Once considered a costly and limited payment option, wireless terminals are finally poised to make the transition from niche product to mainstream acceptance.
  Since their inception, wireless point-of-sale terminals have been a paradox. While they have helped broaden credit card acceptance by making it possible for mobile merchants without access to telephone lines, such as taxicabs, to take plastic, their deployment has been inhibited by their high price tag.
  Indeed, at an average price of more than $1,000 per unit, few merchants can justify buying the hardware. The steep price is due to high development costs incurred by terminal manufacturers, which can expect to spend as much as $1 million to design and test wireless POS terminal architecture before bringing a finished product to market.
  As a result, experts estimate that only about 100,000 wireless POS terminals are deployed in the United States, compared to millions of traditional POS terminals. Deployment of the technology is further along in Europe, where about four million wireless units have been deployed on a stand-alone basis or in local area networks (LANs), according to Phoenix-based terminal maker Hypercom Corp.
  Nevertheless, the allure of wireless technology remains compelling to terminal vendors and transaction processors, both of which are confident wireless can make the leap from a niche market offering to a mainstream product. The only question is when.
  "Wireless terminals are a great example of how long it takes for new payment forms to take root in the market," says C. Marc Abbey, a partner with Linthicum, Md.-based First Annapolis Consulting Inc. "While the cost of the terminals are coming down and the business case looks obvious for merchants that need mobile-acceptance capabilities, it will take several more years for the technology to move beyond being a niche product."
  Some terminal experts argue that the leap will be made not in the current generation of mobile terminals, which are essentially traditional payment card-accepting devices with a wireless modem, but in the subsequent generation. These solutions will be designed to take advantage of the increased bandwidth and transaction speed of cellular and broadband networks, such as GPRS (General Packet Radio Service) and CDMA (Code Division Multiple Access), frequencies slated to replace CDPD (Cellular Digit Packet Data), which is the standard wireless network protocol in the U.S.
  CDPD is scheduled to be phased out by wireless network operators by 2005. Wireless carriers are increasing the bandwidth of their networks to accommodate the high-speed transmission of images using Internet protocols.
  What interests terminal makers about this trend is the increased coverage GPRS and CDMA networks bring compared to CDPD networks. Broader coverage will not only help make wireless POS applications more practical in rural areas, but provide more reliable connections. GPRS and CDMA also offer a slight increase in the speed with which transaction data are transmitted. In the interim, terminal makers are expected to enjoy a surge in wireless sales as they replace CDPD terminals with GPRS- and CDMA-compatible hardware.
  "There is going to be a short-term swap out of terminals," says William E. Clark, director of remote payment technologies for Melville, N.Y.-based First Data Merchant Services, the merchant-processing arm of First Data Corp. "But the real opportunity for growth will come in the following generation of terminals that make use of Internet protocol."
  Better Tracking
  The payoff from IP-compatible terminals for merchants is the opportunity to add software applications to allow communication in real time with back-office databases and servers containing customer data and information about merchandise in stock. By accessing customer data in real time, merchants can create loyalty programs that instantly deliver rewards customized to the shopper's tastes in the blink of an eye ("A New Addition to Cobranding's Menu," page 40).
  Currently, most merchants offering loyalty cards, such as grocery stores, deliver one or two pre-selected rewards to consumers at the point of sale, such as a free item or, at a travel-and-entertainment location, airline miles. The rewards are easy to track and dispense because they are based on sales of a specific item or dollars spent. The transactions usually take 20 seconds or more to complete, which is on par with the average credit card authorization.
  Merchants also can use sales information from the terminal to determine when to restock a particular item. New York-based U.S. Wireless Data Inc., for example, has signed an agreement with several Pepsi bottling companies to install wireless card readers in several hundred vending machines in Chicago, Memphis, Tenn. Orlando, Fla., Las Vegas and St. Louis. The network connection to the card readers allows the vending machine owners to track available stock in each machine on a daily basis. The information helps determine the amount and variety of Pepsi products needed to restock each machine and the personnel and equipment required to perform the task.
  "The wireless market is growing, but the real growth is going to come through devices ... not limited to being single-use items," says Marc R. Shultz, vice president of business development for U.S. Wireless. "Banks ought to be watching this space closely."
  The Future
  Terminal makers already are providing a glimpse of what the future world of wireless POS will look like by marketing low-cost, card-swipe attachments for cellular telephones and wireless LANs. The attachments connect to a base terminal that plugs into a phone jack or a high-speed digital subscriber line (DSL) connection. Mobile merchants, such as home-delivery services and tradesmen are adopting the former, while the latter is turning up in quick-service restaurants.
  Los Angeles-based Creditel, a provider of mobile transaction systems, has developed a card swipe that attaches to a cell phone and converts it into a wireless POS terminal. The device, called Power Swipe, attaches to a Motorola Inc. phone and connects the merchant to its processor through the Nextel cell-phone network. The card data are encrypted using Triple DES security standards, and the swipe device is compatible with many receipt printers that use infrared technology. Creditel has partnered with U.S. Wireless Data to distribute the product, which sells for about $250.
  Dallas-based Paymentech, the fourth-largest merchant acquirer, has a similar offering for pagers. The application, developed in conjunction with Apriva Inc., a Scottsdale, Ariz.-based wireless systems provider, allows a card swipe to be attached to a pager. The product, launched in September 2002, is being used by a trucking company and has been used in stadiums.
  Wireless LANs, also known as fixed wireless solutions, provide an affordable service to low-ticket merchants with a need to authorize and complete a transaction in less than five seconds during peak traffic periods. They are also proving popular with merchants that have freestanding shops or kiosks in malls, especially now that some mall owners are prohibiting them from laying phone lines in the aisles to connect their terminal. The concern is that consumers may trip over the cables, even if they are covered with matting.
  Focused on Price
  Aside from providing mobile merchants with a real-time authorization, wireless terminals can be cheaper for merchants to install than land-based devices. Merchants pay $15 to $35 to activate a wireless terminal, compared to as much $300 to install a phone line and about $45 a month for phone service, according to industry experts. Wireless terminals can work up to 200 feet away from the base and can be installed in about 15 minutes, as opposed to waiting days for adding a dedicated phone line.
  "In a tough economy like we have now, merchants are not as focused on value-add features as they are on price," says Ed Kountz, senior analyst, emerging technologies for Needham, Mass.-based research and consulting firm TowerGroup. "What they want to see are numbers that will make them jump at deploying the technology."
  That can be a tall order for processors and acquirers as the cost of a wireless terminal is still almost double that of a traditional POS terminal. Merchants also have to consider data-transmission costs. A mobile merchant attaching a card reader to his cell phone still has to pay for the minutes used to dial up the processor and receive an authorization. Cellular carriers typically charge 30 to 40 cents per minute, compared to 7 cents or less per minute for a long-distance call with wired phones.
  While a mobile merchant does receive a lower, card-present processing fee for swiping the card as opposed to submitting a paper draft or calling in the card number verbally, the savings are not that great. Merchants must still pay to access the carrier's voice network, not their less expensive, data-only network.
  "The cellular carriers have data-only networks, but not many merchants know that," says William C. Nichols, marketing director, Latin America and Caribbean region for Santa Clara, Calif.-based terminal provider VeriFone Inc. "Once a wireless device is certified to plug into a data network, merchants get a much better air-time rate."
  VeriFone is helping merchants secure lower air-time rates in Latin America by getting its wireless terminals certified to run on cellular data networks there. Many cellular carriers sell air time on their data networks at a reduced price to corporate clients with large data requirements.
  VeriFone's business model is to first strike a deal with the cellular carrier, then present the offer to processors, who deliver the transaction volume by selling the package to merchants. VeriFone is working to export the model to the United States.
  Some observers expect VeriFone's approach to be successful since many cellular carriers in the U.S. are rumored to be targeting their services more aggressively at the business community. As cellular carriers start selling wireless service to businesses in lieu of traditional phone service or as a complement to it, the opportunity to sell wireless POS services to merchants will explode, predicts U.S. Wireless Data's Shultz.
  "Once cellular service becomes more ubiquitous in business, that will open up the distribution channel for processors," he says. "It is conceivable that processors will work with cellular carriers to help open up the wireless business market by selling POS devices that jump right onto those networks."
  Reaching that point will require some merchant education about the reliability and security of cellular data networks. There is a perception that wireless data networks will drop transmissions, which happens frequently on voice networks, and that data can be intercepted over the airwaves.
  "A dropped transmission is not necessarily a problem when making a phone call, but it is when making a POS transaction, especially among merchants that rely on speed at the point of sale," says Jeffery C. McWey, an executive vice president for Atlanta-based merchant processor Global Payments Inc. "Network reliability is better, but perception is still a problem in the wireless market."
  The Price Issue
  Price also remains an issue with merchants. Although the average cost of a wireless terminal has come down to between $850 and $950, the price is still too high for most merchants. To that end, Hypercom says it is developing a multi-function wireless terminal that will be more affordable, though the company declines to be more specific.
  "There is a sweet spot when it comes to the cost of wireless terminals," says Eric Duprat, senior vice president, global marketing and product development for Hypercom. "The key is to narrow the gap between the perceived value of the terminal and its price. If the merchant perceives the value to be there, he is not as likely to focus as much on price."
  To increase the perceived value of its Top Desk wireless terminal, Edina, Minn.-based Above-Net Inc. has included ports to hook up bar-code readers, cash drawers, telephones and other devices used at the point of sale. The terminal also offers voice-over-IP capability to allow for real-time communication with other departments or locations.
  "Voice over IP can help lower communications costs, which protects a merchant's overall margins," says Antonio Lannes, executive vice president at Above-Net. "We are in a moment in the world economy where merchants consider POS equipment that can lower their cost and allow for more applications and access points to the customer to be of value."
  Still, some POS experts warn that loading up wireless terminals with an excessive amount of features will keep the price bar for wireless terminals high and deliver more functionality than most small and mid-sized merchants will use or need.
  "It is not uncommon for people to get blinded by technology for the sake of introducing it," says Shultz. "Many of the features tied to broadband are aimed at large businesses, and advances by cellular carriers are not necessarily aimed at POS services."
  Too much terminal functionality then can result in wireless POS applications being marketed as part of a larger package of cellular and DSL services, rather than as a lead service, thus marginalizing their importance to merchants.
  Still, wireless POS technology has come a long way from when most merchants dismissed it out of hand or expected a subsidy to take it for a test drive. Today, a stronger business case for the technology, lower hardware costs, and the prospect of enjoying value-added benefits once reserved for the largest merchants have made the future of wireless POS technology brighter than ever.

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