Merchant Account Alerts

It just goes to show that US government anti-trust regulations do not apply to B2B organizations!

Verifone just acquired Hypercom corporation. This effectively removes all legitimate competition from the US credit card terminal market. Verifone’s own products have suffered a decline in reliability and quality starting 5 or 6 years ago, so naturally Verifone began purchasing competitors. They started with wireless leader Lipman, and then acquired Way Systems, and now have taken down the last barrier, Hypercom. Verifone stated that this acquisition was to expand their presence in the European market, but make no mistake it removed their last competition from the US market completely.

I don’t want to forget Ingenico whom is one of the worlds largest terminal manufacturers, however they are a mere drop in the bucket in the US and sell almost exclusively to large chains and direct placement deals that normal mom and pop merchants will never see.

I’m personally appalled that the government allowed this transaction to take place. On the bright side, if Verifone cannot produce a higher quality product, there’s several smaller manufacturers that are already gaining serious ground, most notably Dejavoo, ready to replace Hypercom. This will provide the perfect avenue for Dejavoo and others to become much larger terminal brands (until Verifone purchases them of course). Dejavoo’s product is far superior to Verifone or Hypercom and is cheaper than either.

I’m seriously holding back words on writing this. The impact of this on the credit card terminal industry would be comparable to Walmart purchasing Target or Microsoft purchasing Apple. This sort of acquisition is the reason that anti-trust laws exist. It’s unfortunate that the government’s priorities are so far removed from the B2B industries of the country.

Small retail businesses and restaurants are often faced with a tough decision when it comes to their method of customer checkout and the processing of customer credit cards. There are essentially 2 methods that can be used to ring up, and accept payments from customers. The first is the traditional cash register and credit card terminal, and the second is the all-in-one point-of-sale (POS) system. Many times a business owner will jump toward either side without fully understanding their business and their unique requirements.

Why use a POS system?

POS systems can greatly increase a business’s operational efficiency. They allow fast checkout at the counter, and can be used to manage inventory, priced, sales, and everything else a retail business would need with respect to the checkout process. Many of the more advanced models can integrate with a database that also controls an ecommerce website for unified inventory and ordering control. They can be self contained units, with an attached credit card reader and printer, which can make for a much cleaner and more organized counter-top. For restaurants, a POS system holds the entire menu, and often uses a fast touch-screen interface. This can reduce wait staff / kitchen errors, add and calculate gratuity, and make the entire payment process significantly smoother. POS systems can save lost sales and handle sales better than the fastest cash register operator. POS systems can truly alter the speed and efficiency that a business operates.

Why not use a POS system?

The point of this article is not to discredit POS systems, as they are absolutely essential for many retail businesses. It is rather to get business owners to look at every aspect of the system before making their decision. This will hopefully relieve some of the upgrade and support shock that is commonly experienced with POS systems down the road.

Cost, cost, cost…

The increased convenience that comes with a POS system often comes at a very high price. Not to say this price is never offset by increased sales and customer satisfaction, but there are real costs in purchasing and owning a POS system. First, there’s the actual monetary price to purchase or lease a POS system which is can be very high, up to $5000 per checkout lane in some cases. There’s often additional fees for each transaction you process because the POS system has to use special connections with processing networks. There’s the cost of programming and maintaining the POS system. The initial setup is usually done by a supporting company that comes on-site to install the system. However, just like a computer network, there must be someone on-staff or on-call or on-contract that can manage the POS system. Managing a POS would include making changes to prices, adding inventory, training, etc., but also includes managing the system in case of errors, power failure, hardware failures, and every other failure scenario a computer, credit card terminal and computer network might run into. If the business owner or manager is not technically-savvy, which is commonplace, it means hiring a person or company to manage the system.

Whether you are going to do it yourself, hire a dedicated employee, or hire a support company to manage and maintain your system, make sure you understand the potential costs and the potential pitfalls of every method.

Upgrades

The upgrades that POS systems require are not always free or even cheap. When you purchase a POS system, it usually comes with a support contract. Depending on the support contract, it may include updates for the life of the POS system, or it may not include major updates, or may not include updates past a certain time period, or may not include any updates at all. It may not include adding new peripherals to the system. You need to add a second bar code scanner? $500 please!

When security regulations change, or when a bug or flaw in the system is discovered and the whole application needs an overhaul, you may end up shelling out a few thousand dollars per lane for upgrades that you have no choice in installing! If you decide to change credit card processors, I’ve seen multi-thousand dollar fees just to update the system with the new credit card processors information.

The point is, POS systems have costs that go well beyond the initial purchase of the system. Make sure you understand all setup costs, upgrade terms and costs, adding or changing peripherals, adding or changing credit card processors, and any other recurring or unanticipated fees that might be required in the future.

Security

PCI-DSS is a constantly evolving guideline for security, and POS systems are often at the sharp end of the regulations. When business owners purchase a POS system, they often assume that the provider is responsible for the security of the system. What we have found in the past 2 years is that this is often not the case, or at least not entirely the case. Even if you have no idea how to manage a POS system, let alone make sure it is secure, you may be responsible and fully liable in the event that someone steals data from your company. Security should be the #1 factor in your decision to purchase a POS system, even before making sure it has all of the features that you need. Neither consumers nor card issuers give a pass for ignorance. Do your homework and make sure that the system is secure now (and PCI compliant) and will be secure, or at least able to upgrade as security policies change, over the next 10 years. Also make sure you understand whom is responsible for the security of the system, most likely it will be you.

Proprietary

Some of the POS systems out there have requirements to process with them or with a certain company. While this can work for some businesses, I am always against merchants being tied down to any single provider. If you’re using a proprietary POS system, and your credit card processor is terrible or is ripping you off, it doesn’t matter. You’ve already made the huge investment in money, time, and training, and you’re not going anywhere. The POS provider and the credit card processor know this as well. If you use a product or service that has effectively eliminated competition due to contractual obligations and / or proprietary equipment, expect them to act that way!

Overkill

The final reason not to use a POS system, is that is it simply overkill for many businesses. Because the price for a POS system requires a great deal of thought and money for a business owner, it’s not common that I see businesses with a POS system that don’t need one, but it does happen. For very small retail and restaurants, a cash register and credit card terminal are often completely sufficient, and can save the business owner thousands of dollars and hours of headaches. Only you can decide this, but don’t chose a multi-thousand dollar POS system just because you think you need it. Don’t chose a credit card terminal just because you think you’ll never need a POS.

These are things that should be well understood before deciding on any method for checkout and payment processing. POS systems are one of the best ways to help a retail business, but if not understood or poorly planned, they can be the biggest money drain you ever experience.

Finally, always have a backup!

No matter what method you choose for your business, make sure you have a backup method of checking out customers and accepting payments. This could mean a calculator and a low cost credit card terminal for some, or just a manual imprinter for others. An outage of your POS system shouldn’t compromise your business.

When I blogged about mobile payments last week, I brought up the concept of a mobile wallet. Mobile wallets are the future of retail payments, but you wont get to use one any time soon!

Why mobile wallets?

The idea behind a mobile wallet is that a customer will pay for their purchase at the point of sale with the cellular phone, rather than a credit card. Because over 90% of the US population uses a mobile phone, arguably a higher percentage than people whom even own a credit card, a mobile wallet solution boasts a potential existing user base of nearly everyone. Unlike trying to invent some payment technology from the ground up, which has worked fewer times than I have fingers on 1 hand, a mobile wallet will capitalize on existing technologies and existing products that are widely in use.

How a mobile wallet should work:

This is one area there are going to be many answers for. I will take a purely consumer approach to it. The mobile wallet must work as follows:

• Must allow me to use any payment method I chose (Credit card, bank account, paypal, etc.)
• Must allow me to use my existing card and bank account.
• Must work with my existing phone (1 software installation is acceptable).
• Must be just as fast or faster than using my credit card.
• Must provide me additional security in the event I lose my phone.

This is the bare minimum for a functional mobile wallet. Note that the first 3 features stress independence from the company that supports the mobile wallet, and being able to use multiple methods to pay. This is extremely important, as there’s no chance in getting me or anyone to change card issuers, banks or anything else just because your company offers a mobile wallet. The mobile wallet must be independent of any requirement to use a specific card issuer, bank, or other service provider.

Where’s my mobile wallet?

As of writing this article, no company has come close to implementing a working mobile wallet solution. We’re going to hear stories from a number of companies on how close their mobile wallet solutions are, but realistically there is an enormous amount of work before these become reality. Not only does a very intuitive software program need to be created for a person to load onto their phone, but retailers must have software / hardware that allows them to interact with the phone, and retailers must have some connection to the wallet platform through their credit card or other payment processor, more on this later…

One idea that is beginning to rear its ugly head, is that cellular phone companies can bypass credit card companies and banks and simply add a charge to a customer’s phone bill. While this is a fantastic idea that would eliminate one of the biggest hurdles in the entire system, there’s no possible way it’s going to work given the current customer sentiment towards cellular carriers and cellular infrastructure. Cellular companies are neither operating under a business model to grant revolving credit like a bank, nor one that would allow them to underwrite and manage businesses whom accept payments on their platform. Personally, I wouldn’t even entertain the idea of my cellular carrier becoming my bank or credit issuer! Lastly, the SMS billing systems have already shown merchants what the cellular companies think their billing service is worth, which is nearly 50% of the transaction amount. For retail merchants, 5% let alone the current 50%, is simply not acceptable. It’s going to take policy and operating changes that would rival a country switching from socialism to democracy for cellular carriers to successfully become mobile wallets providers. Being some of the largest companies on earth, I just can’t see them moving quick enough with the amount of interested that this technology has developed in a short amount of time. Consumers may drive the payment industry, but no amount of consumers is going to force retailers to pay 50% to accept a mobile payment!

The real hurdles

Throwing my cellular provider’s mobile wallet out the window, there are several areas that major hurdles must be overcome before mobile wallets are close to becoming reality.

Customer software

The first hurdle, and the easiest to overcome will be creating software that works on a variety of mobile phones. This software is what will interface with a merchant’s POS system or other payment capturing device. It will act as the bridge between the merchant and the customer’s payment method. Realistically this isn’t an extremely difficult technical feat considering that a vast number of mobile phones supporting Bluetooth and other communication protocols. It will simply be a matter of allowing the wallet application access to the internet and the Bluetooth or communication capabilities of the phone.

Merchant software / hardware

Merchant based software and hardware on the other hand will be a huge problem. The easiest path for merchant to interface with the software on a phone will be some sort of 3rd party peripheral. This could easily be something the size of a PINpad and would ideally use existing connection options on the POS or terminal to communicate with the customer’s phone. The difficult part comes in trying to get the authorization through the mobile wallet platform. Many POS systems and terminal use dial or proprietary methods to connect to processor or the internet… There are 3rd party companies like gift card providers that interface with POS systems and credit card terminals, but they are very limited in the systems that can use them. While I think that this burden will be on the shoulders of the POS companies and the credit card terminal manufacturers, it’s no less daunting tank in the overall picture. Based on what I’ve observed of POS and terminal manufacturers over the past 10 years, particularly with regard to the speed that new technologies are adopted, I believe that this will end up being the final piece of the mobile wallet puzzle.

Credit card processors

The biggest hurdle for mobile wallets to work is there has to be a mechanism that would link a customers credit card and/or bank account with their phone (This hurdle is due to the bureaucracy of Visa/MC not the actual implementation). This doesn’t sound a particularly daunting task, but if you’ve worked with Visa and MasterCard and their books of regulations and operating procedures, you would know how difficult it is to go against the grain on anything related to their systems. The “grain” that I am referring to is not allowing a business to accept a payment for another business (also called factoring). In short, this means that the mobile wallet provider cannot accept the customer’s payment and then pay the merchant. The payment must go directly from customer to merchant. For the payment to go from customer to merchant, through the mobile wallet, there has to be a lot of back-end integrations and agreements between processors and platforms, card issuers, and communication platforms. The complexity of integrating with multiple processors across multiple processing platforms is well beyond the scope of any article that I can write, but it would take years to perform even by someone who knows what they are doing.

A realistic outlook

If I were to bet on when we see the first mobile wallet, I think we could safely say 5 years before anything exists at all, and 10 years before it is common. This is my best case scenario based on a mobile wallet working relatively close to the above description. The exception is if Paypal makes a mobile-retail platform, which could probably exist in a few years for select retailers. This would be much simpler to implement since Paypal doesn’t have to adhere to the Visa/MC regulations as described above and they have their own platform, which would bypass the bureaucratic mess that everyone else is going to run into. However, Paypal is in its infancy in the retail world, and still has many of its own hurdles to clear. We will most likely see mobile wallets progress in steps. I would bet that we will first see Visa or MasterCard apps that link your credit card to your phone. From there we can probably expect to see 3rd parties pushing for more independent services and banks should be joining in soon after. Eventually we will need to end up with mobile wallet providers that can handle all cards and bank accounts without having to use multiple companies. Only then will we truly have a mobile wallet.

Mobile payments seem to be the talk of the processing and tech industries these days. Visa, MasterCard, Paypal, a million startup companies, and just about every major player in anything related to payment processing, is working on some sort of mobile payment mechanism. So what exactly is a mobile payment?

The term mobile payment is a fairly ambiguous term that could relate to a number of payment technologies. It’s thrown around so much for the buzz effect, that when looking at any announcement about mobile payments, there’s really no way to understand what they’re talking about.

Types of mobile payments

• Wireless / Mobile Credit Card Terminal and Mobile Phones (Merchant based)
• SMS Payments (Merchant and customer based text messaging payments)
• Mobile Wallets (Replaces credit cards with a phone)
• Probably more…

Wireless Credit Card Terminals and Merchant Based Mobile Phones

Starting with what currently works, wireless credit cards terminals are the most used type of mobile payment. These are merchant based credit card terminals that process over a cellular or WiFi connection. They work just like a credit card terminal you would see on a counter, but they can be carried around.

Merchants can also use a variety of mobile phone based terminals like the Way Systems terminals, or the more recent Iphone or blackberry card swipers. These turn a cell phone into a mobile credit card terminal, and often allow the merchant to use their existing phone for processing. Mobile phone based terminals can offer considerable savings over all-in-one mobile credit card terminals. For merchants not needing to swipe their customers cards, the setup cost is essentially nothing, they just key transactions into their phone.

With the exception of some of the new smart phone and iPhone swipers and applications, these systems aren’t new and not particularly exciting, so let’s move onto the more innovative mobile payments.

SMS Payments

Have you ever seen a commercial or advertisement that told you to text “SOME MESSAGE” to 555-555-5555 and a $5 charge will be on your next bill?

This is a SMS payment. The company you are paying has a relationship with cellular carriers that allow them to collect payments from customers through the carrier. These types of services exist with both merchant initiated (they text you first) and customer initiated (you text them) text messages. SMS billing is best suited for very small ticket, and usually phone related items like ringtones.

While a useful and very promising system to select business types, SMS billing has one huge drawback. SMS billing is extremely expensive. In my research I failed to find a single SMS billing company that charges under 50% per transaction! Yes, 50%, and you thought credit card payments were expensive.

Until SMS billing costs can be reduced to a reasonable sub-5% per transaction, they are simply cost prohibitive for the majority of business models.

Mobile Wallets

Mobile wallets are the future of mobile payments and are actually something exciting in the payments industry, believe me this doesn’t happen more than once every 5 years or so. The idea behind a mobile wallet is that you can use your cell phone to pay for a product in a retail store, just like you would using a credit card. Your cell phone would be linked to the payment method of your choice, credit card, bank account, paypal, etc… Since almost everyone has a mobile phone, it seems a natural evolution to be able to pay for something with it. No need to carry a credit card, just swipe your phone and your transaction is complete.

Despite the immediate appeal, mobile wallets have some enormous hurdles to clear before they can even get a set foundation. If it were easy, we would have had this convenience 5 or 10 years ago. Just about every major company with any connection to payment processing is trying to figure out a mobile wallet solution. Next week, I’ll go into the ideas, technology, and hurdles that need to be covered before mobile wallets become a reality.

CREDIT CARD IMPRINTER - CHARGEBACK PROTECTION

Merchants processing face-to-face “Swiped” transactions should always have a copy of customers signature, authorizing a credit card transaction. This signature is your only defense in a chargeback dispute between a customer claiming that they did not authorize a transaction and the merchant. In
this situation, the merchant can present the signature as proof, reversing the chargeback.

We found a great site offering an affordable Credit Card Imprinter to prevent the possibility of loss
from chargebacks and the penalties associated with them. A small investment in a Card Imprinter
can keep your merchant account in good standing, while reducing your liability in losses. Merchants
maintaining good records & following association rules, should experience problem free processing
for the life of your business.

Stay in compliance and consider a Bartizan 4850 credit card imprinter.

MARK SANDS
1st National Processing
http://www.usa-merchantaccount.com
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