While many factors continue to contribute to the evolving payments ecosystem, there are key trends and requirements that are essential to small businesses’ success in 2013 and beyond. For example, non-cash payments continue to be a significant component of most business’ receivables. Beyond traditional debit and credit, transactions made by mobile devices and contactless cards continue to gain popularity.

According to our First Data study, 60 percent of consumers believe contactless payments translate into faster transactions, with 36 percent saying mobile purchasing is more convenient than using a credit or debit card in person at the store.  Small businesses must respond quickly as more empowered consumers expect an integrated buying experience that’s quick and consistent everywhere.

Fortunately, smaller companies are nimble enough to adapt quickly and cater to today’s tech savvy customers, but they must be mindful of new technologies and processes that can help contribute to the company’s bottom line.

To stay relevant and remain competitive, business owners and decision makers should consider: 

Integrating Payments Solutions

Most would agree that 2012 was the year of “Universal Commerce” – where increased information, technology sophistication and access transformed commerce.  As payments, social networking, and commerce continue to intersect through smartphones, tablets, personal computers, and brick-and-mortar stores, consumers seamlessly blend and coordinate their shopping activities across online, offline, and mobile channels in pursuit of value, convenience, and a personalized buying experience.

Consumers are especially interested in how this can help save them time and money — for instance, self-checkout using a mobile phone, receiving special offers when near a store, or using mobile apps and web browsers on tablets to interact, review, browse, compare, manage, and buy — whether in a store, at home or on the go.

Research shows that one-third of consumers would like a seamless shopping experience — meaning any transaction, on any device, at any time. This creates both opportunities and challenges for small businesses.

Retailers that proactively invest in smart point-of-sale (POS) solutions can help future-proof themselves by ensuring they are prepared for inevitable changes in the industry. However, planning is a challenge as the market is still evolving and quite fragmented. There are many different approaches to eCommerce and mobile payments based on a variety of technologies, and the market has no clear winners yet.

Small businesses need a single point of integration with access to all payment types, all industries, and all platforms – anywhere. For example, some new solutions provide online test environments and readily available support resources, and offer accessible online certification management, tailored developer toolkits, and immediate access to innovative payment technologies, all through a simple Web portal. Payments partners can help small business owners identify these solutions and new technologies.

Layering Data Security Solutions

Payment experiences must be efficient, secure and reliable for both the customer and the small business owner. That’s why businesses that accept credit or debit payments need to comply with the Payment Card Industry Data Security Standard (PCI-DSS). 

While small businesses have a responsibility to protect their customers’ data, they do not have to do it alone. In fact today’s payments providers offer solutions that help achieve and maintain PCI compliance much easier and faster. 

Solutions that combine the flexibility of software or hardware based encryption with random number tokenization technology help by removing the need for small businesses to store card data. Instead, data is replaced with a randomly assigned number called a token. This protects payment card data and prevents it from entering the merchant environment. As a result, systems never hold the actual card numbers from the transactions processed. These solutions can help business owners stay PCI compliant while securing their customers’ data. 

In addition, payment providers can help small businesses stay up-to-date with emerging data security trends and technologies such as Europay, MasterCard and Visa (EMV) standards and smart card adoption that are becoming more important than ever. Small business owners should start considering what a smart card implementation might mean to their businesses and look into options for accepting new chip-based credit and debit cards to their customers. Implementing technologies like chip-based security, including EMV, can protect card-present transactions for both physical cards and virtual wallets. 

Complying with IRS Regulations

The regulatory landscape for the payments industry continues to change at a rapid pace. Section 6050W of the Internal Revenue Code containing revised transaction reporting and withholding requirements began impacting merchant transactions in 2011. Obligated reporting entities (the processors and financial institutions responsible for managing merchants’ payment authorizations) must report merchants’ payment card and third party network transactions, based on validated tax identification numbers (TIN) and tax filing names. 

Beginning in 2013, non-compliance will result in backup withholding being subtracted from merchants’ daily deposits, which are based on the current IRS withholding regulations (currently 28 percent). The new standards require businesses to track and report gross dollar sales amounts for payments made with credit and debit cards, some gift and stored value cards, as well as payments handled by a third-party network payments provider. In addition to federal backup withholding, there are now a few states that are also requiring backup withholding, including California and Maine.

These requirements do not bring small business additional time to prepare. While the IRS has introduced a new document – the 1099-K – to support this change and serve as the reporting document officially used to report these results, small businesses should seek out a regulatory package to assist with compliance on such timely regulations as the IRS Tax Reporting requirements.

Ensure a Successful Payments Future

Developing a strategic plan to address the challenges and opportunities that come with today’s evolving payment landscape requires a careful evaluation of a wide variety of factors.

Fortunately, small businesses are not alone in this endeavor. They can work partners that have relationships across the full Universal Commerce ecosystem and take advantage of today’s opportunities to thrive by providing a consistent, seamless consumer engagement experience.

Credit Card Photo via Shutterstock

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Despite the undeniable popularity of smart devices among consumers, a recent Wells Fargo/Gallup study shows the merchant community lagging behind the trend. Fifty-seven percent of small business owners reported no plans to make capital investments in the next year and felt their businesses did not need improvements – although 80 percent of small businesses said they would be more likely to invest because of increased sales revenue.

While 60 percent of the population made purchases online in 2011 and spent in-total an average of $608 in the process, according to a CRM Associates study (PDF), the time to invest for a profitable result is now.

Today’s forward-looking businesses recognize that embracing their own smart devices such as point-of -sale (POS) terminals that read contactless payments and barcodes, mobile POS, kiosks and table-based catalogs help create a consistent experience for consumers and impact the way they make purchases.

At the same time, to keep up with consumer demands, small business must understand the impact that smart devices are having on how consumers make purchases, capitalize on the anytime, anywhere ability to reach the masses with relevant communication, and ensure all means of communication provide a positive and consistent experience.

Because consumers increasingly use online shopping and mobile technologies in pursuit of greater control, small businesses need to adapt and keep up with this digital command to retain and increase loyal clients.

Beyond Traditional Commerce

Shopping in-store at local businesses is no longer the primary way customers learn about and buy products.  In fact, 52 percent of consumers said accessible information and availability for questions before making a purchase would encourage them to spend more, a recent Harris Interactive study found.

Smart devices allow consumers to be fully connected, providing an integrated shopping experience regardless of location, and create new channels to influence purchasing decisions outside of traditional advertisements and offers. The use of social networks and mobile apps provide a perfect platform for merchants to present highly targeted products and promotions, directly to customers who are looking for them.

New technology such as virtual wallets and electronic promotions make it easy for consumers to track specialized promotions and deals and keep them all in one place. This simultaneously helps small businesses retain loyal customers, provide better loyalty programs and collect detailed information about their customers shopping behaviors.

For example, new technologies, like card-linked offers can electronically attach offers, eCoupons and loyalty programs to a consumer’s payment card or mobile wallet enabling streamlined, automatic redemption at the merchant POS with immediate feedback from the payment terminal or smartphone instead of printing purchased online offers to physically present in stores.

While smart devices are influencing today’s commerce and helping streamline loyalty programs, the overall payments landscape is evolving and small businesses are seeing more and more opportunities to utilize new technologies with payments.

As more payment options become available, moving from traditional cash payments to systems that facilitate transactions in the cloud, meeting the new demands of Universal Commerce has emerged as a vital strategic consideration of any business.

Smart Devices Adapted to Small Businesses

As smart devices continue to become a larger part of how customers function, small businesses need to understand how they are impacting the consumer decision-making process and what tools will be most effective for their businesses. Since commerce has moved beyond the in-store interaction, many businesses have an online presence, a mobile application and other internet applications, including social media, to better and more closely engage with customers through multiple channels.

The best strategy for small businesses is to ensure customers have positive and consistent experiences across each outlet. Whether a customer is using a mobile app, online, or in store, there should be no question as to which ‘store’ a customer will buy from, as they see the same deal offered to them online and at the physical store. Navigation and appearance should follow a parallel structure, while prices, loyalty cards, discounts and all other policies should be the same across all channels.

The appeal of using smart devices is that customers know exactly what they are getting, no matter how they receive the information and product.

Businesses should also capitalize on the anytime, anywhere ability smart devices provide, allowing customer interaction with the brand on their terms and schedules.  With customer purchasing behaviors captured through loyalty programs, merchants can send specific communications to a target channel based exactly on customer preferences.

Strategic adaptation to smart devices is small business’ best instrument for providing customers with a superior shopping experience, while thriving in the new world of Universal Commerce and keeping a robust and satisfied customer base.

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Small businesses can take advantage of consumer trends by offering convenient, consistent access to the applications they want regardless of whether they are at home, walking down the street, shopping in-store, or somewhere in between.

An example of how this can look is when customers are able to make purchases at an online store then pick up the merchandise at a physical store. Add email or mobile alerts to notify customers when a product or new inventory becomes available, and we are now talking about real time interactions that can drive behavior and provide added convenience.

Even more, new solutions today enable offer publishers to electronically attach deals, eCoupons and loyalty programs to one or more payment cards that can be stored and tracked in their mobile wallet for a streamlined and automated offer redemption process at the point of sale (POS).

This is an example of how the lines are blurring between in-store commerce, eCommerce, and mobile commerce (mCommerce). Consumers want the best deal in the most convenient and personalized way, no matter where they are. They’ve come to expect personalized access to information and products anytime, using any device. They expect a shopping experience that seamlessly crosses online and offline channels. They expect Universal Commerce.

Today, small businesses are at the crossroads of retail, eCommerce and mCommerce, where countless opportunities exist to create a more integrated and personalized experience for today’s connected consumers.

To broaden payment acceptance options and focus on building an integrated, multi-channel marketing program, the following strategies are suggested especially for smaller retailers:

“Mobilize” Existing Payment Programs

With the help of advancements in mobile technology, small businesses can take advantage of mobile wallet capabilities to offer highly targeted incentives that offer value and increase loyalty and retention. With tools like Google Wallet, consumers have a new way to pay which may decrease their use of physical credit and debit cards, checks and cash.

Start the process of integrating branded payment programs, including retail credit cards, loyalty card programs, and prepaid cards, into popular mobile wallet applications. Cards and other payment options that are easily accessed through a mobile wallet may be used more readily than those stuffed in an old-fashioned wallet.

Update Point-of-Sale Equipment

Advanced mobile devices are giving consumers more control over monitoring their finances, making purchase decisions and paying for transactions. While millions of consumers are equipped with contactless-enabled debit and credit cards and other contactless payment devices, adoption among consumers is likely to grow rapidly with the emergence of mobile phone-based near-field communication (NFC) payments.

In fact, the pay-by-phone market will make up $22 billion in transactions by 2015, according to a forecast by research firm Aite Group. Small businesses that plan for this change will find success in mobile commerce.

Small businesses are nimble-enough to adapt quickly and all indications show that contactless payments are the wave of the future. Timing will be critical however as the mobile payments revolution will likely come in small spurts of users jumping on board rather than a mad rush.  Proactively investing in smart solutions that work today will ensure that small retailers are prepared for what’s ahead.

The good news is that updating POS equipment to accept mobile payments is easier than most business owners think. It may be a matter of adding a peripheral device to an existing system. While some upgrades can be accomplished through software, others (contactless payment, for instance) may require hardware changes, although many newer POS devices are being built with contactless capability as a standard feature.

Create a Multi-Channel Marketing Program

New technologies such as mobile coupons, vouchers, and offers that can be electronically linked to payment cards, enable small merchants to run specialized promotions designed to build new business, increase visits by existing customers, and accelerate sales in targeted product categories.

As noted above, for example, advanced solutions and technologies today allow offer publishers to electronically connect offers while simplifying the redemption process for customers by linking directly to any type of payment card. Offers are redeemed in real time at the merchant’s POS with immediate feedback via the payment terminal or smartphone.

Paper receipts of online offers or other coupons are no longer required when redeeming at merchant locations; instead, consumers can link their offers directly to a payment type of choice (credit, debit, or through a mobile wallet) and redemption is automatically applied when that payment card is swiped at the POS.

Specialty offers not only drive business, but they give merchants more information about consumer behavior and preferences in order to create targeted deals that are even more attractive. In addition, merchants can leverage social media channels and traditional gift cards to enhance the in-store experience, providing a well-rounded, consistent buying experience across all channels.

Adopting a Universal Commerce Strategy

There’s no right or wrong place to start when adopting a Universal Commerce strategy. It depends on the essential building blocks – smart devices, actionable intelligence, integrated applications and an enabling infrastructure, all accessing data in the cloud.

However, small businesses do not have to address these building blocks alone or take it on all at once. Integration partners are the glue that binds the Universal Commerce strategy. Small businesses can work with a partner or partners that have relationships across the full Universal Commerce ecosystem, and take advantage of today’s opportunities to thrive by providing an engaging, consistent, and seamless consumer experience.

Mobile Credit Card Photo via Shutterstock

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For almost two decades, interest in a chip-based payment standard such as EMV has barely reached a simmer in the United States. Recently however, some of the card brands have increased awareness resulting in collective interest across the United States in the smart chip standard. In addition to financial institutions, merchants of all sizes, including small business owners, should understand the current state of EMV in the U.S. and the impact of this standard.

While there are many “flavors” of chip-based payment standards, to date the majority of EMV implementations globally have focused on chip + PIN enablement. Whatever the format, smart chips are the basis of the technical standard behind more than 1.24 billion payment cards and 15.4 million point-of-sale (POS) terminals, with almost all of those cards and acceptance devices residing outside the United States.

Small Business Implications of Smart Card Adoption in the U.S.

Payment industry experts generally agree that a chip-based standard will come to the U.S., but the predictions of when and in what form vary dramatically. While pundits say the U.S. is far from ready, there is a distinct possibility that the change may come sooner.

Smaller merchants, as well as larger businesses, have many decisions to make. Once a sufficient number of financial institutions begin issuing smart cards, merchants need to decide whether to process the cards using EMV technology or to accept financial liability and responsibility for fraud losses. Either way, small business owners that choose to wait for widespread implementation will be at a disadvantage when the standard is accepted.

Savvy businesses are starting their education process now and are beginning to formulate plans for adoption. Merchants that take the necessary steps to select the tools to future-proof their investment will be in a better position to evolve as their business needs and the industry changes.

Smart Card Acceptance 101

Understanding the changes will require some learning. It is important to understand what the new POS devices can and can’t do, and there are many device options on the market. Many manufacturers and payments players are adding new functionality to EMV-enabled equipment, making their equipment more innovation-agnostic.

Merchants will need to coordinate with their acquirer or processor to accommodate the transaction messaging for EMV-based payments. Because more data is sent to the acquirer from an EMV-compliant transaction than from a magstripe-based transaction, both message types will need to be supported.

Business owners and operators and their acquirers in coordination with smart card acceptance, can determine whether to require a PIN, a signature or neither for cardholder authentication in a credit or debit transaction. The Durbin Amendment gave merchants the authority to make this decision, and for the first time it is now being phased-in for magstripe transactions.

Overall, as EMV is deployed, there will be procedural changes at the POS. For example, most EMV-enabled POS equipment will include contactless technology, allowing merchants to accept contactless and mobile payments, which provides a higher level of convenience for customers and speeds up check-out time. Some of the new smart chip-enabled POS devices will help drive loyalty and repeat business by pushing coupons and special offers to mobile phones, allowing consumers to redeem offers through the device. Additionally, while smart cards won’t solve every security problem, they will go a long way toward boosting customer confidence at the POS.

Next Steps for Small Business Implementation of EMV

While no one really knows when all of this will come together in the U.S., one thing is certain – some form of chip-based payment standardization is coming. Clearly the need to reduce fraud and increase security exists, and now some of the industry’s largest players are starting to put incentives in place to encourage merchant, acquirer and financial institution migration.

The small business is a key player in this very serious game. Business owners and operators should conduct a full assessment to understand the impact of EMV and participate in industry discussions, not only to get educated, but to have the opportunity to influence how the payments ecosystem moves forward with smart card implementations.

Third-party POS software providers understand the business strategy of becoming EMV-compliant. By engaging the POS provider experts and assessing what a smart chip enablement plan would look like to upgrade consumer-facing POS devices, small businesses can plan ahead while staying in synch with payments provider readiness for smart card processing. Finally, consider ways to reduce fraud and data theft risks as part of a comprehensive payments security plan.

While there is no mandate for EMV adoption, both Visa and MasterCard have indicated that a liability shift will apply to merchants who have not upgraded their POS terminals to process EMV card transactions and fraud occurs. Thus, when evaluating their overall payments transaction security needs, savvy businesses are increasingly realizing the value of taking a multi-layered approach to data security and fraud prevention—incorporating a combination of recommended end-to-end encryption and tokenization technologies—with the ability to better manage vulnerabilities throughout the payment processing sequence.

Now is the time to get educated to fully understand the issues and the choices ahead.

Smart Card Photo via Shutterstock

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What Payments Types Are Right for Your Business?

Imagine a customer waiting in a long line to pay, only to realize at the register that the retailer doesn’t accept the payment type presented. No one wants that to happen to them, and businesses don’t want to turn that customer away during the holidays or any other time. The good news is that, depending on your current capabilities, you may not need to overhaul your system to add or support new payment types.

Online or in-store, every customer purchase results in an interaction at the point of sale. Small business owners should not be afraid to call their payments processing partner to talk about what might be best for their business.  Accepting the right mix of payments and having reliable, efficient and secure equipment helps create a positive experience for both customer and business all year long.  For instance:

Give your gift cards a boost ~ Christmas is second only to birthdays when it comes to giving gift cards. In addition to providing great last-minute holiday gifts that extend the life of gift-giving seasons, prepaid gift cards create additional foot traffic, help generate brand awareness, increase same-store sales and add revenue from “uplift” on card redemption.

If you already offer gift cards, consider whether encouraging customers to reload will help keep your card in the top of their wallets. Gift card malls are increasingly popular places for customers to purchase cards.  Another trend that is beginning to gain popularity is virtual “gifts.” Check with your program provider to find out whether it makes sense for you to get your card into the gift card malls and/or online.

Mobile payments are almost here ~ The mobile revolution is touching nearly all aspects of modern life, from how we play to how we pay. Google Wallet offers a fast, easy and simple way for consumers to pay with their phones. Updating your point-of-sale equipment to accept mobile payments is easier than you think. It may be a matter of adding a peripheral device to your existing system, which will help merchants to be ready once mobile commerce reaches critical mass.

Use social networking to sell ~ Social networking sites like Facebook present a huge opportunity to expand gifting programs to new channels. The eGift Social solution allows consumers to use Facebook to send virtual gift cards to friends and family. Consumers can choose to have their eGifts delivered as a Facebook post, sent via email or have a physical gift card mailed directly to the recipient.

Evaluate and upgrade point-of-sale (POS) and other equipment ~ Can your POS system handle the increased holiday traffic? An upgrade can mean greater flexibility in accepting payments and being ready for innovations in payments—potentially lowering infrastructure costs, decreasing customer wait times and making transaction processing more reliable and secure.

Take a multi-layered approach to reducing risk ~ Layered payment security is critical to helping protect sensitive payment card data. Because there is no single approach to security that can prevent or eliminate card data theft and fraud, four trends have been identified impacting payments that, together, are already shaping the way businesses protect their payments and customers, while also reducing the cost of complying with the Payment Card Industry Data Security Standard (PCI DSS).

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PCI DSS establishes minimum data security measures for organizations around the world that hold, process or exchange cardholder information from any of the major card brands. The standards are reviewed every two years, and were most recently revised in October 2010.

According to a study by the National Retail Federation and First Data, 86 percent of small- and mid-sized business respondents said they care about keeping customer card information secure and feel card data security is important to their business. But while most (66 percent) are aware of PCI DSS, only 49 percent had completed a required self-assessment at the time of the survey.

Protecting cardholder data can seem expensive and a bit overwhelming to small business owners, most of whom already wear many hats. However, the financial and reputational costs of a breach can be significant – in some cases jeopardizing your business altogether.

But where to start? Hopefully you already limit physical access to cardholder information and keep anti-virus software up to date. Here are additional ways you can significantly increase data security while managing compliance costs:

Encrypt Sensitive Data
Probably the single most important measure that a business can take to protect cardholder information is to encrypt card data immediately after the card is swiped at the point of sale. The information should stay in an encrypted state while it is transmitted to the payment processor.

This step means the transaction is never transmitted in plain text in the frame relay, dial-up or Internet connection, where the potential exists for interception by fraudsters. If the data does get siphoned off once it is encrypted, it is virtually useless to thieves.

Reduce Your “CDE”
Every computer system, filing cabinet and application that uses or stores sensitive card data, including encrypted data, is part of the overall cardholder data environment (CDE) and within the scope of PCI DSS compliance. In other words, the more places you have data, the more places you need to worry about protecting.

Limit – and even shrink – the scope of your CDE by restricting the use of cardholder data to only those applications directly pertaining to payments (e.g., transaction authentication, daily settlements and chargebacks).

Embrace Tokenization
Tokenization is a “layered” complement to encryption. Cardholder data is sent to a centralized and highly secure server (vault) after authorization, and a random unique number (the token) is generated and returned to the business’ systems for use wherever the cardholder data would normally be used.

The token is specific to the card and can still be used to process returns, track spending habits and other business functions, but the number itself has no value for fraudsters. This can dramatically reduce the impact of a potential data breach.

Tokenization can also help reduce the scope of the CDE because there is no cardholder data present. Businesses that replace cardholder data with tokens in all their enterprise applications can significantly reduce the scope of their CDE, and subsequently reduce the scope and cost of PCI DSS compliance and annual assessments/quarterly scans.

Work With a Third Party
Another way to shrink the environment that’s subject to PCI compliance is to hand over the responsibility (and liability) for storing card data to a third-party service provider. For instance, a business can send encrypted card data to the payments processor for authorization, and when the authorized response is returned, a tokenized number is also sent to the business.

This approach layers encryption and tokenization while also shrinking a business’ CDE to the smallest possible footprint: the POS system that holds live, pre-authorization card data.

Raise Your Hand
Businesses have a responsibility to protect their customers’ data, but you don’t have to do it alone. Talk to your payments provider about solutions and experts that can help your business get and stay compliant. Remember, PCI DSS is a minimum standard, and finding the right partner(s) can help you make smart decisions about how to best safeguard your customers – and potentially your business.

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