Wireless Update
Merchants Score Extra Points When They
Take Payments On Their Customers' Turf

by Marc Shultz

   While the Tampa Bay Buccaneers were racking up the points on the field at the Super Bowl this year, the stadium's concession business racked up the sales in the club seats by giving fans the ability to pay for food and beverages with a credit card. Cell phones fitted with card swipes made it easy for staff to accept credit and gift cards ­ and their customers didn't miss a minute of the action.
   It is no wonder that new wireless POS solutions are making more new fans than ever before. With wireless payments, merchants can deliver better customer service and reduce the risk of accepting a bad card. ISOs are using wireless to break into new, untapped markets for card processing, and helping their existing merchants become more innovative in meeting customer needs.
   The opportunity for mobile payment acceptance is large and inviting. By some estimates, there is a $783-billion dollar market for mobile payment acceptance and it remains largely untapped. Even better, the technology to serve these mobile customers is proven and ready for you to sell.

An Open Field Market Advantage

   As many already know, finding opportunities in wireless can be easier and more rewarding than selling to a storefront merchant that was just visited by four other ISOs yesterday. Many industries that had been primarily cash-based are anxious to move to card acceptance because it gives them an advantage in increasing sales and in keeping existing clients. Additionally, there are many existing businesses that have an opportunity to improve their bottom lines by developing delivery and mobile services. A more extensive list of merchant types is provided in Figure 1.
   The advantages that wireless payments deliver to these customers are financially sound and easy to communicate:

  • Authorizations in as few as 3 seconds
  • Card-present rates
  • Increased sales due to credit card acceptance
  • Reduced risk of taking a bad card
  • Ability to be more "customer centric" and take payment anywhere
  • Acceptance of gift/loyalty/other private label cards at remote point-of-sale

   Given the explosive growth of wireless in recent years, there are now a multitude of options for your merchants, ranging from the tried and true wireless POS terminal industry, to newer handset-based technologies that include PDAs, pagers and mobile phones. New networks are coming online that will usher in a host of new capabilities for wireless payments and wireless payment gateways are making it easy to deploy solutions.

Tried and True Wireless POS

   For the payments industry, wireless POS terminals are a logical extension into the market for mobile merchants. In the early 1990s, U.S. Wireless Data designed and manufactured the first wireless POS terminal, called the POS-50. Ahead of its time in terms of capability, the POS-50 weighed five pounds and had a briefcase-like handle so the unit could be transported from one location to the next.
   Needless to say, today's wireless POS terminals from Linkpoint, Lipman and Thales are much more mobile. They are also extremely well appointed with many features and functions that make a merchant's life easier. These terminals operate on the most widely used data networks including Cingular's Mobitex network and Motient's DataTAC network (Acronym Alert: CDPD wireless is going away; see Figure 2 for more information). The current wireless POS models can range from $800 - $1,200, which makes for an attractive leasing package for both the merchant and the ISO representative.
   Wireless POS terminals will continue to evolve and offer new network choices, and new functionality. Of course, there's a good deal of excitement about the newer "multi-function" payment devices that combine the advantages of mobile payment acceptance with mobile communication in the form of a PDA, pager or Mobile Phone.

Can You Hear Me Now?

   The initial efforts to utilize existing mobile communication devices involved pagers and PDA's. The intent was to leverage the communication capability of the devices in hopes of creating a less expensive solution, rather than installing a wireless modem into a traditional POS terminal. Several companies manufactured card readers that snap on or connect to a serial port with a cable while others created software and applications to reside on the devices.
   In order for this strategy to work, the merchant must already own a pager or PDA. Therein lies the rub. While professionals tend to carry these devices, merchants don't. So the question became, what does a mobile merchant carry? The answer is a mobile phone.
   As the mobile phone has become an indispensable business and personal communication tool for the majority of Americans, it has also become a natural platform for payment acceptance. Recent studies show mobile phone adoption in the U.S. at 50-60%. While there is some indication that the adoption growth rate of mobile subscribers is slowing, a recent study by UPOC (a wireless text messaging service) shows that market penetration will reach 70% in the near future.
   Not only are mobile phones at the height of popularity for business and personal communications, they are also reaching new heights as a business tool. WAP (Wireless Access Protocol) is an open specification that handset developers use to connect wireless users to information services such as email, stock trading and payment acceptance. Of all the handsets sold in 2003, about 25% will be WAP enabled, according to Allied Business Intelligence. The percentage of WAP enabled handsets is expected to climb to 33% in the next two years.
   WAP-based payment acceptance is already available through a number of phone-based payment solutions, certified through payment gateways to the leading payment processors. The simplest form of WAP-based payment is the basic key-entered transaction. Using a handset, the payment application prompts a merchant through a series of screens for key-entering the transaction amount, card number and expiration date to receive an authorization. This method is the lowest cost of entry for a mobile merchant, but it is less secure, more time consuming (tough on a busy merchant's thumb!), and doesn't qualify the merchant for "swiped" interchange rates.
   Handset solutions that offer "swiped rates" are available in a variety of formats as well. From cabled devices that connect to the phone's serial port, to snap-on card readers that become part of the phone, merchants can convert their mobile handset to a fully-function POS terminal. These swipe-enabled devices use either WAP or Java-based applications to complete the transaction process, but the magnetic card swipe simplifies the transaction and qualifies the merchant for lower "card present" interchange rates, which is especially important for businesses with large-ticket transactions such as movers, furniture delivery companies and home contractors. There are also a number of portable printer options to round out these mobile phone-based solutions.

Maximum Security

   Across the payments industry, there is great concern about transaction security, protection from fraud and protection from identity theft. In its natural form, wireless data offers a high level of security to deter fraud because it divides transactions into packets for fast transmission. Tapping into these airborne packets of information proves to be a lot more difficult than tapping into a phone line on a standard dial-up POS terminal.
   Moving forward, however, many developers of mobile payment devices and applications are going the extra mile to make sure that sensitive transaction data is safely encrypted. Encryption works because a "key" is required to decrypt the message ­ and the keys are only available at either end of the transaction. Anyone in the middle must try to arrive at the key through a trial and error process. When confronted with the state-of-the-art "triple DES" encryption being employed by some mobile payment devices, fraudsters would find it nearly impossible to derive the key. It's been said that, even with today's most advanced computing power, it will take more than five billion years to break a triple-DES key.
   Certainly, the level of encryption is important, but where the transaction gets encrypted is even more critical. Currently, phone-based payment devices encrypt the data either just before transmission, or‹better yet‹at the card swipe. "At-the-Swipe" encryption achieves maximum security and prevents any java-based "fraud skimming" applications from stealing numbers or other sensitive information. Any method other than "At-the-Swipe" encryption leaves transaction data at risk.

New Wireless Networks

   Two new networks are beginning to emerge as the next generation of wireless payment network: CDMA and GPRS. As stepping stones to blazing-fast "3G" (third generation) networks, CDMA and GPRS are categorized as "2.5G" networks. They boast more features, a slight bump in speed, and improved coverage than current cellular networks. The rollout of these networks is underway and expected to be completed later this year. Even though these networks are leading edge, the existing wireless data networks most often used in payments are more than fast-enough for the relatively small sized data packets that deliver card transactions. Nevertheless, wireless POS terminals based on these networks are on the horizon.

Gotta Getta Gateway

   In case you hadn't noticed, even a simplified update like this one encompasses a wide number of networks, devices, and processing platforms. To simplify your wireless sales efforts, you might consider partnering with one of the wireless gateways that provides a comforting layer of service and support, as well as turnkey wireless solutions. When evaluating gateway partners, here are some questions you should ask:
   How quickly can you activate a terminal on the gateway? Your ability to provide your customer with speedy service should be enhanced by your gateway relationship. 24-hour activation is standard, but some gateways automate activations to the carrier and can get your merchants up and running in less time.
   Does the gateway offer a choice of devices and networks? Ideally, your gateway should provide you with multiple network choices so that you can optimize your wireless coverage footprint across the nation. No single network provides universal coverage. Increasing your options increases your success.
   Are any of the gateway's solutions "Class A" certified? If you would rather spend time selling than supporting, a "Class A" solution will give your merchant an 800 number directly to the processor's help desk, freeing you to close the next deal.
   Does the gateway offer 24 x 7 x 365 Level II support? For Class A and Class B certified solutions, the gateway should offer immediate support to ISOs and processors to identify and correct any wireless-related transaction issues.    These questions will help you identify a strong gateway partner who can help you make the most of the wireless market opportunity, and help you navigate the waves of new technology now available to mobile merchants.