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Article published in Issue Number: 061202

The truth of transience

By Biff Matthews, CardWare International

Bob Dylan penned the phrase "You don't need a weatherman to know which way the wind blows." That's true. But everyone in our industry knows our prevailing winds are those of transition. The way we do business and the mix of products and services we offer are constantly evolving to serve a dynamically growing and ever-changing marketplace.

We face myriad state and federal regulations. Transactions are growing in number and complexity. And the hardware and software we use to process them are becoming more sophisticated and specialized. The list goes on.

Out with inventory

Let's first look at the trend toward outsourcing by card service providers. On the acquiring side, some organizations still stock POS devices, printers, paper supplies and other related products. When an order from a merchant comes in or a new merchant is boarded, the acquirer ships the necessary products.

This may be appropriate in certain situations, but I look at things the way a manufacturer views just-in-time deliveries on raw materials. By having materials arrive only as needed, the lean manufacturer saves on warehousing, inventory and financing costs.

Well, if it works for the manufacturing sector, there's no reason why lean merchant service providers can't also achieve the efficiencies offered by zero inventory investment.

Many of our customers are already finding this to be an effective practice. The trick is to provide a level of customer service that makes it appear seamless to merchants.

Out with training

Training is another area in which outsourcing can benefit our customers. At CardWare, we offer a training program, and most of our customers use it as their instructional solution. Yet, we still have customers who use their own sales staff to train merchants on new technology after signing new merchant accounts or upselling new or additional services.

The customers who do this say they want to maintain control over the training process and the relationships with their merchant customers.

My view is that they actually gain control by outsourcing training because the quality, continuity and reliability of the instruction by people who do it all the time is highly effective. Besides, shouldn't salespeople be out doing what they really do best?

Down with paper

Another change is the continuing trend toward paperless transactions and a different mix of transaction types. Steven E. Dawe, President of Financial Transaction Services LLC, said "Paper forms of payment continue to shrink. Cash and checks are being replaced as forms of payment."

This means cards overall are being used more, and the onus of recording and storing transaction data falls on payments professionals.

For decades, credit cards were the norm. But electronically sophisticated POS equipment and industry-specific software improved card processing. This opened the doors for consumer debit cards and prepaid gift cards.

According to Annette Herndon, recently the Operations Manager for a New York-based acquirer, "The debit card is the fastest-growing segment of our industry. A few years ago, it was the prepaid gift cards, but growth in that segment has slowed."

Interestingly, both of these card types are popular even though their users do not receive the same protections against fraud or loss that they enjoy when using common credit cards.

In any case, merchants have had to gear up for these changing trends by purchasing or upgrading the software and equipment that lets them process debit and prepaid gift card transactions. This is a win-win situation for merchants, acquirers and those of us who serve them.

In with information

Luke Wigley, President of Security BankCard Center Inc., recently told me the technology involved in processing a transaction has increased many hundredfold in recent years.

"Data storage requirements have gotten bigger," he said. "Terminals are quicker, with more memory and more transaction storage capability. Increased transaction volume and the information gathered per transaction can be used to track consumer patterns and preferences."

Talk about a marketer's dream. The amount and detail of information available from each transaction is a mother lode of data to be mined by those who have the equipment and technology to collect and analyze it.

From giant Madison Avenue agencies preparing ad campaigns to mid-level product managers moving new products to market, all marketing efforts are facilitated, in part, by the data our industry supplies.

In with biometrics

The industry changes I've mentioned so far have already happened or are happening. Now here's some food for future thought: biometric techniques for cardholder authentication. Technologies that read cardholder fingerprints, retinal patterns, or DNA already exist and are being tried or considered on a limited basis in some markets.

Our industry's entire business model depends on consumer confidence, protection against merchant fraud and cardholder security. That's why Dawe believes "It's not a matter of if, but when" biometric technologies become commonplace in the United States.

Herndon agreed, though she cautioned that Americans are "very wary of Big Brother technologies." She said security laws protecting consumers in this country are neither binding nor applicable to those who hold cards issued in foreign countries.

Given the increasing globalization of the world's economy, the proliferation of foreign tourism and the dark veil of terrorism, it's easy to see why biometric authentication may yet become the global standard.

But there is another factor that may slow the adoption of biometric authentication: the prohibitive cost of equipment supporting biometric technologies.

As Wigley said, "A mom-and-pop merchant will not be able to afford the investment necessary for biometrics. The level of fraud is higher than it used to be, but the cost of these emerging technologies still outweighs the threat of fraud."

Everything in life is transient, including the payments industry. Accepting that can combat complacency and position us all to jump on the many opportunities that come our way.

Biff Matthews is President of Thirteen Inc., the parent company of CardWare International, based in Heath, Ohio. He is one of 12 founding members of the Electronic Transactions Association, serving on its board, advisory board and committees. Call him at 740-522-2150 or e-mail him at

Article published in issue number 061202

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