A Gateways Strategy to Reinvent Itself

By Julia Murphy,2014-07-11 16:04
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A Gateways Strategy to Reinvent Itself ...

    A Gateway’s Strategy to Reinvent Itself

As transaction processors jockey to add volume in a hyper-competitive business, the role of the transaction

    gateway—the entity that links merchants with processors’ data centers—is becoming increasingly uncomfortable. Now that the processors themselves are adding value, gateways are under pressure as never

    before to serve as more than an intermediary.

    This fact of life has not been lost on Inc., American Fork, Utah, one of the major gateways

    serving Internet merchants. Its strategy is two-pronged: beef up value-added services and expand quickly

    into the physical point of sale, which is more competitive than e-commerce but offers high-growth potential

    in high-throughput markets like fast food, which seek the lightning-like payment speeds of the Internet. This

    strategy got a big boost this spring when Lightbridge Inc., a Burlington, Mass.-based provider of billing and

    fraud-management systems, acquired for $82 million.

    Lightbridge’s expertise lies in providing merchants, particularly those in the telecommunications

    industry, with fraud prevention, credit qualification, and identity- verification solutions. The company also

    offers enhanced voice and data solutions intended to help merchants improve customer service. With, Lightbridge gets entrée into transaction processing, while the gateway wins the backing it

    needs to pursue its value-added play.

    The plan, according to Roy Bank, vice president and general manager for, is to leverage

    Lightbridge’s fraud detection and other solutions to transform into a value-added gateway. This comes at a time when some observers are beginning to doubt the value of the gateway concept itself. itself has seen its market share shrink to about one-third from over half just four years ago,

    according to Celent Communications. “All processors have the infrastructure to accept [Internet Protocol]-

    based transactions,” says Michael Mulcahy, chief operating officer and executive vice president of sales for Exadigm Inc., a Tustin, Calif.-based maker of wireless and landline payment terminals. “If merchants are not

    getting added value from their gateway provider, then gateways become an extra layer of expense.”

    Certainly, Lightbridge is in a position to provide the resources needs to make the transition.

    Lightbridge posted revenues of $36.7 million during the second quarter of 2004, up 17.2% from the same

    period a year earlier, with $8.1 million of that gain coming from Industry experts believe the

    company will budget the money for research and development to broaden’s menu of services.

    “We expect Lightbridge to put more research and development and marketing money behind,”

    says Jill Gapper, director of product integration for Atlanta-based Global Payments, a reseller of’s gateway services.

    Beefing up its resources is key to’s long-term survival. Global Payments, a leading transaction processor, plans to launch a gateway application that will connect merchants to network service

providers, such as Sprint, MCI, and AT&T. The application will route transactions originated from IP-

    based point-of-sale terminals over these telecom networks to Global Payments. The gateway is targeted at

    merchants without in-house information technology staffs or that prefer to outsource the technical issues

    associated with IP-based POS solutions.

     “For merchants, using our service will be a choice similar to outsourcing a data center,” adds Gapper.

    “We aren’t looking to compete in the gateway space, but going forward we do expect merchants to take a

    harder look at what they want from a gateway provider.” Global Payments intends to continue its partnership

    with to support merchants that want value-added gateway services.

    By adding real-time fraud prevention and related security applications to’s core services,

    Lightbridge figures there is an opportunity to expand’s reach deeper into the brick-and-

    mortar merchant community. already provides gateway services to about 200 physical

    merchants, including several quick-service restaurants, which have embraced IP-based POS solutions for

    their speed and architectural flexibility.

During the second quarter of 2004, added 5,900 Web merchants, raising its total

    merchant portfolio to more than 100,000. The portfolio is made up of primarily small and mid-size and

    Web-based merchants.

    Expansion opportunities into the card-present market include merchants that want to deploy wireless-

    based IP solutions to create temporary checkout lanes or want to connect their point-of-sale system to their

    in-house database or inventory-management systems via the Internet. Wireless IP-based POS systems

    deliver increased flexibility to sales staff for checking inventory or connecting to customer-loyalty

    applications via wireless terminals anywhere in the store.

    This market segment is expected to grow significantly as terminal makers move away from dial-up

    technology to IP-based wireless units, according to Mulcahy. “Cable companies are pushing broadband into stores to deliver information to their host system wirelessly,” he adds. “Terminal makers are going to

    piggyback on what’s happening in the telecom world.” is betting this trend will prompt brick-and-mortar merchants to aggressively embrace IP-

    based solutions because of lower operating costs and faster transaction speeds. Because wireless terminals

    are networked to a host system, merchants can hang multiple terminals off a single server, as opposed to

    connecting a land line to each terminal.

    Merchants can save as much as $30 a month by eliminating a single land line. As for transaction speed,

    IP-based wireless terminals can authorize a payment in about four seconds, compared to 15 to 45 seconds

    for a dial-up terminal. The difference in speed can make a huge difference for merchants when it comes to

    moving customers through the checkout lane during peak periods.

    “There is a natural trend among merchants toward IP enablement of the POS device,” says’s Bank. “Providing this service is not a departure from our core competency as an IP-based

    transaction platform provider.” Industry experts see the combination of value-added services, cost reduction, and faster authorization as

    key selling points in’s strategy to expand its reach in the physical merchant world where

    competition for clients is stiffer than in e-commerce. “For merchants the question is whether gateways provide

    added value,” says Exadigm’s Mulcahy. “If they don’t, why add the service?”

    One potential bump in the road: the departure in August of Pamela D.A. Reeve, who had been chief

    executive of Lightbridge for almost 15 years. Board member Robert Donahue, who has held executive

    positions with Manufacturers Services Ltd. and Stratus Computer Inc., has been named Reeve’s interim


Western Union Scrambles to Stay on Top


     On average, Western Union customers pay about $14 to conduct a money transfer. In comparison, U.S Bank charges about $10 to transfer up to $1,000 and BofA has reportedly dropped its prices below those of Western Union. Since 2000, the average cost of sending a $200 remittance to Latin America has fallen from 15% of the transaction amount to about 8%, according to the IDB. While pressure on transaction costs is

    expected to continue, the higher prices charged by Western Union has led to profit margins of more than

    30% for the company, compared to 12% for commercial banks, according to Bezard.

    But trimming transaction fees is not a surefire recipe for banks to pull business away from Western Union. Industry experts argue that success is more dependent on the size of each player’s remittance

    network and brand recognition. To bolster its market presence, U.S. Bank has affiliated with MoneyGram,

    which in July was spun off by parent Viad Corp. and is now a subsidiary of MoneyGram International Inc.

    MoneyGram has 68,000 outlets in about 160 countries. More than 6,000 of MoneyGram’s outlets are in


    HSBC has linked its money transfer/gift card to the Cirrus ATM network, which has more than 900,000 ATMs in 120 countries. HSBC is also a MoneyGram affiliate. BofA’s SafeSend card can be used at more than

    855,000 Plus ATMs in 149 countries, 20,000 of which are in Mexico. Citi’s Tricolor Card can be cashed at

    any Banamex branch or ATM in Mexico or used to make a purchase at more than 120,000 affiliated Mexican


    Still, Western Union isn’t standing still. The company was out in front in the remittance card market, launching a MasterCard-branded card in 2001. The card, which is accepted at 4,600 ATMs in the U.S.,

    usually in or near agent locations, has proven modestly successful.

    “ATMs will play a role in the future of remittance, but they are not a panacea,” says the Western Union spokesperson. “Anecdotal evidence indicates customers feel more comfortable with agents that speak their


    Then there are questions about ATM fees and whether customers originating a money transfer or receiving one will eventually be required to open a bank account, something that is currently not a

    requirement for most competitors. “ATM and account fees raise the cost to the customer,” says Bezard.

    More recently, Western Union has introduced a service to allow consumers to purchase a ticket on Continental Airlines in cash. After ordering a ticket online or over the phone, customers receive a

    confirmation number, which must be taken to a Western Union agent, along with payment, within 24 hours.

    Travelers can pick up their boarding pass at a Continental e-Service kiosk the day of departure or by checking in through Continental’s Web site up to 30 hours prior to flight time.

    Western Union loyalty card holders can earn points toward reduced transaction fees or redeem points for merchandise. In addition, cardholders earn up to 20 minutes of local calling time or five minutes of

    international calling time for each transaction. Many cardholders use the minutes to phone relatives and tell them they have initiated a money transfer.

Nor is Western Union turning a blind eye to the competition U.S. banks pose. To counter this threat,

    Western Union in August signed Minneapolis-based TCF Bank as an agent. TCF brings more than 400

    locations to Western Union’s network.

    For now, it appears competition is doing more to cement Western Union’s position than to weaken it.

M-Commerce Report

    Preparing for Its Early ‘05 Launch, Simpay Lines up Testing Vendors Following the April announcement appointing Encorus as its central service provider, Simpay has

    announced that Tata Infotech and Integri will form the cornerstones of its testing strategy for the payment

    system it is due to launch commercially in early 2005.

    Global systems integrator Tata Infotech, part of India’s best-known industrial conglomerate, will support Simpay in testing the central processing systems and the readiness of Simpay’s members for launch. Tata

    Infotech was chosen for its ability to meet Simpay’s requirement to conduct extensive and intensive testing

    cost effectively, using a combination of onshore and offshore resources, and having undertaken similar

    projects with other customers in the areas of software development, IT-enabled services, and IT

    infrastructure management.

    “Tata Infotech is proud to partner with Simpay, which is the appropriate vehicle to take m-commerce to the

    masses,” says Charles Antony, chief operating officer at Tata Infotech. Integri has been selected to build a suite of simulators of Simpay’s systems to enable standalone testing

    by mobile operators of their own components of the program before full integration, and to support the

    acceptance testing of the central platform. The Simpay Scheme Simulator will be built around Integri’s INQ Test Tool. Integri’s worldwide customer base includes financial institutions, telecom operators, and

    system integrators in both e- and m-commerce.

    Simpay’s offering will allow consumers to make low-price purchases using their mobile phones. The cost of the goods or services, including MP3 music files, games, or sports results, is debited from the

    mobile user’s account by his or her mobile operator. Simpay is also suited to next-generation mobile

    services such as real-time video.

Verizon And Sprint Report Stepped-up M-Commerce Traffic

    Verizon Wireless and Sprint are each on pace to earn about $1 billion this year from customers who

    download games and ring tones, use wireless broadband connections, and send and receive instant

    messages. While that’s a significant improvement over 2003, this year’s pace is below what people

    expected when such services debuted.

The carriers say it’s encouraging that Verizon Wireless is seeing an average of 20 billion instant

    messages a month so far this year and Sprint has seen data revenue rise 33%. Industry executives assert that

    the inexpensive net services now gaining popularity are “gateways” to wireless broadband and other more

    lucrative offerings. “Wireless data represents a bigger and bigger percentage of our revenue,” says Lawrence Babbio, Verizon president. “We see growth in that area.”

    Most popular among the new services are games, says Sprint, which claims to lead all other US carriers

    in this area. Between January and April, Sprint customers bought 3.5 million games, priced between $3 and

    $15 each, compared with the 5 million sold in all of 2003.

    The 2-year-old “Get It Now” service has never seen higher traffic, Verizon Wireless reported in July.

    Get It Now uses Qualcomm’s BREW technology to sell ring tones, games, and business applications.

    Verizon is the only U.S. carrier selling BREW-based games. Between January and May, 34 million

    purchases were made through Get It Now, nearly matching last year’s overall tally.

The articles in this section are published by arrangement with Mobile Payments World, an online-only

    newsletter published 22 times a year in the UK by European Card Review, Europe’s leading payments card

     magazine. More details:

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