A Forrester Research report analyzes the early successes and failures of Apple’s mobile payments system.
Some retailers are leveraging their in-store web connections to move payments to processors.
Some retailers have been using the Internet to move sales and transaction data from stores to division offices or headquarters, finding that the web provides a lower-cost way of moving data in real time than do leased lines or other high-speed data transport lines. Now some are also finding that the web is an effective and efficient way to move payment data to the credit card processors. “Communication is much faster and more reliable,” says Peter Oliver, president of Santa Rosa, Calif.-based Dataflow Computer Resource Inc., which operates an outsourced information technology service for retailers. “Internet protocol is a much more elegant protocol for communications.”
Among other clients, Dataflow manages the IT operation for Yardbirds, a chain of 11 home improvement stores in California. It hosts servers, back office operations and inventory management functions. “Yardbirds was implementing a new POS system to integrate transactions to the back office for inventory control,” Oliver says. “One improvement they were looking for was in credit card processing.”
Speed and reliability
Yardbirds communicates with Data-flow via a frame relay and Dataflow initially thought that it could communicate in turn with credit card processors via a frame relay. “Frame relay communication exists in other processing environments, but the credit card process is a whole maze of connections and some of the players are not the most flexible,” Oliver says.
In discussing the issue with Yardbirds’ credit card processor, Wells Fargo Merchant Services, Dataflow learned that Concord EFS Inc. was offering a web-enabled credit card processing connection through ConcordEFS.net. Since using the web-based service, Oliver says, transactions are faster and more reliable, with fewer time-outs resulting in broken communications that cause banks to charge transactions back to merchants.
The movement to the web is the latest development in an evolving payment infrastructure that dates to the mid 1980s, when card companies offered incentives to merchant-transaction-acquiring banks-who usually passed those on to the merchant-to install authorization terminals. At the time, simply obtaining an electronic OK or a not OK in less than a minute on whether a card was valid was revolutionary. In short order, terminal manufacturers developed more powerful devices capable of capturing the entire transaction and the card companies moved their incentives to the data capture devices. Those are now virtually universal.
Unlike the earlier technological breakthroughs, moving transactions from the point of sale via the web does not qualify for incentives from the card companies. Rather, the primary benefits are speed, reliability, lower cost of communications and easier installation than with usual protocols, say web advocates.
Speed was one of the primary reasons that Gig Harbor, WA-based EIMS Inc., an outsourcer of IT services for entertainment venues, adopted the web for payment. EIMS processes transactions for 30 chains of movie theaters operating more than 100 locations. “The problem with taking credit cards in movie theaters is that they slow down the line,” says Wesley Morrell, vice president of technical operations for EIMS.
Transactions that had taken as long as 20 seconds over dial-up lines-an eternity at a movie theater box office-now take no more than three seconds over the Internet. And the speed comes at no more cost than a dial-up line and less cost than a dedicated telephone line, Morrell says. EIMS processes all transactions that movie theater clients generate-ticket sales as well as concession sales-and all data moves over the Internet to EIMS’ processing center. Payment transactions move over the Internet either to EIMS for aggregation and then to Concord or directly over the Internet to Concord.
EIMS likes the Internet for data movement so much that it offers a 3% discount on service contracts to merchants who communicate via the web, Morrell says. The great benefit: the Internet allows EIMS to tap easily into any device at the theater that might be having a problem, Morrell says.
A frame relay connection from a store to a card processor costs $1,500 to $2,000 a month, if the retailer controls the entire structure, says Gary Arnold, president of the Emerging Technologies Group for Concord EFS. Fractional portions of a frame relay can start at $300 a month, he says. Since many retailers have Internet access for other uses, moving one more kind of data over the Internet costs nothing extra, he says.
In addition, the Internet makes it easier for merchants to link to processors because they are communicating using standard protocols. The problem in developing links, says Gray Schroeder, vice president of engineering for Concord EFS, are the proprietary networks that payment processors operate. “Outside of the payment world, the protocols are not known,” he says. “Developers at the merchants need to learn whatever that network’s protocol is.” Developing those links can take months, he says, and requires certification from the processor.
Further, a persistent Internet connection creates more reliable transmissions, Oliver says. He estimates that analog lines over a modem lose two to three transactions per thousand, which then must be researched and restored.
The biggest drawbacks to converting to web-based transaction processing are the fact that many retailers-mostly smaller chains and single outlets-do not have Internet access in the store and that most retailers’ POS systems are several years old and not Internet capable.
However, linking stores to data centers over the web usually does not require that each terminal be web-enabled. Rather, terminals link to one server in the store that has the web connection and all transactions will move through that single device. The connecting devices, however, must be able to report to the server in a web-based protocol. Often, one POS terminal will also be equipped with a web browser as a back-up in case the server goes down.
Stores are making strides in installing web capability, Arnold says. “Among the mid-sized and larger merchants, the vast majority have Internet access at stores because they use it for other purposes,” Arnold says. “Even among the small merchants, we’re seeing about half with Internet access today.”