Add On Payment Processing

As retailers begin to take advantage of the Internet, VARs have an opportunity to offer them capabilities such as IP (Internet protocol)-based payment processing. This technology makes sense to retailers who already use the Internet in other areas of their business. Using IP in payment processing cuts down transaction time compared to dial-up processes. With an IP-based solution, credit card authorizations take about 2 to 3 seconds, compared to the 20-second wait time often associated with dial-up. Retailers may be hesitant to switch to an IP-based payment processing solution for reasons such as security and infrastructure investment. As a VAR, it is important to know how to overcome these objections.

Replace Old Infrastructure With New IP-Based Solutions
"At this point in time, 95% of retailers use dial-up and 5% use IP-based solutions. Those proportions will flip-flop to 10% and 90% eventually," says Martin Hawke, vice president and director of sales and marketing for Payment Processing, Inc. (Fremont, CA). IP solutions are clearly not trouncing the dial-up competition yet - but if IP-based payment processing is offered as an add-on to an already existing IP environment, POS (point of sale) VARs could benefit.

"A lot of businesses are using the Internet for many business-related tasks, so payment processing can piggyback on that. For example, once a retailer sets up a DSL [digital subscriber line] to transmit payroll data, they may as well use it for a POS system," Hawke explains.

Vice President of Marketing Development at Moneris Solutions (Buffalo Grove, IL) Pat Albright believes as retailers gather more data, rather than just deal with the transaction itself, they will need a solution like this. "I do see a rise in IP-based payment processing as the information needs, data needs, and data usage increase. But, if people are focused purely on the transaction, they will probably not be looking for an IP solution," Albright says. "You might save 10 to 15 seconds on transaction time, but that's not the true advantage of IP-based payment processing.

"What is an advantage is the ability to use IP connectivity to enable greater and more powerful tools." For instance, by converting from dial-up methods to IP-based methods, a series of APIs (application program interfaces) can be implanted. APIs allow connectivity and additional reporting mechanisms. This is useful for fulfillment centers and warehouse connectivity for product inventory management. Albright believes this is where IP will play an important role regardless of transaction speeds and cost.

Additionally, with IP connectivity, payment processing loses some of its complexity compared to dial-up. Albright explains, "With dial-up capability you're sending out transactions through a dial. That means you have to take those transactions from the terminal and reconcile them with an accounting-based software program in a computer." With IP-based payment processing, the information is transitioned from the terminal and pushed over the Internet, making it easier to pull that data into the accounting software.

Despite the advantages of IP-based payment processing, retailers that are not using the Internet for other business processes will likely hesitate to upgrade to IP-based payment processing. Infrastructure for dial-up payment processing has been in place for years in the retail environment. Replacing infrastructure to allow Internet processing will not be an overnight job. Brooks Terrill, chief technology officer, Heartland Payment Systems, Inc. (Princeton, NJ), points to the hesitancy retailers are bound to feel. "It is difficult to displace infrastructure, regardless of type," says Terrill. "There is a vast amount of dial-up infrastructure in place. This makes the migration to IP a relatively slow process. For investment reasons, there will always be a certain amount of dial-up infrastructure in the marketplace."

Clearly dial-up will not be obsolete in the payment processing market, but as the market evolves, VARs need to evolve with it. There is plenty of room for an IP-based payment processing solution for retailers who already operate in an Internet environment. "Internet-based payment processing opens up new possibilities for VARs," says Hawke. "They can go to past installation sites and offer their former clients an IP-based solution that will speed up transactions, while simultaneously creating new add-on profits for themselves. Implementing an IP-based solution is not just more work for a VAR; there is a real opportunity here for profit." VARs of POS systems will soon see a change in the role of IP-based processing. "There are a lot of opportunities for POS VARs who have dial-up payment processing solutions integrated into POS," Terrill explains. "Many customers would rather go IP because of speed."

Beef Up IP Security
Of course, IP-based payment processing presents security concerns. "IP-based payment solutions need to have high security and advanced encryptions around them. These are payment transactions we're talking about, so the information is sensitive," says Henry Torre, vice president of POS solutions at American Express (New York). When shopping online, consumers choose when to use their cards. And, they are usually assured that they are transmitting data over a secure network. If an IP solution is in place at a restaurant, however, customers are not making the choice to transmit data via the Internet. So, retailers have to take measures to protect the interests of their customers.

"There are standard security solutions like SSL [Secure Sockets Layer - a protocol for managing the security of message transmissions on the Internet]. Besides e-commerce applications, SSL can be used in an environment that transports transmissions from the POS. I think you'll see more and more publicity on security technologies, like SSL, that will make retailers more comfortable with IP-based payment processing," Terrill explains. Take into consideration consumers' past inhibitions when it came to e-commerce. Over the past two to three years, the number of consumers shopping online has increased dramatically. This is due in part to consumer confidence in Internet security.

As IP-based payment processing becomes more of an option for retailers, VARs need to lead the way helping retailers to realize the true benefits of adding a payment processing solution to their already existent IP network. If you don't educate yourself now, you may miss a golden opportunity.