lectronic Receipt Capture (ERC) is one of those non-payment services made possible by the new multi-application terminals that are being released by major manufacturers like Hypercom. From the merchant's perspective, ERC is a new service that can justify the upgrade to these Internet-enabled devices.

This White Paper describes the background conditions that caused Hypercom to make ERC available to its clients, the technology components necessary to deliver the service and graphical descriptions of how chargeback transactions can be streamlined. There is also a brief mention of the cost justification of ERC for both retailers and processors.

To better understand the reasoning behind Hypercom's ERC offering, I conducted a phone interview with two members of Hypercom's executive management: O.B. Rawls, President, North America, and Paul Whittle, SVP and General Manager, epicServices. The remainder of this White Paper review will summarize the document and the highlights of Rawls' and Whittle's comments.

First, let me clarify how ERC works. This is a paperless system that securely stores and retrieves electronic card receipts on demand, dramatically reducing bank chargeback losses and the costs associated with merchants' storage and manual retrieval of paper card receipts.

It also frees store associates from having to track down a specific receipt associated with a chargeback - a procedure that retailers without ERC typically will not bother with 70% of the time. Not responding to a charge-off can be a good business decision when the cost of retrieval within the tight response deadlines is greater than what the transaction was worth.

With ERC at the point-of-sale, the card payment transaction is streamlined in the sense that it eliminates the need to tear off the two-part receipt, hand it with a pen to the cardholder for signature and get back the original slip.

Instead, after the card has been swiped on the terminal and purchase details forwarded from the POS, a display of the card receipt is shown to the cardholder on the terminal screen. Below the receipt are instructions to pick up the stylist pen and sign the screen receipt as authorization for this purchase.

A few seconds later, after the transaction has been approved, the terminal prints out a single-slip receipt clearly showing the cardholder's digital signature. The receipt is torn off by the cardholder as a walk-away copy. An electronic version of the same signed receipt, with extensive transaction details (time, date, dollar value, terminal number, card number, authorization code, etc.), is digitally sealed into a transaction record that is stored at a remote computer.

When a receipt-retrieval message is sent out, the correct digital receipt is located and can be routed back to the original terminal or any authorized user. Once received, it can be reprinted or e-mailed/faxed to the appropriate party.

Common reasons for chargebacks are listed in one of the other White Papers¹ referred to at the end of this column:

• Never received the product or service.

• Billing mistake.

• Fraudulent charge to the cardholder's account.

• Do not remember making the purchase.

• Part of an attempt to resolve a customer-service issue.

• No signature on receipt.

• Consumers who purposefully take advantage of a merchant's cost of defending chargebacks.

The ROI on ERC for many retailers is quite simple. All a merchant needs is 30 card transactions a day and an average transaction value of $50. The other two assumptions are that the terminal will have a monthly lease cost of $20, and for every thousand credit card transactions there will be a chargeback (see chart).

This simple analysis doesn't take into account the fraud exposure associated with employees having access to credit card numbers on receipt copies or the transportation and storage costs involved in the archiving and handling of chargeback requests.

If the merchant is considering Electronic Check Conversion, ERC is an even more compelling proposition. Remember, ECC is the form of funds transfer where the consumer is given back the voided check at the end of the transaction along with a signed receipt authorizing the ACH debit on the consumer's checking account. The return rate on checks is closer to 1.5% or almost 15 times greater than that experienced on credit cards.

The terminal functionality needed to deliver ERC adds up to a price point of about $600 - considerably more than most retailers are used to spending for payment terminals. But as the analysis above demonstrates, this functionality can pay for itself.

According to the Hypercom White Paper, terminals in its ICE² series that are able to provide ERC have the following features:

Large, full-color, graphics-capable touchscreens with signature-capture capabilities.

High-speed modem for digital receipt upload and retrieval.

Internet connectivity and browser software.

Software on-board and behind the terminal to provide the digital receipt upload, capture and retrieval, delivered in a fashion that is easy for new employees to quickly grasp and operate.

Built-in memory and processing capabilities to digitize an exact replica of sales receipts, including the cardholder signature and data fields associated with the transaction for easy retrieval.

Centralized server able to securely store and accurately retrieve receipts from or to any authorization location across the country.

Fast, quiet graphics-capable thermal printer that can accurately display one's signature in a recognizable manner.

Excerpts from Hypercom Executive Interview

Some of the more important information from my interview with O.B. Rawls and Paul Whittle:

Hypercom provides three technology-transfer options for ERC: (1) provide client with technical specifications for internal development; (2) license ECR server software for application processing on the client's POS network; (3) contract for Hypercom epicServices to perform Internet server processing of the ECR service on a per-terminal basis and/or per-transaction basis.

ERC is a service that retailers readily understand. Its appeal increases with the frequency of chargebacks and the size of the average transaction value.

Retailers operate on technology cycles. Most are beginning to recognize that the timing and need for a POS terminal upgrade is upon them. The Target Stores announcement to upgrade its POS lanes to accept smart cards was a major milestone for the industry.

The multi-processing nature of the integrated ERC with the payment transaction represents a complex transaction sequence. It's a combination of authorizing/completing the funds transfer while also performing three functions in the background: (1) capturing the various transaction identifiers: time, date, terminal ID, value, card number, authorization number, etc.; (2) creating a digital representation of the exact receipt displayed and printed for the cardholder; (3) building the digital signature and integrating these three components into a tamper-proof, secure message that is forwarded and stored centrally for future retrieval.

Concord has integrated the digital-signature capabilities on its STAR³ terminal to streamline the new client account-setup process, called Automated Merchant Application.

Credit card usage for ERC is a valuable service for most retailers, and image capture and retrieval will be even more important for retailers when they begin converting checks to electronic transfers.

ERC is one of the first of many new value-added services that retailers will be seeing from new multi-application terminals like Hypercom's ICE series. On-screen, streaming advertising during authorization wait time represents a new revenue stream for the retailer, as does putting coupons on a customer's receipt.

Hypercom's research has shown that in nearly 70% of the locations that have POS terminals, there is no personal computer present. Internet capabilities on Hypercom's terminals mean that these retailers can begin exploiting e-mail to place orders or confirm delivery of merchandise to consumers who have called in orders. Internet access is becoming a competitive necessity for more and more retailers.

There are going to be an increasing number of non-payment applications being launched because of these multi-function terminals, which will not only create value for retailers but layers of new revenue streams for banks, processors and ISOs.

Web Sites for More Information on Electronic Receipt Capture

www.hypercom.com/_Documents/_Products/IceFamilybrochure.pdf

Hypercom's explanation of its Web-based epicServices offering behind its ICE Web-enabled terminals.

www.atpos.com/PDFDataSheets/Paymentswhitepaper112101.pdf

Page 7 of this document contains a detailed ROI analysis on ERC for a large department store chain.

www.concordefs.com/retailers/top/univ_term_launch.htm

Concord STAR terminal with ERC capability.

www.tax.state.ny.us/evta/guidelines_credit_chargebacks_2.htm

State of New York guidelines for Visa/MasterCard chargeback processing. Other links to American Express chargeback procedures can be found at this site.

www.ivicheckmate.com/PDF/smwp.pdf

Another terminal manufacturer's White Paper on ERC. It has more details on cost justification.

¹ See the "Issues and Elements of Credit Card Receipt and Signature Management" White Paper by Ingenico.

² ICE Interactive Consumer Environment. For more detail on the Hypercom ICE terminals and epicServices, see the Web page listed at the end of the column referred to as "ICE Family Brochure."

³ See Web link at the end of the column describing how the STAR terminal incorporates ERC with other capabilities on this multi-application terminal.

Eric Thomson is Executive Vice President of Profit Source Advisors. He can be reached at etprosc@attbi.com.