The Financial Services Industry Source for…

                        The Financial Services Industry Source for Education, Inspiration and Actionable Advice
                       This Article Originally Appeared in Issue 05:02:01 · February 14, 2005



          Paying the Piper on a                                      Other arguments in favor of using mobile phones as payment
                                                                     devices include size and convenience. But unless you plan to
             Mobile Device                                           operate without an add-on printer, you'll have to lug around
                                                                     multiple devices, which is not very convenient.
By David Talach
VeriFone Inc.                                                        If merchants need to carry a separate printer along for the
                                                                     ride, they will have to juggle two devices in order to process



T
             here's currently a buzz in the payment processing       card payments, not to mention in some cases physically con-
             industry about the possibility of using mobile          necting a peripheral as they go from door to door.
             phones as payment terminals. While the concept
             sounds logical, practical implementations often         The above is the same type of story many in the industry
fall short of real-world expectations.                               have touted about using PDAs: Attach a card reader, and
                                                                     you've got a payment terminal. A simplistic logic exists
Without a doubt, demand will grow for mobile payment sys-            behind this solution; you already own a PDA, so why not buy
tems in order to meet consumers' desires for more convenient         another device and add it on?
payment options and merchants' needs for more timely and
secure payment processing.                                           But if I have to buy a specialized phone to get to that point,
                                                                     doesn't that detract from the original proposition?
There are hundreds of thousands of merchants who are suit-           It's even more complicated if merchants want the ability to
ed to using mobile payment devices including in-home serv-           accept debit cards, practically a requirement in this day and
ices, home delivery, taxi and other car services, and outdoor        age. But in addition to a phone and printer, merchants must
venues such as stadiums and flea markets, to name a few.             also carry around a secure PIN pad. So now they're juggling
This represents a significant new market opportunity for you         three devices. How practical is that?
as ISOs and merchant level salespeople (MLSs) to begin
exploring mobile payment options.                                    Another promise of mobile phone- and PDA-based POS
                                                                     devices is one of "convergence." I can get e-mail, short mes-
Although the mobile phone is now ubiquitous as a mobile              sage service (SMS), instant messaging (IM), HTML, public
communications device, it falls short as a robust and trusted        switched telephone network (PSTN) and POS transactions all
payment device. In limited situations, it might prove ade-           on one device.
quate. But it will fall short in circumstances that require a full
function, secure and supportable terminal. But then again,           Cool! Except for one problem. Most merchants don't know or
who doesn't have these needs when processing payments?               don't care what most of those acronyms stand for and aren't
                                                                     likely to use or pay for these capabilities.
A key selling point of using a mobile phone as a payment
terminal is that the solution is less costly and more conven-        True wireless payment terminals make much more sense for
ient while also being "multi-talented."                              general mobile use. VeriFone Inc. recently introduced the Vx
                                                                     610, which represents a new generation of wireless terminal
Let's tackle the cost angle first. The theory exists that            that delivers blazing performance, high-end functionality
economies of scale with mass market devices should under-            and exceptional ease of use in a sleek, compact design.
cut more conventional payment devices.
                                                                     The product provides a secure payment processing environ-
But that claim evaporates quickly when you factor in the             ment with advanced hardware tamper-detection and response,
costs of either obtaining specially adapted mobile phones            PIN-entry device (PED) security approval, and 128-bit secure
that are not mass market devices, or supplementing everyday          sockets layer (SSL) encryption for Internet protocol-(IP) based
phones with add-on card readers and printers, which are              transaction processing and application downloading.
awkward and inconvenient.
                                                                     The device is agnostic with regard to telecom standards and
To date, many manufacturers have priced traditional wireless         can support both code division multiple access (CDMA) and
payment terminal solutions fairly high, but be assured that as       general packet radio service (GPRS) networking technologies,
volumes increase, prices will decrease, so lower priced equip-       giving merchants access to most carriers in North America.
ment will not likely be the deciding factor for mobile mer-
chants in the future.
It also incorporates a dial-up modem so merchants can plug             Does your support organization need to know the operational
it into landlines where needed.                                        user interface and functionality differences between 50 differ-
                                                                       ent models of mobile phone? How long will a particular
This type of solution is smaller than previous generation              phone remain in production?
devices, yet still features an ATM-style interface and includes
an integrated printer. In essence, it extends the countertop           While the mobile phone might prove adequate in limited,
payment model to wherever consumers are, whether shop-                 niche payment applications, for the most part it's an ill-
ping at open markets or buying home-delivered products and             equipped solution being force-fit into a function for which its
services.                                                              designers never intended.

As you look at mobile phone vs. integrated terminal options,           The new generation of true payment solutions for mobile,
consider one last thing: processor support. So far acquirers           wireless environments is a more natural fit than a mobile
have been shy to offer Class-A certification support to hybrid,        phone when it comes to payment acceptance.
low-security mobile phone schemes.
                                                                       David Talach is VeriFone's Global Product Manager of Wireless and
Think about the cost of infrastructure and support that's in           Portables. He plays a key role in analyzing wireless industry trends and
place for traditional payment terminals, and then consider             defining, designing and delivering wireless products to meet merchants'
the fact that nothing comparable exists to support mobile              current and emerging requirements. E-mail him at david_talach@veri-
phone- or PDA-based payment devices.                                   fone.com .

How do you update the device? How do you keep the mer-
chant from downloading other applications onto the device
that might have an impact on the payment application?




                                    Reprinted with permission · Copyright 2004 · The Green Sheet, Inc.
Do you have an article that you'd like reprinted? Please call 800-757-4441, or email your request to greensheet@greensheet.com.