Winds of Change

By: Biff Matthews, President, Cardware International

Bob Dylan said, “You don’t need a weather man to know which way the wind blows.”
That’s true, but everyone in our industry knows that our prevailing winds are those
of change. The way we do business and the mix of products and services we offer are
constantly evolving to serve a dynamically growing and ever-changing marketplace.

We face a myriad of state and federal regulations. Transactions are growing in number
and complexity. The hardware and software we use to process these transactions is
becoming more sophisticated and specialized. And the list goes on.

Let’s first look at the trend in our industry toward outsourcing by card service providers.
On the acquiring side, there are still some organizations that stock POS devices, printers,
paper supplies, and other related products. When an order from a merchant comes in
or a new merchant is boarded, the acquirer ships the necessary products. This may
be appropriate in certain situations, but I look at things the way a manufacturer views
just-in-time deliveries on raw materials.  By having materials arrive only as needed,
the ‘lean’ manufacturer saves on warehousing, inventory and financing costs for
these materials.

Well, if it works for the manufacturing sector, then there’s no reason why ‘lean’
merchant service providers can’t also achieve the efficiencies offered by zero inventory
investment. Most of our customers have discovered the effectiveness of this, and have
full confidence in it. The level of customer service necessary to make this appear
seamless to the merchant is a cornerstone of our business.

Training is another area in which our customers can benefit by outsourcing. We offer
a sophisticated and effective training program, and most of our customers use our
services for  training. Yet, we still have customers that, once they enlist a new
merchant account or upsell new or additional services, use their own sales staff to
train the merchant on the new technology. Our customers who do this say they don’t
like the loss of control over the process and the relationship with their merchant
customers. Our view is that they actually gain control by outsourcing training because
the quality, continuity and reliability of the training by people who do it all the time is
really an effective way to go. Besides, shouldn’t sales people be out doing what they
really do best?

The next changes to consider are the continuing trend toward paperless transactions
and in the mix of transaction types. According to Steven E. Dawe, president of Financial
Transaction Services, LLC, Westlake, Ohio, “Paper forms of payment continue to shrink.
Cash and checks are being replaced as forms of payment.” This means that cards of one
form or another are being used more, and the onus of recording and storing transaction
data falls onto our industry. For decades, credit card ‘plates’ were the norm for consumers.
But with the advent of electronically sophisticated POS equipment and industry-specific
software, improved card processing opened the doors for consumer debit cards and
prepaid gift cards as well.

According to Annette Herndon, recently operations manager for a New York-based
acquirer, “The debit card is the fastest-growing segment of our industry. A few years
ago, it was the pre-paid gift cards, but growth in that segment has slowed.” This is
despite the fact that debit and pre-paid card users do not get the same protections
against fraud or loss they would have with common credit cards. In any case,
merchants have had to gear up for these changing trends by purchasing or
upgrading the software and equipment that lets them process debit and gift
card transactions. This is a win-win situation for merchants, acquirers, and
those of us who supply them.

Luke Wigley, president of Security Bankcard Center Inc. (owned by Arvest Bank
of Arkansas), Norman, OK, talked with me recently about this next change.
“The technology involved in processing a transaction has increased many
hundred-fold in recent years. Data storage requirements have gotten bigger.
Terminals are quicker, with more memory and more transaction storage capability,”
he said. “Increased transaction volume and the information gathered per transaction
can be used to track consumer patterns and preferences,” he added.

Talk about a marketer’s dream! The amount and detail of information available from
each transaction has proved to be a Mother Lode of data to be mined by those who
have the equipment and technology to collect and analyze it. Whether it’s a giant ad
agency on Madison Ave. preparing a campaign, or a mid-level product manager moving
a new product to market, they are facilitated in part by the data that our industry supplies.

The industry changes we’ve talked about so far have already happened or are happening,
but this final one is food for future thought. This is the advent of biometric techniques of
cardholder authentication. Technologies that read cardholder fingerprints, retinal patterns,
or DNA already exist, and are being tried or considered on a limited basis in some markets.

Our industry’s entire business model depends on consumer confidence, protection
against merchant fraud and cardholder security. That’s why Steven Dawe believes
“it’s not a matter of if, but when” biometric technologies become commonplace in
the U.S.  Annette Herndon, though she cautions that Americans are “very wary of
Big Brother technologies,” agrees. She says that security laws that protect consumers
in this country are neither binding nor applicable to those who hold cards issued in
foreign countries. Given the increasing globalization of the world’s economy, the
proliferation of foreign tourism, and the dark veil of terrorism, it’s easy to see why
biometric authentication may yet become the global standard.

But there is another factor that may make the adoption of biometric authentication
a slowly evolving process. That is the prohibitive cost of  equipment to support those
technologies. As Luke Wigley says, “A mom and pop merchant will not be able to afford
the investment necessary for biometrics. The level of fraud is higher than it used to be,
but the cost of these emerging technologies still outweighs the threat of fraud.”

Biff Matthews is President of Thirteen Inc, the parent company of
CardWare International.  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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