Merchant Innovation

Redefining ‘Integrated Payments’ At The POS

 

Some 30 years ago, what made Datacap Systems, Inc. unique was that it was first to bring integrated payments into cash register technology. Now, as POS technology has evolved, the meaning of the buzzword “integrated payments” to traditional acquirers and innovators alike has completely morphed – and reached a whole new caliber of importance. In a recent interview, MPD CEO Karen Webster sat down with Terry Zeigler, CEO of Datacap Systems, Inc. to get his perspective on what makes up a successful integrated payments system today, how ISVs can overcome pitfalls in developing them, and how merchants can use them to address a need that’s never changed – getting more customers and selling more goods.

 

KW: I would describe Datacap as a software platform that enables developers with innovative ideas to efficiently reach merchant POS systems. And that’s really what we are going to talk about today.

So Terry, I noticed that you’d been in business since 1983, when POS was very, very different. There was lots of cash, and lots of cash registers. Debit was sort of a youngster coming into the scene. So before we get into what’s happening today, I’d love to get your perspective on the evolution over the 32 years that you guys have been in business.

TZ: Yeah, that’s a lifetime for some of the people in the payments business. We actually started life as a cash register manufacturer. That was our business start. What made us special at that time was that we were the first people that put integrated payments into a cash register technology. We released that first product in 1984 and we were really focused on markets where IBM and NCR weren’t. Where they were into big store and big chain sort of environments, we were interested in stores that had single lanes, which was kind of a unique idea.

So we did a lot of business with mid-market, especially retailers, like Frederick’s, Dress Barn, Fashion Factory, Maternity Warehouse – people like that. Over the years we started to evolve the business into the payments functionality because it started to take on a life of its own. That’s really the background of how we got started. We look at the changes that have gone on the in the industry – some are pretty massive and some actually are pretty minor when you really look at it. Years ago, what we now know as “cloud” was termed Service Bureaus back then. We talk about routers and IP now, and then it was modems and serial communications. Full transaction data was being captured, we sent full transaction data off to our customers and they did their data mining. They would then determine what to buy, re-orders and that type of stuff. There’s been a lot of big changes in how speed and technology platforms work, but the basic underlying pins of merchant activity haven’t changed dramatically.

 

KW: You used the word “integrated payments” and that’s really become quite the buzzword today in the POS space. It’s really what all of the traditional acquirers are now talking about as their go-to-market proposition. It’s what a lot of the innovators coming into this market are really focused on. How do you define integrated payments since you really started that wave, it sounds like, in integrated payments?

TZ: When you look at an integrated payments platform, you have to look at the value proposition to the merchant. If the merchant is running a transaction on a cash register or POS terminal, then separately authorizes that transaction on a stand-aside terminal, his accounting systems are automatically out of whack. He’s got problems with data entry issues, with reconciliation issues, and with administrative backend issues.

So for us, it’s a single entry device not unlike Amazon with their whole 1-Click Pay button. The reality is, as a merchant, you need to have it all integrated to the POS system so that they have a streamlined business management system. In fact, let’s look at it from a mobile payments standpoint – the idea that mobile will ever really take off in a brick-and-mortar operation without having it fully integrated to the merchant’s retail system. We just don’t see that happening.

Integrated payments is really all about having a streamlined process where all of the functions that go through a checkout system are integrated through one database, through one operation. Part of that is the payments side, and part of that are the peripheral activities like loyalty cards. I don’t think loyalty can ever work reliably on a stand aside platform – it has to be integrated to the POS system. So I think that’s really how we see the integration piece, it’s really the value proposition of merchants in terms of overall business operations activity.

From the standpoint of what makes us unique, the comment about coming from the cash register business is pretty important. When we did this integration work to our own cash register technology, we understood all the pitfalls and all the aggravations that an ISB goes through to do this development. So we have a very unique perspective because we are probably one of the only middleware providers that have that background of having actually integrated payments to a POS cash register technology system. The interface that we do for our ISBs is a one-to-many interface. It creates a very serious opportunity for them to take advantage of all of the historical experiences we’ve had in doing integration work and getting that access to all the various processors on a single interface.

 

KW: There’s an awful lot that’s different now than 32, 22 and even 12 years ago in terms of integrating payments with lots of other capabilities at the POS. I’m sure that it’s a much more complicated endeavor today. It sounds like it’s going to get increasingly more complicated going forward. How have you had to adjust to address that complexity?

TZ: It’s really evolutionary. Our command interface is architected to be extendable so that we can add various capabilities. So where you start with a very simple credit card payment, then you add on a debit card capabilities then you add check capabilities, then you add gift cards or loyalty programs or FSA transactions or EBT transactions—so in effect, we created an interface that allows us to bolt on different things that go along.

Now, a big thing that we have really been doing in the last couple of years is architecting a strategy we call “DatacapConnect.” That’s basically the ability to take the transaction from any platform, any device, any OS and bringing it into a central server that can be used either at the store level or enterprise level, or even at a processor level, to consolidate all that transaction activity regardless of the card type that’s used.

 

KW: So card type and mobile payments as well?

TZ: Well, we work with companies that do in-person mobile payments at a brick-and-mortar level. We can support vending machines, kiosks, PC-based POS, and embedded cash registers. All of those points of contact inside of a retail store can actually go through one server device.

 

KW: So let’s talk a little bit that concept for a minute. I was at NRF earlier this month and the buzzword around was “omnichannel” and the ability for merchants to keep pace with their consumers toting mobile devices across all of the channels that they use to reach that merchant. It’s a slightly different concept than what you just described, but in terms of Datacap’s capabilities and then the merchants’ readiness to embrace omnichannel, can you comment on both?

TZ: I think the big problem with merchants embracing omnichannel is the ability to centralize their databases so they can run multiple sales channels through one database. I think that’s been the holy grail, and at the small or midsize merchant level, I would say those merchants are not ready for omnichannel capability. They’re doing e-commerce sites but I don’t think a lot of those people have those systems tied together.

From our standpoint, we can take a transaction in from an e-commerce site into our servers or promote the brick-and-mortar location so they can consolidate the activities through one administrative activity. But I don’t think that the small or midsize merchants are quite there. I think even some of the larger merchants are struggling to get those databases all connected together. But I think the omnichannel experience is something everybody is striving for – a lot of it is more through marketing activities than it is necessarily payment activities. So when you look at the mobile experience, what we’re seeing is that the merchants are more inclined to look at mobile activity as how they get customers into the store and how they get those customers to buy more stuff – more so than they’re concerned with getting that payment through a mobile device.

 

KW: Interesting. You mentioned earlier on in our conversation that you don’t see mobile being successful in the payments arena until these databases can be consolidated. Do you envision that as being a very long-term process?

TZ: I have spent a lot of time with the students of my Alma Mater and over the years we have been talking about what their inclinations were about using different technologies. A decade or so ago we asked them whether they were using debit or credit cards. And what we found out some time ago was students were all using debit cards, credit cards were a non-issue on campus. The question was, “Why?” The rebuke was they were concerned about their ability to stay out of credit card debt. It was a self-control problem. So we knew quite some time ago that debit cards were going to become a very big usage issue. Whether that was PIN debit or signature debit was kind of a non-factor. The driver was students didn’t want to carry credit cards because they’d get them in trouble.

Likewise, I spend a lot time in the last couple of years talking to students about mobile payments and what they tell me almost universally is that they love the idea of using their phone to do research, they love the idea of using their phone for online banking, they love the idea of using their phone for other kind of marketing activities, and for using it for loyalty programs and that kind of stuff. But they have pretty little interest in using their phone to make a payment at a retail point of sale.

I find that fascinating. Whether that turns out to be a longer term issue or not, I don’t really know, but my gut is that the mobile movement will focus primarily on the marketing activities that will help the retailers sell more stuff, more so than having the consumer actually pay for that stuff with a phone.

 

KW: But is it that mobile payments aren’t available in enough places that matter for them to see the value? Or is it because there are these separate systems that separate payments from something else that’s of value, dragging payments through in-store, that would make that experience better?

TZ: I don’t know that they know enough to give a coherent answer on it. But I asked specifically that question and the answer they gave varies. The females say they lose their phones. They don’t trust that they can hold on to their phones. They misplace them and they don’t like that they won’t have it available when they need it.

A number of guys I’ve talked to say that they don’t think the technology is secure enough. They jailbreak their phones all the time and they know what’s involved there and they’re worried about having any credentials sitting on the phone.

Now, has Apple Pay changed that? Maybe. But the other thing that they ask that is really more pragmatic, and the pragmatic reality is, “How many places can you really use it? And are you telling me I can give up carrying my wallet? If I can get rid of carrying my wallet, which means I don’t have to carry my driver’s license anymore, I don’t have to have all my credit cards, my loyalty cards. If I give all of that up, then that’s fine. But if I have to carry the cards anyway, why would I use the phone?”

And then the final thing they say is, “Honestly, I have to get my phone out, unlock it, bring the app up, touch the pay button—it’s easier to use the credit card.”

Again, does Apple Pay change that? Maybe.

 

KW: Interesting. Well it’s a fascinating debate. So you obviously talk to a lot of merchants and you interface with a lot of developers that are cranking out innovative ideas that they’re using your platform to reach merchants. What do they want? What’s on their roadmap for the next year or two and has that changed over the last year or two in terms of their priority and what they’re really looking to do?

TZ: Keep in mind that Datacap’s a little bit shielded from the merchants directly because we deal exclusively through the ISV channel. So what we’re getting larger feedback from is the ISVs and dealers that are asking us for specific functionality. What we do get back from the merchants that we talk to is that their concerns are not really about payments, but about the traditional issues that merchants face their entire lives. That hasn’t changed in the 32 years we’ve been in business.

They want to get more people in the store and they want the people to buy more stuff. So when they look at the mobile realities, they are very, very interested in mobile but they are interested in mobile from a standpoint of how they can sell more stuff.

What our ISVs and dealers are pushing us for, and the No. 1 thing they’re looking at right now, is security issues. The question is whether they’re looking at the security issues because their merchants are asking for them or they’re looking because they see themselves in harm’s way as a supplier of systems that maybe have flaws in design or architecture. So they’re pushing us for EMV, tokenization, encryption – anything for security improvement is something they’re pushing for pretty heavily.

 

KW: A question I want to ask you about the channel: you mentioned that you go-to-market through dealers and ISVs. The space, as you well know, is really going through a transformation. There are a lot of players that say the business is changing so dramatically that the channel that used to be such a part of how the acquiring business actually functioned, and how innovation scaled, is actually going to be marginalized and minimized. How do you feel about that?

TZ: Twenty-two years ago, Datacap created a video called, “New World Order of Integrated Transaction Processing.” The whole point of that video was trying to convince the cash register network and the ISO community to work together to bring integrated payments to the community. We thought it was going to happen a lot sooner than it did. I figure we were probably 10 years ahead of what the curve actually was.

I think that the ISO channel will always have relevance because they’re very good sales people. The ISO channel needs to engage the reseller channel and support the variety of POS systems. We believe that POS systems are getting far more complex, so when you start adding mobile payments, loyalty and omnichannel issues into a retail management system—it’s not something for the faint of heart in terms of installing and supporting. More importantly, it’s something that requires somebody with some good knowledge of the particular industry so they can do a needs assessment with the merchants to determine exactly what they need to run their business.

I don’t think the ISO community has been very good at that. However, the ISO community could do a very good job of working with the integration community with the retail systems resellers to deliver that kind of product platform to their merchant base. So I think they’re relevant if they engage with the experts in that area to help deliver those systems and products.

 

KW: You and I agree that merchants’ big concern is getting customers to buy, whether that customer is going into a virtual or physical storefront. But that isn’t always about payments – in fact, it’s probably never about payments. But we are a payments publication and we have a payments audience. So what advice do you give the payments ecosystem for satisfying the merchants’ need to sell more stuff and the payments ecosystem’s need to embrace innovation around payment?

TZ: I think the whole payments ecosystem has to look at the needs of the merchant. And understand very clearly that payment is effectively almost a commodity part of what the merchant’s trying to accomplish. And they have to look at how they add value with a variety of different services. That could be things like data movement, data analytics, it could be loyalty programs, it could be prepaid gift card programs, it might be payroll services. The kind of things that merchants need to run their operations and you can see how that could all be integrated into one tight package. The payments industry has to look at that holistically at this point.

 

KW: And one centralized database, that’s the big message that I got from our conversation. It has to be brought together for the benefit of the merchant who doesn’t have either the time, the expertise or the resources to pull it all together otherwise.

TZ: That is correct. It all has to be tied together and has to be fully integrated. That is in essence where Datacap’s been since we started business with them 32 years ago. So it’s been about integrating everything at the POS so it’s one seamless transaction from the consumer all the way to the back end of the merchants’ business operations.

 


Terry Zeigler Photo Sep 2012

Terry Zeigler
CEO of Datacap Systems, Inc

Terry Zeigler is Founder, President and CEO of Datacap Systems, Inc., developer and manufacturer of integrated electronic payments systems. Previously, he held the role of Executive VP of Transaction Management Inc., a manufacturer of retail management systems.

Zeigler is an active member in the Retail Solutions Providers Association, serving on the Vendor Working Group and Strategic Planning Committee. He is also co-founder of Zeigler Family Foundation, which focuses on implementing age appropriate Financial Literacy programs in local school districts. Zeigler served for the past 3 years on the Bloomsburg University Foundation Board, and co-endowed the Zeigler Institute of Professional Development (ZIPD) and the Zeigler Business Case Competition. He actively supports the College of Business by providing student scholarships and hosting students through the Sophomore Experiential Learning program. 

Zeigler graduated with a Bachelor of Science in Business Management from Bloomsburg University in May 1976.

 

To listen to the full podcast, click here.

 

 

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