Quantifying the Cost of Changing – (or Not)

When Should You Upgrade Equipment
And, Do You Move to a "Next-Gen" Device – or Leapfrog?

By: Biff Matthews, President, Cardware International

Multiple prepaid products - gifts, loyalty, debit, cell phone, money transfers –  
managed on a single device is now the norm.  And while early devices are
limited to four or six different products,  eight is better, and 16 is now possible,
if not always necessary.       

Is it time to upgrade, and if so, how far?  My view is that if you go beyond one or
two products, a leapfrogging is called for.  Current-generation systems are more
stable and more secure than those that immediately preceded them.  The partitioning
architecture is better defined, and as a result, there’s less collision of applications.  
Price points have become more affordable and while they’ll inevitably move lower still,
those moves will be far less significant. 

So, now is the time to upgrade –  if you have increased applications of prepaid services. 
Nothing on the market is more sophisticated than what customers need, so the choice
of device is determined by the applications the merchant wants, and the investment
he’s willing to make. 

16 applications is overkill for most merchants, but eight is absolutely not.  Use of
prepaid has skyrocketed, as applications for gift cards (America’s #1 most-wanted
Christmas gift in 2005, according to CNBC) prepaid wireless, and prepaid long distance
have proliferated.  Age verification programs, and money transfers – particularly those
headed south - have intensified the move to prepaid, as has the popularity of anonymous
payments, a diverse underworld of applications we won’t explore in this venue.  

Newer equipment also has the advantage of being IP-enabled, so transaction times
are faster and more customers can be served quickly.  IP-enabled systems allow DSL
to automatically hand-off to dial-up if the former goes down, so there’s a valuable
fall-back.  There’s also a device, manufactured by ExaDigm, whose changeable modem
provides wireless, Wi-fi and dual-com (DSL+dial-up), with 16 applications capability.  

ExaDigm's name comes from. "Exa" referring to a quintillion or 1018th power –
the next future era. The "Digm" is from "paradigm," something that serves as
a model.  Not surprisingly, this is a pricey option compared to other devices,
but the interchangeability of modems lets you move from trade show to office
to customer location without missing a beat, and its combination battery and
tethered operation give it unparalleled versatility. 

Two other factors to consider in the upgrade equation are better lease terms,
and enhanced sophistication of the operating software which contributes to,
among other things, less volatility in customer relationships.   Specifically, the
enhanced software allows the protection of the application through a locking
program, so that an interloper can’t easily invade and displace the original seller. 

The downside to this in that with sophisticated of equipment, maintenance costs
can be higher. This is, after all,  8th generation, ATM “touch screen” technology. 
So, on the plus side, there’s the value of facilitating increased revenue by having
additional products to sell, coupled with the ability to service a larger number of
customers in same amount of time, plus a lower cost-per-transaction. On the
negative there are higher equipment costs and (possibly) higher maintenance
expense.  I say “possibly” because the 8th generation has, thus far, demonstrated
admirably high reliability. 

Business operates by revenue generation and cold economics.  The new devices
are slip-in replacements that require no special adaptation,  but like five year old
computers, depreciation is a straight vertical line and the old ones have zero
trade-in value.

One good evaluation tool is cost per application, although this is not a calculation
I have seen anyone actually do.  Will a merchant use and benefit from the added
applications on the system he’s considering?  That’s what matters.  (My car can
do 150 mph, but there is no chance I’ll use this capability regularly.)    

Will you get a return on investment in 18 months to two years?  That’s a valid test,
because equipment and technology leapfrogs about every 3 years.  Three years
from now, he norm will be virtual software, and a whole new set of particulars.

Biff Matthews is President of Thirteen Inc,  parent company of CardWare
International.  CardWare is a pioneer in outsourced equipment life cycle
management of card transaction devices. He is one of 12 founding members
of the ETA, serving on its board, advisory board and committees.  (740) 522-2150.

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