think our customers are more understanding than users of some other wireless terminals, because they recognize how cell phones work," he said.

Security concerns

Are data transmitted in wireless transactions more vulnerable than in other transactions? "If you think about it, every wireless terminal is 'spraying' data all over the place each time you go to perform a POS transaction," Coppinger said. "Any equipment capable of monitoring the frequencies where wireless data is typically exchanged is capable of recording POS transaction data, including sensitive track data, which is used to authenticate a card-present transaction. This is a very bad situation, indeed."

As a result, the card Associations are increasing the minimum security requirements for wireless terminals. MasterCard, for example, recently mandated that all wireless terminals must be submitted for evaluation by April 1, 2006 in order to remain in compliance with their regulations.

"This is the first time that a card Association has taken the step of mandating a specific level of security for the communication link between the terminal and the transaction processing host. Even though they may be compliant with earlier security standards such as PCI, most wireless terminals in use today do not meet the more comprehensive requirements of the MasterCard mandate, which calls for two-way authentication and privacy across the entire communication path from the terminal all the way through to the host and back," he said.

Wallingford is more sanguine about security: He said wireless device activity can be secured with at least four different encryption and authentication approaches. He named wireless encryption protocol, WiFi protected access, hardware address filtering and others.

"If I add IP to the mix, I can use secure sockets [layering] and other protocols to further bolster security as the data my device creates travel across the network," he said. "Compare that to a traditional land-line/modem card-reader terminal, which uses simple modem transmissions, offers little to no encryption, and could be monitored by tapping the phone line. Either way, the likelihood of data theft is slim. I'd be more concerned about dumpster divers and privileged insiders. That's where data theft risk is highest."

Going forward

"The future of wireless is bright," Coppinger said. "Wireless is officially the fastest growing segment of the payments industry. It is an obvious but important observation that, if you want to grow your business then go to where the growth is.

"An ISO can elect to keep sloughing it out in the traditional dial world, or can elect to refocus its efforts to higher-growth opportunities. At the cusp of change lies opportunity. The market is changing and, as time passes, will undoubtedly belong to those who recognize this and embrace it fully."

Article published in issue number 060201

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