Stubborn Dial-Up Terminals Get a Modern-Day Upgrade

They may seem like a relic from a bygone era, but dial-up terminals have shown surprising staying power in today's payments ecosystem.

The hardware's days may be numbered in a world that has mostly converted to broadband and cloud-based point of sale terminals, but someone still has to service those transactions over phone lines, and Transaction Network Services has developed a new way to do it.

The Reston, Va.-based payments technology company, which has been servicing dial-up payments for 20 years, says it is launching what it calls a dual diverse network to give North American acquirers a second option to route transactions or have a backup if a telecommunications firm has an outage.

TNS operates as a transaction converter for acquirers who have clients, most often small merchants, still using point of sale terminals that connect to a phone line to send transaction data for authorization.

TNS, operating as a white label service for the acquirer, takes the transaction call, recognizes it as coming from a registered POS and routes it to an infrastructure and protocol the acquirer can more easily accept while preserving security.

Many of those acquirers found themselves moving half of their transaction volume through TNS lines, and the other half through other providers to ensure more options.

"They were saying they were getting less volume and wanted to send more to TNS, asking if we could set up a network in which they could work with a couple of different telcos," said Tiffany Trent-Abram, vice president of global product management for TNS. "Now we have one full network with all of the connection points through one telco, and another with all of the connections dedicated to a separate telco."

The service, already available in the U.S. and Canada, can "almost be seen as two separate companies and networks" being supported through TNS, Trent-Abram added. The system supports the national and regional telcos that acquirers may work with.

Admitting that dial-up terminals are "definitely a dying business," Trent-Abram is quick to point out that the payments industry commonly acknowledges that 30% of the terminals in the U.S. are still using dial-up service.

"When you look at all of the other technologies available, you would think the number of dial-up terminals would be lower, but it is not," Trent-Abram said.

Even though dial-up technology doesn't come up in many payments conversations these days, the reality is many small merchants don't have sufficient volume to justify high-cost transaction models, said Thad Peterson, senior analyst with Boston-based Aite Group.

"I am sure in a lot of cases, the dial-up terminal is just fine," Peterson said. "If I am a small merchant and the terminal isn't broke, I am not going to fix it."

Even though WiFi has been a significant advancement for mobile commerce and payments, it occasionally crashes, Peterson added. "The thing about a wire line [is] it generally doesn't go down," he said.

"I can't say when the last phone-line terminal will be around, but my guess is it will be awhile," Peterson said. "There are still knuckle-buster carbon machines out there and cab drivers who use the back of a pen to scrape a card number on a carbon sheet, so old technology holds."

While dial-up service in North America may fade in the coming years, the technology is growing and remains a staple in Asia and the Pacific rim, giving TNS plenty of markets and clients for its dial-up payments services, Trent-Abram said.

TNS also operates as a host for various security technologies it can offer to acquirers. The company has been active in the push to advance payments security the past few years, specifically with encryption and tokenization services. Last year, the company worked with Verifone to promote data encryption as a needed layer of security on top of the EMV chip card migration in the U.S. and is also currently working with Ingenico.

Three years ago, TNS teamed with security researcher and vendor Trustwave to jointly provide encryption services for card data protection.

However, TNS isn't directly affected by how EMV chip cards are communicating to offline or online transactions. The card networks have been addressing that particular facet of the ecosystem, converting the terminal software to accept a faster EMV transaction in the U.S. that had been as long as 10 seconds because of coding and verification tests related more to a historical European environment when most terminals were dial-up.

"If there is any latency in our network, we address it," Trent-Abram said. "But generally it is low latency and high redundancy, and that's why the acquirers depend on us and want to consolidate their transaction to one provider."

In November of 2014, Mastercard acquired the merchant gateway services unit of TNS to expand its e-commerce services.