Some ISOs Say Demand is Up For Advanced Technology

  Over the years, Americans have grown more comfortable using credit and debit cards. But only recently have technological advances given manufacturers, independent sales organizations and banks the tools they need to offer smaller merchants and municipalities the opportunity to accept electronic payments.
  New wireless technology, for example, now allows even pizza deliverers and flea-market merchants to process payments while in the field.
  Wireless technology has been around for a long time, but experts say only within the past year have AT&T, Cingular, T-Mobile and other telecommunications companies blanketed the country with next-generation systems, already widely used in Europe, that can reliably transmit data such as credit card numbers.
  "That's why wireless had such trouble taking off," says Marc Shultz, vice president of sales at Way Systems Inc., a Woburn, Mass.-based manufacturer of cell phones that function as point-of-sale terminals. "This new technology can now reach 90% of the population."
  Some merchants also are embracing other emerging technologies, such as software that alleviates the need to buy bulky and expensive desktop terminals. But the wireless market appears to be gaining the most traction.
  Indeed, the new and growing wireless-technology market may have saved Semtek Innovative Solutions Corp. The San Diego-based payment-device manufacturer had focused on land-line magnetic stripe card readers, but that business slowed, says Steve Cochran, vice president of business development.
  In the fourth quarter of 2004, Semtek rolled out Mobile Swipe, an attachment that clients stick on a Nextel phone to transmit credit card information. "If we didn't do that, we would be in big trouble," Cochran says. Nextel's recent merger with Sprint means that network also will carry the Mobile Swipe signal.
  The privately held Semtek remains small, with about 30 employees, and it depends on ISOs to move its products, Cochran says. Wholesalers get Mobile Swipe machines for $249, he adds, and the benefits make it an easy sell.
  "ISOs can mark it up, but by and large that taxi driver or plumber will get a machine for under $300," Cochran says. "I've got orders coming in from New York, Florida, California and Texas right now."
  John Pelizon, president of Ace Pelizon Plumbing, a plumbing supply and repair business in Covina, Calif., for nearly a year has provided its six plumbers with the devices for their Nextel phones. Pelizon believes the most important thing is the money they save.
  Cost Savings
  "If you don't swipe your own card, the credit card company charges you more, about 3%," he says. "We were getting killed on those rates." Card transactions conducted by phone typically are categorized as card not present and are charged a higher interchange rate. Merchants ultimately pay interchange, which goes to card issuers. The swipe-your-own technology puts the transaction in the typically less expensive card-present interchange category.
  Pelizon's plumbers are now charged about 1.65% of each card transaction. "My sewer guy, who does jobs that cost ten to fifteen thousand (dollars), paid for his terminal in just a couple of transactions," Pelizon says.
  Way Systems unveiled its Mobile Transaction Terminal 1500 last January. The device wholesales for less than $500, according to Shultz.
  Although a full POS terminal, the device works like a cell phone and measures only about four inches by two inches in size. "We asked what merchants and ISOs were going to be familiar with, and the answer was a phone," says Shultz. "So we built a backpack on a cell phone that can do all of the credit card transactions."
  Merchants either can swipe the card or enter the numbers and payment amount on the keypad and send it via AT&T Wireless, Cingular or T-Mobile to Way Systems' server, where the data are sent to a gateway and a processor.
  Some ISOs say the technology is still not good enough. "Our company is not right now trying to market wireless," says Ron Smith, president of Mid America Solutions, a small ISO consisting of Smith and his father-in-law based in Anderson, Ind. The company serves flea-market merchants and others who attend trade shows or provide door-to-door services such as windshield repair.
  "I have talked to them about wireless technology," says Smith. "But what they often run into is the cellular connection is not there in the convention centers. We've been out at the trade shows, and some have tried it out and found it unreliable."
  Alan Gitles, president of Schaumburg, Ill.-based Landmark Merchant Solutions, says the company's 70 employees began selling wireless technology developed by Way Systems six months ago. Unlike Smith's customers, Gitles' clients are taking to the technology, especially contractors and flea-market merchants.
  "If you're a mobile store, in effect, you need mobile technology to make sales," Gitles says. "There are more and more customers looking for it."
  Gitles attributes the growing demand to the increase in wireless coverage. "The improvement has been significant, and it seems like it is getting better every year," he says.
  Santa Clara, Calif.-based VeriFone, one of the nation's largest POS terminal manufacturers, released its Omni 3750 wireless terminal two years ago. Unlike the hand-held devices used by Pelizon and other small merchants, the terminal remains fixed in one position. Their best potential customers might be shopping mall food courts that cannot afford a separate cable for each restaurant, says Paul Rasori, VeriFone vice president of product marketing. "This is something the merchant sales reps have really started to push," says Rasori, who could not say what percent of countertop sales are now wireless.
  But there are other hurdles. Deficient phone networks in Europe and Mexico prompted governments in those countries to install advanced wireless systems years ago. "But the U.S. has the best telecom infrastructure in the world," says O.B. Rawls, president of Hypercom North America, a Phoenix-based manufacturer of POS devices and hand-held wireless terminals. That has kept wireless more of a novelty domestically, but Rawls expects to see significant sales by 2007.
  VeriFone is rolling out new wireless product lines that should be ready for ISOs by spring. Rasori says the company will capitalize on its prediction that restaurants throughout the United States will compete to offer customers wireless payment at their tables.
  "It's being enabled by these technologies that until now didn't exist in any commercially viable format," says Rasori.
  At the Cartes 2005 trade show in November in Paris, VeriFone unveiled its Wi-Fi-equipped Vx 670 Portable Payment Platform, a handheld device waiters can carry so consumers can initiate their own transactions to avoid illegal mag-stripe skimming. VeriFone is working with several large restaurant chains to set up its North American launch, Rasori says.
  "[VeriFone's] product will be very strong," says Deborah Davis, vice president for product management at Tempe, Ariz.-based Vital Processing Services, one of the nation's largest merchant processors. She maintains, however, that the at-the-table restaurant angle is a niche market and that both the virtual and wireless terminal markets will experience steady but unspectacular growth.
  "I don't see a really big ramp up," Davis says, noting that many small businesses will want to justify the original expense by hanging on to their old terminals for a long time. "This marketplace is very slow to adopt new technology."
  Smith of Mid America says he will continue to sell the more traditional wired modems but eagerly waits for the day cellular phones can penetrate the trade shows. "That would be a major breakthrough," he says. "I would say I'm very optimistic about it."
  Other upgrades also have enabled merchants and municipalities to collect payments, fines and taxes using "virtual" terminals that rely on personal-computer software. Rather than buy sophisticated desktop terminals, merchants instead need just card-swipe devices that attach to their PCs.
  Vital's Davis says merchants are embracing the software option because PCs are becoming inexpensive and the spread of high-speed Internet access and Wi-Fi wireless connectivity have made the technology economically viable for high-volume merchants.
  Potential Unknown
  For years, payment gateways have used virtual terminals for their e-commerce and mail-order clients. "Only now are folks starting to realize that this works for brick-and-mortar merchants," Davis says.
  The market's potential for virtual terminals, though, remains unknown. "I don't think the market has been defined yet," says Hypercom's Rawls.
  Some in the industry see promising signs. USAePay, a payment gateway founded in 1996, began selling the software two years ago that establishes virtual terminals. The merchants, city governments and others who buy the product can swipe cards and direct data to USAePay via the Internet and clear transactions in seconds, says Ben Goretsky, USAePay CEO.
  Goretsky says about 75% of new clients sign up for a virtual terminal. "They have the option of buying a $300 or $400 POS terminal, or the USAePay software package, which ISOs generally sell for about $50, not including a $50 card swipe that attaches to the computer," he says.
  Land-line payment terminals are facing increased competition from emerging technologies. The question remains whether merchants beholden to their aging, though still reliable, standalone devices will make the switch.
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