The Changing
of the Electro
Payment Ind


by Jairo E. Gonzalez       

   THE ELECTRONIC PAYMENT INDUSTRY IS AT THE EPICENTER OF INTERNET AND WIRELESS CONVERGENCE. Smart phones, connected personal digital assistants (PDAs), Digital Subscriber Loop (DSL) and wireless modems now enable always-on, always-connected communication anywhere in the world. At the same time, smart cards and wireless, Internet-enabled point-of-sale (POS) terminals provide opportunities for new services, differentiation, and revenue streams for "e-click and mortar" retailers.
   By running browsers on their POS terminals, merchants and customers are no longer tied to their physical locations. Instead, "all the world's a store", to paraphrase William Shakespeare. The wireless Internet delivers continuous access, and secure smart cards deliver protection from fraud wherever transactions take place.
   In restaurants, for example, diners swipe their own payment cards and automatically calculate tips. At sporting events and concerts, concessionaires deliver both goods and card payment choices right to fans. In New York City, collection of parking tickets and auto towing fees have gone wireless. Airport and shopping mall kiosks conduct wireless business on time, anytime, protected by smart card technology. In developing countries, medical clinics in remote areas collect data and confidently authorize government benefits. In metropolitan areas, hospitals monitor the health of critical care patients enroute via ambulance. Rental car companies calculate on-the-spot payments and accept guaranteed card payment. Taxicabs accept online charge cards, and transit systems debit personal accounts and contactless stored-value cards onboard the bus, the train or the subway.

Wireless Explosion

   The wireless market, once a niche opportunity for vertical applications in large corporations, has virtually exploded. Now e-commerce is shifting to m-commerce with the convergence of smart card and wireless technologies. By late 2001, wireless use for all types of communication is expected to mushroom to ten times its current size. In the United States, growth will be steadily upward to more than 100 million workers requiring mobile communication. In the United Kingdom, GSM data services are quickly growing to millions of users and hundreds of applications. And in Western Europe, third-generation wireless networks are being installed to drive traffic through Internet-enabled mobile phones. Other key markets for wireless include Asia and Latin America. As this article is being written, cell phone manufacturers and financial services providers are announcing products that interact with smart card POS terminals, thus simplifying the shopping experience and providing further cross-industry and cross-technology convergence.
   In North and South America, cellular digital packet data (CDPD) wireless technology runs at 19.2 KBPS and Mobitex technology runs at 8.0 KBPS. In international markets such as the UK, Western Europe and Asia-Pacific, GSM technology operates at 9.6 KBPS. In the United States, local area networks operate on 900 MHz radio frequencies.
   Web browsers running on state-of-the-art POS terminals enable a whole new array of applications and services, as well as an increase in competition. Retailers who once competed on price and convenience must now consider more sophisticated methods of attracting and keeping customers. Rewards programs, electronic couponing and onscreen advertising are the latest tools for successfully growing customer bases.
   The other side of retailing is controlling costs and continually improving efficiencies. Those same Internet-enabled POS terminals and web appliances which put point-of-sale promotions literally at the point of sale can also electronically capture and store transaction receipts (ERC), including digitized customer signatures, send and receive e-mail, receive electronic statements, and more.

Smart Cards Come of Age

   Smart card technology came of age last year with open platform cards achieving mass volumes for the first time. The first major rollouts of smart cards were the "Blue Card" from American Express, followed by "smart Visa" from Visa. Early this year MasterCard introduced its smart card product. Initial predictions were that 20% of all cardholders using magnetic stripe technology would immediately switch to smart card use. A recent survey showed that 48% of Internet shoppers, both wired and wireless, said they were "very or somewhat" interested in obtaining smart cards. Even the Department of Defense and U.S. Postal Service initiated pro-jects that use smart cards for identification, physical access to buildings and logical access to computer networks. This booming growth is forecast to continue at double-digit rates throughout 2001, driven primarily by wireless applications using SIM and Java card technologies.
   While there are still technology issues, transmission standards and protocols to be decided, along with networks to be built and card technologies to become standard, and while there is more than one competing vision for how these industries will function, it is clear that smart cards and wireless are here to stay and here to grow. Smart cards have their own non-profit organization. Wireless has its own trade show (CTIA Wireless in Las Vegas this year), its own trade publications and its own websites. And major card and communication companies are committing significant resources to business opportunities in these sectors. America Online, American Express, Ericsson, MasterCard, Microsoft, Motorola, Nokia, Sun Microsystems and Visa, to name just a few.

Benefits to Merchants

   In the midst of rapid technology growth, many merchants, especially small and mid-size retailers, are finding themselves still using card payment terminals that merely perform credit and debit processing. And they're asking themselves whether the investment in new technologies is worthwhile. What are the benefits to more expense and newer ways of conducting business? Where is the return on investment?
   At the same time, independent sales organizations (ISOs) are touting the benefits of commerce in the 21st century. As card payment terminals have evolved beyond credit and debit processing, and as competition from Internet e-tailers has increased, merchants are more willing to incur increased costs. As they agree to increased card processing costs, merchants are finding that, by adding services available through processors or application service providers (ASPs) they can improve operating efficiencies with terminal-based ERC, terminal-originated e-mails and electronic bank statements. Merchants can also generate new forms of revenue from onscreen advertising paid by national advertisers, generate additional sales with electronic coupons right at the point of sale, and promote their own sales in the terminal idle screen and on customized sales receipts. Customers can now go into their favorite retail store and easily recharge their stored-value card balances. This convenience benefits both merchants and transaction processors in a win-win situation.

Technology Development

   Large amounts of research and development have gone into both smart card and wireless technologies because clearly these markets will support multiple networks and multiple protocols. Smart terminal manufacturers are supporting several of the most popular standards in wireless POS appliances.
   Clearly, smart card technology and wireless data communication are on the brink of mainstream use, especially in the United States. For innovators in all sectors of business, the opportunities are significant. According to IDC and the Wall Street Journal, Americans alone could be spending as much as $21 billion for wireless services by 2004. The amount of smart card purchases using wireless technology is significantly higher. The challenge today is to become the first provider to deliver well-conceived products and services. The rest of the world is already well on its way to m-commerce where wireless is already a part of day-to-day life.

Jairo Gonzalez is President of Transaction Systems Group, a division of Hypercom Corporation. Visit the Hypercom website at