ISO Future Corner of the Business Simplify, Simplify, Simplify Rethinking the MSP value proposition with merchantfocused vertical integration By George Peabody This may come as a shock: For retailers and other merchants selling goods and services, the process of taking payments is ancillary to their main line of business; payment acceptance is the merchant services provider’s (MSP’s) business. For most merchants, in the best case, electronic payments are viewed as a cost of doing business. At worst, because of a nagging sense that the process costs too much, payment services are viewed as an ongoing source of irritation. For the MSP, the challenge of adding value to the process contributes to increased churn as retailers look for better pricing and better value. As Henry David Thoreau said, “Our life is frittered away by detail. Simplify, simplify, simplify!” Complexity has its costs. For the retailer, payment acceptance is one of those innumerable details that requires a long list of often complex tasks. POS systems, most of which are built on Windows-based PCs, require maintenance. Receipt printers demand consumables as well as maintenance. For restaurant and bar operators, dedicated touchscreen devices and the software to drive them add high functionality, but also complexity and cost. Dedicated POS terminals may be highly reliable devices, but when it comes to upgrades for new functionality or to meet new security standards, either a lengthy upgrade process or a complete replacement of the device—or both—is required. But there’s more. For retailers, the added complexity includes communications cabling and a reliable Internet connection. Check and cash acceptance also bring challenges. More sophisticated merchants who use loyalty cards or couponing solutions have to contract for those services separately, often with a third party that’s separate from the payment services provider. And don’t forget PCI with its technical solutions, noncompliance fees, and self-assessment questionnaires. “Simplify, simplify, simplify” is the new payment services mantra. The industry’s initial response to this problem has been solution aggregation. Value-added resellers (VARs) and systems providers, such as MICROS, Radiant, and scores of others, have added payment acceptance to their line of business solutions. Many VARs and independent software vendors (ISVs) have partnered with gateway providers to provide bundled solutions for their merchant customers. This model, often based on a local service and support component, is responsible for hundreds of thousands of retailer systems. Another model, enabled by technology and powered by larger players in the payments industry, is now coming forward. Companies like Square Register, Retail Cloud, I Love Velvet, and others simplify the process for the merchant and open opportunity for the vendor. Changing Economics New technologies—like mobile computing, broadband Internet, and Cloud-based software delivery—are changing the economics underlying both payment acceptance and retailer POS systems. Why do they matter • Tablets are cheaper than PCs (smartphones are, too). They are already touch-enabled. • Broadband Internet access allows Cloud-based software to operate. • Broadband wireless enables the “app store” method of software distribution. Both make installation of software upgrades and bug fixes almost invisible. Remote maintenance, when needed, also is facilitated. These factors have enabled firms such as Square to deliver allinclusive services that go well beyond simple payment acceptance. Square, via its Register software and aiming up-market from its original mobile micro merchant target, is providing the small merchant with a competent cash register, inventory, and POS system. Square provides the hardware and transaction services. For hardware, Square points the merchant to a PC Connection site for the receipt printer and cash drawer, at $279 and $101, respectively. GoPago, an even newer entrant, is taking the bundled approach a big step further with its LIVE service that bundles payment acceptance with an Android tablet, store automation software that includes payments and inventory, a physical cash drawer, receipt printer, and a broadband wireless connection from Verizon Wireless, all for 2.85 percent of the transaction, with no other monthly fees and no hardware costs. At approximately $900 in free hardware and $100 or more in annual broadband costs, it’s a good deal for the right merchant—not only on price but also on complexity (or, rather, simplicity). 8 October 2012 | Transaction trends
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