The Perspective 
Monday, 14 December 2009
Technology’s impact on business operations continues to transform managerial controls and measurement while providing for profitability enhancement opportunities.  Technology in the retail environment has predominantly focused on point of sale systems that integrate everything from transaction accounting to inventory management.  Recently, retailers and POS system companies are focusing on the integration of cash handling with the POS system.
More progressive retail operators have already replaced traditional drop safes with cash management system — which incorporates the traditional benefits of a safe, such as robbery prevention and time-delay-change funds, but also employs bill-and-coin-handling technology, as well as its own operating system. Today’s cash-management systems connect to corporate networks to facilitate data exchange and remote management.
Profitability enhancement
The cost of a CMS is very quickly recovered through the recurring savings garnered by the system itself.  What initially may appear to be a “cost” quickly becomes a “profit generator” that produces annualized cash and non-cash savings. Typical systems pay for themselves within six to nine months, yet continue to produce savings indefinitely.
Retailers have found recurring cash savings in many areas. Specifically, internal theft is dramatically reduced; detection and rejection of counterfeit currency is improved; and armored car requirements are reduced. The latest and most exciting area of cash savings is now being gained through the retailer receiving “provisional credit” for funds in the CMS that have not yet been deposited at the bank. 
Non-cash savings include a reduction of management time previously required to reconcile the transaction log with cash and preparation of bank deposits, as well as instant accounting and deposit preparation.
Deploying a cash management system involves support and coordination among multiple departments, including finance, operations, information technology, security and loss prevention. And choosing the right CMS provider who can coordinate the physical and technological installation of the system can significantly expedite and smooth the process. 
Each department should carefully consider features and functionality that will be required for a successful deployment and utilization of a CMS. 
Below is a list, by corporate function, of features and functionality that should be considered or required.
  • Instant access to all information pertaining to cash in the safe
  • Tools to access one or more stores and data, and place it in a spreadsheet
  • Guaranteed deposit by CIT
  • Provisional credit by the bank, with money deposited to the account, regardless of whether it’s picked up or still in the safe at the store
  • Cut down on armored pickups, since credit is given by the bank
  • Automated cash reconciliation – no manual counting
  • Eliminate cash shrinkage by linking the safe and the POS
  • Lower the cost of buying coins and notes by recycling both
  • Lower the cost of coins by not buying coin rolls; use bulk bags
  • Elimination of cash counting at the beginning of the shift
  • Where cash rooms exist, eliminate 90 percent of the labor
  • Cost of annual software maintenance (get a five-year quote)
  • Cost of annual hardware maintenance (get a five-year quote)
  • ROI for any investment should be less than 1 year
  • Eliminate cash shrinkage by linking the safe and POS
  • Balance each transaction between the safe and the POS
  • Simple computer-based training provided
  • Operate in the native language of each cashier to eliminate errors and make the system easier to learn and use
  • Dispense flat notes that are easy to handle instead of rolled up notes
  • Auto dispense each till (no cash-room counting) at start-of-shift
  • Auto bank-out of each till (no cash-room counting) to end shift
  • Speed time for cashiers to clock in and be on the lane
  • Quick access to cash to replenish tills with coins and notes
  • Eliminate counterfeit notes while customer is present
  • New notes are validated the day they come out by updating the note validators over the network — no delay waiting for updates
  • Totally eliminate cash counting and get deposit guarantees from CIT
  • On-site service call by next business day at a minimum
  • Help-desk diagnostic tools to help solve technical issues
  • Highly qualified service organization capable of analyzing the network
  • Must run an industry standard operating system, such as Windows, and use XML
  • Must have the ability to plug and play over the store’s Ethernet network
  • Tools included for data collection over the network
  • Report-writer tool for creating and changing reports
  • Modern hardware architecture, easily told by integration (one power cord)
  • Must interface with POS at transaction level to stay in balance
  • No programming required to create a total CMS environment
  • Update CMS application over the network for new releases
  • Up-to-date note validators over the network when new notes are released
  • System diagnostics for help desk to support store personnel
  • Supplier has 24/7 help desk to support customer help desk or store directly
  • Hassle-free system that will not take IT resources to manage
  • Must interface with store’s alarm systems
  • Must interface with store’s camera systems
  • Must support a transaction log for up to 90 days so events can be analyzed and then used to search camera videos
  • Eliminates chance of an entire safe getting stolen
Loss prevention:
  • Balance every transaction with POS
  • Automated cash reconciliation (no cash counting)
  • Cashiers check in/out tills with no management assistance
  • Time-delayed access to all vaults
  • Additional vault for storage of change or high dollar items
  • Instant access to note validators for CIT guards
  • Audit trail to balance every penny of every cashier
  • Audit trail for all transactions for past 90 days
  • Eliminate counterfeit notes
  • Updated note validators over network when new notes are released by local government
  • Guaranteed deposit by CIT company
  • On-site repair service by next business day
Implementing a CMS solution is a decision that will impact your company from top to bottom. Each department’s needs must be considered early in the process. When evaluating potential CMS suppliers and their systems, you should prepare a checklist that addresses all of their unique needs and use this checklist during your information gathering and quote processes.
Posted by: Ed Grondahl AT 01:42 pm   |  Permalink   |  0 Comments  |  
Monday, 17 August 2009

Although the credit card processing industry is extremely complicated, most people believe that they are experts in credit card use. After all, we all use credit cards to buy presents for our spouse and to pay for dinner at restaurants. Additionally, we all use ATM debit cards to withdraw money from our bank accounts. However, the credit card processing industry is far more complicated than it seems and in order to maximize self-service equipment profitability, it is necessary to understand how the credit card industry actually works.

The credit card processing industry consists of two primary aspects. One aspect is credit card issuance, which consists of providing credit cards, and the resulting credit, to card users. The other aspect is merchant acquisition. Merchant acquisition consists of signing up merchants to process their credit card transactions through a specific member bank.

Prior to suggesting methods to increase credit card revenue for self-service equipment operators, I should explain the manner in which credit card processing activity is compensated. In order to process credit card transactions, the Card Associations (Visa, MasterCard, and the like) contract with various banks (known as member banks) to provide processing services to merchants. Each member bank contracts with various Independent Sales Organizations ("ISO") to solicit merchants to contract with that member bank. Each ISO contracts with smaller ISOs and has its own agents for such solicitation. In turn, the smaller ISOs have their own agents and may also have their own ISOs. Larger ISOs are often sponsored by the member bank to also become Card Association members. The rights of the various merchant solicitation entities differ based upon their contractual arrangements and their position in the merchant acquisition hierarchy.

When a merchant agrees to process through a member bank and during the life of the resulting processing relationship, the contracting merchant may be charged various fees. Additionally, each time the merchant processes a credit card transaction, the merchant is charged a fee for the transaction. Finally, when a new merchant is enrolled, the merchant may be sold or given a POS terminal and other equipment to enable processing. These charges to the merchant constitute the revenue which is divided among the various players in the merchant acquisition process.

However, each payment stream is divided differently. Generally, the various fees are divided among the various ISOs and agents involved in enrolling the merchant and sometimes the member bank also shares in such revenue. Such fees are generally implemented by the ISO or agent and may be waived at their discretion. The credit card processing fees (transaction charges) are divided among the relevant Card Association, the member bank, and each ISO and agent in the acquisition chain of the individual merchant. The amount received by each participant is determined by the contractual relationship between the parties. For example, assume that a merchant processes a transaction which generates processing fees and that the merchant was enrolled by an agent of a second tier ISO. A portion of the fee is paid to the Card Association. The remainder of the fee is retained by the member bank.

The member bank retains its portion of the fee and transfers the balance of the fee to the primary ISO on a monthly basis. The primary ISO retains its portion of the fee and transfers the balance to the secondary ISO which solicited the merchant on a monthly basis. The secondary ISO retains its portion of the fee and pays the balance to the agent who actually enrolled the merchant. Although each fee consists of only pennies, the volume of transactions can make the business very profitable.

Furthermore, once a merchant is enrolled, the payment of processing fees (known as residuals) continues through the life of the merchant-member bank relationship. During this period, except for the member bank and sometimes the primary ISO, very little is required to be done by the other entities in the merchant acquisition chain to receive their residual payment.

Finally, since most self-service equipment has the credit card processing capabilities built in, the issue of the sale or distribution of processing equipment rarely comes into play. However, where the ISO provides free equipment to obtain the account, the absence of the need for such equipment is a saving to the ISO.

The foregoing is an extremely simplified version of the manner in which the merchant acquisition process is compensated. However, an understanding of the process suggests various methods to maximize a self-service equipment operator's or provider's profitability from the use of credit cards. Some of the available methods are as follows:

1. Negotiate. Processing rates and fees vary substantially throughout the industry. There are many different ISOs and agents who are attempting to obtain your credit card processing business. After all, signing up a merchant can generate a long term profit stream with little additional work. Therefore, you should be aware of competitive rates in the industry and the type of fees being charged. Although every salesperson you meet will tell you that his rates and fees are the best available, only one of them can be telling you the truth. For example, some programs charge set-up fees and annual fees and some do not. It is important to obtain a full understanding of what you will be expected to pay in writing. If there are fees being requested, there are alternate processors that may not charge such fees. Just because you are contacted directly by a salesperson does not mean that he will offer you the best terms. Also, you should be careful to limit your contractual commitment to the location for which you are requesting processing services. However, please understand that you are entering into a contractual commitment for a fixed amount of time. If you breach your commitment and the processing volume is significant enough, the processor will file suit to enforce the agreement. Washor and Associates has filed such suits on behalf of various ISOs.

2. Understand. Often there are provisions in the merchant agreement which may have an unexpected adverse effect upon your business. Therefore, you need to read and understand the merchant agreement before you sign it. If the term is too long, you may be stuck with an unsatisfactory processing arrangement for a long time. If the terms relating to chargeback are unreasonable, you may have your ability to perform credit card processing severely restricted.

We recently had a small incubator client who had been quite successful with various platform based businesses. The client opened up a new business which was less successful. It stopped soliciting new customers and continued to service existing customers only. However, the percentage of chargebacks increased because no new clients were being signed up to offset the number of chargeback transactions. Its ISO refused to process for his new business and ceased processing for his old businesses despite their generating close to $500,000 in monthly business with minimal chargebacks. Furthermore, the ISO TMF'd (put on industry list of merchants who were terminated by their processors) the client which made it virtually impossible for him to obtain an American processing for his businesses. In order to obtain an American processing relationship for his businesses, Washor and Associates had to contact the individual in charge of merchant acquisition for a large member bank. The client obtained the processing relationship but at increased rates. This could have been avoided if the client had understood the terms of his merchant agreement and he had spoken to the ISO before launching his new product .

Likewise, many ISOs charge merchants for permitting the merchants to monitor their own account activity. This should be discussed with the salesperson and the liabilities and cost imposed from such activity fully understood.

Finally, almost every member bank and many large ISOs have their own merchant agreements. Each agreement is different and although they appear to be boilerplate, they should be carefully reviewed before being executed and any problem provision should be discussed.

3. Join the Party. Assuming that your processing volume is large enough, there is no reason that you can not become an ISO or an agent.

If you are an operator of sufficient self-service equipment, many ISOs would be willing to enroll you as a secondary ISO or an agent. If your volume is large enough, there are some member banks that would do so as well. As an ISO or agent, you would be reimbursed the portion of your processing fees which would go to the ISO or agent which enrolls you. Since it is generally the ISO or agent which sets the various fees charged to merchants, you should be able to avoid the bulk of these fees and obtain a lower processing rate by enrolling yourself. In this regard, you should be aware that there is no special knowledge, education, training, or license required. Although if you desire to become an ISO, you will need to satisfy the Association requirements for being designated as an ISO. Of course, the value of this tactic will depend upon your actual processing volume and the type of business in which you engage.

If you are a seller or a lessor of self-service equipment, it might prove profitable for you to become an ISO and contractually to require the merchants purchasing or leasing your equipment to process credit card transactions through you. Of course, the profitability of this tactic would depend upon the number of units which you sell or lease and the type of business for which the equipment is used. This strategy is more complicated than the other strategies suggested in this article and requires marketing skill in addition to legal documentation. However, this strategy should enable you to give the purchasers or lessors of your equipment better processing rates than they would be able to obtain on their own and if properly structured, could be extremely profitable for you.

Finally, it is important to keep in mind that I have presented a complicated industry in a very simplistic fashion and that implementing the foregoing strategies requires time, effort, and a thorough understanding of the process. In other words, some of the foregoing strategies are easier to suggest than they are to carry out. Nonetheless, every self-service equipment operator using credit card processing can engage in comparative shopping and negotiate to obtain better transaction pricing and fewer fees. There is no reason to pay more than necessary for credit card processing.

Lawrence Washor is an attorney at Washor and Associates, a firm that specializes in the self-service, ATM, and credit card-processing industries.

Posted by: Lawrence I. Washor AT 01:07 pm   |  Permalink   |  0 Comments  |  
Tuesday, 18 November 2008
It's the holy grail of any business that deals in cash: the closed loop cash management system. When cash moves from customer to till, and from till to bank, businesses must ensure that the cash's exposure to threats like theft are minimized. It's even more important when cash is stored in a self-service device, such as a kiosk. How can that cash be protected? Ed McGunn, president and chief executive of Corporate Safe Specialists, explains how kiosks can be secured.

Posted by: Ed McGunn AT 12:16 pm   |  Permalink   |  0 Comments  |  
Tuesday, 28 October 2008
Ron Delnevo, managing director of independent ATM operator Bank Machine Ltd., says new research into contactless cards shows that cash remains a viable and strong payment choice for consumers.
According to APACS, the United Kingdom's payments association, in 2007, six out of 10 payments were made with cash.
"I find it truly risible that Visa is promoting their latest research, which shows that 41 percent of people in a contactless trial felt it was an easier and faster way to pay for small items than cash," Delnevo said. "This of course means that 59 percent of consumers, in fact, think that cash remains the most convenient payment method. They are simply promoting the fact that, after spending tens of millions of pounds on research, development and advertising, they have made a 1 percent difference to consumer habits. I am not sure I would be claiming this as a big success and would consider it, frankly, a waste of corporate cash."
Delnevo says the only solid conclusion from the payWave trial was that users had security concerns about the use of contactless payment methods. That conclusion, Delnevo says, echoes the results of a survey carried out when contactless cards were launched in the United Kingdom, finding that 70 percent of people believed that the introduction of contactless systems would increase fraud. 
"At a time when everyone should be watching what they are spending, and in the midst of a worrying rise in debt, it is all the more cynical for card issuers to continue to promote the use of contactless cards — fully aware that research now proves that consumers spend more on cards than they do when using cash, even if they can’t afford to do so," Delnevo said. "Moreover, when the British taxpayer will now be picking up the bill for the reckless behavior of financial institutions, banks have a responsibility more than ever to the public — and that includes encouraging sensible spending habits."
According to research conducted by New York University and the University of Maryland, people often are prepared to pay significantly more when they know that they can pay by card.
Additionally, increased fees from MasterCard, announced this week, also are expected to take a toll on the card industry, Delnevo says. Retailers in the United Kingdom complained this week that MasterCard doubled the fees it charges, causing financial drains on U.K. shop owners.
"This increase in charges confirms that both retailers and the British public should be extremely wary of relying on plastic cards," Delnevo said. "Cash remains the most popular means of purchase in the U.K., and now we see why. Cash is completely within the control of the consumer in every respect, whereas with cards, it is a case of 'spend too much now and shed tears later.'"
Posted by: Ron Delnevo AT 12:10 pm   |  Permalink   |  0 Comments  |  
Monday, 05 May 2008
Whatever your business, you're almost certainly familiar with the benefits of self-service kiosks. Conducting transactions via an automated platform cuts staffing costs, boosts efficiency and creates added convenience for your customers. Thanks to these advantages, self-service payment systems are becoming marketplace staples.
Perhaps you've considered kiosks for your company. You've investigated costs and calculated the potential ROI. But have you developed a kiosk customer strategy?
Consumer acceptance of any automated payment platform is critical to your program's success and profitability. Before designing your kiosk, you must understand what the consumer will minimally accept and how he or she will respond to new options. For which types of transactions will customers use kiosks? Will customers demand person-to-person transactions in some cases? What do customers anticipate regarding forms of payment accepted? The forms of change offered? Before you build, develop a plan to manage and meet customer expectations.
If you build it, will they come? And will they stay?

There are plenty of cases in which customers prefer automated transactions at the point of sale. Personally, I prefer to use an automated platform at quick-service restaurants rather than interact with a cashier — I think my order is processed faster and more accurately when I input the data myself. On the other hand, I rarely use ATMs because I prefer to deal with a teller who knows me and understands the transactions I want to complete. I'm especially uncomfortable using ATMs for complex transactions, such as paying my mortgage.
I also have preferences about forms of payment at a kiosk. While I often choose the convenience of a credit card, in some cases I pay by check. In other circumstances, I prefer the anonymity of cash. And when I use cash, I want my change in cash, too — not as a credit on my next bill or purchase.
Consider your customer base and current POS model. Will a new kiosk meet current expectations? And if it doesn't, will customers leave?
Your kiosk strategy

When crafting a kiosk strategy, first choose between partial or total automation. Partial automation is ideal if a significant segment of customers will not accept automation of all transactions, or if you don't want to offer a full range of payment options at the kiosk. You could, for instance, automate only credit card transactions, accepting other forms of payment via cashiers. This solution allows for simpler kiosks, but does not completely eliminate staffing costs.
A total-automation solution, on the other hand, may create greater efficiency for customers and a greater ROI for you as wait times are reduced and staffing costs disappear. Total automation, however, requires a more complex platform if you intend to accept multiple forms of payment.
This brings us to your next decision: selecting accepted forms of payment and methods for providing change. Consider the types of payment and change to which your customers are accustomed. Offering fewer options may cut your costs, but how will customers react? Will the consumer accept a diminished set of offerings in an automated platform or will the reduced flexibility generate resentment?
Keeping options open

An ideal successful kiosk will process every type of transaction available through a company's current point of sale model. Consumers expect consistent payment and change options, regardless of transaction medium.
Should you limit types of payment accepted at a kiosk, consider implementing a consumer education program prior to launch. At a minimum, provide clear signage regarding payment and change issuance. If a customer waits in line to pay by credit card only to discover at the last minute that the kiosk is cash-only, frustration will result.
You also should consider cost-effective, customer-satisfying kiosk upgrades. In the United States, the credit-card-only platform is straightforward and fairly common and could be offered, for example, as part of a high-speed experience at a retail location. But for a reasonable cost, you could add a Triple-DES PIN pad, enabling PIN-debit transactions as well.
Show them the money

If, in a traditional transaction, I pay for a $12.75 purchase with a $20 bill, I expect the cashier to provide $7.25 change — in cash. Customers will expect automated platforms to provide change in cash, too.
If your kiosk doesn't include a change dispenser, this should be disclosed prior to payment. You should carefully consider customer reaction. Some bill-payment kiosks, for example, credit overpayment to the next month's bill, but customers generally respond negatively. For a compromise solution, place a "bill breaker" adjacent to your kiosk. Consumers can pay using the smallest possible denominations, limiting their exposure to $0.99 at the most.
Customer reaction determines success

In short, consumer acceptance will define the success of kiosk deployment. If the automated platform does not handle my preferred form of payment or does not provide change in the form I expect, I may not use it. If I'm forced to use it, through the elimination of other options, I may resent it. Neither are desirable results.
Automating a point of sale requires careful study of consumer expectations. When planning your deployment strategy, your ROI model must take into account the level of automation that can be achieved with the component mix selected for the platform. The key question, in essence: Is a simpler platform, with a limited set of payment and change options for highly targeted consumers, more beneficial than a complex platform with many payment and change options that targets a larger set of consumers?
The answers depend on your line of business, your location, your current POS model and other factors specific to your situation. The good news is that answers can be found through careful research — and that you don't have to find them on your own.  Work with your management team and kiosk designer, an expert in the field who can point you to products and components suited to your needs. With collective input and careful consideration of customer expectations, you can build kiosks that will serve your customers and your company well.
Posted by: AT 11:22 am   |  Permalink   |  0 Comments  |  
Monday, 17 December 2007
Tim Burke, CEO of Electronic Art, regularly blogs about self-service on his company's Web site. The following column first appeared on that site here.
A recent NPR story talked about the use of a cell phone as an airplane boarding pass. Essentially, a message is sent to a passenger’s phone with a two-dimensional bar code, which serves as his boarding pass information. The ticket agent then scans the screen just as he would a paper boarding pass.

The use of a cell phone as a means of identification has big potential in the future. Imagine a kiosk or interactive digital sign being able to scan and recognize you by a bar code you were sent via e-mail. Or it may be able to recognize you via Bluetooth or similar technology. Imagine a kiosk that allows you to sign up for a program or service, receive a code via e-mail or SMS within moments and interact with the kiosk or purchase your product without cash or credit cards. This technology has a lot of potential uses and it is just waiting for companies to adopt it in an engaging way that provides real value to the consumer.

I recently became aware of a pay-by-phone service called MocaPay, which allows you to sign up for an account online and add cash to your account from your credit or debit card. You can then go to any merchant that accepts MocaPay and purchase with your phone. It works like this: You send an SMS to MocaPay with your PIN number, and it responds with a code number that is good for 15 minutes. You give the code to the merchant and walk away with your product. Your account is debited once you have used the code. The service doesn't cost you anything to use; the costs are charged to the merchant at a rate similar to a credit card transaction. Could this be the new Visa?

This young company is primarily targeting the early adopters who already embrace cell phones and SMS messaging. They are growing in U.S. cities with large college campuses, where this target market is ripe. They get the merchants and universities to sign up to allow this audience to purchase with their phones.

All great stuff, great ideas. Now we need customers and deployers to figure out when it's appropriate to integrate these tools for their projects. Could this be you?
Posted by: TIm Burke AT 10:58 am   |  Permalink   |  0 Comments  |  
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