From the July/August 2010 issue of ISO&Agent magazine.

Mobile merchants, such as those that specialize in direct home sales and craft fairs and operate on a small scale, have captured the payments industry's attention, especially since the advent of mobile phone-based payment acceptance.

VeriFone Systems Inc. was one of the first established point-of-sale terminal companies to announce a mobile phone-based payment offering. Its Payware Mobile service and device launched in February.

Since then, rival point-of-sale terminal makers Ingenico S.A. and Hypercom Corp. have announced their own plans, and others, such as Square Inc., whose founders come from a technology background instead of payments, have entered the market with their own products.

Some companies, including Way Systems Inc., which makes a cell phone-based mobile reader, and Apriva have been for many years pursuing merchants that lack traditional storefronts because many do not accept electronic payments.

Hypercom expects to launch its Smart- Payments Mobile devices this summer. Ingenico uses Boston-based Roam Data Inc.'s RoamPay to enable acceptance on a variety of mobile devices.

Meanwhile, Apriva has AprivaPay and AprivaPay Professional, and Way Systems continues to market its unique devices.

Hardware-based systems might benefit brick-and-mortar merchants because the hardware often can help speed up checkout lines. But mobile merchants may prefer software-based systems because they would not have to carry anything other than a phone when going to make a sale or accept a payment.

Before cell phone-enabled payment card acceptance emerged as an option, merchants' only mobile alternative was to buy a dedicated wireless-payment device, which typically includes a relatively high upfront cost.

But, prices, at least at the wholesale level, have fallen for dedicated wireless POS terminals.

For example, Tasq Technologies, a Rocklin, Calif.-based POS-equipment distributor, advertised a Way 1581 mobile-phone device for $349 in June 2009. That same device was priced at $125 in June of this year.

But smartphones have become more affordable in some instances. The cheapest iPhone is now $99 for a previous-generation model. The latest model, the iPhone 4, start at $199 if the customer is eligible for that price.

Indeed, merchants find themselves faced with increasing options as "every day we are seeing more announcements about mobile payments," notes Todd Ablowitz, president of Double Diamond Group, a Centennial, Colo.-based consulting firm.

All are after a pool of merchants that collectively could mean big dollars.

"There's maybe 10 million merchants that have never taken credit cards," Andrew Jeffrey, managing director for equity research with SunTrust Robinson Humphrey in San Francisco, tells ISO&Agent. There is an advantage to being a "first mover" in a commoditized industry, he says. "It's a big opportunity."

Jeffrey's wife is an antiques dealer with customers that occasionally want to pay with a credit or debit card. But a dedicated mobile POS terminal is complicated for that type of merchant, he says.

"My wife is not particularly technologically sophisticated, but she knows how to use an iPhone," Jeffrey says. "It extends electronic payments to a new class of business."

VeriFone controls not only the hardware and software with its Payware Mobile service, it also receives monthly service and transaction fees the merchant pays.

VeriFone announced Payware Mobile Dec. 8, days after Square said it was coming out with an iPhone-based mobile-payment service. "It was no surprise to us we were going to have competition," Dan Loomis, VeriFone global product marketing manager, tells ISO&Agent. "Thankfully, we had already started on Payware Mobile."

Payware Mobile development took about seven months, starting last summer, Loomis says.

Plenty of iPhones will work with VeriFone's card reader, and the earlier versions are still in demand.

"This is really the opportunity to target the micro merchant-someone who does a few transactions a month, who traditionally takes cash or check," Loomis says.

Loomis, whose name is on VeriFone's patent application for the Payware Mobile service, discussed mobile-payment trends recently with ISO&Agent.


ISO: When did the idea of a mobile version of Payware surface?

LOOMIS: We were convinced that the iPhone, with VeriFone's Payware infrastructure, presents a highly leveragable opportunity to target a market of smaller merchants that we estimate at 18 million. While there are other platforms, the iPhone presented a generally consistent form factor for us to design from a mobile-development standpoint.

We have years of experience with portable payment devices and constantly assess feedback from ISOs and acquirers on how to expand the market. The concept of mobile payments has been around for a while, but with the exception of special-use scenarios, it's been a nascent market and relatively slow to take off. Unless you're a mobile merchant with high volumes of transactions every day, it can be tough to justify the cost of a dedicated portable device and supplementary wireless service plan.

Apple's iPhone changed the equation considerably. It's an interesting device that really captures our target market, the prosumer (professional consumer). The slick iPhone form factor delivers a natural synergy for peripherals.

The iPhone is a multi-use device that accommodates voice, Web and mail, in addition to thousands of apps. Many smaller merchants are buying these devices for consumer usage, so adding Payware Mobile for their business is relatively painless from a cost perspective because the phone and wireless service plan is already paid for. And there are numerous apps that support their business, from time tracking to inventory management and so forth.


ISO: How long was the development period?

LOOMIS: It was a relatively short development process. From start to finish it took about seven months.


ISO: What indicators in the market showed you a mobile-acceptance application was a part of the future?

LOOMIS: Over the years, we've constantly had requests from customers, ISOs and partners on coming up with a low-cost wireless-payment solution for micro merchants. In recent years, the build out of high-speed wireless networks has made service reliable, relatively ubiquitous and a lot less costly. By building for the iPhone, we were able to strip out significant costs that traditionally accompany portable payment, namely paying for an additional phone service, paying for an additional data plan and, most of all, investing in a single-purpose dedicated device.

We knew there was a large target audience, and if we didn't take the lead, somebody else would try and capitalize on the opportunity. So we were highly motivated as a company to deliver Payware Mobile.


ISO: How did VeriFone decide which functions to include?

LOOMIS: In terms of hardware, we first needed to come up with something that would complement rather than handicap the iPhone. If you look around, you'll see it's very easy to design hardware that compromises the form and function of the iPhone, and we wanted to avoid that at all costs.

We wanted to create a very slick, ergonomic form factor that fits in hand easily. We wanted to create a peripheral add-on that can easily slide on or off and that, most of all, reliably and naturally accepts card swipes. We want that thing to work We also wanted to consume close to zero power and accommodate consumer habits so they can naturally extend payment in the manner to which they are accustomed, by signing, either with a finger or the integrated stylus (included with the reader).

In terms of the app itself, we wanted something that would be applicable across multiple merchants' needs. Whether it's someone who is selling one piece of expensive art or a florist selling two dozen bunches of flowers in a day, we want to provide them with ease of use, configurability to their specific needs, and the ability to show daily transactions and last-transaction purchases. We provide the ability to customize receipts so they can offer specials and discounts and embed custom content into receipts. But we also wanted simplicity, so if all you want is to do a payment quickly, you can. If you need more complexity, you can do that, too, with complex data fields that can accommodate the name of a salesperson, an invoice, tax and tip rates, and so on.


ISO: What design factors determined the physical swipe? Are there plans for a printer?

LOOMIS: Reliability was the overwhelming design consideration for the physical swipe. We have a rigorous standard to which we develop all devices. One criterion is our ability to read all cards in a time-proven test card deck to ensure that any card, whether high quality or poorly manufactured, will be read. We carefully designed in the length of the magnetic-stripe slot to ensure we can read easily and accurately on every swipe.

The length of the track read is a critical design factor, and the card slot length enables a successful card read every time. If you shorten the track read, the opportunity for card-read error exponentially increases. If you shorten the swipe length to one inch, I can guarantee you will consistently see errors that dramatically degrade the card user experience.

The other factors were ease of use and consistency with how you normally swipe a card. We didn't want to make card swiping difficult or awkward. It should be the easiest process.

We also spent considerable effort on ergonomics, determining what the best width of the readers should be, designing a finish that feels great in hand, making it ultra light, and designing it for low power consumption.

As far as a printer goes, we're getting excellent market response to electronic receipts. They're far easier for merchants and customers to manage and, of course, we provide comprehensive reporting capabilities through the gateway. What we're hearing at the moment is that merchants would rather not have to carry around an additional device or rolls of paper. But certainly we'll continue to monitor usage, and if we determine that the market wants a printer we can easily integrate a [service].


ISO: How is Payware Mobile designed to ensure it remains distinctive against a backdrop of competitors?

LOOMIS: A deep understanding of payments, our understanding of payments security and our distribution capabilities are the key areas that will distinguish us from competitors.


ISO: What is the rationale behind the distribution model?

LOOMIS: The traditional ISO channel is well developed, extensive and has the ability to deliver value-added services. The ISO channel is constantly clamoring for products and services that can target the micro merchant who is not inclined to invest in a dedicated terminal.

We've also developed a retail strategy to reach the micro merchant, and we've streamlined the merchant account setup process. Somebody walking into our retailer partner's store can pick up a consumer-friendly package that puts the hardware in their hand and provides all the documentation that describes what a merchant agreement is, what's required and describes the whole setup process. We've set up a group of processing partners to set up new merchant accounts. A consumer can walk into a retail store today, talk to one of the sales or business specialists and take the product home, and within 12 hours to 48 hours they're up and running. If they already have a merchant account, we can quickly get their Payware Mobile-equipped iPhone set up or link them to one of our processing partners to activate a new account.


ISO: When did VeriFone realize the mobile merchant was different from typical merchants?

LOOMIS: As I said earlier, we have years of experience with mobile payment technology and the customers who are using mobile payment or would like to do so. The class we're targeting is not the guy that's going to do 50 transactions to 100 transactions per day. It's somebody who often doesn't have a physical storefront presence, needs the ability to take card payments, but doesn't want to pay for a traditional payment device when their business requires a more occasional transaction.

Think of the person who provides home services-anything from installing a roof to doing some wiring. They're not an easily identifiable segment like a mom-and-pop convenience store. They may belong to trade associations. They typically are sole proprietors with no employees to five or six people. But their customers want the ability to pay by credit card, and they're going to gravitate to those merchants with the capability, which means that merchants who can't or won't accept cards are going to lose business opportunities. Some of them are going to be doing substantial transactions of thousands of dollars at a time; some are going to be dealing with much smaller transactions. But they all want to pay only the minimum for processing that transaction, so the ability to get a card-present rate is extremely compelling.


ISO: Is the merchant-referral effort a permanent aspect of this program?

LOOMIS: I wish I could predict the future. Right now we continue to generate advertising leads and are getting more efficient at it with a much higher conversation rate. We try to assist the sale where we can for our partners.


ISO: Any surprises among the types of merchants using the software?

LOOMIS: One thing that is surprising is just how many types of small businesses there are. We get the birthday clown, the florist, the plumber, the dog walker ... you name it. It really goes to show the untapped market that is waiting to be served.

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