ISOs looking to compete against free-terminal programs and to boost their profit margins may turn to Asia-made point-of-sale terminals.
Beginning earlier this year, such companies as Pax US, a unit of Pax Technology Ltd.; Blue Bamboo; and Spectra Technologies Holdings Co. Ltd., all based in China, and Taiwan-based Uniform Industrial Corp. increased their efforts to reach U.S. ISOs and their small-merchant customers.
Charge Anywhere LLC, a South Plainfield, N.J.-based wireless-payments company, has liked the Spectra POS terminal it began selling about a year ago. “We have deployed more than 2,000 Spectra terminals in the last 12 months,” Paul Sabella, Charge Anywhere president and CEO, tells ISO&Agent Weekly. “We chose it because of the price advantage.”
A Competitive Advantage
Charge Anywhere can buy a Spectra terminal for as low as $399. Tasq Technologies, a Rocklin, Calif.-based POS-equipment distributor, in March sold a comparable device from VeriFone Systems Inc., the Vx 610, for $631.
Similarly, David Leppek, president of Transaction Services LLC, a Newark, Del.-based ISO, was attracted to the price of Pax terminals. Leppek says he can buy Pax S80 terminals for $165 each in bulk orders. His company also uses devices from VeriFone and Hypercom Corp., a Scottsdale, Ariz.-based POS-device maker. Both Hypercom and VeriFone have a strong presence among ISOs.
Having a POS terminal available at such a price helps his company compete against other ISOs that offer merchants
no-cost terminals, Leppek says. “We don’t want to give away the terminal,” he says.
To succeed, Asia-based POS-equipment makers will need to work hard to penetrate the ISO market, says Gil Luria, vice president of equity research at Wedbush Securities Inc., a Los Angeles-based equity research firm.
“They will have to compete based on price and convince ISOs that the lower prices compensate for the risks associated with using a new supplier,” Luria tells ISO&Agent Weekly. “Even the global market leader Ingenico has had a challenging time convincing ISOs to take a risk on its products, so I would imagine that bar is even higher for Asian suppliers.”
ISO Winners
Lower manufacturing costs are an advantage for the Asia-based companies, but that could change, says George Sutton, senior research analyst at Craig-Hallum Capital Group LLC, a Minneapolis-based investment firm.
“The challenge we do see for these vendors (particularly the POS vendors) will be the effective erasure of a competitive advantages as other major vendors are now building their products in China as well,” he says.
Until then, ISOs will continue to benefit, says Charge Anywhere’s Sabella. “The winners will be ISOs,” he says. “This will drive down the cost of wireless POS terminal almost to the point of a dual-communications terminal.”
Dual-communication terminals can use a landline or a high-speed network to connect to payment processors.
Not Just Price A Factor
But ISOs should not be concerned solely with price, observers say.
“Like anything, you have to look at the support network and fulfillment,” says George Peabody, director of the emerging technologies advisory service at Mercator Advisory Group Inc., a Maynard, Mass.-based payments consultancy.Can an ISO equip merchants on its own, or can a POS-equipment distributor handle that? Peabody asks.Pax, for example, is working on certifications for First Data Corp.’s Omaha and Chase Paymentech LLC’s processing platforms, says Mike Mulcahy, Pax president and CEO.
A Pax team based in China is working on the compliance effort to get those certifications, Mulcahy says. To speed up the process, Pax is creating a U.S. team of developers and quality assurance personnel that will direct the China-based team.“We hope to have a dozen or so applications done by the end of the year,” Mulcahy says.
Processor certifications are grouped into one of two categories, Class A and Class B. Payment processors can directly support Class A-certified equipment but must hand off support for Class B devices to the manufacturer.
ISOs are a “critical” element of Pax’s U.S. plans, Mulcahy says. As the ISO industry evolves and companies look for ways to differentiate themselves, many are willing to try new products and services they may not have a few years ago, he says.
“They want to try something different, something new,” Mulcahy says.
Still, ISOs typically are risk averse when it comes products that could disrupt a revenue stream.
“The quality and reliability of the product and services are critical to ISOs success, which means that VeriFone’s incumbency and track record create a significant barrier,” Luria says.
