Magazine Article | October 1, 2000

Payment Processing: What's Next?

Source: Innovative Retail Technologies

E-Commerce changed the way retailers interact with customers and process payments. As the power of the Internet continues to grow and m-commerce (mobile commerce) takes hold, payment processing will evolve even more dramatically.

Integrated Solutions For Retailers, October 2000

These days, even traditional brick-and-mortar retailers must develop a coherent Web strategy or risk being left in the wake of their competitors. Whether you're a traditional retailer moving onto the Web or a pure-play online retailer, you'll almost certainly be overly enamored with developing a glossy front for Web shoppers. However, you must not forget the basics for all retail transactions. At the top of this list is payment processing. Some of the lessons learned at traditional retail outlets also apply online. But, some do not. Retailers may have conquered payment processing within the four walls of their stores. But, online shopping is a different environment. And, most retailers do not have strategies in place to handle the inevitable flood of m-commerce (mobile commerce) transactions that will take place in the future.

To address the issues surrounding payment processing, we contacted representatives from VeriFone (Palo Alto, CA), a division of Hewlett-Packard. VeriFone is a global provider of secure, electronic payment solutions for financial institutions, merchants, and consumers. The company has shipped more than seven million payment systems, which are used in more than 100 countries. The company's hardware and software have supported traditional POS (point of sale) payments for 20 years. Additionally, VeriFone has now evolved to offer end-to-end payment solutions that include traditional POS countertop payment, e-commerce payment, and m-commerce payment. Jim Christensen, director of marketing for e-commerce software at VeriFone, and Betty Kolanczyk, director of retail marketing at VeriFone, addressed some of the current developments and future trends in payment processing.

What is the biggest misconception of retailers regarding payment processing?
JC (Jim Christensen): The biggest misconception is that payment processing is easy. In reality, it is not. It is a very complex environment. If retailers are not paying full-time attention to payment processing, they will not get the ROI (return on investment) benefits that they deserve. The perceived ease of payment processing is a common misconception. Retailers think payment processing is just an easy check-off item on a list. In truth, it is really quite a challenge to keep up with such things as new policies and security procedures.

Do retailers eventually appreciate the complexity of payment processing?
JC: Once you sit down and go through all the new changes, management and the IT staff realize that they don't know everything they should. Look at micropayment; no domestic retailers are thinking about this. M-commerce is another issue that most domestic retailers haven't addressed. Retailers can fall behind quickly if they don't stay on top of technology. Domestically, we embraced the Internet much faster than most other areas of the world. Now, those areas are playing catch-up. And, you can catch up. Once you make a decision that you're going to catch up, you can catapult yourself into a position that is state-of-the-art. You don't need to take a stage-by-stage approach. It is a leapfrog approach.

How will the payment processing market change in the next 12 to 18 months?
BK (Betty Kolanczyk): I think you will see all retailers using the Internet as a strategic platform. Today, not all retailers are there. In 12 months, almost every retailer will be there. Retailers know the Internet is a strategic tool, and they need to invest in it. Then, the only decision is whether to use in-house staff or a service provider.

Credit will still prevail as the preferred mode of payment on the Internet. But, you are going to see prepaid services really take off. This will allow retailers to reach non-credit consumers, and that is a very large market. There will also be new ways of handling checks on the Internet. Again, this will allow retailers to reach non-credit consumers. These consumers want to make online purchases without using credit cards.

You will also see the mobile phone world become WAP (wireless application protocol) -enabled. At that point, mobile phone users will have the ability to do m-commerce. Retailers should be prepared to offer these m-commerce services. Retailers that don't will get left behind.

What are some m-commerce services that retailers are offering consumers?
BK: In the United States, almost no services are available. But, retailers are starting to look in this direction – especially the dot-coms. These retailers are exploring the option of mobile payments. As more phones in the United States become WAP-enabled, you're going to see retailers take advantage of this technology. M-commerce will not just be purchasing merchandise over the Internet. It can be a valuable customer service tool, too. A drug store, for instance, will be able to send a message to a mobile phone that lets a consumer know it is time to renew a prescription. The consumer can press a button, and the prescription will be renewed. When the prescription is filled, another message can be sent to the consumer. From an m-commerce standpoint, there will be both payments and information. But, there will be a lot more information than payments.

JC: We're not just talking about mobile phones. The United States is embracing the PDA (personal digital assistant) environment with devices from companies like Palm. This development will really increase the amount of payments and information being driven through m-commerce.

Do you have any final advice for retailers regarding payment processing?
BK: For retailers, customers are number one. We don't need to tell them that. However, retailers must be able to offer commerce and information to their customers in physical, virtual, and wireless environments. This ability is a big competitive advantage.

Also, working with a trusted partner for payment processing will open up new opportunities for retailers. They can't do it all themselves.

Finally, m-commerce is something retailers should not wait to explore. Retailers need to start investigating these solutions today and have strategies for the future. M-commerce will emerge as quickly as the Internet. The number of mobile devices, however, will be many times the number of PCs that customers are using. Even with a lack of mobile standards in place right now, retailers need to start investigating how they will play in that mobile environment.

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