Staking your Claim in the Payments Market

Written by: Deepak Wanner, President and CEO, Precidia Technologies Inc.

When the going gets tough, what can you do to win customers? Bring extra value to merchants with new technologies and products that will reduce transaction processing costs and make operations more efficient.

We’ve ushered in a new year, and if market watchers are correct, we are in for a continued rough ride. The rapid downslide in the global economy through the last part of 2008 continues to threaten businesses throughout the U.S. As consumers feel the pinch of market losses and job instability, the retail industry will be hard hit. This decline in consumer spending will leave resellers of POS systems to compete for an even smaller slice of the merchant pie, as merchant attrition due to business failure reduces an already small addressable market.

With challenge comes opportunity. Dealers who understand this are in a strong position to help their customers through tough times, and benefit from their loyalty in the future. According to Forbes magazine’s McKinsey Quarterly, “Many [merchants] make the mistake of focusing on what is easy or known to them and fail to tackle more challenging goals that might improve their competitive positioning during the inevitable upturn”. Improving the retailer’s competitive positioning is where the Dealer comes in.

Take a Second Look at Payments

Like consumers, merchants are taking a closer look at what they spend, and how they can reduce these costs. If merchants are using an ECR or PC-based hospitality system, they are typically taking card payments in one of two ways: with a stand-alone dial or IP terminal, or using an integrated payment system. One of the first things a Dealer can do to help merchants is to understand the fees and costs charges by the various providers they rely upon.

Dealers have told me that their merchants have expressed concern about hidden fees driving up the overall cost after signing a contract for integrated cash register payments. Often this is a result of reduced upfront hardware costs at the beginning of the contract – the vendor recoups these costs by charging a fee for just about anything. This can include fees for set up, to change processors, deploy new configurations, or implement software upgrades and message format changes. Ask the merchant to review invoice line items and look at how they add up on an annual basis – they may be in for a surprise. Look at ways these costs can be decreased – do alternative payment processing options charge the same fees? Can some of these tasks be managed by the Dealer to reduce the merchant’s costs?

This is where the Dealer needs to do some research to understand the alternatives. There are options that give the Dealer complete control over the merchant’s processing – to change processors, implement upgrades or new configurations. This alternative model has upfront costs to purchase and set up the payment router that drives the processing, but the Dealer then has complete control – and can often support multiple merchants with one router. Over the long term, merchants can reduce ‘change’ fees significantly, as well as taking advantage of the lowest processing rates available - since they can change processors easily and as often as they wish. Another way for the merchant to reduce fees is to add PIN debit. While this may not bring more revenue to the Dealer or processor, offering it to the merchant will foster loyalty, aiding customer retention.

Similarly, if a merchant continues to rely on stand-alone payment terminals, consider whether the benefits of moving to an integrated system are worth the merchant’s costs. Integrated payment systems reduce double entry errors and make settlement smoother. If unsettled transactions are a significant cost for a merchant, it may be time to consider an integrated system for this savings alone. In a 2007 survey of merchants with experience using stand-alone payment terminals, Payment Processing Inc. (PPI) stated: “the stand-alone terminal’s shortcomings have quickly become an obstacle to running an efficient—and profitable—business. The adverse impact of trying to work with outmoded technology has increased ten-fold and threatens to divert valuable resources in what, often, are small and medium size businesses. Merchants are actively seeking ways to streamline the process of accepting cards and they’re discovering that an integrated payment system is the answer to managing the increase in electronic revenue.” The survey indicated that 78% of respondents switched to integrated payment processing from a stand-alone terminal model to reduce administrative tasks, while 62% wanted better reporting. Nearly 50% wanted to eliminate the entry errors common in dual entry, non-integrated systems. Dealers should nurture successful and profitable processor relationships, or partner with an ISO that already has these established partnerships. Many ISOs offer revenue-sharing arrangements with Dealers of ECRs, PC POS and other POS systems.

Most merchants using ECRs and hospitality POS systems can integrate payments very cost effectively – retaining existing equipment and simply adding this component. The choice of provider will depend on whether the merchant wants to pay an upfront ‘black box’ cost, with lower ongoing costs – or a no upfront cost model with hefty charges month-to-month.

Consider Support Revenue

Retaining customers by building loyalty is key, and so is revenue. Successful Dealers anticipate the merchant’s needs with strategies to make it happen. When it comes to support, we know that payments is a key issue: Leading cash register manufacturers estimate that nearly 40% of the issues merchants face relate to payments - from failed batches to refunds and charge backs, these are the merchant’s key problems. Many argue that the Dealer is in the best position to offer this support. It is true that Dealers understand the POS equipment they sell, but often the Dealer’s hands are tied by the ‘vendor-driven’ design of the prevailing integrated payment product. It’s important to review the features of available options, to determine which products offer the greatest flexibility and ownership of the ‘black box’. Options that give full control of the payment function to the Dealer and merchant can give the Dealer a competitive advantage – offering merchants free or low cost processor changes and upgrades. With 24/7 remote access to diagnose problems, the Dealer can easily deliver enhanced support from anywhere. This is just one reason that Dealers should look outside the prevailing integrated payments model and consider alternatives.

Thinking Outside the Box

While the prevailing model for integrating credit card payments with cash registers works well, it’s important for Dealers to review alternatives on a periodic basis to make sure their merchants are getting the most for their money. Technology continues to evolve, making yesterday’s challenges today’s opportunity.

Deepak Wanner is President and CEO of Precidia Technologies Inc. A strong proponent of IP based technology in retail payments, Deepak works with payment industry players to deliver innovative technology-based solutions to common payment networking challenges. Visit Precidia at www.precidia.com.