Obstacles to the spread of pay-at-the-table mobile-payment terminals include indifference, tight budgets and misgivings about reliability, the Mercator Advisory Group says.
Pay-at-the-table terminals are lagging behind expectations partly because restaurant owners concentrate on other parts of their business, says George Peabody, director of the Mercator emerging technologies advisory service and author of the report "U.S. Wireless POS Gets Up From The Table And Runs Out The Door."
Restaurateurs also devote only a sliver of their budgets to technology, Peabody tells ISO&Agent Weekly. Moreover, recession could make restaurant owners more reluctant to spend. "We're heading into an economic adjustment period," he says. "People are going to cut back."
If merchants reduce their spending on wireless terminals, they will cause an already small category to shrink further. Of 2.6 million point-of-sale units sold to U.S. merchants last year, mobile merchants, such as flea-market vendors and limo drivers, bought 5% and restaurants bought less than 1%, says the report from Waltham, Mass.-based Mercator. Wired terminals that sit on counter tops accounted for the other 94% of the terminals sold.
Besides reluctance among merchants, "ISO ambivalence" is delaying the proliferation of wireless terminals. Wireless devices–more technical in nature than wired terminals–can generate more support calls to ISOs than do the familiar countertop devices, which can increase costs, Peabody says.
The differences are not just technical. ISOs need to approach merchants differently when pitching wireless devices, which means selling more than a device and a discount rate, Peabody says.
"If an ISO wants to just place a product, that's hardly a vertical-market approach," he says. "You have to have [an] approach where the value-add is coming from a combination with the discount rate. That's a more sophisticated sell."
That type of sale does not lend itself as easily to high-volume sales as the more-familiar pitch for countertop-payment devices, says Peabody.
At least one merchant-service provider, El Segundo, Calif.- based Liberty Electronic Payment Services, has rediscovered wireless payment terminals after earlier attempts to sell them fizzled.
"We sold some wireless terminals early on that were junk," Ernie Crews, owner of the 6-year-old Liberty, tells ISO&Agent Weekly. However, the fault did not really lie with the terminals themselves. Problems with wireless connectivity spoiled the setup. "We stayed away from wireless for quite a while because of that," Crews says.
Liberty finds itself again selling the devices, but with much greater luck this time, he says. "In today's market they're just as reliable as a countertop unit," Crews says.
Crews has sold wireless terminals to Masonic lodges, locksmiths, plumbers and real-estate appraisers. Most of the time the Masons use the terminal as a countertop device connected to a WiFi network. When the lodge holds an outside event, such as a circus, it fits a module that works with cellular networks to the terminal.
"This has turned out to be a real benefit for them," Crews says. "Before they were taking cash and checks."
Another merchant benefited because it no longer had to delay processing a transaction because it could not connect with a processor's network. Crews says that merchant saw about 10% of those delayed transactions declared invalid because the issuer could not authorize them. With a wireless device, that merchant receives live authorization of each transaction.
Liberty's next group of merchants could be the vendors that exhibit at consumer expos held with marathons and other sporting events.
Crews says his salespeople make money by selling the terminals and profit further by fattening their portfolios with merchants that had not accepted cards until they had wireless terminals.
In many instances, because wireless terminals often cost Liberty about $600 to $700 each, merchants find they prefer to spread that cost over time. Crews says Liberty finances the terminal, which boosts the final price to about $1,200. The company collects payment over four or five months instead of all at once, he says.
Liberty's success has not become the norm yet, says Mike Friedman, a senior analyst at Boston-based Mercatus LLC, an investment consulting firm.
"The problem facing wireless payment and adoption of it is that people have
not figured out the way to reach the merchants who are going to use these terminals," Friedman tells ISO&Agent Weekly.
ISOs are concentrating on their current merchants and the traditional merchant portfolio, he says. "They're not going after the service contractors and flea-market vendors who are really the prime segment for this kind of device."
ISOs that go beyond their usual clientele may find themselves talking to merchants who are new to card payments and may not have heard the industry's typical sales pitches, Friedman says. "There's a real opportunity to extract good margins from these merchants because there are [fewer] ISOs per merchant hitting these guys," he says. "The compression around margins is going to be a lot less."
Moreover, 43% of the restaurant owners who responded to the Mercator survey–including those at quick-serve, casual, family and fine-dining establishments–expect to replace their point-of-sale systems in the next one to two years, Peabody says.
As merchants and their customers see the benefits of mobile-payment acceptance–fraud reduction and bigger tips, for example–interest will increase, he says.
Still, Peabody advises caution. "Just don't expect any big jumps in deployment any time soon," he says.
