With preferences for carrying and using cash continuing to drop, more consumers expect merchants to accept debit or credit cards for payment. But not all merchants do, especially those that lack physical storefronts. Some industry insiders believe mobile-based products might help encourage them to accept electronic payments.

Judging from the discussions among peers at recent industry conferences and the spate of mobile-based products and services entering the market, the topic is on the minds of many in the industry as they consider their business plans.

Indeed, merchants find themselves faced with increasing options as "every day we are seeing more announcements about mobile payments," notes Todd Ablowitz, president of Double Diamond Group, a Centennial, Colo.-based consulting firm.

But which is better? Cell phones with card swipes or payment-software applications that run on smart phones?

It depends, experts say. Hardware-based systems might benefit brick-and-mortar merchants because the hardware often can help speed up checkout lines. But mobile merchants may prefer software-based systems because they would not have to carry anything other than a phone when going to make a sale or accept a payment.

Before cell phone-enabled payment card acceptance emerged as an option, merchants' only mobile alternative was to buy a dedicated wireless-payment device, which typically includes a relatively high upfront cost, says Paul Rasori, senior vice president of marketing at VeriFone Holdings Inc., a San Jose, Calif.-based payment-terminal maker. A merchant may pay $600 to $800 for a traditional wireless terminal, depending on the reseller, plus an additional $15 to $20 each month for network connections, he says.

Instead, many merchants lacking storefronts, including plumbers, landscapers, photographers and electricians, are considering smart phone-based payment acceptance, says Jamil Adai, president and CEO of Merchants First Choice Inc., an El Paso, Texas-based independent sales organization.

Many smart phone-based products vendors have introduced include hardware and downloadable software application components that support consumer payments. Typically, merchants can swipe customers’ cards using the machines and some devices may offer receipt printers or barcode scanners in addition to the card swipe.

USA ePay, a Los Angeles-based payment gateway, in April introduced PaySaber, a portable card-acceptance device that connects to Apple Inc.'s iPhone and iPod Touch and combines with a downloadable software application.

The software uses the device's network–either AT&T's Edge or 3G networks or the device's wireless Internet connection–to transmit the information to USA ePay's gateway. A barcode scanner accessory that works with the device enables merchants to scan and manage product barcodes at the time of purchase, says Ben Goretsky, the company’s CEO.

Moreover, merchants may e-mail receipts to customers after capturing signatures using the software application. Merchants also can print a receipt onsite using the device, Goretsky says.

More than 200 merchants use the USA ePay hardware, and more than 2,000 have downloaded the software to key in transactions, he says.

In Goretsky's view, the mobile-merchant market is ripe for sellers of mobile-based payment services because many merchants either do not accept cards, or they pay higher card-not-present rates to process card payments.

Mobile-merchants that do not have a swipe available and have to run the card manually experience interchange rates of 2.4% or 2.5% compared with the typical card-present rate of 1.59%, Goretsky says.

Next Generation
Other vendors also are offering mobile-based card-acceptance services.

VeriFone, for example, recently launched a service that works with the iPhone called PayWare Mobile. The terminal maker also is working on a service for other smart phones, Scott Henry, the company’s director of product marketing, tells PaymentsSource.

And the next generation of the device will "have the ability to do contactless and Near Field Communication payments," Henry says. NFC enables two-way contactless communications with other devices containing NFC chips, which can enable payment terminals to transfer coupons to NFC phones at the point of sale.

Merchants using PayWare benefit from card-present acceptance rates. "Being able to swipe transactions can lower rates up to 30%," Henry says, noting merchants also do not have to manually key in any information.

PayWare-using merchants also benefit because the service adds an additional layer of security, Henry notes. The service includes VeriShield Protect, which is an encryption sleeve preventing the phone from seeing the data. The payment gateway decrypts the data, reducing the risk of a card being compromised, Henry adds.

While smart phone-based systems mostly target smaller mobile merchants, some retailers, including large chains, also appear to be interested in smart phone-based payment acceptance.

For large retailers, the best mobile option may be a device nicknamed "the line buster" by many in the industry, Allen Weinberg, managing partner of Glenbrook Partners LLC, tells PaymentsSource.

Line busting typically involves retail employees with handheld devices scanning customer merchandise and accepting card payments while on the merchandise floor.

"If you can get the line reduced, it's important because the consumer will make a purchase and the store won’t lose a sale," Weinberg adds.

Infinite Peripherals Inc., which makes point-of-sale receipt printers, recently designed Linea-pro, a "line-busting" device compatible with the iPod Touch, says Jeffrey Scott, the Arlington Heights, Ill.-based company’s vice president of sales. The device works with merchants’ point-of-sale software so they can read product bar codes and card magnetic stripes with one device. The company plans eventually to launch another version for Apple's iPhone and other smart phones, Scott notes.

With Linea-pro, larger brick-and-mortar merchants can forego traditional cash registers to make room for more products, Scott contends.

Currently, 10,000 retail stores, including major chains, have expressed interest in the device, while 10 stores are testing the product, Scott says.

Downloads Only
For merchants that do not need or are not interested in purchasing additional hardware, many companies offer download-only applications. Software-only options may reduce fraud because fewer individuals handle the transactions and the data, says Bill Clark, executive vice president and general manager for Apriva, a Scottsdale, Ariz.-based wireless payment-services company.

"Because 30% to 50% of new phones being sold are smart phones, why not use them as a payment device?" he asks.

Indeed, downloadable applications seem to be in demand. Apple's online application store offers more than 30 options for merchants ranging from free to $19.99.

Apriva recently launched AprivaPay, a browser-based smart phone card-acceptance application in which merchants key in transaction information, and AprivaPay Professional, a downloadable transaction application merchants may combine with an optional printer and mag-stripe card reader. The applications also work when merchants do not have a cellular connection by storing the encrypted transaction data until a network connection resumes, Clark says.

Merchants may access the service through a smart phone's Web browser or by using a laptop computer. Merchants only pay a monthly fee based on transaction volume, Clark notes.

Better Rates
Plus, when merchants can download an application to a mobile phone, "they still get better interchange rates because it also is a card-present transaction," he notes. Apriva would not say how many merchants have signed on for the service.

Roam Data Inc.'s RoamPay application also is available through Apple's online application store, and it works with virtually any mobile phone operating system.

To use the Boston-based company's service, merchants create an account on Roam Data's website and use their existing smart phone data plan. Roam Data also offers merchants a pay-as-you-go data plan if they do not already subscribe to a data service.

RoamPay also includes a Web interface so merchants can enter credit card data securely from their Mac or personal computer.

Smart phone-based devices and applications are "a nice addition to the payment product line," Weinberg contends.

In the end, whichever type of service merchants decide to use, one thing is certainly clear, Ablowitz says: "The entire mobile space is exploding."

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