Electronic payment services are already a huge source of revenue for c-stores and CTNs. But the effects of the recession and the growing number of services on offer mean there's more money to be made. Peter Cripps reports


EPS stands for electronic payment services. But perhaps it should stand for essential profit source because that's what it has become for most independents over the past few years.

While many supermarkets have shied away from offering the full breadth of services the likes of PayPoint and Payzone can provide, the independents have set aside initial concerns about low levels of commission and the additional manpower required and embraced the concept.

And they are reaping the rewards. The terminals, which allow shoppers to pay utility bills, council tax, the TV licence fee, and buy transport tickets you name it can generate twice the turnover of a store's core offer (although a retailer would typically expect to make as much of a third of its turnover through EPS). So how widespread is the use of EPS systems and how much further can the independents realistically take them?

The recession has undoubtedly boosted consumer demand for payment services. More consumers are paying with cash, either because it helps them keep tabs on their spending or because they have been denied banking services after falling into debt. PayPoint claims the number of cash transactions in c-stores has risen by as much as 30% in the past year.

"There's a huge love affair with cash. People like to touch it and feel it," says PayPoint retail director Mike Igoe. "It's fast and easy to use and people find it easier to keep track of their personal finances."

With consumer demand on the rise, 2009 seems to have been something of a tipping point as far as the independents' take-up goes. The UK's biggest independent retailer, Martin McColl, added PayPoint terminals to the 600 stores in its 1,300-strong estate without them.

PayPoint now claims to have a presence in 13,300 independent stores and Payzone in 18,000 accounting for about 60% of their respective terminals. Meanwhile, Epay, which also offers a variety of services (though not utility bill payments), claims to be in 40,000 outlets though these include supermarkets, where it still has a much bigger presence.

One of the virtues of offering payment services for items such as utility bills is that they are something the big box multiples don't offer. "It's an opportunity for indies to differentiate themselves from the mults who see it as a challenge to their customer services," says Nigel Mills, MD of Mills Group, whose 77 stores take £30m through their PayPoint terminals.

Another advantage is that the terminals are easily added to a retailer's offer, says Tim Allen, sales director of Epay. "E-payments involve no stock or inventory it is incremental cash."

They are also an important footfall driver when a shopper comes in to pay a bill there's a pretty good chance they will grab a pint of milk or a tin of beans while they are at it. Him! research carried out earlier this year shows shoppers who use EPS regularly visit c-stores more frequently than those that do not. Some 91% of EPS shoppers bought something else while in store, and for 15% of EPS shoppers it was an impulse purchase.

EPS providers have been quick to take advantage of the downturn by increasing the number of services available. PayPoint recently won the contract to sell TV licences, while Epay is to begin selling vouchers for the Central London Congestion Charge at the end of October. An increasing number of local authorities, housing associations and utility companies have also woken up to the opportunity to alleviate some of the pressure on their own customer service departments by allowing customer payments to be processed through EPS.

And although sales of phone top-ups are in decline, telecommunications still offers an area of growth for retailers. Selling mobile phone SIM cards is a lucrative source of commission and retailers can make margins of up to 25% by selling international phone cards. Payzone expects mobile broadband top-up vouchers to be a growth area for the future, too.

Other new schemes capitalise on the growth of online person-to-person transactions, such as those through auction site eBay. PayCash is PayPoint's scheme to enable consumers to use its network of retailers as cashiers for online transactions. A buyer can pay cash to one retailer and a seller can collect the money in cash from another PayPoint retailer.

Shoppers can also use their c-store instead of the Royal Mail to send and receive parcels through PayPoint's Collect+. Under the scheme, Home Delivery Network, the UK's largest dedicated home delivery and collection service, will deliver parcels to c-stores instead of people's homes.

Shoppers simply pick their parcel up from their local store rather than waiting for the inevitable note saying they've missed the post and then having to trek to a remote collection depot. PayPoint is confident it will be able to quadruple the number of stores participating in the scheme to 5,000 by the end of the year.

EPS providers aren't only offering extra services, they're offering marketing muscle, too. PayPoint has recently trialled a scheme with Mills Group in which a promotional offer for 50p off Kingsmill bread was printed on the receipts from its terminals. Early indications show the scheme produced a double-digit uplift in sales of Kingsmill in participating stores. Mills says there is potential for more tie-ups between EPS providers and grocery brands.

Providers also have their eye on financial services such as home and car insurance. Martin McColl is already exploring this market by endorsing personal loan products that it advertises through leaflets in store, though it has so far shied away from selling the products in-store. Foreign exchange and Western Union money transfers are other areas of opportunity, believe experts.

And Payzone MD Bill Thompson expects pre-loaded debit cards to be a major growth area. Mobile phone provider O2 clearly agrees. It recently launched its own 'load-and-go' pre-paid debit card with a television advertising campaign.

Transport is another potential cash cow for the independents. Shoppers can already buy bus passes for many bus companies through EPS terminals and Payzone is also trialling a scheme in Dublin that lets drivers buy parking vouchers from its machines. The company hopes to launch similar schemes in the UK.

With the benefits no longer in question, demand from retailers has grown to such a degree that the biggest problem they face is getting hold of a terminal. PayPoint claims to be oversubscribed and EPS contracts are so sought after that owners will use them as a key selling point when they put their businesses on the market.

There are a few clouds on the horizon for EPS, however. Mobile phone top-up transactions have fallen over the past year and concerns remain over the man hours involved and congestion at checkouts hitting sales.

Another issue is that although the multiples haven't yet shown massive interest in EPS for utility payments, that's not to say they won't in the near future.

But operators and independents alike are confident there's still plenty of untapped potential for smaller stores. Igoe goes so far as to predict that c-stores will become the "fulfilment centres for the needs of the neighbourhood" within the next 10 years.

Whether they'll still be called c-stores by then remains to be seen.