ptions have been scarce for ISOs serving merchants who need complete POS systems that manage inventory and ordering, as well as payments. Even the strongest terminal and PIN-pad offerings have paled when compared to the likes of Aloha, Micros and Mercury Payment Systems.

Not so any longer. First Data Corp. put together its own full-featured system, the POS Value Exchange. To do it, the processor teamed with Microsoft Corp. and HP for software and hardware, respectively.

"This system is designed to replace a cash register for a complete store management system," Ed Labry, President of First Data Commercial Services, said on a recent conference call with investors.

It consists of Microsoft Dynamics POS 2.0 software, an HP PC and monitor with a swipe attachment, a PIN pad, and a keyboard. Each component can be bought individually, according to Barry McCarthy, First Data President of Product Innovation.

Dynamics manages inventory, tracks sales and improves customer management, according to First Data. The system does not replace any current First Data offering, McCarthy stated in an e-mail.

"What the system does replace for a small merchant is the clutter of machines they may currently have at the point of sale," he added. "This product allows smaller businesses to benefit from the same resources that previously only larger companies could tap into."

McCarthy declined to estimate system costs to the ISO, which are set by First Data's sales channels. Both lease and purchase options are available.

Installation and training are included, and ongoing customer support is accessed by an 800 telephone number. The touch-screen monitor simplifies training.

McCarthy stated that such a system was not available to the ISO market from traditional terminal vendors. "This solution enables ISOs to deliver a product and services that will help smaller merchants manage their business and expand their customer offerings."

A merchant-retention issue

During the conference call, an unidentified stock analyst commented: "There is talk out in the trade that First Data is making a much bigger push in the U.S. into the equipment business," targeting up to one-third of market-share.

First Data Chairman Ric Duques replied, "We are not in the equipment business. And we're not going to have a warehouse full of equipment. This happens to be a [merchant] retention issue."

Labry said the fact that the company's FD-100 terminal cannot be reprogrammed by competing ISOs reduces merchant attrition. Like the FD-100, the POS Value Exchange is not transferable.

The company chose Microsoft and HP as partners, rather than a payment-systems-oriented hardware manufacturer, based on their industry leadership, McCarthy stated.The system is designed for single-store retailers with up to five lanes.

Steve Norell, Chief Executive Officer of U.S. Merchant Services, has felt the competitive pressure as merchants began asking for POS systems, which typically are sold as package deals with processing services LLC. "I've never seen more merchants of all shapes and sizes" asking for POS systems than at present, he said.

Norell has been searching for off-brand POS systems that cater to specific markets. In November, he posted on the GS Online MLS Forum: "I just want to be able to compete with a guy that is going to sell one with Mercury in it."

Norell said in an interview that he has found POS systems he can sell to two key markets that do not require "all the bells and whistles": veterinarians and marine merchants. He is still searching for a restaurant POS system that can compete with Aloha and Micros, although supporting a restaurant POS system would be a challenge due to the high level of integration required.

"I can tell you that other ISOs are getting ready ... to offer to their agents a POS system," Norell said. "If you're not selling some type of point of sale system, you better find something else to generate revenue, because you're going to be on the outside looking in," he added.

Options for the non-First Data ISO

For ISOs partnered with processors other than First Data, package solutions for merchants requiring back-end software integration are emerging. Hypercom's acquisition of TPI Software in January indicates the direction that manufacturer is taking. Hypercom now sells TPI's SmartPayments software. Although not a PC-based electronic cash register system, the software "levels the playing field" for small merchants, according to the company.

And Hypercom works with Microsoft's Retail Management System (RMS), a "comprehensive, affordable store operations system that handles POS and back-office functions, such as inventory control, with speed and ease," according to Bill Pittman, Hypercom Vice President for Payment Solutions.

"The market trends are pretty clear," Pittman stated in an e-mail. "More small businesses are buying PCs to help run [their] inventory control and accounting functions.

"If you already have a PC for other functions, why not use [it] to process payments as well?" Pittman said. Acquiring TPI enables Hypercom to serve the growing small-business market, he added. With SmartPayments, merchants can maintain their existing acquiring relationship as they upgrade to automated systems, he said.

Full business-management POS systems are difficult to install and support for smaller ISOs that sell terminals, Pittman acknowledged. He posed the larger question: "If ISOs see more ... business moving to PC-based automated systems, is this a market that they want to enter? If they do, they will need to upgrade their skills and learn the products.

"It makes more sense for the average ISO to partner with the current value-added resellers/dealers who currently serve this market," he added.

To that end, Hypercom recently announced a payment processing plug-in for Microsoft's RMS. The plug-in, plus SmartPayments client software, provides a complete, low-cost PC-payment processing software solution that handles back-office functions while supporting direct connections to major payment processors, according to the company.