(July 24, 2009) The concept of using so-called smart phones as mobile credit card terminals started getting headlines less than a year ago, and the experience of one independent sales organization that has developed software applications for the mobile devices shows just how rapidly handsets like iPhones and BlackBerrys are taking root in merchant acquiring.

The ISO, Boston-based Merchant Warehouse, introduced an application for Apple Inc.’s iPhone earlier this year and just a month ago launched a similar app for several models of the BlackBerry from Research in Motion Ltd. Both free apps are a hit with merchants, says Henry Helgeson, president and co-chief executive of Merchant Warehouse. “I will say we’ve got over 1,000 merchants on the iPhone,” says Helgeson, who spoke to Digital Transactions News at the MidWest Acquirers Association’s 7th Annual Conference Thursday in Lombard, Ill. And though he didn’t have numbers, he says downloads of the new BlackBerry app have been strong. Next up is an app for devices that run Microsoft Corp.’s Windows Mobile operating system.

Merchant Warehouse markets the apps under its MerchantWare Mobile and Capital Bankcard Mobile brands. They enable merchants to process credit and signature-debit card transactions at card-not-present interchange rates. The BlackBerry app also can handle card-present transactions, which are assessed lower interchange rates, if the merchant buys a $149 MagneSafe card reader. The reader, manufactured by MagTek Inc., transmits track data to the smart phone via Bluetooth technology. Nearly 40% of those who have downloaded the BlackBerry app have purchased the card reader, Helgeson says.

As other developers and merchant-acquiring executives have said (Digital Transactions News, Jan. 5), the iPhone/BlackBerry apps appeal to merchants that take payments outside the office. Helgeson says merchants “across the board” are using MerchantWare with their iPhones, though the app especially appeals to service industries, contractors, tradesmen, and the like.

Merchant Warehouse, which has about 55,000 merchants, is differentiating its mobile-phone applications from the competition by offering a proprietary gateway service for free. Gateways such as CyberSource Corp.’s Authorize.Net and others enable online merchants to connect to the various payment networks, and the other mobile apps typically charge for them.

While they are a welcome addition to his product line, Helgeson doesn’t expect smartphone applications will produce major changes in Merchant Warehouse’s overall volume. Still, “this is a nice new niche,” he says, adding that his and similar applications could cut into demand for specialized but more expensive mobile terminals from the major POS terminal makers. “It’s certainly going to cannibalize the wireless terminal market,” he says.

That scenario probably won’t come to pass, according to analyst Adil Moussa of Boston-based Aite Group LLC. “When everything is said and done, I don’t believe there will be too many users” for smartphone apps, he tells Digital Transactions News by e-mail. “It will address a very restricted niche market. Even taxi drivers would not be an ideal target for these applications because they need a walkie-talkie type of phone to keep in touch with their dispatch [center].”

Helgeson says that for the most part, his merchants have had few if any operational problems with MerchantWare. But, in reference to comments he’s heard, smartphones could be in line for more scrutiny from security executives, according to Helgeson. Some observers believe iPhones functioning as data-handling card terminals should have quarterly scans in accordance with the Payment Card Industry data-security standard. But Helgeson says they don’t need such scans, and adds that his apps are PCI-compliant.

Meanwhile, Helgeson says Merchant Warehouse’s new BINSmart Cost Manager application that works with POS terminals to allow small merchants to get the lowest available interchange rates is getting a good reception, though he didn’t have acceptance figures on hand. The average user is seeing a 15% to 17% cut in card-acceptance costs without a rate change, though one merchant cut 80 basis points off its costs, he says.

BINSmart in effect gives small merchants some of the same tools that big merchants have to take advantage of network authorization and interchange rules to get the best rate. With BINSmart, the terminal interrogates a database of interchange tables built by Merchant Warehouse on its servers. If a transaction would qualify for a lower rate with an additional piece of information, such as a PIN for debit card or a ZIP code for further authentication, the server prompts the terminal for that data (Digital Transactions News, Feb. 12).