Can Payment Processing Make You More Profitable?

“Some VARs have always kept a hands-off position to payment processing services,” states Matt Turner, chief marketing officer at Mercury Payment Systems. “However, payment processing is no longer an issue they can afford to ignore.”

Indeed, the recurring revenue opportunities of payment processing are enticing for POS VARs trying to improve upon slim hardware margins. But there are some trends, connectivity options, and industry basics you should be aware of before delving headlong into this complicated technology.

Know The Standards, Expect Consolidation
When talking payment processing these days, you need to know about the new credit card standards, because if there is a trend in payment processing, this is it. “VARs should understand the Payment Card Industry [PCI] Data Security Standard,” explains Bill Baker, VP of sales at Sterling Payment Technologies. “These standards affect merchants and their employees, payment processors, service providers, software developers, integrators, network providers, and equipment manufacturers. The standards address building and maintaining a secure network, protecting cardholder data, maintaining a vulnerability management program, implementing strong access control measures, regularly monitoring and testing networks, and maintaining an information security policy.” The PCI Data Security Standard resulted from Visa and MasterCard joining their separate security programs (i.e. Visa’s Cardholder Information Security Program [CISP] and MasterCard’s Site Data Protection [SDP] Program) to create one standard for all cards. Visa also designed its Payment Application Best Practices (PABP), which was derived from the PCI Data Security Standard. The more you know about these standards the better, since your clients are going to be grilling you about whether your solutions are secure enough. “The card association rules will continue to drive new opportunities for upgrades in products and services supporting payment transactions,” states Patrick Maloney, VP of business development at ICVERIFY, Inc. “In addition, during the next few years, expect to see technology consolidation and payment processing bundled into the overall POS solution sale. The days of seeing multiple POS devices on a merchant’s counter are numbered.”

Which Payment Processing Connection Will Your Clients Select?
Your clients not only want secure payment processing, they want fast transactions. They don’t want to risk losing customers because of slow checkout lines or long card approval processes. But how much time is too much time? According to Norm Hayes, general manager of software solutions at VeriFone, Inc., a credit card authorization may take up to 20 seconds with dial-up connectivity, but it can be achieved in less than 3 seconds with Internet connectivity. But Patrick Albright, senior VP of marketing and sales at Moneris Solutions, cautions, “It is important for VARs to understand that just because many businesses are moving to IP-based solutions, dial-up solutions still work well and are often the preferred solutions for small to midsize merchants.” Hayes says that VARs should seek payment processing solutions that are certified with a broad range of processors, since many merchants have existing merchant account relationships with specific processors. You should also understand that each processor determines in what format card information is sent and has published specifications regarding how information should be communicated to its particular network. “Rarely do two processors require cardholder information to be communicated in the same way,” explains Hayes. “In this regard, communication is the barrier to entry to the payment processing application market. Being able to offer merchants a solution that is certified to connect and communicate with a broad range of processing networks is a huge competitive advantage for a VAR.”

What About Contactless Payments?
VARs should also be prepared to answer questions regarding whether contactless payment solutions affect payment processing connectivity. The short answer is no. The transaction authorization process remains the same no matter what the input device. Explain to your customers that RFID (radio frequency identification) and contactless payment are not the same thing. They both use RF signals, but contactless technology is usually used to identify a person via an encrypted card and RFID is used to track and identify items.

The issue of contactless payment is likely to come up, considering MasterCard and Visa are planning on producing millions of these kinds of cards in 2006. “Contactless payment provides three great benefits to the cardholder: speed, convenience, and security,” Baker says. “There is more security because cardholders do not have to hand their cards to cashiers. That’s why I believe that paying at the table in the restaurant industry will once again be an emerging payment option.”

Sell The Advantages Of Integrated Payment Processing
All of the payment processing experts interviewed expressed how the integration of payment processing into POS software solutions has increased the adoption of payment processing services for SMB clients. Turner says that integrated payment processing helps a VAR’s clients eliminate the costs of extra hardware and software, reduce the costs of technical support, and improve security. “In addition, with integrated payment processing systems, VARs can build loyalty to their solutions and prevent loss of control over customers who may be approached by merchant-level sales representatives for processing companies that sell hardware or are biased to a particular POS platform,” he explains. Baker agrees, adding that integrated payment solutions reduce paperwork; offer faster reconciliation rates and more counter space; and reduce installation, operations, and maintenance costs. “There is no reason today why all SMBs cannot afford to integrate payment processing into their POS devices,” Baker says.

Add Value With Your Knowledge
Of The Payment Processing Industry
Payment processing can be confusing to your clients since there are so many different people involved. “Payment processing involves multiple parties connecting successfully, and merchants often don’t know who to turn to for troubleshooting or connection issues,” says Maloney. “Is it the hardware, the software, or the phone company that is causing a problem? VARs may end up in the middle of it all, so they should be familiar with the components and responsibilities associated with each.” Thus, you can bring value to your clients by simply explaining the payment processing system and the various players. For example, you can explain that a merchant account is a commercial bank account that enables your customers to accept credit card payments. A credit card processor is a company that receives the credit card data sent from your customers’ terminals and processes (i.e. approves or denies) the transaction. When choosing a processor, you should ask how many servers the processor has to ensure constant uptime. Furthermore, you should clearly understand the requirements for ensuring your clients’ transactions are processed correctly.

To make payment processing even more confusing, there are ISOs (independent service/sales organizations) that set up and manage the relationship between banks and a VAR’s customers. ISOs may also try to sell their services directly to a VAR’s clients. MLS (merchant-level sales) representatives from credit card processors do the same thing.

But the upside for VARs is that the payment processing market is very competitive these days. That means you should be shrewd when negotiating which company to use. “One way processors help VARs sell more POS systems is by providing creative funding opportunities for the VARs’ customers,” notes Baker. “Whether it’s providing leasing options for VARs, or giving merchants advance funding based on future Visa/MasterCard receivables, processors are helping their business partners sell more systems.”

Turner is right, VARs can’t ignore payment processing as a potential revenue source. If you learn the payment industry’s security standards, connection options, and lingo you may be able to enhance your bottom line.