IN TODAY'S COMPETITIVE MARKETPLACE, merchant retention is the number one topic on the minds of
many ISOs and acquirers - after all, everyone knows it is much cheaper to keep a customer than to bring on a new
one. However, most industry experts agree that ISOs and acquirers lose an average of 20% of their portfolio each
year due to attrition. In addition, ever-decreasing discount rates, processing fees and statement fees are reducing
margins and squeezing profits for credit and debit processing. While these traditional uses for POS terminals are
becoming commodities, new value-added services are starting to appear and are providing revenue generating
opportunities and increasing merchant retention rates.
There are many varieties of these new value-added applications including POS activation of prepaid
phone cards and other prepaid products, loyalty/gift card programs, terminal/ receipt-based advertising and many
others. These applications are most profitable when included as a secondary service in a terminal primarily used
for payment processing. The exciting news is that these applications can provide additional revenue opportunities
for everyone in the chain. "My experience is that unique software and additional services have always proven to add
value to your products and promote merchant retention." said George Norvell, Vice-President at Orion Payment
Systems. "Now, because of increasingly competitive market conditions, we need hooks such as value-added services
to help minimize merchant attrition and maximize revenue opportunities."
In some cases, such as ID verification software, these applications provide functionality at the
point-of-sale that requires no back-end service provider. ID verification is attractive to retail locations that
sell restricted products such as tobacco or alcohol. In such a location, a terminal that provides ID verification
services is clearly more attractive than a terminal that does not, enabling an easier sell and making the switch to
another provider much less attractive.
Gift cards and other types of prepaid cards are another good example of a value-added application.
Most major retailers now have some form of prepaid or gift card that can be used in their stores. In the past, gift
card programs were only available to large retail chains using integrated cash register systems. New programs enable
smaller merchants to take advantage of prepaid programs with little or no up-front investment. There are additional
residual opportunities for processing gift card transactions, and, once a merchant has put such a program in place,
staying with an existing provider becomes much more attractive than switching providers and either losing the gift
card program or having to convert customers to a new program.
Loyalty programs are quickly becoming available in every aspect of retailing. In addition to
dedicated loyalty service providers, many processors are also providing loyalty services as part of their offerings.
Merchants are excited about loyalty programs since they help increase customer retention at the retail level.
Loyalty provides many of the same retention benefits of other value-added applications.
Point-of-sale activation (POSA) is quickly becoming another important value-added application for
those merchants who sell prepaid products such as phonecards, prepaid wireless, prepaid Internet or even prepaid
flowers. POSA is a great candidate for integration with existing terminal applications, as the economics of POSA
often do not support a stand-alone terminal, but the activation aspect locks in a POSA program for a merchant.
With all of the benefits of these and other value-added applications, there are also challenges
in implementing the solutions. Often, the biggest challenge is integration of the software required for these
services into the point-of-sale terminal. Hardware manufacturers recognize the importance of these services and
are addressing value-added applications in their product lines.
Some manufacturers have developed a new product line that enables merchants to run multiple
software applications in a single terminal. Traditionally, only one software application could be run in a terminal
from any manufacturer. "Adding functionality was difficult at best and in many cases impossible," says Robbie
Lopez, Director of Applications Development at VeriFone. "Verix enables multiple applications, even from multiple
software providers or service providers, to reside in a single terminal using true application separation at the
hardware and software level, allowing ISOs and acquirers to generate additional revenue through value added
Other manufacturers have taken a different approach to value-added applications. Says Kathy
Crumley, VP of VAR Relations for Hypercom, "Our ePic services converge the physical and virtual worlds transforming
POS terminals into information delivery and program access platforms that give transaction-based service providers
an unprecedented opportunity to build revenues and streamline their operations, as well as offer valued-added
services for their merchant and the consumer."
In addition to these new platforms, others use an open approach towards third-party software
providers by providing unprecedented support for third party developers putting together applications using their
Value-added applications are providing new ways to generate revenue and retain merchants. New
hardware from terminal manufacturers enables flexible and cost-effective creation and deployment of these
applications. ISOs and acquirers must begin using value-added services to differentiate their products and
services to remain competitive and continue to grow their portfolios.