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Online Payment Gateways
By Julie Ritzer Ross — July 27, 2006
A desire to more rapidly move customers through the checkout line while controlling telecommunications costs is spurring merchants to migrate from dialup to Internet Protocol (IP)-based credit and debit card processing. Experts say these factors are sparking conversion not only by Tier 1 retailers, but throughout the SMB space, with more than 90 percent of all merchants expected to jump on the IP bandwagon by the end of the decade.
IP-based credit card and debit transactions are handled in much the same manner as those completed in dialup mode, except that the Internet, rather than the telephone, serves as a conduit for transaction data. In an online processing scenario, merchants submit transaction data online to an Internet payment gateway, such as Authorize.Net. Data moves through the gateway to the acquiring banks processor and is routed via the card interchange system to the appropriate credit card issuer.
Once the issuer has approved or declined the transaction, it electronically sends data concerning transaction results (accepted or declined), along with funds, back over the Internet through the interchange system to the acquiring banks processor. The processor relays the transaction results to the gateway, which passes it back to the merchant. Funds for the transaction are also passed via the interchange system to the acquiring bank and, finally, the merchants bank account.
Increased transaction speed tops the list of benefits retailers currently are garnering from IP-based payment processing. From start to finish, broadband IP transactions take one to three seconds to complete, versus nine to 12 seconds for dialup transactions executed on newer models of POS terminals and up to 15 seconds for dialup transactions completed using older (eight- to 10-year-old) POS hardware, vendors report. The end result: faster customer through-put, shorter lines at the checkout counter and, in turn, increased shopper satisfaction.
Seattle, Washington-based Seattle Goodwill, a unit of Goodwill Industries that operates 13 Goodwill stores, had these goals in mind when it migrated from dialup to IP-based POS processing about two years ago, states Ray Osburn Jr., IT manager. Of the 13 units, 12 have five lanes apiece with PC-based cash registers running Keystroke POS software. The 13,000-sq.-ft. flagship store has 10 lanes whose registers also run the Keystroke solution.
All stores handle transactions over the Internet using Mercury Payment Systems Mercury Pay payment processing solution, which integrates with the Keystroke software via an activeX component. Credit card and related transaction information gathered at the point of sale is relayed through an IRC (inter-register communication) connection to one of two PCs in the stores back offices. It is then built into an XML stream and sent over the Internet to Mercurys server.
The server routes the data to Visa, MasterCard or American Express for approval. Once an approval message has been received by Mercury, it is routed back to the POS system, which translates it from XML to a readable format.
Before we went from dialup to IP, customers had to wait approximately 15 seconds between the time their transactions were initiated and the time they were finished, Osburn explains. Now we have reduced it to about 1.5 seconds. And although weve never measured the length of customer lines at the registers (pre- and post-implementation), were definitely moving people through the lines faster. Two other Goodwill operating units, one with 12 stores in Florida and the other, with 18 stores in Texas, reportedly are reaping similar benefits from the same IP solution.
Osburn points to one drawback he initially uncovered when researching IP-based transaction processing: If your connectivity failed, you were completely down because IP vendors did not have modem connectivity, he explains. A partnership between Mercury and Datacap Systems solved this problem; the latters DataTran device integrates with Mercury Pay and uses an analog phone line to become a transparent connection to the IP network.
The device pings the host, and if connectivity is interrupted it performs a fail-over, Osburn says. When connectivity is re-established, it performs a fail-back. All of this is automatic, with no user or IT intervention. Your connection is faster than with a normal modem, but slower than with IP.
A five-unit food store chain also is leveraging IP connections for faster transaction processing. The retailer opted to migrate away from dial-up about two years ago, when it had four stores and was preparing to open a fifth. At the time, completing transactions took an average of 14 to 15 seconds. Management decided that this was far too long, especially because the new store was expected to attract 10 percent to 15 percent more traffic than the original four stores based on its location and other factors. An IP based solution, executives reasoned, would permit the new unit to accommodate additional business and speed up transaction processing chain wide.
Using Mercury Pay, which integrates with its Datasym Sumfinite POS software, the retailer now executes transaction processing over the Internet in a fraction of the time needed to handle the task via a dial-up connection.
Cost savings also figure heavily into the dialup-to-IP migration. Merchants typically must pay $50 per month per dedicated dial line used for processing transactions. Those that utilize a broadband network for inventory control, email and/or Web surfing can save $600 per POS terminal, per year by leveraging that same network for transaction processing, experts observe.
Moving to IP-based transaction processing also slashes expenditures because an IP connection, unlike a telephone line, can simultaneously handle multiple transactions. Hence, there is no need for a dedicated phone line. Additional savings stem from the fact that IP supports multiple applications, enabling merchants to consolidate all types of communication, both voice and data, into one efficient high-speed connection. Osburn estimates that Seattle Goodwill saves at least $30,000 per year from employing one Internet connection to its processor per store rather than maintaining multiple dedicated land lines.
Experts predict that more retailers will eschew dialup for IP-based processing as the number of options enabling them to do so increases. Such vendors as Hypercom and VeriFone are continuing to develop a wider variety of Ethernet-enabled terminals. Others, like LAVA Computer Manufacturing, are rolling out black-box devices that allow any retail operation with a static IP address to convert modem-based payment processing to IP-based payment processing. No matter which route merchants take, it appears that the Internet is continuing to alter the payment processing landscape.
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