New Opportunities
Transitioning POS Equipment to IP:
The QSR Market

by Deepak Wanner

   With economic uncertainty breeding unease amongst customers, ISOs are challenged to find new ways to sharpen their competitive edge. From billing to fraud prevention, to technologies, ISOs must constantly reevaluate their portfolios and ensure they are offering the best possible products and solutions to their merchants.
   Today's ISO views technological evolution as an opportunity to gain market share and maintain their customer base. The challenge is to select technologies that are relevant and demonstrate a clear value equation to the budget-starved merchant.

The QSR Market

   The Quick Serve Restaurant (QSR) market presents a typical case of an industry ripe for technological evolution. This giant market includes over 1800 chains, with more than 150,000 locations across the US. These convenience food retail outlets typically have up to 4 checkout lanes, many with an additional drive thru lane. Together, these outlets have over 500,000 checkout lanes and more than 73,000 drive thru lanes.
   This market is populated by merchants/franchisees of at least two types. First, the 'fast food' chains, and second, the 'convenience restaurants' - chains or independents, which are characterized by table service hospitality. This second group relies upon highly efficient dial-based PC touchscreen hospitality payment systems, such as those offered by Squirrel Systems, Micros and other vendors, to transact debit and credit payments, and gift/loyalty transactions. There is an opportunity for ISOs and processors searching for new business, to increase the speed of these dial-based transactions, improving customer service and loyalty.

Towards Faster Transactions:
Customer Service Implications

   To respond to this opportunity, ISOs need to offer complete end-to-end technology solutions that ease the transition to faster IP networks while maintaining a sustainable, scalable POS hospitality system. These merchants demand seamless and fully integrated POS hospitality payment systems, a 'one stop' shop, that allows them to focus on other critical elements of their business. These fully integrated hospitality POS systems with core debit/credit functionality are often complemented by value added applications like Gift Card and Check Card features.
   A critical element of card acceptance for today's QSRs is customer service. Though card acceptance offers an element of convenience for customers, these merchants are searching for ways to improve service at the countertop with faster technology. Thus, any IP based card acceptance technology must demonstrate best in class speed and efficiency. With sales increased by 1% for every 6 seconds saved in transaction times, this is a hard bill to fill.
   There are other obstacles to improving Card Acceptance for ISOs working in the QSR market. First, there is a significant variety of POS systems and software within the QSR market, and indeed, amongst outlets within a chain. Popular software options include Squirrel, Retail Pro 1,2, HIS, HSI and Micros. With hundreds of possible system/software variations, any advanced card acceptance solution has to be seamless to these existing systems. Just as there is a great degree of discretion on the part of each individual franchise owner with respect to existing POS systems, new purchases remain the decision of the franchise owner. Second, with turnover high in this service-based industry, POS systems must remain simple to use, with little staff training time required.
   Thus this segment of the QSR market needs an advanced solution that connects to existing hospitality payment systems, offering faster transaction speeds, simplicity, and a seamless interface to existing systems. The solution must also be capable of handling multiple value added applications, along with enough scalability to incorporate future applications, such as Smart Cards.

Leveraging IP in the QSR Market

   The backbone of the Internet, Internet Protocol (IP) has revolutionized the way the world does business. While the retail sector has been quick to adopt IP based technologies such as E-Commerce websites, the idea of transitioning POS equipment to IP based networks has only recently gained popularity.
   IP enabled POS payment processing offers several key benefits to the merchant. Transitioning the more than 4 million payment terminals in the United States to IP networks means faster transaction processing, the reduction of per transaction fees, the elimination of dial lines for payment processing, and a host of value-added features not available on dial-based terminals. Most QSR franchisees connect to a corporate WAN that they use for administration, inventory control, or an e-commerce website. An IP transition solution for Hospitality POS equipment is the missing link in consolidating restaurant operations onto one, cost effective network. While the cost savings and improved customer service offered by IP networks are attractive, budget starved retailers need an IP enabled POS offering that makes the best use of existing hospitality payments equipment, network and systems.
   In the QSR market, this means retaining the highly efficient PC-based payment systems that are the result of significant capital expenditures in the last decade. Retaining investment in existing equipment is a key issue, but with proprietary software and such a wide variety of systems, how can this transition to IP be facilitated?
   Consider serial to IP access devices. Such products replace the dial modem, interfacing from the PC to the WAN via Ethernet. No changes are required to the QSR merchant's existing systems or network, but cost savings are realized as dial lines are eliminated and per transaction fees are reduced. Perhaps more importantly, transaction speeds are increased, ensuring maintenance of the high quality customer service so critical to this industry. Some reports indicate that transaction speeds can go from 12 seconds in a PC based card acceptance scenario, to under 3 seconds when Ethernet-connected.
   Who will drive this transition? The greatest single beneficiary in the transition to IP for POS payments is the hospitality merchant, who gains a powerful new tool for the improvement of customer service, and the opportunity to increase market share. ISOs are recognizing this interest as a trend, and are paying closer attention to the available solutions, working with key processors to find cost-effective, seamless and simple technologies that will enhance their solution portfolio. These ISOs are ahead of the curve, and are already looking towards the next phase of IP transition in the POS space, the move towards Frame and DSL.