Could anyone have predicted todayâ€™s payment complexity?
While we haven't become a cashless society, it's unlikely that when the first credit card transaction was run 56 years ago there were pundits predicting the complexity and rate of change that characterize today's payment environment. More than half of today's retail transactions are card-based. Checks are in decline. PIN debit acceptance is surging. Contactless cards have been introduced. Biometric authentication has seen early adoption. Cell phones and PDAs are used as digital wallets. Online payment options (Bill Me Later, Google Checkout, PayPal) have taken hold. The ACH (automated clearinghouse) network is growing as a means of accessing consumer accounts. PCI (payment card industry) security standards have been introduced, with audit requirements and sanctions for noncompliance. Gift cards are on the upswing, relegating paper gift certificates to the dark ages. The likes of Blackhawk Network and InComm have enabled merchants to sell gift cards branded by other merchants. All of this has happened in the name of cashless transactions, yet too often this complexity translates into pain for merchants.
The POS Impact
Another source of payment pain for merchants has been the need to deal with each payment processor's unique specifications. In an integrated POS situation, this has traditionally required a custom or proprietary integration between the POS and the selected processor. As a result, changes to the POS were required every time there was a change in that processor's specification or whenever a merchant chose to change processors. These traditional, one-to-one connections between the POS and a processor have proven to be very high maintenance. This source of pain led to the birth of payment switches for merchants. Through a single interface to a payment switch, POS transactions can be instantly translated for any processor specification. This creates a one-to-many relationship between the POS and processing world and insulates the POS from increasingly frequent specification changes and processor changes.
What is a payment switch? Think of a software application that interfaces with any POS system, consolidates electronic transactions at the enterprise level, and routes them to one or more payment processors. Given the increase in card transactions, decline in the cost of enterprise-class servers, and ubiquity of high-speed WANs (wide area networks), payment switches are now mainstream.
What else can a payment switch do? It can facilitate direct connections to card networks, gift card processors, electronic check processors, and phone card processors. These connections can eliminate conveyance fees and enable adoption of new payment types. Payment switches also reduce interchange using BIN (bank identification number) management. Through PIN pad prompting, credit and signature debit transactions can be converted to lower interchange PIN debit transactions. Interchange can also be reduced by capturing level II and level III settlement data in the case of corporate purchase card transactions. Payment switches enable ownership and control of PIN pad keys by interfacing to a host security module. This can save a merchant the $30 to $40 cost to reinject keys in the event of a processor change. As payment application best practice (PABP)-certified software, payment switches can comprise an important component of a merchant's PCI compliance program. Finally, payment switches provide merchants the ability to bring gift card programs in house, eliminating third party processing costs.
The payment world is only getting more complex. In some cases, payment switches insulate retailers from this complexity. In other cases, they enable retailers to quickly adapt. In all cases, they provide an opportunity to realize meaningful cost savings.