Convenience retailers are turning to payment processing services to bolster their revenues. Joanna Perry goes behind the scenes to see how the PayPoint network operates

Legions of online shoppers eschewed the Queen’s Speech in favour of bargain-hunting on Christmas Day, according to reports. Yet just as intriguing are the several hundred thousand who went to a local newsagent, off-licence or corner shop on December 25 to complete a transaction at a PayPoint terminal.

The PayPoint network has more than 18,700 terminals in operation within retailers across the country. They provide a point of payment for its 600 clients, including many utility companies, all the mobile phone networks and TV licensing and congestion charge operators.

Operating through 7,700 stores owned by multiple retailers and 11,000 independents – including those that operate under a symbol retailer banner – PayPoint has recruited a variety of retailers to act as its agents.

Payments worth£5.2 billion are processed through the network each year and retailers receive a commission payment for each transaction they process. Aside from the revenue stream this provides, PayPoint also believes that this drives more traffic to retailers’ stores and makes for more loyal customers.

Behind the scenes, PayPoint runs a significant support and technology operation to monitor and resolve any issues that either its clients or retail agents may have.

At the front end of the network are the actual terminals, which PayPoint has designed in-house so that they meet its requirements. The latest generation of terminals can process a payment using magnetic swipe cards, barcodes, meter keys, smart gas cards and even contactless cards. Retailers were upgraded to this next-generation device last year and PayPoint promises to replace a terminal within four hours if it breaks for all but the most remote of retailers.

PayPoint retail director Mike Igoe says that, once financial checks have been made on a retailer, it is very simple to set a terminal up in a store. He explains: “The implementation process is very straightforward. We have to put a dedicated telephone line in for the terminal. There will be training on site and then the contact centre is there for any further problems.”

Most of the terminals connect to PayPoint’s network via simple phone lines, although the company has also introduced a broadband version of the terminal. The system can handle both off- and online real-time payments. For mobile phone top-ups, for instance, PayPoint connects to the mobile operators’ systems to provide relevant information in real time. For energy payments, the terminals are polled once a day overnight.

Solid support network

The contact centre, which is based at PayPoint’s Welwyn Garden City headquarters, is there to support retailers in their use of the kiosks. Open from 7am to 11pm 365 days a year, the centre’s staff receive about a month’s training. After that, they are able to help retailers diagnose and resolve faults with terminals and process payments correctly for schemes that they may be unfamiliar with.

It receives 1,500 calls a day in winter. Most problems can be diagnosed by the contact centre staff after an initial call, because the terminal produces error codes to help with the remote diagnosis of problems. These staff can either download new software to the terminal or organise a replacement where necessary.

Igoe says: “When we move into a multiple retailer, we go around the different areas to make sure that everyone is aware, so that each store can see and reap the benefits of it. Thresher is a good example of how we have worked closely with a multiple group.”

The contact centre can also spot trends and will inform the operations bridge where problems are widespread, as well as create a phone message for retailers calling in alerting them to the issue.

The operations bridge is manned 24 hours a day. Staff there will talk to PayPoint’s clients, such as the utility companies and mobile network operators. The bridge offers first-line technical support, with a development support team providing back-up if an issue needs to be escalated.

On the bridge, screens show transaction volumes for different services provided and allow PayPoint to spot problems early on, especially for mobile top-ups, where PayPoint must connect to the mobile operators’ own systems in real time to verify the transaction.

On a Wednesday morning before Christmas, the network is averaging eight to nine transactions a second through a mixture of terminals and directly through retailers’ EPoS systems. However, the network is capable of handling 70 to 80 transactions a second.

The mobile top-ups are processed in real time, but an offline poll takes place overnight from 7.30pm to 2am to collect the information held on other bill payments made through the terminals each day. This amounts to 2 terabytes of data being gathered each night.

Each day, about 250 terminals will fail to be polled. This is usually down to something simple, such as a store staff member accidentally unplugging the unit. However, repeat failures are monitored and passed to a transaction recovery team to ensure that retailers aren’t purposely trying to delay handing over the money they have taken.

A mirror image of the live database is operated so that staff can run queries on the most up-to-date data. This also provides a back-up, should anything happen to the primary database. PayPoint tests its disaster-recovery procedure twice a year and actually ran the operation from its secondary site at Hatfield for four days in 2007. There are also 80 seats at the Hatfield site, so staff can be transferred there in the event of an emergency.

The company also uses a geographical information system to map out the sites of all its terminals, its competitors’ terminals and Post Offices, which are competitors because they also offer payment services. It also maps demand in the market, for instance, by showing where there are pockets of consumers who use gas or electricity keys to pay for their utilities and therefore need to visit a terminal to top them up. In addition, PayPoint’s clients pass on information to the company about the number of pre-pay meters there are in each postcode to help populate the system.

Zooming in on the mapping system, it is possible to view the figures of individual sites. For example, one store in Islington is handling 2,000 payments a week through 53 different payment services.

Exploring all areas

The company believes that there is an opportunity to drive more traffic to its retailers’ stores as more Post Offices close down. There are 14,100 Post Offices at present and, by 2009, 2,500 of these are due to be closed. PayPoint monitors Post Office closures and consultations on closures to see where there are opportunities to add terminals.

Almost all consumers should be within a mile of a terminal in an urban area and within five miles in a rural area. In London, consumers are, on average, only 650 yards away from their nearest terminal. Some 4 per cent of the retailers in the network are open 24 hours a day and one site has not closed since its terminal went live several years ago.

But, if you think the number of consumers using these meters is insignificant, think again. For instance, PayPoint says that British Gas has about 1.8 million of its Quantum pre-pay meters installed in the UK.

PayPoint terminals are also the only way that consumers can pay for their TV licence by cash, after the company won the contract from the Post Office. Igoe says additional payment services such as this that it offers are bringing a greater variety of consumers into stores. “We were focused on the C2, D and E demographic, but we are moving up into the A, B and C1s with the TV licence and congestion charge services.”

The company continues to expand the breadth of what it can offer through the terminals. For instance, over Christmas 2006, PayPoint tested gift cards and launched them in time for the 2007 peak trading season.

Igoe explains: “We tested the gift cards with a couple of multiples and some independents in Cardiff. We have about 1,000 sites live now and have partnered with Coinstar to do that.”

Several large supermarket chains and high street retailers have also launched gift card displays, but they are often hidden away in a corner of the store. Igoe says a good independent retailer will put the PayPoint gift card stand on its counter, giving it high visibility.

PayPoint’s Shop Scan Save scheme also allows retailers to accept discount vouchers that are sent to shoppers’ mobile phones.

While it’s often said that the major supermarkets are taking over, it seems that, by deploying technology such as this, smaller convenience chains can offer services to their customers that will keep them coming back.