Magazine Article | August 15, 2014

Hospitality Tech Evolves To Incorporate Payment Changes

By Phillip Britt, contributing editor

VARs can add to value and revenue with additional POS features.

Payment card fraud, most notably the breach at Target in November of 2013, is one of a few factors driving restaurants, hotels, and other merchants to upgrade their point of sale (POS) systems from ones that accept magnetic stripe cards to EMV-compliant terminals that accept more secure chip-based payment cards (the standard in Europe and Canada). The newer cards are still in their embryonic stages with just some of the largest banks offering them. Discover is still in the test phase with its chip cards.

The payment card companies are requiring all terminals to be able to accept chip-based cards and meet other EMV compliance standards by Oct. 1, 2015. After that date the liability for fraudulent charges will shift from the card companies to the merchants for non-EMV transactions.

Some very small, independent restaurants which have only small tickets (charges), may choose not to upgrade their terminals because it would be much more costly than dealing with the occasional fraud. Most establishments don’t want the cost or the negative publicity that would come with any fraud.

“Some of the processors are selling their customers on fear and doubt,” says Jeff Riley, CEO of Dinerware, which provides restaurant POS software solutions to the hospitality industry. “The requirements of EMV certification can be confusing.”

While EMV might be the ultimate driver for POS terminal upgrades, it’s going to be the standard in new systems, so VARs need to offer additional features to stand out from their competition and to convince the merchant to purchase a new system sooner rather than later. The new POS systems for the hospitality industry incorporate advanced capabilities such as loyalty applications, gift cards, mobile ordering, and check-in. Some of the most advanced systems also enable the user to see sales in real time, who is on the clock, real-time labor costs, and data on voids.

There is a learning curve to understand and sell these additional features, but they are what will bring the VAR multiple, recurring revenue streams. According to Riley, the additional monthly revenues from many of these additional products and services are $10 to $50 apiece.

“The value proposition makes it an easy sell,” says Shannon Arnold, director of marketing for Posera, a company that provides POS software and back-office solutions for the restaurant industry. However, Riley adds that the sale of the POS systems and accompanying features become much easier if the VAR takes a little less up front in return for a better residual income stream from the value-added services and processing.Subscribe to Business Solutions magazine

Tableside Ordering Improves Table Turns
Some of these new hospitality systems are supplanting older POS systems at the checkout area. But some restaurants, notably Applebee’s and Chili’s, and even many smaller restaurants are installing tableside systems that enable patrons to order and pay directly from their tables. These tableside systems are designed to help speed up ordering, reduce labor costs, and increase table turns.

“It makes it easier for people to order what they want when they want it,” Arnold says. There’s no wait for a waiter or waitress to take orders, meaning quicker ordering. So the patron can easily order the extra drink or other item that might go unordered if waiting to place it through human staff. “Time is a precious commodity for people,” Riley notes.

Another advantage that patrons see in the tableside systems is they can swipe a payment card at the table, rather than giving it up for several minutes for restaurant staff to run the charge.

“Yet VARs need to understand the nature of their hospitality businesses to determine if tableside systems are the right fit,” Riley says. “It depends on the concept of the restaurant. Some of them depend on the floor staff interaction with the customer. For a higher-end place, it might seem a bit gimmicky. For some chains or sports bars, it could be very beneficial. It could lead to another round or two rounds of orders at some tables.”

Many of the new POS systems are tablet-based, so they can include a myriad of apps. The apps provide additional functionality, which is important because there’s little or no margin to be made on the device itself. The merchant won’t pay the VAR any more for the device than he would pay for it online. However, VARs can offer to rent the devices and offer different features and functionality for a recurring revenue stream. By renting the devices, the merchants can start getting the benefits immediately without incurring the capital costs.

Riley cautions that the VAR needs to know their customer to understand the app(s) that would work best in the customer’s establishment. The VAR should also understand any integration challenges and how to overcome them so that any app can be in use quickly to provide the promised benefits to the VAR’s customer.

“Resellers have a lot on their plates, so vendors typically make it easy for VARs to enroll in their program and immediately get started in identifying prospective customer targets,” Riley says. “Oftentimes, these vendors offer sales training in addition to providing a referral sales model. Until a reseller has a handful of customers on any specific add-on solution, I recommend starting with a simple referral process. This accomplishes two things: it allows you to protect the trusted and objective relationship you have with your customers until your confidence in a solution is built, and it enables very quick time to market.”

Mobile Apps Expected
Mobile and loyalty apps are among the most prevalent add-ons for merchants today. Mobile ordering apps are helping companies like Panera, Starbucks, and Wendy’s let customers order in advance to reduce wait time when they arrive. The apps also enable the merchants to gather information about registered customers, with the data-driving marketing and customer relationship efforts. Though the major chains have been the first to embrace and benefit from the technology, mobile ordering and mobile payment apps are also finding their ways into much smaller restaurant groups.

Among the more popular mobile payment solutions in the hospitality industry are Tabbedout, iCard Mobile Wallet, and NFC Pay-at-the-Table (with VeriFone PAYware Mobile), though there is a myriad of other solutions. “We get requests from our mobile payment partners to integrate their solutions twice a month,” Arnold says, noting that customers expect mobile capabilities to be included in new POS systems.

The ever-growing number of mobile payment solutions, and publicity about the success of some companies like Starbucks that have derived solid benefits from them, have made these apps easier for VARs to sell, according to Arnold. She expects a large number of new mobile apps on the market in the next couple of years, though no major breakthroughs in the capabilities of the apps themselves.

Just as with POS systems, the most effective way to sell mobile, loyalty, and other apps to restaurateurs is to determine how the features of an add-on solution apply to the desired experience or workflow envisioned by the customer. It’s important to recognize that not all restaurateurs have the attention span and aptitude to take ownership of a new technology solution and make it work successfully for their restaurant.

The loyalty apps are supplanting punch cards. But the apps must be simple to use and understand for both the user and the patron. So VARs need to take the time to understand the solutions and the potential benefits in order to successfully sell them. Even after understanding a loyalty program, however, a sale means convincing a merchant that the program will benefit their business.

The competition for advanced hospitality IT systems will continue to grow for the next couple of years, Arnold predicts. There will be everything from Apple-based POS solutions with all of the bells and whistles to “lite” POS solutions that do just the basics, which merchants will be able to order directly without the involvement of a VAR. The key to success for VARs will be to focus on value-added offerings.

Riley expects there to be new markets for VARs as well. He expects liquor distributors and distillers to look to engage customers directly with loyalty programs so they will buy one brand of alcohol over another when at a restaurant or bar.