Common Ground: 
Is the
Black Box

by Greg Cohen

   Retail-Over-IP (using the Internet instead of dial-up as a communication type for retail transactions) is considered by some to be the biggest change to the payments industry since EDC. It may not be that significant, but without a doubt, the Internet as a communication protocol is taking off. More and more merchants have high-speed connections in their facilities, with the number growing daily.
    There is no doubt why many merchants are converting to and many more investigating the Internet for their retail transactions with the elimination of extra phone lines, reduction in overall communication costs and increase in speed of transaction. Many integrated systems and software can already take transactions to processors via IP. We are seeing terminals being developed by major manufacturers that can run transactions over the Internet, but what about the millions of terminals already in the U.S. market today? There are a few companies that have noticed this void in the market and have created �black box� solutions. These �black boxes� attach to a standard dial terminal such as a Tranz or T7 and enable that terminal to send transactions using IP.
    Recently, I sat down with Deepak Warner (President & CEO) and Ken Freedman (VP of Sales) of Precidia Technologies to understand the �black box� market.
    Making a heavy investment into a new IP terminal today may not seem prudent a few years from now. IP terminals are in their infancy. We have just seen the first generation and technology always moves forward quickly. Just like the first PCs were expensive and outdated quickly, so will first generation IP terminals. Furthermore, there are over 11 million dial terminals in the marketplace today and most of them work just fine. When a merchant decides to go IP, a �black box� extends the capital and training investment of the existing dial terminal(s) and provides time to wait for improvements in and cost reduction of IP terminals.
    Cheaper than an IP terminal, the �black box� solution offers cost-savings for a single terminal and provides an even better ROI if the merchant has two or more, as numerous terminals can be run through one unit. Implementation is faster and easier than an IP terminal as the �black box� installs at the Bell drop. This avoids the cost and delays associated with running IP network cables directly to the POS. In addition, there is no costly retraining of staff with a �black box� solution. The employees continue to use the simple terminal(s) they are familiar with, using the exact same key strokes and applications as when the terminals were dialing to the processor. All in all, the merchant�s risk is reduced as there are very limited changes at the store level to gain immediate benefits of IP: no large infrastructure investment or disruptive, multi-risk implementation.
    The �black box� sounds like a winner for the market, but understanding the nuances is somewhat complex. While there will be a substantial speed improvement in transactions, particularly at peak times, black boxes will not be as fast as a true IP solution because a dial terminal will always start to make a telephone call. As with a new terminal, the �black box� must be certified to your processor of choice with the terminal application you wish to use. A �black box� manufacturer also has to obtain certifications on the various terminals in the market and finally, the network provider (especially if it is a private network) must be certified with the processor of choice. With the many terminals, hundreds of terminal applications and IP network providers in the market this may seem complex but is often taken care of by the �black box� manufacturer. Once you can figure out the �puzzle,� the �black box� is an easy sell and can bring your merchants into the IP world quickly and painlessly.
    To sell IP you need to understand more than merchant acquiring. You need to have a basic understanding of Internet communication. It is always important to ask your merchant questions before recommending a solution, but in the IP world that importance is enhanced greatly. You need to know:
� Network issues:
Will these transactions be run on DSL, T1, Frame, cable, Wi-Fi, cellular or satellite? � Security issues:
How important is this for the merchant and what are the options? Internet transactions generally use SSL, VPN networks use IPSec and no security may be required with a private network. � Downtime tolerance:
Network cost vs. availability; multi-lane locations may want dial backup. � Split-dial capabilities.
� Importance of speed:
25 second transactions on existing dial terminals can be reduced to between 3 to 10 seconds with a �black box� or to between 2 to 6 seconds with an IP terminal. For a sector like QSR, speed may be very critical.
� Cabling concerns:
Number of terminals per location and their physical layout.
� Other devices to hook up to the network:
(remote PIN-pad for debit card, check imager, barcode scanner, printer for money orders, loyalty terminal, etc).
� Other needs for public/private access:
(Internet searches � do you need them or want to prohibit them from staff?), broadband availability in other parts of store (or will be soon).
� Near term plans for growth, investment and expansion regarding POS systems.

   It is not until these are answered that you can even start to propose an IP solution. A fully thought-out IP strategy should contain a terminal, a stand-alone software package, a list of IP enabled VARs and a �black box.� The �black box� solution is the key to owning this space as it is the easiest for the merchant to implement as well as the least costly. It will allow your company to offer an early adapter product in the market, start moving merchants to IP immediately and with ease, and get a jump on the competition. However, the �black box� has complexity so as an acquirer you will need to do your homework, partner with a reputable firm, and educate your sales staff.
   IP is the transaction protocol of the future for payment transactions and you owe it to your organization to educate yourself, embrace the technology, andlayout an IP path for your organization.