A Glimpse of the Future

B y Patricia A. Murphy,

The Takoma Group

Several years ago, you may recall, General Motors Corp. hit the airwaves with a commercial touting its Oldsmobile line of automobiles in a new light: "It's not your father's Oldsmobile," the voice over reminded us. Today, we can use a similar phrase to describe payment services. But unlike Oldsmobile, payment services is not a business en route to extinction. New technologies, new markets, new competitors and new customer demands are driving this business in new directions.

"We have to spread our wings," says Bud Waller, vice president and general manager of sales and marketing, North America, for VeriFone, the terminal- manufacturing division of Hewlett-Packard.

To assist in that process, VeriFone asked The Takoma Group to organize an industry round table discussion during the recent Electronic Transaction Association (ETA) annual meeting and exposition. Participants included: Eric Lecesne, general manager for technology and products at VeriFone; Bud Waller; Randy Sagar, senior vice president, NPC; Bruce Schratz, president, Payment Transaction Solutions, a Memphis-based ISO; Nikki Waters, chief marketing officer and executive vice president of the Star debit card network; Brandes Elitch, national accounts manager for CrossCheck, Inc., and Paul Martaus, president, Martaus & Associates.

Here's what these industry experts had to say about some of the technology and market trends that are the talk on the street today.

Customer Stickiness

Everyone, it seems, is looking for ways to add value to POS services in the form of applications, products and services that help create customer "stickiness," the new buzzword for improved merchant retention.

"The people who are successful in bringing these solutions together are looking at more than just bank cards," says Schratz. An example of a good value-added service is gift cards. Smaller merchants, especially, like products such as gift cards, because they see the offering placing them on a more equal footing with larger chains, says Schratz. But whatever the value is that's added to the POS service package, "It must be easy for the merchant to execute," adds Schratz.

Wireless Access

Wireless access to payments is not expected to gain significant market share, at least not in the United States, where a lack of standards inhibits widespread adoption. Yet there are applications-like sports arenas and home delivery services-where wireless terminals are proving useful. Schratz notes that police departments in some beach towns have been using portable POS terminals to check drivers' licenses in crackdowns on underage drinking. Elitch says he's seeing interest in wireless access among check authorization customers.

Internet Connectivity

"We believe with the right applications, Internet connectivity will add value to the point of sale," says Lecesne. Some examples might include: ordering/fulfillment, payroll services, electronic bill payment, and even access to health records (in the case of medical offices).

Smart Cards

There is an emerging consensus the smart cards that are being introduced to Web shoppers today will find spillover acceptance in brick and mortar establishments. Fraud deterrence is a major factor, insists Martaus. "Because the risk is so high, the $2 [it costs to produce a smart card] isn't too high of a cost anymore," he says.

Debit Cards

Online debit card usage will grow with the Internet. Explains Waters: the debit card networks offer a lower risk and lower cost alternative to credit cards, and increase the likelihood of merchants completing sales, both on the Internet and in person. Today there are about 700,000 POS terminals in the brick and mortar world that are equipped with the PIN pads required for online debit transactions. That's a small share of the estimated 4 million POS terminals that have been installed in the U.S., notes Waters. "Why not sell merchants added value with PIN pads?" she asks.

Person-to-Person Payments

Last year, there were about 40 million person-to-person (P2P) payments initiated through services like PayPal, according to Martaus. That total will likely exceed 100 million this year, he says. "We have to find ways to incorporate these into our businesses," says Martaus.

Increasing numbers of consumers with payment-enabled handheld devices and cellular phones will boost P2P payments. But as with any new retail payment applications, P2P payments must make sense to consumers.

"The merchant can have the best value proposition in the world, but unless the consumer buys in, it's not worth anything at all," observes Schratz.