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You've probably heard of E-ZPass, the electronic traffic monitoring and taxation system. The E-ZPass client device is a vehicle borne radio that rats you out at roadway tollgates. This technology looks like a natural for metered-planet-loving IBM, but not in this case. E-ZPass transponders and cloudy services come from Kapsch, of Vienna, Austria, an outfit that mixes mobility, monitoring, and money the world over. Even venerable NCR is jumping into mobile payments now, hoping to edge out rivals from clever little Square, a mindshare leader, to Big Blue, which talks Smarter but doesn't always act that way.
Of the many players in mobile payment technology, Kapsch may have a depth of experience few others can match. Kapsch didn't invent E-ZPass but through its $70 million acquisition of the toll processing technology from privately held American conglomerate Mark IV in 2010, it gained ownership of technologies and a political culture with roots going back more than twenty years. E-ZPass collects payments for a consortium of regional governmental and quasi-governmental authorities that began in the New York City area, where various agencies collect a lot of toll money from highways, bridge and tunnel crossings and, more recently, other facilities such as airport parking areas.
The founding agencies formed an association called the E-ZPass Interagency Group (IAG) so the various participants could oversee the development of suitable technology and an infrastructure that would work in all the planned applications. Since the first meetings in 1991, E-ZPass has grown to span highways and other tolled facilities throughout the Northeast. There are other systems outside the Northeast, but none has the clout of E-ZPass, which currently serves upwards of 22 million vehicle operators. Each of the operators has a portable transponder capable of secure short-distance communication using a battery-powered radio in the 915 MHz band that seems to have an operating range of about 15 feet. A transponder can be moved among the owner's vehicles, each of which must be registered in a system belonging to one of the participating authorities. The data from all the systems is pooled, so a car that is added to, for example, one of the New York City systems will, within a day or so, be added to the list of E-ZPass packing vehicles allowed to use electronic toll payment on, say, Virginia's Pocahontas Parkway.
Each of the two dozen or so authorities in the E-ZPass technology pool agree to accept the transponder signals from all other participants. However, the authorities don't have to agree about everything and in practice each has its own variation on a theme. In New York City, for example, a resident ordering an E-ZPass via the New York joint website might get a tag from any of three local issuing agencies. The tolls charged an E-ZPass user are the same for each version of the tag, but two of the three tags are free to use, while one carries a usage charge of one dollar per month. It's a complete crapshoot which one an applicant gets. This has created an opportunity for retailers, such as a bunch of 7-11s in New York City that sell E-ZPass tags issued by an authority that does not impose a usage fee.
All the E-ZPass tags share a common payment philosophy. The owner can tie the tag to a credit card and the card is hit for funds that always keep a small positive balance (on which no interest is paid) in the owner's E-ZPass account. Alternatively, the owner can pay by cash or check (at a suitable facility or cooperating retailer), but in return must leave a deposit (that varies from authority to authority) to ensure that the tag gets back to the issuing agency when the account is closed.
Critics of E-ZPass say the tags have become redundant because tollbooths are already equipped with cameras to catch tollgate runners by taking pictures of their license plates. But proponents of the transponder scheme have a number of arguments in favor of the E-ZPass system and, for now at least, the transponder regime seems to be not merely surviving but growing. E-ZPass accounts can be extended beyond their core road toll application. An extended account can be used to pay for parking at the New York City airports and elsewhere, too, even at much smaller airports like the one in upstate Syracuse, New York.
A new wrinkle moving into the scheme involves toll reduction (or elimination) for car poolers. For instance, tags now coming into use in New Jersey have a switch that can be set to signal that a vehicle has three or more passengers and that setting entitles the tagged car to traverse toll barriers at a reduced rate; tags used on the 495 Beltway outside Washington, DC, can make travel toll free. (There is some photographic auditing woven into the system in an effort to suppress scofflaws.) So, it seems that some authorities believe E-ZPass is still a scheme with a bright future.
Kapsch doesn't particularly care whether its customers want radio transponders or optical vehicle tracking technology. It operates other transponder systems that, all told, or tolled, roughly equal in size the pool of E-ZPass users plus a bunch of systems that use only optical vehicle identification and tracking. In some locales, electronically administered road use taxes, in practice just a no-booth tolls system, may become a significant source of funding for infrastructure construction and maintenance. Kapsch's client devices, terminals and cloud services are used in a growing number of variations on the original concept, which has roots going back to time immemorial, to the first private roads, the first private ferries, and the first chocolate chip cookies.
Kapsch seems like precisely the kind of company that ought to be snapped up by some outfit like NCR, which wants to become a bigger player in mobile transaction processing but doesn't quite seem to understand how to get there. NCR is knocking on doors, including the teeny doors of smallish businesses, with a plan to do for these outfits more or less what Kapsch does for governmental highway authorities. It is called Silver, and includes apps for the iPhone and iPad (with Android device support on the way) that feed transactions to a cloudy back end system along with gadgets like electrically operated tills.
The front end seems to be getting some publicity, but the back end is where NCR really adds value, doing the bookkeeping and providing a range of reports that are intended to be user friendly and, perhaps more importantly, affordable. So far, NCR has not figured out how to best promote the cloud services that are its long suit.
To attract extra attention from small business retailers, NCR says it will deliver Silver to the first thousand takers for only $39 a month. The price after the first small pool is filled will be $79 a month, still a modest amount for what is portrayed as a rich mix of transaction processing and bookkeeping. That basic price doesn't cover everything. There will be additional merchant fees for the actual charge processing, just as there are with any credit card terminal. I haven't yet puzzled out all the details, but for prospective users who want to sketch out a budget, the market rate for mobile merchant transaction processing for a small business is about 3 percent. It's a little less when a card is present, a little more for a no-card-present transaction.
While NCR hasn't yet posted all the details on its Silver website, it's clear that offering is a threat to other transaction processing outfits and to some in-house computing solutions. I don't know if Silver can scale up to serve large retailers or chains of stores, but even now it is easy to see that NCR believes putting everything in one friendly package is the future of bookkeeping.
Actually, there's a lot more than basic bookkeeping in the deal. NCR has thought about customer relationship tracking, loyalty plans, and every other wrinkle it thinks a small business can use. NCR isn't the icon it once was, but the run rate of its business is significant, between $5 and $6 billion a year, and its services reportedly account for $2.4 trillion in transactions annually.
NCR might or might not become the number one IT company for small business, but its ideas are consistent with the way small companies want to do business. NCR also has some very easy competitive targets, like Intuit, which has good merchant software at an offputting price. By contrast, Square, which has the friendliest raw transaction processing system available, doesn't offer back room processing and reporting. Amazon, Google, eBay, and others offer payment processing and some reporting, but have yet to field rich and friendly offerings that look as good as the promise of Silver. So, at the very least, NCR is going to galvanize the IT industry and in particular the cloud computing providers serving retailers. The key to the success of next-generation transaction processing may lie in the quality and simplicity of user interfaces. Computing service providers cannot achieve long term growth if everything they offer is too geeky for the personnel at retail shops but they'll also fail if the offerings are too shallow for the retailers' managers.
But to really take the market by storm, transaction processing has to include the customer along with the merchant. NCR's ambitions could be frustrated if its Silver service doesn't expand to include good facilities for Internet ordering and customer account self-management. Silver has to be Amazon writ small, not just a fraction of Amazon.
Even E-ZPass, which has successfully wrapped its mixture of high and not-so-high technology in a user-friendly web scheme, offers end users online account management, a couple of plans for hard copy statements, and more advanced reporting facilities for user organizations that provide transponder tags to their personnel. NCR, which has been building up Silver cloud services to help clerical and accounting personnel at its customers' sites, doesn't seem to fully grasp the need for equally powerful self-service customer account management technology. It's a reminder of just how immature the mobile transaction processing business still is . . . and how much opportunity might lie ahead for companies that can put the right show on the toll road.
— Hesh Wiener August 2012