Mobile wallets' outlook

When I blogged about mobile payments last week, I brought up the concept of a mobile wallet. Mobile wallets are the future of retail payments, but you wont get to use one any time soon!
Why mobile wallets?
The idea behind a mobile wallet is that a customer will pay for their purchase at the point of sale with the cellular phone, rather than a credit card. Because over 90% of the US population uses a mobile phone, arguably a higher percentage than people whom even own a credit card, a mobile wallet solution boasts a potential existing user base of nearly everyone. Unlike trying to invent some payment technology from the ground up, which has worked fewer times than I have fingers on 1 hand, a mobile wallet will capitalize on existing technologies and existing products that are widely in use.

How a mobile wallet should work:
This is one area there are going to be many answers for. I will take a purely consumer approach to it. The mobile wallet must work as follows:

• Must allow me to use any payment method I chose (Credit card, bank account, paypal, etc.)
• Must allow me to use my existing card and bank account.
• Must work with my existing phone (1 software installation is acceptable).
• Must be just as fast or faster than using my credit card.
• Must provide me additional security in the event I lose my phone.

This is the bare minimum for a functional mobile wallet. Note that the first 3 features stress independence from the company that supports the mobile wallet, and being able to use multiple methods to pay. This is extremely important, as there’s no chance in getting me or anyone to change card issuers, banks or anything else just because your company offers a mobile wallet. The mobile wallet must be independent of any requirement to use a specific card issuer, bank, or other service provider.

Where’s my mobile wallet?
As of writing this article, no company has come close to implementing a working mobile wallet solution. We’re going to hear stories from a number of companies on how close their mobile wallet solutions are, but realistically there is an enormous amount of work before these become reality. Not only does a very intuitive software program need to be created for a person to load onto their phone, but retailers must have software / hardware that allows them to interact with the phone, and retailers must have some connection to the wallet platform through their credit card or other payment processor, more on this later…
One idea that is beginning to rear its ugly head, is that cellular phone companies can bypass credit card companies and banks and simply add a charge to a customer’s phone bill. While this is a fantastic idea that would eliminate one of the biggest hurdles in the entire system, there’s no possible way it’s going to work given the current customer sentiment towards cellular carriers and cellular infrastructure. Cellular companies are neither operating under a business model to grant revolving credit like a bank, nor one that would allow them to underwrite and manage businesses whom accept payments on their platform. Personally, I wouldn’t even entertain the idea of my cellular carrier becoming my bank or credit issuer! Lastly, the SMS billing systems have already shown merchants what the cellular companies think their billing service is worth, which is nearly 50% of the transaction amount. For retail merchants, 5% let alone the current 50%, is simply not acceptable. It’s going to take policy and operating changes that would rival a country switching from socialism to democracy for cellular carriers to successfully become mobile wallets providers. Being some of the largest companies on earth, I just can’t see them moving quick enough with the amount of interested that this technology has developed in a short amount of time. Consumers may drive the payment industry, but no amount of consumers is going to force retailers to pay 50% to accept a mobile payment!

The real hurdles

Throwing my cellular provider’s mobile wallet out the window, there are several areas that major hurdles must be overcome before mobile wallets are close to becoming reality.
Customer software
The first hurdle, and the easiest to overcome will be creating software that works on a variety of mobile phones. This software is what will interface with a merchant’s POS system or other payment capturing device. It will act as the bridge between the merchant and the customer’s payment method. Realistically this isn’t an extremely difficult technical feat considering that a vast number of mobile phones supporting Bluetooth and other communication protocols. It will simply be a matter of allowing the wallet application access to the internet and the Bluetooth or communication capabilities of the phone.

Merchant software / hardware
Merchant based software and hardware on the other hand will be a huge problem. The easiest path for merchant to interface with the software on a phone will be some sort of 3rd party peripheral. This could easily be something the size of a PINpad and would ideally use existing connection options on the POS or terminal to communicate with the customer’s phone. The difficult part comes in trying to get the authorization through the mobile wallet platform. Many POS systems and terminal use dial or proprietary methods to connect to processor or the internet… There are 3rd party companies like gift card providers that interface with POS systems and credit card terminals, but they are very limited in the systems that can use them. While I think that this burden will be on the shoulders of the POS companies and the credit card terminal manufacturers, it’s no less daunting tank in the overall picture. Based on what I’ve observed of POS and terminal manufacturers over the past 10 years, particularly with regard to the speed that new technologies are adopted, I believe that this will end up being the final piece of the mobile wallet puzzle.
Credit card processors
The biggest hurdle for mobile wallets to work is there has to be a mechanism that would link a customers credit card and/or bank account with their phone (This hurdle is due to the bureaucracy of Visa/MC not the actual implementation). This doesn’t sound a particularly daunting task, but if you’ve worked with Visa and MasterCard and their books of regulations and operating procedures, you would know how difficult it is to go against the grain on anything related to their systems. The “grain” that I am referring to is not allowing a business to accept a payment for another business (also called factoring). In short, this means that the mobile wallet provider cannot accept the customer’s payment and then pay the merchant. The payment must go directly from customer to merchant. For the payment to go from customer to merchant, through the mobile wallet, there has to be a lot of back-end integrations and agreements between processors and platforms, card issuers, and communication platforms. The complexity of integrating with multiple processors across multiple processing platforms is well beyond the scope of any article that I can write, but it would take years to perform even by someone who knows what they are doing.

A realistic outlook

If I were to bet on when we see the first mobile wallet, I think we could safely say 5 years before anything exists at all, and 10 years before it is common. This is my best case scenario based on a mobile wallet working relatively close to the above description. The exception is if Paypal makes a mobile-retail platform, which could probably exist in a few years for select retailers. This would be much simpler to implement since Paypal doesn’t have to adhere to the Visa/MC regulations as described above and they have their own platform, which would bypass the bureaucratic mess that everyone else is going to run into. However, Paypal is in its infancy in the retail world, and still has many of its own hurdles to clear. We will most likely see mobile wallets progress in steps. I would bet that we will first see Visa or MasterCard apps that link your credit card to your phone. From there we can probably expect to see 3rd parties pushing for more independent services and banks should be joining in soon after. Eventually we will need to end up with mobile wallet providers that can handle all cards and bank accounts without having to use multiple companies. Only then will we truly have a mobile wallet.

A construction and tools writer can be reached at skype:goodluck3801 and paymentgateway@yahoo.cn

Debit/ATM Card Case Study

Here’s an example case study we completed to show you the savings by using a PIN Pad.
Solution Benefits

• No charge backs
• Reduced employee theft
• Ability to offer a cash-back option to customers
• Increased revenues
• No discount rate, only a per transaction fee
• Reduced risk of bad check losses
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Internal or External? — Choosing a PIN Pad
When it comes to choosing an internal or external PIN pad for your retail establishment you will want to weigh in the pros and cons.
Internal PIN Pads
If you’re someone who wants an all-in-one unit then this may be the route you want to go. These processing terminals have a smaller footprint (since the PIN pad is internal) which doesn’t take up much space.

External PIN Pads
If you don’t mind having two pieces of processing equipment (terminal for credit cards and external, usually handheld unit for Debit transactions) then you may want to opt for an external PIN pad. IVI Checkmate, a manufacturer of payment processing equipment, completed a survey and found a few reasons why choosing an external PIN pad might be in your best interest.

• Swiveling can take up more counter space
• Most merchants don’t place their terminals in a customer-accessible location
• You may not want customers handling your processing terminal
• Strain on cables caused by swiveling can increase equipment failure rates

Who Needs This Solution?
Debit card processing is another good additional processing solution to credit cards. It is also the fastest growing way to pay for orders, topping credit cards. Any business no matter what industry they may be in can benefit from accepting debit cards. The convenience of not having to write out a check is something that can really draw people to use their debit card to make purchases. Retail merchants can certainly save themselves a lot of money each month by investing in a low cost PIN pad to connect to their swipe terminal. Again, online merchants can save money by looking into an eCheck acceptance service.

Debit Card Processing Resources
Any Merchant Account Provider will be able to set you up to accept debit cards if you are interested. Contact your provider now for details or search for one here

Debit Card Processing

What It Is and How It Works
Debit cards work with the same ease as credit cards and allow customers to deduct funds for purchases from their bank account (usually their checking account). True debit cards require a PIN number to be entered before a purchase can be complete. Many people refer to the Visa/MasterCard Check Cards as Debit cards since they do the same as true Debit cards, except for the fact these check cards do not require a PIN number to make purchases. You can easily identify check cards as they will have the familiar Visa or MasterCard logos on them.

The process works just like accepting credit cards except when you enter in the customers debit card information the amount to cover the purchase is deducted from the customers’ bank account.
Do you operate a retail establishment? You can save bundles on processing costs by accepting debit cards with the addition of a PIN Pad. Unless the swipe terminal you’re using includes an internal PIN pad, you will want to invest in an external one.
Processing debit/check cards as a regular credit card transaction can mean paying twice the amount for processing. By using a PIN pad for debit transactions you only pay a per transaction fee (between $0.35 and $0.55), sometimes no discount rate of any kind. Also, it should be noted that in order to ONLY incur a per transaction fee (if your processor is able to do this) the customer MUST input their 4-digit PIN number into the PIN pad or your processing terminal (if the unit has an internal PIN pad). If the customer doesn’t enter their PIN number, the typical per transaction and discount rate will be charged to those using debit cards with Visa or MasterCard logos on them (also called check cards).

True debit cards like Star, MAC, Honor, NYCE, Pulse, Interlink, and Maestro will only incur a per transaction fee because the customer must input their PIN number in order to use the card — it’s optional for Check Card customers, but it will save you money so encourage them to enter their PIN number, if they know it. This is ONLY available for retail establishments.
If you’re an Internet merchant you will still incur the same charges for debit card processing as you do with credit card processing. There is currently no special Debit card acceptance system in place that only incurs a per transaction fee for Internet businesses. You can save money by using an electronic checks (eChecks) service for your website.

Other Payment Solutions

Have you considered offering your customers other methods of paying for your goods and services? You should! If you’re an Internet merchant you will find that offering more ways to pay can actually increase your sales. People like a varity of ways to order, they like the ability to choose which payment method is most comfortable to them.

Debit Card/ATM Processing

Debit card/ATM processing is almost like accepting credit cards except for the fact that your customers are using their debit card to complete an order. Funds are deducted from the customers checking account for purchases.

IVR Terminals

Interactive Voice Response Terminals, also referred to simply as IVR, are a relatively new method of being able to process credit cards, check cards (debit cards with Visa or MasterCard logo on them), and checks (ACH – Automatic Check Handling) via any touch-tone telephone.

PayPal

Over 8 million registered users use PayPal as their means for payment of online products and services. PayPal makes a great addition to your array of payment acceptance methods.

e-Checks & Checks by Phone/Fax/E-mail

e-Checks or Checks by phone/fax/e-mail are a good additional payment solution to credit card acceptance which allows you to collect payment via check over the phone, by fax, and even off your order form on your web site.

Micropayments (e-Wallet)

Micropayments are used to process small transaction amounts (from a few cents to $10 USD) that would otherwise severely limit your amount of profit if processed the same as credit cards.

Digital Cash (e-Cash)

Digital Cash is basically an encrypted serial number (online e-currency) that simply represents money. The customer then can spend the money at different merchants that support the Digital Cash provider the customer signed up with. Digital Cash gives added security and peace of mind to customers as they are not actually using their credit card directly to make purchases.

Escrow Services

Interested in added security of high dollar purchases and auction transactions? Then Escrow services are for you. They ensure the seller gets paid and the buyer is happy with their purchase.

Check Guarantee/Check Verification

Check guarantee is a program in which you are guaranteed to be paid on your checks. There’s no need to worry about accepting checks or collection on returned checks. Usually, the cost for this solution is about the same as credit card acceptance, however, some may offer it for a lower price. Check with your Merchant Account Provider for further details.

Electronic Funds Transfer (EFT)

EFT is a method for transferring money automatically by using the facilities of the Automated Clearing House, an entity associated with the Federal Reserve Banks. EFT is the only system by which a merchant can initiate a transaction to collect money from the bank account of a customer located anywhere in the USA. In addition, it can be used to transfer money outwardly to pay bills.

Automated Clearing House (ACH) & ACH Services

It is most often used to process low-dollar repetitive retail payments. Financial Institutions that are members of the FED ACH System send batches of credits and/or debits into the system, and the system sorts the items from all batches submitted, and routes them to the appropriate receiving financial institution. The system is used primarily for pre-authorized recurring payments such as payroll, corporate payments to vendors, Social Security payments, insurance premium payments and utility payments. Section also covers ACH Services like Electronic Check Conversion (ECC), Accounts Receivable Truncated Checks (ARTC/Lockbox), and Returned Check Collections (RCK).

Electronic Benefits Transfer (EBT)

Grocery shopping is one of the most widely performed activities around the world. If you are food merchant, you probably know that not everyone pays for their food with cash or credit cards, but many use food stamps as well. Now that paper is becoming a less and less common form of the food stamp. Many purchases are made with the use of a single card called Electronic Benefits Transfer card.

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