There are lots of tech start-ups in the payments industry, but one, Way Systems, has something many don't have-backing from some of the industry's founders.
Some of the pioneers in hardware for the card-based payments industry are now focusing their energies on wireless point-of-sale terminals. Among them is William Melton, who founded payment-terminal maker VeriFone in 1980 and now is a venture capitalist.
Over the past five years, Melton for the most part has stayed out of the payments industry. He believed the industry had matured to the point that there was little chance a new technology could have a significant impact.
"Most of the costs in the payment system have been driven out," Melton says. "The bad news is that with costs being driven out, there is little opportunity for entrepreneurial or niche companies to make a name for themselves."
But Melton's opinion changed a few months ago when he got a call from Jack McDonnell, founder of Transaction Network Services Inc. McDonnell, who earlier had conversations with executives from a new wireless terminal company, Way Systems Inc., suggested that Melton also talk with the company about investing.
Today, both Melton and McDonnell are investors in the Woburn, Mass.-based company, which launched in 2002 and began shipping wireless terminals in the U.S. last summer. Also investing in the company is another payment terminal pioneer, George Wallner, who founded Hypercom Corp. Visa International and TNS also are supporters, according to Way Systems. The amount of their investments wasn't disclosed.
Why are such industry luminaries interested in a fledgling company? In Melton's view, the point-of-sale world is at "a tipping point" when it comes to wireless technology. And Way Systems' cellular-enabled payment terminals could have an impact on market segments that leading terminal companies traditionally have ignored or have had difficulty penetrating.
This untapped market includes millions of street vendors, taxis, art fairs, home-delivery services, and contractors that provide services in consumers' homes, such as plumbers, painters and electricians. Today, most such merchants accept only cash or checks for payment.
In the U.S., there are 13 million direct sellers of products from such companies as Avon Products Inc., Amway Corp. and Tupperware Corp., says Damien Balsan, Way Systems vice president of marketing and business development.
"We're creating a new range of products for a new range of customers," he says. "You would not find our products used in a supermarket."
Way Systems today is selling two versions of its Mobile Transaction Terminal, the MTT 1000 and the newer MTT 1500, which is faster and more rugged than the MTT 1000 and has a more simplified design, Balsan says. The company, which so far has shipped about 1,000 devices in the U.S., is using a network of independent sales organizations that include Cinergy Data, Cardservice International and Cocard Systems, Balsan says, adding Way Systems also has operations in China.
Both MTT terminals use General Packet Radio Service, or GPRS, connectivity to send transaction information via TNS, which provides high-speed data communications from payment terminals to merchant processors. TNS has links to virtually all U.S. merchant processors ("TNS Connects Again," December, 2004).
Individually, ISOs can pay $350 for an MTT terminal, or $495 with a printer, Balsan says. In volume, the products' prices can go down significantly, he says.
ISOs also pay $15 per month per terminal for network gateway connectivity and for the subscription to the wireless data-communication service, which is provided by AT&T Wireless/Cingular. Way Systems is a valued-added reseller for the telecommunications company, Balsan says. If the terminal is used outside of AT&T's coverage area, Way Systems will support roaming services at no extra cost to the ISOs, which determine their own client pricing.
"We offer a solution right out of the box," Balsan says. "We send a terminal that is immediately ready to do transactions. You don't need to buy a phone."
Melton, who also founded the now-defunct Cybercash Inc., whose CyberCoin electronic-cash product was geared toward low-value purchases, is placing a lot of his attention today on products that are mobile and ubiquitous.
"In the short term, merchants need mobile devices that support all forms of payment," he says. "So that's why I'm excited about Way Systems because it seems to have the technology that is on the cutting edge of this new, developing next wave of terminals."
Industry observers say the niche market Way Systems is targeting has considerable room for growth.
"The potential for a wireless product in these kinds of informal merchant categories is enormous," says C. Marc Abbey, a principal at Linthicum, Md.-based First Annapolis Consulting Inc., noting he knows nothing about Way Systems. "It's very large."
Abbey adds that Way Systems' efforts point to the broader extent to which wireless terminals are making inroads in the marketplace. "From an evolutionary perspective, the fact there are so many applications shows these technology improvements are moving forward," he says.
Authoritative analysis and perspective for every segment of the payments industry
Authoritative analysis and perspective for every segment of the industry
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