Microsoft Corp. is trying to leverage its position as a provider of software to small businesses in order to become a partner in facilitating payments services.
On Friday it announced a small-business accounting application that enables users to establish accounts with Chase Merchant Services, accept credit cards, and pay lower interchange rates than if they signed up on their own. Microsoft will get a share of the processing fees these users generate.
Many small companies are reluctant to accept cards because of the hassle of signing up with an acquirer and the expense of processing the transactions. Microsoft says the credit card processing component of Microsoft Office Small Business Accounting 2006 is intended to address both concerns.
The announcement is further evidence that Microsoft views processing financial transactions as a logical extension of its productivity software.
"We offer small businesses the ability to process credit card transactions directly within our accounting software product," said Joe Corigliano, the director of business development for Microsoft's business solutions unit.
He said the product is aimed at businesses such as small law firms or one-man consulting companies, rather than retailers who may already accept credit cards.
Drew Freeman, the executive vice president for independent sales organization and channel development at Chase Merchant Services, said that "many of the people using the software may be new acceptors," and that "we hope many, many people will be using the software to connect with us."
He also said that because Microsoft is steering the potential new customers to Chase, it is eligible for a cut of the business. "We typically offer revenue sharing for referrals," Mr. Freeman said. "There is a referral-fee" agreement with Microsoft.
Mr. Freeman said that the businesses that sign up with Chase through the Microsoft application will be offered lower processing fees than other small businesses. "That's part of the value proposition in any scenario with scale," he said. "With the expected volume of small businesses, we will provide a price break."
Mr. Corigliano said that small businesses typically pay transaction processing fees of about 2.5% to 3%. Companies that use the Microsoft accounting software will be charged a 1.72% fee for card-present transactions and a 2.39% fee for card-not-present ones.
He said that initially, users must enter the card number into their computers and that the payment will be considered a card-not-present payment. By September, Microsoft expects to introduce a card swiper that can plug into a computer and can be used to initiate card-present transactions.
The software was announced Friday at a Microsoft partner conference in Minneapolis. It will be available in September, but some customers will begin testing it immediately.
John Gould, a director of consumer lending and bank cards at MasterCard's Needham, Mass., research company TowerGroup Inc., said that Microsoft has invested considerable energy in merging its productivity software with banking applications. "They have a long history of trying to move into the financial space and earn an ongoing revenue stream instead of selling software upgrades every 18 months," he said.
For example, the Redmond, Wash., software company already offers small merchants a retail management suite of applications that includes a credit card transaction processing component.
That software connects to four merchant acquirers - Bank of America Merchant Services, Paymentech LP, Wells Fargo Merchant Services, and Citibank Merchant Services - and Mr. Corigliano said he is talking to all of them about connecting to the small-business accounting application as well. He expects to have at least one new relationship in place by the September launch.
Dan Schatt, a senior analyst with the Boston research firm Celent Communications LLC, said that banking technology vendors are also interested in the small-business market. Microsoft has been approaching these customers from its dominant position in desktop computer software, while the banking vendors are increasingly interested in selling cash management software that their bank clients can offer to customers.
"The vendors are trying to integrate their retail and small-business applications," which could be offered through a bank's online banking site, Mr. Schatt said. "Microsoft got there first."
