Why so many ISOs, acquirers, and point-of-sale software and hardware makers are excited about putting advanced mobile POS equipment into merchants’ hands is not difficult to grasp. Such systems may generate additional revenue not only from existing clients, but also possibly from merchants who previously could not or would not accept payment cards.
With a potential market of 16.4 million merchants for mobile POS products, according to a recent estimate from the Mercator Advisory Group Inc., the ISO and acquiring industry is well poised to grow that market. But to succeed, it will take a concerted effort to locate the merchants and determine what they need and how to sell it to them.
“Certainly there are mobile locations being set up,” says Todd Ablowitz, president of
Centennial, Colo.-based payments consultancy Double Diamond Group LLC. But “it’s hard to know exactly how many,” he says.
ISOs and acquirers may very well count merchants as willing allies in their push to sell mobile POS acceptance, Richard K. Crone, CEO of Crone Consulting LLC of San Carlos, Calif., told attendees at the Western States Acquirers Association conference in San Diego Oct. 14.
The goal is to capture a share of the $6.2 trillion U.S. consumers spend at the point of sale, Crone says. Merchants want mobile POS acceptance
because it can help lower their processing costs, increase their marketing capabilities, and enable them to capture consumer data, he says.
Many mobile POS applications can capture customer e-mail addresses and other information. But some companies may have an advantage over others.
Because they already possess consumers’ mobile identifiers–their cell-phone numbers–and their payment information, wireless telecommunication companies are positioned to “level the playing field entirely,” Crone suggests.
AT&T Inc., Verizon Wireless and T-Mobile USA are said to be working together on a payments system along with Discover Financial Services and Barclays PLC. The consortium reportedly plans to test the system in Atlanta and three other U.S. cities.
ISOs and acquirers can play a role in that setting because they have the sales staffs that have the direct merchant connections, Crone says.
“This is a greenfield opportunity for ISOs
because the people building this need ‘feet on the street’ to build this business,” he says, referring to the payment scheme. “Merchants are ready to hear their story.”
What Do They Need
Understanding merchant needs is vital, John Barrett, senior vice president of independent sales services at Atlanta-based First Data Corp., tells ISO&Agent. “We have seen some ISOs be very successful going after very small merchants,” he says.
Offering mobile POS services expands a sales agent’s revenue potential, Barrett adds. “It allows an agent to be a lot more creative in terms of a marketing strategy and the market they go after,” he says. “If it’s a weekend merchant, a smart phone app may be a very good fit.”
For example, one sales agent experienced
success signing up beach vendors for merchant accounts accessed with a smart-phone application,
Barrett notes. “The more creative [a sales agent is], the more he can open up their distribution,” he says.
Some evidence supports this assertion.
“A lot of the people are calling just for [a mobile application],” Scott Rutledge, president of The Phoenix Group, a POS-equipment distributor, tells ISO&Agent. Typically they are not the quality of merchant that would want or be approved for a merchant contract, he says.
The O’Fallon, Mo.-based company refers merchants to any of the more than 300 ISOs with which it works, Rutledge says.
ISOs also may find it less expensive to sell mobile POS services to merchants already in their portfolios, says Rutledge, noting that is where many of Phoenix’s ISOs have had success. An ISO benefits because mobile POS
services simply add to the revenue generated by existing merchants, he says.
Besides incremental revenue, ISOs may find merchants less likely to switch to a competitor if they use multiple products from one company, suggests Chris Justice, president of Ingenico North America.
Ingenico S.A., a France-based terminal maker, is reselling Roam Data Inc.’s
mobile POS software, which merchants may use with virtually all cell phones. San Jose,
Calif.-based VeriFone Systems Inc. has a phone-base product available called PayWare Mobile.
Hypercom Corp., a terminal maker based in
Scottsdale, Ariz., announced its iPhone-compatible POS-terminal product earlier this year.
Other mobile POS products come from Square Inc., a San Francisco-based company that offers merchant processing with no contract, and technology companies and ISOs, such as Boston-based
Merchant Warehouse Inc., that developed mobile-payment software.
Selling It
One of the best ways to determine which products will work for which merchants is to separate their needs from their wants, observers say.
“What you have to look at ultimately is who your client is and what are their real needs–and not
necessarily their wants,” Crystal Sulzer, principal at Houston-based Ferrari Merchants LLC, tells ISO&Agent.
Identifying the merchant categories to pursue also is effective. Ferrari Merchants targets transportation, restaurants and multifamily housing. Of those, mobile POS products make the most sense for transportation merchants, such as limousine services, that have an obvious need to accept mobile payments, she says.
Sulzer also cautions against promising merchants the same sort of connection reliability that fixed POS devices offer. “You still have to rely on the network,” she says. “And if the network is bogged down, the transactions will be slower.”
That may remind some in the industry about the early days of wireless POS products. Indeed, mobile POS services have been around for many years, says Tony Abruzzio, a consultant and former executive at Atlanta-based payment processor Global Payments Inc.
The nation’s wireless telco infrastructure was in the early stages of change five years ago, Abruzzio says. “Wi-Fi wasn’t as reliable as it is now,” he says.
Years ago, one POS-terminal company wanted an information-technology group to set up Wi-Fi antennas in a merchant’s stores instead of letting the merchant do it, he recalls. Abruzzio would not say which vendor this was. “Those kinds of
problems just don’t come up,” Abruzzio says, though they are not completely eliminated.
The typical price of mobile POS products also has dropped. Abruzzio recalls a Way Systems Inc. mobile POS terminal selling for between $600 to $700 when Global Payments started supporting it four years ago. Such products now cost as low as $349.99 on some Internet sites.
Device prices have continued to fall as network technology has improved, says David Duben, First Data senior vice president of channel readiness.
Factor in that many merchants have or can get smart phones for low cost, the barrier to entry for becoming a mobile merchant quickly shrinks and “opens up a whole market that wasn’t available in the past,” Duben says. Moreover, merchants may download POS software to a phone for little to no cost and pay monthly and transaction fees, he says.
The advent of the smart phone has changed everything, Abruzzio says.
The payments industry has been making money from mobile POS services built on specialized and expensive equipment, he says. “Now comes along the smart phone. The smart phone is the game changer,” Abruzzio says.
In this emerging POS model, ISOs and acquirers will give up the large profits typically found by selling or leasing expensive equipment. But the payoff will be the potential to expand the number of merchants, Abruzzio says.
The excitement over this burgeoning group of merchants is warranted, but one should not be unrealistic about it, advises Bill Clark, executive vice president and general manager at Apriva, a wireless POS-services company based in Scottsdale, Ariz.
“The promise of 16 million is great,” Clark says. But the question is, what will it take to get to them and make that work worth the effort? he says.
“Will we only be able to reach the traditional type of merchant, or do we have to learn a new way of doing business?” Clark asks.
What seems to be working now is a no-fee model with a slightly higher processing rate, he notes. Eliminating statement and early-termination fees, for example, may be more complicated for some ISOs because of the need to ensure the merchant remains in a portfolio long enough to be profitable, Clark says.
“Is it possible they don’t need a $10 statement fee or $500 early-termination fee?” Clark asks. “Those things are there to protect the cost of acquiring the merchant.”
The answer is simple economics, says Ablowitz. The key is to find a population of underserved merchants, he says.
If an ISO can locate enough of these merchants, it may make sense to pursue them, Ablowitz says.
Of course, the seller will need to calculate
the cost of delivering a mobile POS service to a merchant, he says.
“What does it really cost me to deliver this to a merchant?” Ablowitz says. A merchant can download software online, such as from Apple Inc.’s iTunes or Google Inc.’s Android Market for less than $1, and get a simple, low-priced or, in some instances, a no-cost card reader.
With the card-acceptance technology in place, the next issue is how to ensure transactions are secure, Ablowitz says.
The answer for many ISOs is online payment gateways, which route transactions to various processors via the Internet, because of their reliability and built-in security, Ablowitz says.
The ISO’s rate deal with its processor also is a factor. Assuming the rate is reasonable, an ISO could be well-positioned to bring on merchants suited for phone-based acceptance, Ablowitz says.
“It boils down to cost,” Ablowitz says. After that, it is a matter of how well the ISO can sell the service, he says.
Selling mobile POS services is different in that there are “untapped opportunities, Ablowitz notes. “But it’s not any different from other kinds of business. It just gives you a new dimension,” he says.
Making Plans
Merchants using phone-based payment-acceptance technology are the early adopters, observers say.
“We know it’s coming, and it’s going to come fast,” says First Data’s Barrett. “Whether we’ll see all of that in 2011, it remains to be seen.”
Barrett foresees selling traditional merchant services tied to a fixed device used by a brick-and-mortar merchant getting “tougher and tougher.”
Apriva’s Clark similarly is uncertain about any revenue windfall from mobile POS services in 2011. The smallest mobile merchants do not represent a “huge” revenue opportunity, but ISOs’ hope that one day they will is a strong motivator, Clark says.
“It’s time to start figuring out how to support them, generate leads and learn how to sell it,” he says.
ISOs should anticipate that consumers will want to use their payment cards wherever they are, especially as the card brands continue to convert cash transactions into electronic ones, Abruzzio says.
ISOs and acquirers should help a merchant avoid a situation where it turns away a sale because it does not accept a consumer’s preferred payment methods, he says. “Acquirers are in the business of driving transactions. They need to drive transactions into that machine.”
Just because some mobile merchants may be very small is no reason to dismiss the potential they hold, Abruzzio says, noting the ISO or acquirer still will get paid for handling the transaction. “Certainly you want to steer merchants to transactions that are more profitable, but in the end you have to satisfy the customer,” he says.
ISOs and acquirers also should study the pool of merchants to ensure they will generate enough profit, Ablowitz says.
“There is more than one firm that can give you security and reliability,” he says. “You have to focus on the economics and how you sell the devices.”
ISOs also should consider the ease of getting merchants operating on mobile platforms. A small mobile merchant that is unable to begin processing transactions immediately could hamper the profit potential, Ablowitz says.
Multiyear contracts and minimum processing fees, while important to ISOs, might impede a mobile merchant’s willingness to use the service, Apriva’s Clark adds.
ISOs are learning, and some are succeeding, Clark says, “But it’s still very early in the process,” he says.
Merchants are at the crux of emerging mobile POS services. And for the ISO and acquirer selling merchant services, understanding what merchants want should form the basis of the sales pitch.
Ferrari Merchants’ Sulzer suggests talking with a merchant to determine its needs and to consider the types of products available. “Sometimes the ‘wants’ are not the best solutions,” she notes.
