At a time of great change in the retail and financial sectors, we examine why the arrival of secure, reliable Virtual Private Networks over broadband is likely to prove a welcome alternative to traditional private networks for electronic funds transfer-style applications.
Competitive advantage in the retail industry increasingly depends upon an organisation's ability to share sensitive customer and product data between remote locations and corporate headquarters. Point-of-sale vendors such as retail and hospitality chains, banks and petrol stations exchange customer purchase and inventory information with every transaction. Securing the flow of this private information from uninvited eyes is critical. So too is the need for ensuring that the connection with Head Office is always available.

In Europe, an increasingly discerning customer base and the advent of the euro have necessitated software upgrades and system replacements. Another major driving force for change is the Europay, Mastercard and Visa (EMV) standard which specifies how a chip-based credit or debit payment transaction should operate. As such, retailers are now under pressure to upgrade their hardware to accept chip-based smart cards.

The emergence of smart cards and CRM solutions, coupled with the move towards web-enabled transactions, is swiftly transforming the whole approach to electronic funds transfer at point-of-sale (EFTPOS). To reduce connectivity costs, many retailers are switching from leased lines to broadband connections such as DSL.

While the savings from such a move can be significant, establishing a consistent and reliable connection to access time-critical data is often a problem. Inevitably, broadband connections will fail. And when they do, so do the secure Virtual Private Network (VPN) tunnels through which vital information is exchanged. The resulting loss of data can reduce both productivity and revenues.

Dedicated frame relay systems
Historically, retailers and banks have relied on dedicated frame relay – or X.25 – networks to ensure a continuous connection to their company's network for online transaction processing. By using frame relay's Permanent Virtual Circuits (PVCs), enterprises have been able to provide adequate security for their data without having to create special tunnels or encryption. This is largely because PVCs inherently create a virtual 'tunnel' of sorts through dedicated connections between headquarters and remote sites.

That said, this type of deployment doesn't scale too well, as businesses are required to install dedicated PVCs for every new location. It's also extremely difficult to manage. Since frame relay was a carrier class network that provided business class services, at the time it was a somewhat more affordable approach when compared with private leased lines.

Today, Internet Service Providers are starting to offer business-class ADSL services with associated Service Level Agreements. While these services cost more than the standard per month prices of 'best effort' ADSL services, they are still significantly less expensive than equivalent frame relay methods. According to recent research by CheckPoint, using VPNs over IP-based broadband networks can cost between £200 and £1,200 less per site per month when compared with frame relay.

Retailers handle hundreds if not thousands of customer transactions every day from multiple locations. Each of those transactions involves the exchange of critical information between remote sites and corporate hqs. Retailers simply cannot afford to risk

Up until now, the main problem with the Internet has been the fact that it doesn't provide a guaranteed continuous connection. Retailers handle hundreds if not thousands of customer transactions every day from multiple locations. Each of those transactions involves the exchange of critical information – financial data, customer pass codes and inventory status, etc – between remote locations and corporate headquarters. Retailers simply cannot afford to risk losing vital information if the Internet connection fails and the information flow happens to stop dead.

The good news for end users is that system vendors are addressing the problem through VPN appliances that boast an integrated and automated fail-over mechanism to an analogue dial-up modem.

Electronic Data Interchange
One trend in the retail industry of late has been that of consolidation. For two decades, growth in the number of retailers out there resulted in lower margins and intense price competition. In the US, Wal-Mart was a prime mover, taking over many smaller retailers. Similar changes are now under way in Europe. Another factor has been globalisation.

Electronic Data Interchange (EDI) is a favourite transaction mechanism among retailers, enabling data to be transferred between themselves and the vendors. Until now, EDI required costly Extranets. Today, however, the focus has shifted towards conducting EDI over the Internet. This offers the cheapest mode of data transmission and the standards are open rather than proprietary.

The penetration of Web-enabled technologies is spurring the next phase of market advancements in electronic payment technologies. Increasingly, sophisticated electronic point-of-sale (EPOS) systems are becoming a key competitive weapon within the retail industry. The benefits of convergence towards a single unit, equipped to process all payment options, will surely redefine the EPOS arena in the not-too-distant future.

A study by international marketing consultancy Frost & Sullivan notes that the growing trend towards miniaturisation is the harbinger of truly mobile EPOS terminals. The new generation of products will provide remote wireless data input and interfacing to the main EPOS system. The hand-held devices will enable companies to process electronic transactions at the point-of-sale, regardless of the customer's location, ensuring that business is not lost as a result of any inability to accept credit or debit cards.