Paying Forward
From present-day innovations to futuristic solutions, technology offers more alternatives to the old fashioned choice of 'cash or charge'
By Meredith Schwartz -- Gifts and Dec, 2/1/2008 12:00:00 AM
It's a truism that bears repeating: At bottom, retail is all about dollars and cents. After you've established your location and purchased your inventory, set up great displays and hired excellent staff, the question is: How are you going to get paid for all your hard work? Cash is still simplest, but is the choice of fewer consumers these days. Checks also remain viable, particularly for stores without a large transient clientele. And credit cards are, for many Americans, now the payment method of choice. Yet new technologies have created new payment methods that retailers need to consider — particularly as many consumers try to limit their debt, and others are unable to obtain credit.
Adapting the Past
Paper checks are not exactly cutting edge technology, but many people still swear by them. And now it's easier for small businesses to handle checks the same way big businesses do — with remote deposit. In 2003, a federal law called Check 21 gave digital check images the same legal weight as paper checks. As a result, major companies began scanning checks and depositing them electronically. Now banks such as PNC and Wells Fargo are issuing miniature scanners to small business customers, according to The New York Times, allowing the same remote depositing system to be used by independent retailers.
The scanner connects to accounting software such as QuickBooks, so it updates account balances and accounts receivable logs, in addition to saving a trip to the bank and reducing human error. Scanner prices vary from about $500 to about $1,200. Other models are available from manufacturers such as Epson and Unisys. For cash businesses, some armored car services are offering to collect cash and checks, consolidate them into one check and make a remote deposit.
Online Layaway
Another technological retrofit of an old payment method is marketed by eLayaway.com, based in Tallahassee, FL. With the advent of credit cards and the increased emphasis on keeping stock turning, many retailers have eliminated their layaway programs. But that can frustrate consumers who don't have good credit, or those trying to avoid paying high interest.
Now there's another option: merchants who accept eLayaway.com can outsource collection to a third party. The buyer pays off the balance (plus a 1.9 percent fee) in installments via automatic debits. When the balance is paid, the money is transferred to the merchant and the item ships.
Since eLayaway offers both small business and large enterprise options, the range of its clients is vast. “We've got people who sell perhaps one or two items per quarter [and others who sell] up to hundreds of millions of dollars a year,” says Michael Bilello, vice president of strategic relations for eLayway.com.
The small business version of the software costs $34.99 a month, and can be integrated with an existing e-commerce solution or used without one. The integrated version puts a button by every single item, saying “eLayaway Now, payments as low as…” which Bilello notes is effective for lowering shopping cart abandonment. In the non-integrated version, eLayaway builds a showcase page for the merchant, free of charge, and links it to their own network. This version is best for retailers who want to offer layaway terms only on certain products, such as those for which they have an ever-ready source. There are no transaction fees.
Another retrofit, Bill Me Later, allows consumers who don't want to put their card numbers online to receive a paper bill instead. But for business-to-consumer retailers, the minimum threshold for a merchant to sign up is $10 million in annual card-not-present sales, making it a viable choice only for large companies, according to Bill Me Later spokesperson Pauline Louie.
Here Today
In addition to options for the future, there are several new twists on payment technology that are already widespread among major chains, but not necessarily yet standard for smaller stores. Signatureless credit card payments are one such option. Already used at grab-and-go spots from restaurants to convenience stores for transactions under a certain dollar amount, signatureless cards offer optimum convenience for customers and can help shorten lines at the register.
Tap and go, which doesn't require a swipe, is even faster. Also referred to as contactless or proximity payment, tap and go uses radio frequency identification (RFID) and near-field communications to carry account information from a chip embedded in a credit card to a point-of-sale terminal. (MasterCard's proximity payment program is called PayPass, American Express has ExpressPay, and Visa's is known as PayWare.) During pilot testing, card companies confirmed that contactless payment is faster than either cash or credit card transactions. American Express also found that contactless buyers spend 20 to 30 percent more than cash shoppers. According to MasterCard spokesperson Anisha Shah, contactless PayPass cardholders spend 23 percent more per PayPass account. They also use their cards more (PayPass increases transaction frequency per account by 32 percent), and come back more often (PayPass users frequency at PayPass-enabled stores goes up).
Accepting ATM/debit cards is another way to help customers avoid racking up debt without having to carry cash, and is especially handy for impulse buys. It can also be cheaper for retailers, as transactions in which customers enter a PIN on a number pad can result in fewer fees than those with a signature.
Of course gift cards, already the number one Christmas gift, are still growing in popularity among both givers and recipients. And online there's San Jose, CA-based PayPal, a simple, secure way to take payment from credit cards or bank accounts for about $30 a month.
Pay by Phone
Two different approaches allow customers to pay for merchandise direct from their cell phones. PayPal offers a mobile payment solution that allows customers to make secure online purchases from their phones and BlackBerries. (PayPal also has a text message-based payment service, Mobile Text to Buy; but for that service, users must register their devices.)
More ambitious is the idea of being able to use your cell phone to pay for products in person simply by waving it in the direction of the register. This is essentially another form of contactless payment, but the customer's RFID chip is embedded in the phone instead of a card. This concept first caught on in Asia, but now some American companies are also testing the waters.
Contactless payment of all types works with existing magnetic stripe payment infrastructure: Merchants can add on a wireless receiver inexpensively, or upgrade to new point-of-service terminals that integrate near-field communications. There are few security issues, since the device must touch or pass within a couple inches of the reader to complete a transaction. Card companies have agreed to standardize the protocols for radio frequency identification, so users will be able to access a variety of credit accounts on a single phone.
However, the readers only work if they have something to read: less than 5 percent of the world's cell phones will be embedded with the chips by 2007, according to ABI Research. But that number is expected to reach 30 percent by 2011, according to the Washington Post.
And paying by phone may be just the beginning: in December 2007, Forbes.com reported that Apple has filed for a patent on a wireless system that would let customers place an order from their phone, PDA or media player, and be notified when their selection is ready for pickup.
Keep in Touch
What could be easier than that? Biometrics. Even the phone may not be necessary with biometrics — technology which allows consumers to pay by identifying themselves with unique features, such as a fingerprint or retinal scan. There are obvious benefits to a method of payment which can't be left in a taxi or easily stolen. However, how consumers will react to the idea of such personal information being used for commercial purposes remains to be seen.
This isn't as fanciful as it may sound. Pay By Touch, San Francisco, already offers a single-lane biometric payment solution for local retailers, which lets customers use a finger to “write” an eCheck; it also handles major credit cards. (A multilane solution for bigger stores is also available.)
However, most consumers probably haven't encountered this technology as of yet. Pay By Touch is accepted in just 3,000 locations across 44 states, the UK and Singapore, according to the company. In the short term, accepting such a science-fictional payment method is more likely to be a buzz-builder for a cutting edge business than a major source of sales. Still, retailers may be well advised to keep their eyes peeled for signs of mainstream adoption.
The bottom line is that payment options will continue to evolve as technology advances, but only those methods that are viable for merchants will gain critical mass, and only those that offer value for consumers will ultimately stick. And while it wouldn't be advisable for retailers to jump on every passing bandwagon, it pays to keep an eye on the latest updates from processing providers.
Because giving customers the option to pay the way they want to will never go out of style.
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