The Technology Horizon

in the POS/ATM industry
by Phil Britt

   The common POS/ATM technology is changing rapidly, taking advantage of new advances in wireless technologies, biometrics and increasing Internet capabilities. Transaction World talked to industry experts about their outlooks for these technologies and how they will shape the industry for the future.

Wireless Advances

   Wireless technologies are advancing to the point that they often provide even better capabilities than their landline counterparts, and, additionally, better convenience.
   Not only do wireless terminals open up a whole new world for mobile merchants who had previously used POS terminals little, if at all, they also provide more options and flexibility for the "brick and mortar" merchant, who can use the devices where most convenient, without being restricted to access to a telephone line.
   "Wireless demand is strong but deployment is weak. We're looking to close that gap," said Kevin Hickey, CEO of Apriva, Scottsdale, Ariz.
   Wireless deployment is weak primarily due to the haphazard wireless infrastructure in the U.S., according to Hickey. Unlike Europe, which has one standard for wireless communications, the U.S. has a handful. They don't communicate with one another, much like trying to use a Beta Max tape on a VHS video tape machine.
   Companies have stepped forward to provide gateways that enable disparate front-end POS devices to communicate with back-end processing and other applications across a wide variety of networks. Some of those systems are in use now, though widespread availability isn't expected until later this year.
   Any wireless solution should be able to handle any POS transaction at the point of hookup, according to Hickey, but that hasn't been possible because different areas of the country have different wireless infrastructures. Some popular terminal types couldn't communicate with the back-end processor in some areas of the country that weren't part of the CDPD network. Additionally, CDPD is a "second generation" wireless network, that will be succeeded by GPRS and other "2.5G" networks in many areas of the country by the end of the year. "The CDPD (one of the underlying wireless infrastructures) was built for voice communications, not data," Hickey said. "We've tried to take the complexity of the wireless infrastructure and make it as simple as possible for POS terminal users." Using a wireless gateway means the terminal manufacturers won't need to go through the lengthy certification process when they upgrade their terminals with additional features because they already know the new terminals will connect with the processors, Hickey added. Wireless communications enables not only mobile merchants, like pizza delivery and taxi cab drivers, to accept credit cards, it also will help traditional POS users lower their interchange expenses, according to Hickey. "Merchants don't want a wireless POS terminal per se, they just want to solve a business problem," Hickey adds. "They want to take be able to take the POS device and use it anywhere."

   A portable, wireless POS offers several possible uses:

  • "Line busters" for large retailers. Workers at Home Depot and similar retailers could supply workers with the terminals for use in temporary checkout lines or for in-aisle checkouts.
  • Interchange reducers for companies with large sales staffs. Contractors like heating and air conditioning companies could use the wireless machines, qualifying for the "card present" interchange rate rather than calling in credit card numbers and paying the more expensive "card not present" interchange rate.

   "That's serious money," Hickey said. Wireless gateways also use smaller "packets" of information and are always on (via radio communications), so transactions can be processed more quickly than with landline terminals, which dial in for every authorization, Hickey added.
   Additionally, the cost of wireless terminals has dropped from more than $2,000 only a few years ago to around $400 now, so they are much more affordable for the smaller merchant who couldn't afford them before, Hickey said.


   Biometrics, the use of biological identifiers like fingerprints, voice prints, etc., has gone from a very James Bondish type feel to a more common way of authenticating authorized users in buildings, for checks, and in payment systems.
   With fraud continuing to grow and increasing security concerns after the Sept. 11 terrorist attacks, biometrics provides an industry with a way to enhance security, and, perhaps, to cut costs, according to Hypercom Chairman George Wallner.
   "Visa and MC try to be dismissive, but it's a very big issue," Wallner said.
   Fraud costs as much as 30 basis points now, Wallner added. However, there's little incentive to issue the more expensive, more fraud-resistant smart cards because they are more costly to produce and would result in no more additional revenue for the issuers. "I think we need to do something on this side of the industry because the card issuers won't," Wallner said. "We need a solution that will fight fraud without the involvement of the card issuers." There are several different types of biometric devices in pilots in the financial industry, including ones that monitor voices prints, hand geometry, irises, and fingerprints. Of these, Wallner said finger print identification offers the best option at the lowest price. Though fingerprint-enhanced terminals might cost a little bit more than those without the biometric capability, if merchants are given a 10-basis point incentive for using the terminals, they can quickly make up that difference and then some while the acquirers will also cut their fraud losses. "The higher the fraud losses a merchant is charged with, the higher the cost justification," Wallner added. Early indications are that merchants and the public alike are accepting the new biometric technology. A few potential customers might be put off by the additional security, Wallner admitted, but quickly added that the potential fraud prevention benefit outweighs and potential lost sales. The largest retailers would be the ones who would save the most from such fraud prevention, Wallner added. Fraud is also a huge problem in the check industry, running more than $10 billion a year, according to some estimates. So Identecheck, Atlanta, has developed a fingerprint identification system used by some grocery stores and other retailers to identify check writers. Further enhancements to the system will include immediate conversion of the paper check to an ACH payment and credit card authorization capabilities, according to Greg Cohen, Identecheck General Manager.

The Internet

   Just as the Internet has become part and parcel of many of the everyday lives of most businesses and consumers, it will become an integral part of the POS industry of the future, according to Tony Bates, Infospace Vice President of Merchant Accounts, Merchant Businesses. There already is some movement in that direction.
   Datawire Communication Networks Inc., and First Data Merchant Services recently teamed up to offer First Data's payment processing Internet Protocol Network, an Internet-based POS system.
   "First Data believes that the Internet will emerge as an important communication standard for transaction delivery. Partnering with Datawire provides First Data Merchant Services with an Internet-based, distributed transaction network with scalable performance," said Steven VanFleet, First Data Merchant Services Senior Vice President for Product Management. "First Data's Merchant Services Internet Protocol Network delivers an Internet-based solution that can effectively process all of a merchant's financial transactions from virtually any point-of-sale device or application."
   The Internet offers merchants faster transaction response times at a lower cost than traditional wired or wireless communication networks, according to Farid Kassam, Datawire Director of Product Management.
   First Data Merchant Services is actively working to certify front-end POS platforms to the new network, with a number currently in beta testing. First Data will roll out this new service to its North American merchant base.
   The two companies expect the design of the new network to enable vendors and developers to rapidly integrate their POS terminals, software and Internet POS products.
   With Internet capabilities, POS terminals will be able to help merchants better manage inventories, reward loyal customers and provide other customer relationship management capabilities, Kassam said. Additionally, ATMs with Internet capabilities can provide customers with several value-added services.
   By tying into a customer information database, the Internet-enabled POS can enable the salesman to upsell and cross sell other products and services, Kassam added.
   Many smaller businesses don't have these customer management capabilities, and could be good targets for Internet-capable devices.


   Though these technologies are evolving somewhat separately, convergence of wireless with the Internet and POS capabilities may offer merchants the best benefit and may afford ISOs with the best potential new market, according to Tom Arnold, Chief Software Architect, Merchant Division, for Infospace.
   Many retailers, like Best Buy, already use Internet connections in the store to enable workers to provide customers with expert information on merchandise availability, capability and set up.
   Merchants need this Internet access to provide adequate service to customers, many of whom research products on the Internet before going to the store, Arnold said. The store clerk needs to have access to the same information the customer might have accessed on his home or office computer.
   Armed with additional product knowledge, the clerk can also better suggest appropriate companion items (e.g., cabling for computers and peripheral equipment).
   As long as a retailer is equipping his store with Internet capability, it makes sense to add the ability to conduct Internet-based POS transactions, Arnold said.
   "There's no economic reason to have simply Internet-based transactions. The retailer will want Internet access for its other capabilities and payment transactions will come along with it," Arnold explained.
   Wireless Internet capabilities are better long term than landline capabilities, Arnold added, because wireless units can be used for mobile merchants and for convenience, as explained earlier. The Internet gateway also provides merchants with lower connection costs, Arnold said. Small, wireless printers provide the receipts for the consumers.
   Limousine drivers and other mobile merchants are already using handheld devices to plan schedules, map routes, etc. Adding POS capabilities to these devices makes sense because it enables these businesses to take credit cards rather than cash.
   Arnold sees the small merchant as well as international retailers as prime prospects for this type of system.
   Small merchants, like kiosk owners, might use "knuckle busters" now, but the additional Internet capabilities could entice them to upgrade to wireless terminals, Arnold said.
   Merchants in other countries, which tend to have a more advanced and homogeneous wireless infrastructure, are already using this type of device, according to Arnold.
   Additionally, POS transactions take up relatively little bandwidth, so the slower communication times of many wireless devices won't be a problem. Also, faster wireless communications capabilities are evolving, albeit slowly.
   In the spring, InfoSpace introduced AirPay, software that enables businesses to accept credit card and ACH payments via wireless devices. AirPay operates on the Palm and Microsoft Pocket PC operating systems.
   Other companies also introduced POS-capable handheld devices in the spring.
   ISOs looking to tap this market should focus on service businesses, Arnold recommended. May of them still accept cash, leading to possible theft, or pay the higher card-not-present interchange rates.
   "Card-not-present transactions cost them a bundle of money," Arnold said.
   Though all of the above technologies are still evolving and not all will succeed, industry experts agree that the enterprising ISO will monitor these and other advances as he develops his merchant accounts.