CLOSING IN ON FRAUD
PAYMENT QUARTERLY MAGAZINE elcome to Money20/20! We hope you enjoy building bridges, and talking shop.
It’s post-EMV shift for the United States, and the holiday shopping season will be the first real test of how well consumers and merchants adapt.
Felix Shipkevich FOUNDER email@example.com
Kevin Xu EDITOR-IN-CHIEF firstname.lastname@example.org
These next few months will bring high value and high volume purchases to both online and offline commerce.
Mike Dautner ASSISTANT EDITOR
We’ve gathered thoughts from startups and established players to see how they’re better facilitating commerce locally and globally, this means everything from remittance, to digital currencies, to mobile payments.
Kelly Mena ASSISTANT EDITOR
Of course, with the holiday shopping season comes new threats of fraud.
It’s no surprise then, that the theme of the issue is payments security, or better yet, how payments players are tackling the weaknesses in the payments process that are not being addressed by chip cards.
With making and accepting payments now as simple as a swipe, a tap, or a push of a button, what’s being put in place to keep bad actors out of the payment process?
Learn about this and much more from our selected insights of payments industry leaders.
We hope you enjoy Payment Quarterly, Kevin Xu
DIRECTOR OF MARKETING email@example.com
GRAPHIC DESIGNER firstname.lastname@example.org
CONTRIBUTING WRITERS Canh Tran
Payment Quarterly | Q4 2015
TABLE OF CONTENTS MOBILE PAYMENTS 6
apple pay takes on android pay
contactless payments will increase 100% by 2016
advances in preventing card fraud
mastercard’s digital enablement express expedites digital payment services
2016 may be the year of mobile payments
doubling your money with innovative credit offerings
q&a: paypal acquires modest to optimize “contextual commerce”
nearly eight out of ten small businesses are not ready for emv
visa, oxfam, and unionbank team up
mastercard highlights essential role in samsung’s latest mobile payments offering
which mobile payment platform will win the battle against fraud?
omnicommerce and the evolving nature of fraud
don’t stop short with emv
why the ashley madison hack is concerning
mobile payments vs hackers
shopify offering free emv readers
q&a: fiserv, protecting against fraud after emv
Payment Quarterly | Q4 2015
VENTURE OUT! 37 38 39 40 41
scratch travefy dream payments vkansee tonetag
Q4 - OCTOBER 2015
Vol. 1 | No. 4
MERCHANT SOLUTIONS DIGITAL CURRENCIES
self service is the new customer service
why bitcoin succeeds where tech giants fail
bringing b2b payments out of the dark ages
ny regulator grants first bitlicense to circle
cftc views leveraged bitcoin contracts as swaps
the evolving payments industry and its impact on businessesâ€™ payments strategies
bitcoin battlefronts: 3 areas where bitcoin is revolutionizing money
the invisible payout: removing payment friction for contract workers
q&a: the mobile cfo treasury solutions for the 21st century
GLOBAL PAYMENTS 48
currency cloud: overcoming barriers in global payments with smarter fintech solutions
HOLIDAY SEASON 70
playing to win this holiday season
is your e-gift card ready for a digital december?
payment tools to play game-changing roles in holiday retail this year
q&a: taking gifting to the digital age
q&a: for those who serve
transferwise is changing how foreign exchange is transferred worldpay aims to double business by 2020 with ipo
the golden rules of going global
5 keys to successfully navigate international commerce
Payment Quarterly | Q4 2015
APPLE PAY TAKES ON ANDROID PAY T
he word came out only recently that Android Pay may be making its way to stores sooner than a lot of people expected. Regardless of those rumors, the idea that Apple Pay is about to have a serious competitor in the market is one thatâ€™s well worth thinking about. While there are no shortage of mobile payment options already on hand, to suggest these have Appleâ€™s market power might be a bit of a stretch. Android Pay, however, is a whole different matter, and comparisons between the two suggest that this could be
Payment Quarterly | Q4 2015
one heck of a fight when it hits the market fully.
By: Steven Anderson
huge amount of platforms. This, however, is an advantage that may narrow as more NFC devices are
Recently, eWeek took a closer look at the upcoming matchup, and
found that this could be much
closer than suspected.
development can continue apace In the early stage, Android Pay
for both sides, leaving neither at
may have an advantage thanks
a clear advantage there. Both also
to its wider number of platforms
offer clear capability for purchase
tracking, great for budgets and
available on Apple products, of
good for security as well, as
which there are essentially three
unauthorized payments are more
that take Apple Pay: the iPhone,
readily spotted. Both offer support
the iPad and the Apple Watch.
for credit and debit cards, giving
Android Pay, meanwhile, will blow
no one company the edge there.
the doors off that number with a
Contactless Payments Will Grow By 100% In 2016 There is an undeniable spike in contactless payments due to the growing popularity of Apple Pay among shoppers. According to new data from Juniper Research, there is a direct correlation betweem the rise in contactless payments, and the push of Apple’s mobile payments platform, Apple Pay. The convenience of mobile payments is obvious, so it comes as no surprise that Apple customers are flocking to stores and utilizing the tool. It allows shoppers to make quick and
There are those who consider Apple Pay more secure thanks to Apple’s use of the Touch ID system, commonly regarded as better than the Android fingerprint sensors on hand. But neither platform shares credit card information, which somewhat narrows the security advantage since there’s less to protect. Apple Pay also has a slight edge in terms of major bank support, but that’s to be expected given Apple’s first-mover advantage on that front.
So who has the edge right now? That’s a tough call. While Apple’s been out for the better part of a year ahead of Android Pay, Apple has only been available for Apple
easy payments with their mobile device without having a credit or debit card present. According to Apple’s CEO Tim Cook, approximately 1.5 million locations in the U.S. will be capable of accepting Apple Pay by the end of 2015. Juniper Research revealed that the number of mobile wallets using contactless tech is slated to rise to 200 million by the end of 2016, which would be up 100% from the end of 2014. This report also brings to light the shortcomings of rival contactless payments technologies, for example Merchant Customer Exchange
users. That means a huge part of the potential market is elsewhere, and a lot of potential users could be migrating right into Android Pay instead.
(MCX), another mobile payments platform that is helmed by a group of merchants including CVS, Best Buy, and Walmart. Better known as CurrentC, the MCX technology gives retailers insight regarding customer data from every transaction—however, major delays and security flaws have plagued the rollout of Apple’s competitors thus far.
However, there’s a problem with this, too; with Samsung Pay set to show up fairly soon, how much of the Android Pay market will end up in Samsung’s hands instead? Moreover, there are so many other options out there, how much traction will Android Pay even be able to get in this market with all the earlier movers in play? Naturally, in the end, only time will tell just how this all comes out, but things aren’t looking great for Android Pay thanks to the host of competitors, cannibalization in the market, and a product that’s fairly well-balanced against perhaps its biggest rival so far. Things could change, and for Android Pay’s sake, they may well have to. Payment Quarterly | Q4 2015
PAYMENT PLATFORM WILL WIN THE AGAINST FRAUD?
By: Canh Tran CEO & Founder
worth noting that Apple Pay is the only system that is currently fully launched. Samsung Pay is presently in trial in South Korea, Android Pay has completed a trial and is waiting for launch, and CurrentC will be launching a limited trial of their own in Q3 of this year.
he race to launch the next big mobile payment application turned into a full out sprint after Apple Pay debuted in the fall of last year. The four front-runners – Samsung Pay, Apple Pay, Android Pay and CurrentC – are all competing for market share in a crowded and quickly changing payments space. So, what differentiates them? And which, if any, will be the answer to the growing payment card fraud problem? Given the attention around the mobile payments race, it’s
Payment Quarterly | Q4 2015
The differences between these platforms, however, go much deeper than their expected launch dates. While Apple Pay and Android Pay are incredibly similar in their capabilities and the technology behind each transaction, Samsung Pay and CurrentC operate in very contrasting ways. Samsung Pay, with its Magnetic Secure Transmission (MST) support, is the exact same technology that current magnetic stripe card terminals have and could very well be the most widely supported platform if it were deployed today. That said, the upcoming industry-
wide switch to support EMV chip cards in October could render most MST-only terminals nearly extinct as all merchants will need to provide chip card readers, otherwise be held responsible for fraud chargebacks that emanate from out-of-date terminals. Unlike the other three platforms, CurrentC is banking on bypassing credit and debit cards altogether, unless they’re store branded. They’re hoping customers are comfortable enough with linking their checking accounts directly, and then plan on using QR codes on either the POS terminal or the customer phone to authorize an ACH transfer direct from the bank to the merchant. It is, however, worth noting that during an initial test of CurrentC last fall, the platform suffered a breach of customer data. But CurrentC isn’t the only one that’s suffered security issues.
Currently in trial in South Korea. U.S. launch expected September 2015.
Late summer 2015
Limited trial run in Q3 2015
Currently in trial in South Korea. U.S. launch expected September 2015.
iPhone 6, iPad Air 2 and iPad mini 3
Any Android device that’s NFC compatible
Unclear, but will likely have the broadest compatibility, since it’s only an app.
Supports NFC, but also Magnetic Secure Transmission (same tech magnetic stripe cards require)
POS terminals that can deliver and read QR codes
Synchrony Financial, First Data, MasterCard, Visa
MasterCard, Visa, American Express, Bank of America, BMO Harris, Chase, Citi, Capital One, among dozens of other financial institutions
American Express, Discover, MasterCard, Visa, Bank of America, Navy Federal Credit Union, PNC, Regions, USAA and US Bank
So far, no deals have been struck with major card issuers.
Estimated 30 million merchants worldwide (expected to be the most universally accepted mobile payment platform, due to the MST technology that doesn’t require a new/upgraded terminal).
Currently over 700,000 locations (it launched in the fall with a little over 200,000 locations). A list of stores is available on their website.
Currently over 700,000 locations, along with hundreds of apps (viewable here).
MCX the company responsible for CurrentC, is made up of dozens of the country’s largest merchants.
Samsung Pay uses Knox (Samsung’s own mobile security software) and ARM TrustZone. They also use tokenization to ensure account numbers are protected.
Tokenized device account numbers are stored on a chip on the specific device (and not on Apple servers). For each transaction, the device account number along with a security code are used to process the payment.
Card numbers are encrypted, and a unique tokenized account code is generated for each transaction. The only notable difference is that Android Pay stores this information in the cloud.
CurrentC requires the user to link up his or her checking account for direct ACH transfers. Like the other payment platforms, tokenized account numbers are sent to process the transaction.
onboarding & authentication
Scan or type in credit/ debit cards (bank authentication required – though it’s not clear what that process looks like).
Cards can easily be scanned or typed in. Authentication process falls on the bank.
Difficult to tell, since the service isn’t live yet, but presumably will follow a similar process as Apple Pay and Samsung Pay.
Unsure on how CurrentC will work with banks to authenticate the account data being uploaded to the app.
Payment Quarterly | Q4 2015
When Apple Pay first launched in the late fall of 2014, it was plagued with fraud as hackers easily took advantage of the banksâ€™ weak authorization processes and loaded stolen card information onto their own iPhones. Apple has steadfastly held that all cardholder verification steps are up to the individual banks, and that cards are not allowed to be added to Apple Pay until they are cleared by their respective issuing banks. Since then, many banks have transferred this verification step over to their customer call center, but hackers have found ways to exploit that process as well. According to mainstreet.com, hackers are now porting user mobile phone numbers over to
Payment Quarterly | Q4 2015
their own devices, answering the verification call and continuing to easily load stolen card info on their devices. We have yet to hear of different or more secure on boarding processes to be expected from Samsung Pay or Android Pay, though more support from either to help banks with the verification process would likely be met with overwhelming accolades. What has been grossly overshadowed by the fraud and data breach problems, is that all of these mobile payment platforms have developed unique ways to protect account numbers from being compromised during transactions. All four platforms tokenize account numbers before the transaction is initiated, to
prevent merchants from ever receiving the actual card or bank account numbers. This will go a long way toward preventing megabreaches such as the likes of Target and Home Depot. What these platforms wonâ€™t ever do however, is eliminate payment fraud altogether. As we learned in the Trustwave Global Security Report this year, ransomware attackers see an average of a 1,425% return on investment for their efforts. The likelihood that they will be deterred by tokenized account numbers or fingerprint verification are slim. This new technology is only a very small piece of a comprehensive payment security and fraud detection strategy, and should be considered as such.
2016 MOBILE PAYMENTS MAY BE THE YEAR OF
By: Steven Anderson
t’s a strange proposition, I know; how could 2016 be the year of mobile payments given what all we’ve seen in 2015? Worse yet, there’s still more than three months left in 2015 and anything could happen in those three months. How could anyone be projecting that 2016 will be the big year for mobile payments already? Well, that’s the report out of Forbes, and the word of the day is that 2016 is likely to “explode” in terms of mobile payments. The biggest reason 2016 is likely to be huge for mobile payments is that all of the big three will be up and active by then. While Apple Pay has been in play for almost a year already, Android Pay is still getting cranked up, and Samsung Pay is still a bit far off. Throw in the likely appearance of CurrentC and plenty more to come—ranging from Facebook’s payment feature to PayPal’s Paydiant-driven system—and you’re looking at a year that could be packed full of both new and returning users.
The second point revolves around a critical aspect of business: go where the customers are. Since increasing amounts of customers will be on mobile devices, so too will the businesses follow. Eager to get a slice of that action, businesses will increasingly offer deals, discounts, and loyalty program options to those ready to use this platform.
Given that the Millennial generation is nearing its lifetime peak of spending, offering digital deals to the digitally savvy should offer up some substantial benefit to the businesses putting it to use. A clear deadline is also an issue. The move to upgrade systems by October 1 to be ready for the Europay / MasterCard / Visa (EMV) chip-based standard is also going to give mobile payments a shot in the arm.
will be able to help in terms of mobile payment acceptance, too, so next year will likely see a lot of new places ready to take mobile payments. Finally, there’s the issue of trust and security. It’s been a rocky road, but here, Apple Pay will likely be some help. After all, potentially interested customers can say, Apple Pay went pretty much a year without any serious breaches, so maybe this mobile payments “thing” is safe after all. Further new developments from tokenization to biometric security have been coming into play, and between a major payment system with a safe track record and several new security measures in place, it might well be safe to trust the new systems. Mobile payments have already come a long way and made a lot of strides in 2015, not to mention beforehand, but indeed 2016 might be the year when all of these separate systems come together and really start making progress. After all, we’ve been seeing them come out in dribs and drabs for the last couple years, but in 2016, everyone should be in play, and that should make this quite the game to watch.
While many small businesses are ignoring the EMV standard, there are many making the move, and major stores have in many cases already made the conversions necessary. Many of these systems Payment Quarterly | Q4 2015
PAYPAL ACQUIRES MODEST
“CONTEXTUAL COMMERCE” Modest was founded back in 2012 in Chicago by Dylan Richard and Harper Reed, and built on the philosophy that “better customer experiences create a better retail ecosystem for all.” We caught up with Juan Benitez, the GM of PayPal’s Braintree for a brief Q&A:
s social media progresses in terms of usage and functionality, the trends shift back and forth. One thing that the people at PayPal’s Braintree platform understand is that social media is now a constant outlet in which people are beginning to purchase items, among its many other functions. This essentially is the motivation behind this acquisition. People’s desire to purchase products at the moment of discovery, and to do so via their mobile devices, makes this a booming prospect already in transition.
Payment Quarterly | Q4 2015
They refer to this type of purchasing as “contextual commerce” wherein people are looking to make transactions within the same webpages they often access. We have already seen great examples through PayPal’s Braintree platform—Pinterest’s Buyable Pins in particular. This conjunction enables tens of millions of “Pinners” to securely purchase products pinned from merchants like Neiman Marcus, Nordstrom, Gardener’s Supply Company, and Michaels via iPhone or iPad. PayPal notes the exceptional mobile technology and the talent in contextual commerce as the reason for Modest’s selection.
PQ: What is PayPal hoping to achieve with the help of Modest? BENITEZ: Contextual commerce is a new frontier for commerce that is growing rapidly. With Modest, PayPal will be able to offer a complete commerce solution (payments and order management) to help our merchants add contextual commerce channels, such as buy buttons, on social media platforms to the ways that they can sell to their customers. PQ: Why Modest specifically? Were there any competitors in consideration? BENITEZ: Modest offers exceptional technology and talent
that will accelerate PayPal and Braintree’s ability to offer people simpler ways to buy the things they want anywhere they see them, at the moment of discovery. PQ: Is social media the main motivation behind this endeavor with Modest? BENITEZ: We strive to uncover new ways to innovate payments in order to improve the experience for merchants and consumers. For consumers, the ability to have inventory and shipping, as well as payment, handled seamlessly after they click “buy” on an item they see in a social feed while browsing on their phone, is a critical and powerful driver in Money2020 Ad in Payment mobile0915-81859 commerce.
PQ: What is contextual commerce? And is it a priority for PayPal and Modest? BENITEZ: To us, contextual commerce enables people to buy the things they want anywhere they see them, at the moment of discovery. Braintree is a leader in contextual commerce, which can be seen through our partnerships with social platforms such as Pinterest and their Buyable Pins. Now, we will be delivering the complete contextual commerce experience, including inventory and shipping, as well as payment. This integration into the Braintree platform is further proof of our leadership in the mobile commerce space. Quarterly_final.pdf
PQ: What are the future plans in terms of PayPal’s work with Modest, is there a projected growth for this kind of service? BENITEZ: Modest’s co-founders and employees will become part of the Braintree team, and Modest’s products and services will be integrated into Braintree’s offering.
Payment Quarterly | Q4 2015
MOBILE WALLET WARS MOBILE PAYMENTS
OMNICOMMERCE THE EV0LVING NATURE OF FRAUD AND THE
W By: Navneet Singh Senior Vice President, Product Vantiv
Payment Quarterly | Q4 2015
hile fraud had always been a concern, with the EMV liability shift occurring this fall, the cost of fraud is top of mind for retailers. As developers of payment applications know, liability for card-present fraudulent transactions is shifting from card issuers to merchants when chip cards are used at mag stripe terminals. This will penalize those who have not yet invested in the more secure technology. EMV is an important tool for combating fraud for card present (CP)
transactions, but the very nature of payments is changing. Merchants increasingly see payments not as discrete transactions, but as part of an on-going customer relationship spanning the store, the web and increasingly the mobile device. Traditional brick and mortar merchants are going online and expanding their order sources to include eCommerce and mobile commerce. As the retail point of sale (POS) becomes a harder target, fraudsters are likely to shift
their focus toward softer targets handling card not present (CNP) transactions, like the merchant website and mobile platform. As the nature of the threat evolves, developers have a key role to play in helping merchants combat fraud across all their payment channels.
STRIKING THE RIGHT BALANCE Developers of payment systems face a difficult dilemma. If they don’t pay enough attention to fraud, they leave the merchants that rely on them vulnerable to increased chargebacks, sanctions from credit card companies and other potential costs. If developers are too aggressive in implementing anti-fraud measures, they risk turning away legitimate transactions and antagonizing the merchant’s customers. In the eCommerce sphere in particular, competitors are just a click away and an estimated 10% to 33% of declined orders are actually legitimate (false positives). Merchants are looking for the “Goldilocks solution” – one that calibrates anti-fraud measures precisely such that they catch the majority of bad transactions while minimizing false positives. They are also understandably conscious of the cost of the anti-fraud measures themselves and need to show an ROI while avoiding siloed anti-fraud solutions for each payment channel. With this in mind, it is useful to step back and recall how fraud and associated countermeasures have evolved.
NECESSITY IS THE MOTHER OF INVENTION Innovations in fraud prevention have come about mainly in response to abuse. Looking back almost a decade and a half, when card fraud became an issue with CNP eCommerce and other channels such as mail order and telephone order transactions, the card industry responded with Card Verification Values (CVV) and the Address Verification Service (AVS). These measures, implemented around the year 2000, helped ensure that customers were physically in possession of cards and helped merchants manage fraud from stolen cards. Most developers built applications with custom logic or in-house rules to filter or perform additional reviews on transactions that failed AVS or CVV. They paired these basic checks with certain white lists and black lists based on the card number and customer name. These basic filters and black lists are table stakes for most payment processors. For example, Vantiv offers a wealth of features that help eCommerce merchants make better decisions about what transactions to accept. These include additional options to filter pre-paid cards to avoid them being used for recurring payment transactions, flagging cards that have resulted in prior chargebacks, and velocity filters that trigger declines when a threshold number of authorizations or sales transactions have taken place. Beyond these basic capabilities, Advanced Fraud Tools from Vantiv
help “score” transactions based on dozens of fraud predictors for even greater accuracy. While these techniques are powerful, cost is an issue - especially for smaller merchants. Having dedicated analysts and even data scientists on staff makes sense for large merchants where the savings demonstrably outweigh the costs, but smaller merchants can’t reasonably be expected to deploy the types of sophisticated analytic environments that will prove valuable to a major retailer.
monitoring users for anomalous behavior on the website and flagging activity that looks suspicious. By processing this gathered information with machine-learning algorithms that can fine tune predictive models, merchants can find the optimal balance. This level of sophistication would be impractical and cost prohibitive for most merchants to implement and manage themselves. More automated fraud management can help merchants realize a 60 basis point increase in sales while cutting fraud management expenses in half, by avoiding extra costs such as manual reviews of questionable transactions, personnel time spent monitoring and tuning rules and fraud-related infrastructure. Vantiv provides developers with a choice. They can collect critical information, relay it to Vantiv as payment transaction metadata, and let Vantiv make the determination of what constitutes fraud based analysis and machine learning on serverside fraud detection algorithms with configurable settings unique to each merchant. As an alternative, developers can take advantage of API level extensions that expose sophisticated antifraud capabilities, providing developers more control over how to handle potentially fraudulent transactions.
Payment Quarterly | Q4 2015
SOME SPECIFIC TECHNIQUES
FOR PREDICTING FRAUD INCLUDE: Fingerprinting devices and detecting machines that have exceeded configurable payment thresholds within particular periods.
Detecting devices originating transactions on behalf of multiple customers.
Identifying devices originating transactions through multiple proxies, anonymous proxies or attempting to cloak their identity.
Transactions involving the same customer originating from multiple geographies or mismatches between the location and the browser language.
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DON’T STOP SHORT WITH EMV POOR IMPLEMENTATION, CONFIGURATION AND SUPPORT OF PAYMENT SOFTWARE COULD LEAVE ORGANIZATIONS VULNERABLE.
“I’m all set to accept EMV chip cards in my stores, my payment card security worries are ended- right?”
By: Gill Woodcock Director of Certification Programs PCI Security Standards Council
nfortunately, that is not the case. Technology is only as good as its implementation. Merchants going though all the effort to bolster security at the point-of-sale (POS) with EMV chip can’t stop there. Vulnerabilities introduced during implementation, configuration, and support of payment software by third parties are a leading cause of breaches. In fact, in the more than 400 investigations conducted by the U.S. Secret Service last year, improper payment platform setup and system maintenance was the common point of attack and compromise. So what’s a merchant to do? EMV chip migration provides the perfect opportunity to reevaluate payment infrastructure for strong security and business benefits. Am I using PCI-listed payment application software? Am I working with a PCI-listed partner that can ensure it’s being installed and maintained securely,
Payment Quarterly | Q4 2015
and supports my PCI Data Security Standard (PCI DSS) compliance efforts? Am I using a PCI-listed device that provides layered security protections and supports EMV chip and point-to-point encryption, while also enabling me to accept mobile payments? Hackers are increasingly attacking third party partners like POS resellers to gain access to merchant systems through weak remote access controls, including weak default or shared passwords that are often used by these integrators and resellers. Attackers use these credentials to hack into the system, where large volumes of data are sitting unencrypted, ripe for the picking. Out of date software allows them to stealthily install malware and steal this data to commit fraud. Let’s look at a few key considerations to keep in mind when making changes to support EMV chip and ensure layered security and protection for card data.
Implementing Layered Security for the POS
GET RID OF DEFAULT PASSWORDS Cybersecurity firm Trustwave reports that close to 90 percent of payment card readers (including the device and software) currently use the default factory-setting that comes with the equipment and is easily found online by wouldbe attackers. Criminals then use these passwords to hack into the POS devices and infect them with malware that steals payment data. A good number of merchants don’t even know they need to change factory-installed passwords. Additionally, their equipment reseller isn’t changing them when they set it up for the first time, nor do they change it when they do maintenance.
n 400+ investigations conducted by the U.S. Secret Service last year, improper payment platform set up and maintenance was found to be the common point of compromise. It’s important to realize that criminal hackers use a variety of methods to steal data. Tactics such as “skimming” target the POS hardware - while phishing attacks focus on software. The PCI Security Standards Council stresses the importance of taking a layered approach to security – people, processes and technology - which protects each facet of the payment environment. Consider the following: Use secure payment software for point-of-sale. Choose a payment application that has been validated against PCI SSC requirements. Install secure point-of-sale devices. Select an approved PIN Transaction Security Device from PCI SSC list of approved devices. Use trusted and vetted technology partners. Work with a Qualified Integrators and Resellers (QIR). These technology partners are educated in secure installation of point-of-sale devices in a manner that facilitates PCI DSS compliance. Encrypt data. Use a PCI Point-to-Point Encryption solution to improve security
Businesses need to insist that passwords on systems are changed from the default ones the product came with to something that is difficult to guess – such as combining upper case letters, numbers and special characters, or using a passphrase. Update these passwords regularly, and especially after outside contractors do hardware, software or pointof-sale system installations or upgrades.
LOCK DOWN REMOTE ACCESS Weak passwords or weak remote access security contributed to 94% of POS breaches investigated by Trustwave in 2014. Merchants are often not aware that remote access is left persistently running – that is, outside vendors have access to
and simplify PCI DSS compliance efforts. These lab-tested products and providers guarantee the strongest encryption protections for payment data.
their system whenever they want. Or the possibility that this remote access could be exploited by an attacker. PCI DSS requires that remote access should only be enabled if and when it needs to be used, but often times businesses don’t even know it exists. The key recommendation here is to disable it until it needs to be turned on. Merchants need to insist with their POS reseller that this is the case. When it is turned on, organizations need to be able to confirm that the service and tools used are safe– up to date,
configured correctly and security best practices are applied. Remote access should be monitored whilst it is in use, to provide assurance that it is only to be used to access the systems necessary and only during approved times. Using two-factor authentication is another important security control and PCI DSS requirement. Two-factor authentication requires users to identify themselves with a combination of different components from “something you know”, such as a password or passphrase, “something you have”, such as a Payment Quarterly | Q4 2015
token device or smart card and “something you are, such as a biometric”. A typical example of two-factor authentication is needing both a password and a physical token to gain access. This provides assurance that people really are who they say they are and makes life much more difficult for attackers.
KEEP SECURITY PATCHES UP TO DATE Hackers are always looking to take advantage of the latest known software bugs as well as uncover unknown problems with commercially available software products. Product vendors deal with this by releasing frequent ‘fixes’ in the form of software updates or patches. But these are only good if they’re used. Ninety nine percent of breaches in 2014 were caused by known vulnerabilities with fixable patches that were just not applied! Not installing security software updates is like having locks on the doors but not locking them - without the latest protections against viruses, spyware and other malicious software, the door is wide open for hackers. Regular maintenance for a POS system requires software updates to make sure the latest protections are provided. Many vendors now offer automated alert services that provide prompt notification to their clients, and some vendors also provide automated patching mechanisms. Businesses need to work with their POS resellers to make sure these updates are made regularly.
MAKE STORED DATA UNREADABLE According to Verizon, 80% of breaches involved data that organizations didn’t even realize they were storing! And, today, still, just as in cases they saw 10 years ago, POS system attacks give way to data that’s unencrypted. So not only are businesses holding onto data they don’t even know that’s on their systems, but they are not doing anything to protect it! The rule here is pretty simple: If it’s not needed for business, don’t store it. And if it is– protect it with strong encryption.
Payment Quarterly | Q4 2015
PCI’S QUALIFIED INTEGRATOR AND RESELLER (QIR) PROGRAM We developed the QIR program to train integrators and resellers in the strong security controls needed to protect payment card data. The program benefits the QIR companies themselves and their merchant customers. Merchants using a QIR know that the company has trained employees, takes security seriously and looks after the critical security controls we just identified. QIRs work with validated payment applications, in that all important layered approach to security.
CONCLUSION The EMV chip rollout provides a golden opportunity for merchants to re-assess POS security practices. To support proper EMV chip and PCI Data Security Standard implementation and ensure the strongest levels of security for customer payment data, it’s critical to use trusted products and partners. It’s equally vital to educate employees and partners on what to look for, and the right questions to ask.
V M E U O Y ARE . E R A E W ? Y D REA Partner with Moneris, the EMV leader Developer Ready Specs for quick and easy integration A layered approach to data security including EMV, end-to-end encryption and tokenization More experience in EMV implementation than any other payment processor in North America
Let us help you become EMV ready today! Contact our strategic partner team at 866-423-8475 or firstname.lastname@example.org Visit monerisusa.com/EMV for details on EMV
WHY THE ASHLEY MADISON HACK IS CONCERNING By: Steven Anderson
ranted, the Ashley Madison hack is proving to be ripe ground for jokes from all over, particularly in terms of how many government officials’ email addresses were spotted on the information released from hackers. The appearance of Josh Duggar of “19 Kids & Counting” fame didn’t hurt matters for many either.
on Windows keys, a host of internal documents and more, even things like server infrastructures for some businesses. That’s leading to some serious concerns about blackmail possibilities, as well as representing full-scale compromises of infrastructure, up to and including Windows domains.
Beyond the jokes, beyond the atavistic “ha ha, you got caught!” thrill the Ashley Madison hack provided, there are deeper issues afoot that should leave all in range frightened.
All of this might be bad enough, but the Ashley Madison hack represents something different: a hack with information as its goal, rather than commerce at its ultimate end.
It’s not so much the content, so much as it is the sheer amount of said content that was involved. The Ashley Madison hack involved 10 gigabytes of compressed data, ranging over 33 million accounts, the approximate equivalent of a little under half a Blu-ray disc’s worth of data.
When a Home Depot or a Dairy Queen or similar company is hacked, it’s usually done with cash in mind, getting access to payment details to go run up charges elsewhere or transfer a load of cash to a bank account. The Ashley Madison hack, meanwhile, wanted information to reveal embarrassing facts; just look what it did to Josh Duggar.
That’s 10 gigabytes worth of email addresses, phone numbers, names, and even financial transactions. That includes the “guaranteed affair within three months” transaction and the “delete everything; I was never here” transaction. Even worse, that includes information on PayPal accounts, 22
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What could this kind of hunt do for those with memberships to porn sites? Or to healthcare information storage? How long before some hacker’s going hunting for everyone treated for STDs or the like?
This isn’t just a data breach. This is a data breach with an agenda, and it represents something much more terrifying; the idea that one day wide scale data breaches could be used as weapons against individuals by assassinating character rather than bank accounts. The idea of hackers going on the hunt for blackmail data rather than for financial data is infinitely more frightening; while a financial hack can be covered with insurance or with proper bank procedures—no payments on stolen data—an information theft about your after-hours proclivities can’t be so readily insured. Even if it was proven wrong, a person’s public image could be forever tainted from one message board joined or one website surfed too often. It’s easy to affect a self-righteous smirk at the adulterers running free on Ashley Madison, but tomorrow, that could be anybody, for a different reason. If Ashley Madison is the start of the change, we could be in for a lot more shocking revelations about many people out there…and we might well find ourselves the next victim.
Free EMV Readers
MOBILE PAYMENTS VS HACKERS By: Mike Dautner
he trend in mobile payments offers an array of benefits. But how secure are these payment solutions against the possibility of a breach? In the age where credit and debit cards are slowly but surely becoming relatively obsolete, mobile payment platforms waits in the shadows to become the new majority player. Google Wallet, Square, Apple Pay, and PayPal are all names to know in the near future, because they will be at fore ensuring your transactions are completed in an efficient manner. However, the potential vulnerability of these services is a cause for concern. As such, The Clearing House, an advocacy group that is owned by the world’s biggest commercial banks, wanted to raise these types of questions in their new report. The report is titled “Ensuring Consistent Consumer Protection for Data Security,” and attempts to argue that despite their support from established and start-up
firms, they are not held to the same standard as banks do regarding cybersecurity. “These alternative-payment methods certainly are providing something that consumers want, which is a convenient way to make payments,” CEO of SnoopWall, Gary Miliefsky says. “But I don’t think most of those consumers would be too thrilled to know that these companies might not be subject to the same demanding data-security requirements their banks deal with.” The major problems occur when a company does very little to ensure that their customer’s identity and data are safe and secure. The policy of just waiting until a breach does occur is no longer a tolerable practice. “Unfortunately, a lot of companies don’t realize just how vulnerable their apps are and what the potential is for leaking their customers’ personal information,” Miliefsky says.
ShopKeep, a cloud-based technology which serves as a business management provider for a high volume of independent merchants, announced that EMV contactless readers will be offered free of charge to qualifying merchants. In terms of qualifications for the offer, new customers must sign up for a three month subscription of ShopKeep services. In addition, new customers will also need to submit an application for ShopKeep’s payment processing. As for existing ShopKeep Merchants, the offer will be granted upon signing up for an additional ShopKeep feature. “ShopKeep’s top priority is to help independent business owners across America run smarter and more efficiently by providing them with the latest technology and solutions that will help them future-proof their business,” said Norm Merritt, ShopKeep’s president and CEO. “This is our second year offering merchants a free EMV/Apple Pay reader; with the transition to EMV and more consumers embracing mobile payments, we want to encourage independent merchants to stay agile, competitive, and more secure, in the face of these significant changes in the payment industry.” Payment Quarterly | Q4 2015
T S N I A AG G N I T C E T O PR
AFTER EMV The EMV switch is scheduled to start this month, and we sat down with Patrick Davie, GM of Card Services and Risk Solutions at Fiserv, to talk about the transition , what it will mean for financial institutions, and how EMV chips are the next step in battling fraud. PQ: How prepared are Financial Institutions in protecting payments after the EMV shift? DAVIE: With the full market adoption of EMV (issuers and merchants), fraudsters lose a very lucrative channel by which to perpetrate fraud. Specifically, with EMV it becomes virtually impossible for a fraudster to create counterfeit cards which accounts for nearly $4 billion dollars in losses in the US. However, the full market adoption of EMV is still years away. Currently the top 100 merchants are actively moving to EMV while the rest of the merchant market (the other 50-60% in terms of volume) are slowing the overall adoption. Half or more of all the market may not move to EMV for another 4-5 years which will ensure that fraudsters will continue to be able to commit counterfeit fraud. Additionally, 24
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expect to see an increase in counterfeit fraud during the market move to EMV as fraudsters get more aggressive as the window of opportunity begins to close. PQ: Countries like the UK have seen a rise in CNP fraud after chip card adoption. Can we expect the same in the United States? DAVIE: In fact, this is a clear pattern weâ€™ve seen in other regions of the world that have already adopted the EMV standard. As mentioned previously losses due to counterfeit cards accounted for nearly $4B in the US but CNP fraud losses were approximately $3B, a very large number that we know will grow as EMV adoption grows. The other type of fraud that EMV does not block is Lost or Stolen Card Fraud and this represents about 15% of losses or about $1B. So while EMV is a very important
anti-fraud tool, it still only solving for literally half the problem in the US. Another alarming phenomenon is the increasing level of breaches we see conducted by very sophisticated and well-funded criminal organizations. Weâ€™re all familiar with the Target and Home Depot breaches but there are literally hundreds of other breaches every year that go under reported by the media. These breaches expose not only credit card data but also, very alarmingly, personally identifiable data. This personally identifiable data allows fraudsters to spoof IVR systems and reset PINs thereby allowing the fraudsters to go to the nearest ATM and commit cash-out fraud. This trend is going to grow over time, as fraudsters assume the identity of a legitimate customer
using their account to commit fraud. They are also armed with enough information to open new accounts (called new account fraud). PQ: How can FI’s protect themselves? What are the new Enterprise Fraud solutions? DAVIE: FI’s still need to be very focused on stopping counterfeit fraud until we see a significant portion of the merchants adopt EMV. At the same time, FI’s need to be sure they’re addressing the burgeoning threat of CNP fraud and Lost/Stolen Card fraud, by continuing to score all their card transactions through a predictive model, a model that learns and adapts to specific cardholder purchase behavior. This allows the model to understand what transactional behavior is out of pattern or different from how the cardholder typically behaves. Coupled with predictive scoring is the creation and deployment of fraud rules designed to address the specific characteristics of each FI’s card base. These rules, when combined with fraud scoring, allow an institution to fine tune their approach to identifying and stopping fraud as fraud patterns emerge and change. For CNP fraud, specifically, we at Fiserv are working with our clients to deploy combinations of rules designed to address CNP and we’re seeing some great results in terms of fraud detection as well as a low false positive ratio. Another key component of an effective
fraud strategy is to ensure the FI makes use of advisory services. These advisory services work with the FI directly and create rules that fit the specific goals of the FI and marry them with the unique characteristics of the card base (i.e. geography, card size, mix of domestic vs international cardholders, high networth, etc.). An educated and empowered cardholder base is also critically important to fight the rise in fraud. Cardholders who understand how to safely use their cards are asserting themselves as one of the strongest lines of protection against card fraud. Industry statistics show that cardholders who review their account activity on a routine basis are much more likely to detect and report fraudulent activity. Cardholders should be empowered by their FI to use new technology capabilities to actively manage their card usage by defining when, where and how their payment cards are used. We have a service called “CardValet” that is ideal for cardholders who want to proactively manage their card accounts through their mobile devices. CardValet’s financial management capabilities empower cardholders to monitor and control their card transactions. PQ: What are other fraud solutions that FIs should be evaluating as the market shifts to EMV? DAVIE: Tokenization, which recently entered public awareness with the introduction of Apple Pay, is a means to secure card
transactions, particularly mobile based card transactions. As more payments shift to mobile and card not present, tokenization holds the promise of addressing the increase in fraud we will see when EMV is fully market adopted. However, with every solution for fraud there are vulnerabilities. With EMV it’s that it only accounts for counterfeit and not for CNP or Lost/Stolen. Another vulnerability is that it assumes the token requestor (i.e. the consumer) is who they say they are. When Apple Pay first launched some large FI’s purportedly experienced fraud because fraudsters were able to have a token issued for their iPhone thereby allowing them to use Apple Pay to commit fraud. So the fraud was not an Apple Pay issue but rather a process issue with the FI. Institutions should begin investing now in Enterprise Fraud Solutions (like Fiserv FCRM). These are solutions that provide them a more holistic view of a customer’s financial relationship with them. For example, there are solutions available in the market that integrate with Card authorization systems, deposit systems that contain information on check writing, wire, and ACH behavior, and also online banking and mobile platforms. Having one system that can integrate all this data and present it in one view of an account holder will be critical to allow FI’s to see some of the anticipated new fraud vectors emerge such as Account takeover fraud and new account fraud. Payment Quarterly | Q4 2015
ADVANCES IN PREVENTING
CARD FRAUD T By: David Pinski VP of Product Management Zumigo
he number of reported data breaches involving credit card data is staggering. Tens of millions of sets of credentials have been compromised in hacking events at companies from Target to Home Depot. Once criminals have possession of stolen card information, they look for ways to monetize their trove of data. Typically, this data is either used to make physical counterfeit cards or purchase products and services online. The Wall Street Journal recently highlighted the use of counterfeit cards at gas stations. They reported that in 2013, card-issuing banks lost $250M to this fraud.
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Since card terminals are at the pump and not staffed, they are a natural target. Criminals can now purchase sets of stolen card data from breaches and equipment to make simplistic counterfeit cards online. Using a card anonymously at the pump means you donâ€™t need to worry about reproducing the holograph or even embossing the card with someoneâ€™s name. You just need to program the magnetic stripe with the stolen card information. In many cases, criminals pull up to a pump and just start swiping cards until they find an account that works. Chip cards, also known as EMV cards, which are becoming the
standard in a few months for most merchants, will not become the standard for gas pumps until 2017. Moving to the chip cards should greatly reduce the use of counterfeits. But due to the high cost of upgrading the payment equipment on gas pumps, implementation is delayed for two years. Moving to chip cards means that the merchants will no longer have the liability for fraudulent card use. Until gas stations are required to make this switch, cardissuing banks will continue to incur the losses. For online merchants, the pain of fraud does not have an end point. Chip cards can’t be used for online transactions and merchants will continue to own the burden of loses from stolen card data. Perhaps even more frightening to the ecommerce industry is the experience that the UK had with their conversion to chip cards. In 2003, the UK began a three-year effort to switch to chip cards. For the criminals that continued to steal card data during this time, it just meant that they needed an easier way to monetize their stolen data. Since counterfeiting cards became much more difficult, the path of least resistance became online fraud. The result is that from 2003 to 2008, the rate of card not present (CNP) fraud jumped by more than 200 percent. In the US, CNP fraud resulted in approximately $1.54B in losses in 2012, the last year of data provided by the Federal Reserve. Given
the growth of this type of fraud due to breaches, and the shift to CNP fraud caused by chip card adoption, online merchants could be looking at annual fraud loses exceeding $4B in the near future. What the fraud channels of gas pumps and ecommerce have in common is access to new approaches to mitigate the use of stolen payment credentials. By using mobile phones as a proxy for the true card holder, for example, stolen credentials can be identified as being used by a third party. This mobile identity approach has been around since at least 2013, the year Zumigo launched a solution based on this technology at Money 2020’s first Launchpad360°. Since then, this approach’s functionality has expanded to specifically target the needs of merchants processing CNP and banks approving anonymous card transactions. Today, when a merchant submits a card transaction for payment, they are simply told whether or not the card is active and has available credit or funds. They aren’t told much else about the owner of the card. To date, the biggest obstacles to the adoption of incremental security measures are low rate of consumer adoption and perceived interference with the completion of the transaction. For example, to reduce CNP fraud online card associations have introduced 3-D Secure as an additional securing layer for transactions. However, the user experience is cumbersome, varies
by card type and website, and subsequently has a low utilization rate. For anonymous transactions such as those at gas stations, banks and card associations are just waiting out the terminal technology change and writing off the loses. Neither of these approaches makes economic sense. Leveraging a mobile phone to passively verify transactions is a game changer. First, mobile phones are ubiquitous among consumers today, and secondly, they can provide validating data for a transaction without diverting a consumer from the regular transaction flow. With this approach, valuable information used to determine risk can be obtained. Verifying that a consumer is present at the time of a transaction is a key factor in determining risk. By locating the phone at the time of the transaction, merchants have some assurance that the owner of the phone and their card are where they say they are. For a gas purchase this means that they are physically at the gas station. For an ecommerce transaction, it means being near the identified IP or Wi-Fi ID locations. Unlike using a phone’s location from an app, obtaining location from the mobile network is unspoofable, and does not require an app at all. It even works with feature phones. For ecommerce merchants performing CNP transactions, Payment Quarterly | Q4 2015
identity verification is just as important as location. From the mobile number and the submitted card, it can be determined if the owner of the phone and the card are the same individual. This means that a criminal needs to possess not just the card data, but must know the mobile phone account that matches. Of course, even if they know the mobile number of the cardholder, they still need to transact where that phone is located, an almost insurmountable requirement.
MasterCard’s Digital Enablement Express Expedites Digital Payment Services MasterCard has rolled out Digital Enablement Express (Express), a program that speeds up digitization and tokenization of MasterCard accounts through the MasterCard Digital Enablement Service (MDES). MDES helps transform any connected device into a commerce device to enable payments. Express, which ultimately aims to provide secure digital payment options to consumers rapidly, has already gained the support of several issuers including KeyBank, Fifth Third Bank and Capital One. 28
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By combining the mobile carrier data points of identity and location, a merchant or card-issuing bank gets a more complete picture of the consumer presenting payment credentials. This analysis utilizes data they already have on file. For a gas station transaction, banks can leverage existing customer information, and for an online shopping cart, the mobile number is already requested during checkout. This technology is available today and requires a low effort to integrate into a payment scheme when compared to other solutions.
Today, early adopters of this approach are financial institutions trying to identify the use of stolen credentials. As fraud shifts to anonymous and CNP payment channels, merchants are discovering the benefits of leveraging mobile carrier data. If action isn’t taken soon, merchants may experience the explosion of fraud that was experienced by their UK counterparts. It is time that merchants address their rate of fraud, before their balance sheet is upended.
The global framework is a product of MasterCard’s several years of research and partnerships with financial institutions and technology partners to bring tokenized payments to consumers.
It also enables the use of tokenized credentials to safeguard payment integrity and merchant rights and reduce fraud rates.
With Express, MasterCard issuers can now safely digitize tokens into millions of devices, Internet of Things (IoT) environments and Card on File systems, thus providing consumers with access to secure digital payments. Aside from expediting the digitization and tokenization of accounts and creating efficiencies in providing secure digital payments worldwide, Express limits the use and sharing of sensitive cardholder data and transaction information.
Ed McLaughlin, Chief Emerging Payments Officer at MasterCard, commented, “MasterCard is working relentlessly to increase payment security and enable innovative new digital services for consumers, to the benefit of all participants in our network. Express now allows key technology partners to make their offerings available to all MasterCard issuers in a simple, safe and consistent manner, extending our network model into digital enablement.”
DOUBLING YOUR MONEY
WITH INNOVATIVE CREDIT OFFERINGS T By: Amir Wain CEO i2c
he future for consumer credit looks bright. With profitability and growth rates for debit card-driven retail account relationships declining, banks are under pressure to find new sources of revenue. The good news is there is strong renewed interest in consumer credit, which is expected to grow at twice the rate of debit between 2013 and 2015. (Nilson Report, 2013) Fortunately, banks have existing consumer relationships they can leverage to achieve more profitable business. Simply “graduating” customers from debit products
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with low interchange to a differentiated and much more profitable credit product is a smart strategy that can more than double revenue. (Pulse Network - 2015 and Federal Reserve Bank – 2013 – See Exhibit.) It seems like an easy win. But all too often banks struggle to deliver innovative solutions suited for today’s new market realities, and tailored to the needs modern consumers who demand sophisticated digital capabilities. What’s clear is that the stakes are high, and that differentiated
THREE NEW OPPORTUNITIES
FULLY INTEGRATED DIGITAL CAPABILITIES
INNOVATIVE FEATURES THAT DELIVER VALUE AND PROFIT
At a minimum, the credit platform must be bank grade, secure, and scalable to handle high transaction processing requirements. In addition, mobile capabilities must be deeply integrated into the platform, which has to provide the issuer with a way to engage the consumer and build a relationship based on context, relevance, and value. Capabilities such as multi-directional messaging, consumer driven card controls, 100 percent coverage across mobile devices for multi-screen engagement, and intuitive user interfaces are all required for an advanced digital offering.
Issuers must provide new capabilities that are both meaningful and deliver value around the credit offering. Innovative capabilities like i2c’s Smart Pay, described above, are the types of value oriented features consumers care about as they look for help to better manage their money. For banks, this feature helps strengthen the relationship with the consumer, offering more value and claiming a trusted role that betters the customer experience.
credit offerings are an absolute must for market survival. To be successful, the industry needs a highly customizable payments technology platform to implement forward-thinking product ideas. Without it, it will be hard for issuers to avoid undifferentiated “me too” consumer credit offerings.
NEW USE CASES
Banks need to look at new use cases for credit beyond consumers. The ability to conceive new credit offerings is critical to growth because “meto” offerings aren’t enough.The fast growing Small and Medium Business (SMB) market is a good example. SMBs are seeking ways to improve their business and have a more productive relationship with their bank for capital needs, but current offerings are generic and not tailored to their needs. i2c, a global provider of integrated payments and commerce solutions, designed its highly stable and flexible cloud-based platform to enable rapid innovation. i2c recently announced a new capability to replenish a business or consumer credit line. With Smart Pay, SMBs choose the amount of an automatic payment they want applied to their existing credit line when they reach a specific credit limit threshold. This ensures the business keeps their credit line manageable from a risk perspective, while increasing their propensity to transact. In addition to Smart Pay, i2c is also introducing new ways that SMBs can finance capital purchases without impacting existing credit used for day-to-day operational needs. Purposebuilt for SMBs, Flex Buy allows the business owner to quickly apply for a separate line of credit for a capital good purchase and offers a quick approval process. With Smart Pay and Flex Buy, issuers can provide very valuable and meaningful capabilities so SMBs they can grow their business while managing cash flow.
CREDIT’S ROUGH ROAD IS GETTING A LOT SMOOTHER The effects of the 2008 financial crisis were immediate. Consumers quickly retracted from the use of credit, instead looking for safer instruments that also provided value beyond the payment. As a result, prepaid solutions did particularly well as a way for consumers to control spending and manage their budgets. At the
same time, given the severity of the crisis, banks and other lending institutions tightened lending requirements to manage risk. Today, the outlook for credit is much brighter. New data from the US Federal Reserve shows a marked uptick in the growth of credit. According to a 2015 study from the Federal Reserve, consumers want access to Payment Quarterly | Q4 2015
credit—but only if the product is differentiated and provides value beyond existing alternatives.
THE PITFALL OF ‘ME-TOO’ CREDIT OFFERINGS Today’s market dynamics present a rare opportunity in credit, but banks and issuers will miss the boat if they rely on strategies of yesterday and fail to innovate and execute. Though many banks believe they have a “whole customer” relationship, the reality is that many consumers maintain multiple banking relationships to serve their different needs. This worked well for retail banks when debit interchange was a profitable endeavor. Today the market is dominated by the top ten card issuers who issue over 75 percent of credit cards. There are thousands of products in the market, but they are essentially “me too” offerings with little differentiation. The last time consumers saw a major credit product evolution was the introduction of reward programs—which occurred well over ten years ago. Other marginal features like Price Protection Guarantees have been introduced, but they have been implemented poorly with little benefit to the consumer. The lack of innovation is due in large part to the fact that outdated technology platforms of the larger processors that many issuers use lack the capabilities and flexibility needed to create and enable 32
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differentiated product solutions today’s consumers value. Those issuers who understand that innovation and differentiation are powered by the smart use of market-responsive technology are in a unique position to seize opportunity and profit as the interest in consumer credit grows.
FOCUS ON DIFFERENTIATION TO DOUBLE YOUR MONEY Since the Durbin Amendment in 2008, banks have been optimizing cost control and efficiency. By now, there’s diminishing value in focusing on costs alone. Additionally, larger issuers with deep pockets can use undifferentiated but effective “zero interest rate” strategies for long periods of time, essentially locking in market share at the expense of smaller competitors with smaller pockets.
In this environment, issuers that want to gain market share need to quickly and efficiently bring to market products tailored to consumer needs. To do this, they need to look into moving off legacy payment providers that sell packaged processing across debit and credit products because that approach is based on a cost reduction model. Issuers are much better off separating credit and debit processing decisions based on business needs. “Me-to” offerings in credit can’t deliver the unique and value-focused offerings consumers seek. Today’s savvy banks understand that fully integrated digital capabilities, real innovation backed by secure and scalable processing platforms, and the ability to deliver new product features and credit use cases to customers is the right strategy for doubling your money.
NEARLY EIGHT OUT OF TEN SMALL BUSINESSES ARE NOT READY FOR EMV
By: Steven Anderson
ith the Europay Mastercard Visa (EMV) standard about three weeks away from activation, it’s not been much of a surprise to see a flurry of activity around getting ready for this new payment mechanism. And indeed, that flurry has been there in spades with the big box stores and other major retailers. A new report from Software Advice, a third-party reviews site for POS systems, suggests almost eight in every 10 small businesses plain old aren’t ready yet. The report also details that only 22 percent of SMB retail operations are ready for EMV, ahead of the October 1 change-over. But what makes things particularly interesting is that almost as many, 23 percent, in the noncompliant group believe that EMV preparations are “unnecessary.” This makes for an unexpected concept, as the EMV shift also brings a shift in liability as well. Under the new principles, those firms that don’t have EMVcompliant terminals in their operations will be liable for any
fraudulent charges conducted by swipe. But as explained by senior solution consultant for retail banking at ACI, Mark Ranta, that 23 percent may not be so out of line after all. Ranta elaborated, saying “The shift moves the liability from the issuing bank to the merchant, so the consequences are more of the roulette variety – they could be devastating, or they could be a non-event.” Meanwhile, as for those who don’t believe outright that such things are unnecessary, 22 percent were “moderately confident” of meeting the deadline. 17 percent were only minimally confident, while 13 percent were extremely confident. An additional 11 percent were very confident, while nine percent weren’t confident at all. Seven percent, meanwhile, didn’t even know the deadline existed in the first place. The biggest reasons for lack of adoption, meanwhile, include a lack of time to research and set up the system, the total expense associated with the system, and a sheer lack of knowledge
in general. What’s more, many consumers are reporting that EMV-driven cards haven’t arrived yet. Two out of three respondents noted that their EMV card hadn’t been issued yet. Of course, this all might change fairly soon; some have noted that a large unexpected chargeback might change a few minds. Then, for some businesses, the potential for disaster might seem minimal; consider the local coffee shop or the like that might do 20 to 30 swipes in a day. Even if one in 10 were fraudulent, which is unlikely, that’d still represent maybe $30 worth of chargebacks every day. It’s easy to see, from that standpoint, how a business wouldn’t even want to bother going EMV because the expense and time required wouldn’t be profitable against the few chargebacks that might come about. If it takes $500 in time and costs to make a switch, and a business somehow manages to lose $50 a month in chargebacks, that’s the better part of a year before the costs to upgrade are greater than the losses inflicted. So it’s actually not surprising, given the nature of some of these businesses, that EMV isn’t a priority. But given how many businesses are planning to get in, and are highly confident that the deadline won’t be a problem, the end result should be not many opportunities out there for fraudsters in the face of a lot of EMV switchover. Payment Quarterly | Q4 2015
VISA, OXFAM, AND UNIONBANK
TEAM UP W
hen you consider natural disasters in recent history, a few come to mind immediately. The most detrimental to a community in the past ten years would most likely be considered Hurricane Katrina. As such, relief agencies struggled to expedite funds to victims who desperately needed them. This problematic scenario is the driving force behind the partnership between Oxfam, Visa, and UnionBank, looking to provide faster relief to the people that need it the most. In the wake of Typhoon Haiyan in the Philippines, i2c, a global provider of integrated payments and commerce solutions, got together with Oxfam, Visa, and UnionBank for the “Electronic Prepaid Solution Project” in order to provide a safer and faster way to ensure victims receive aid via prepaid cards. i2c wants to cancel the security risk involved in transferring money to disaster victims. By distributing prepaid cards, you eliminate the security and delivery risk that
Payment Quarterly | Q4 2015
TO PROVIDE PAYMENTS SOLUTIONS FOR DISASTER STRICKEN COMMUNITIES By: Mike Dautner would otherwise be the case with cash dispersal. These “cash transfer programs” will be a massive support line for communities recently struck by major natural disaster.
or partner remittance centers. In addition, it can be used for over-the-counter purchasing at local merchant centers and for purchasing via a mobile store set up 20 kilometers from the individual city.
“The program has proven that the Oxfam Visa Prepaid Card is more than just a payment tool that enables beneficiaries to purchase everyday items conveniently and securely. It also ushers many of the beneficiaries into the formal financial system, helping them develop life-enhancing financial skills. This project is a great example of how the world’s largest payments technology company and the world’s leading humanitarian organization harness our collective resources to innovate and overcome financial challenges during disasters,” said Stuart Tomlinson, Visa Country Manager for the Philippines and Guam.
“The EPS Project is helping empower disaster-affected communities by allowing them to make their own financial decisions. Oxfam hopes to work with Visa to scale up the project and find more ways of delivering payment services for post-disaster recovery, including sustainable livelihood programs. This is just the beginning. After seeing the success of the project in the Philippines, Oxfam plans to replicate this in future humanitarian response programs, both here in the Philippines as well as in other countries across the globe,” commented Justin Morgan, Country Director for the Philippines Program of Oxfam.
Some of the particulars regarding the EPS Project—a beneficiary recognized by Oxfam is issued an EPS card which can be credited with a fixed amount that can be withdrawn from either ATMs
A noble pursuit indeed from all the parties involved in this program, coming together to find a solution to a problem of paramount importance.
MASTERCARD HIGHLIGHTS ESSENTIAL ROLE IN
MOBILE PAYMENTS OFFERING By: Michael Cheng
amsung Pay was unveiled during the Mobile World Congress “Unpacked” event in Barcelona. The official unveiling marks the coming of another strong competitor in the industry. Samsung Pay will first rollout to customers based in the US and South Korea this summer. Europe and China are expected to receive the payments offering after. Ed McLaughlin, MasterCard’s chief emerging payments officer, said, “As consumers are increasingly relying on their mobile devices
in their everyday lives, we are excited to work with an industry leader like Samsung to deliver new payment options to our cardholders around the world. We have been a pioneer of mobile commerce innovation for years and together we’re delivering a digital payment experience that is both simple and secure.” New owners of the Samsung Galaxy S6 with MasterCard credit and debit cards from participating banks have the ability to pay through a contactless-enabled and standard terminals using Samsung Pay.
MasterCard transactions are enhanced with the latest tokenization technology for secure purchasing. The company assures its customers are able to take full advantage of the benefits and guarantees that come with a digital MasterCard transaction. Samsung Pay offers tokenization via MasterCard Digital Enablement Service (MDES) in combination with fingerprint authentication or passcode for comprehensive authorization. “From the start, Samsung’s vision for mobile payments and commerce has been centered on security, wide acceptance, and a simple user experience. With MasterCard’s tokenization services in conjunction with Samsung’s unique MST (magnetic secure transmission) and NFC technologies, Samsung Pay makes secure contactless mobile payments possible at most NFC or traditional magnetic POS terminals,” highlighted Dr. Injong Rhee, Executive Vice President at Samsung Electronics. MST transactions are possible through LoopPay.
Samsung acquired the company last month in a move to leverage the new technology for its payments platform and it enables Samsung Pay to be used at any place that has a card reader, 90 percent of locations in the US, according to LoopPay.
Payment Quarterly | Q4 2015
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Payment Quarterly | Q4 2015
! T U O E SCRATCH
TRAKLOAN PROMISES BENEFITS FOR PROCESSORS
Avid shoppers will welcome the introduction of Scratch to their
daily shopping routines. Scratch intends to simplify the shopping process for several hard to comeby products including gifts, home décor, and clothes, just to name a few. Scratch connects online shopping experts to potential consumers, providing them with the hottest tips on must-have items across the board.
New product Bessemer gives Venture
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to discuss things like itinerary and reservations. Additionally, through Travefy, you can search over 8 million restaurants, activities, and deals for your group!
TRAVEFY Travefy is attempting change the way we coordinate group trips with friends. Travefy is a totally free service that culminates the entire process of planning a vacation or getaway with friends. The real draw to Travefy is how it solves the annoying issue of having friends owe you money when planning a trip. With Travefy, groups plan together and pay together, more importantly. Within the app, you can also chat with other travelers
Payment Quarterly | Q4 2015
Travefy is based out of Lincoln, Nebraska and was founded in 2012 by David Donner Chait and Chris Davis. As of April 2015, Travefy received a $1.8 million Series A investment, as well as a partnership with Travel and Transport which is considered the fifth largest travel management company in the U.S.
Travefy is designed to simplify the process necessary to plan a successful trip. By offering a platform that lets group collaboratively plan and pay for a trip in concert, the prospect of an uncomfortable owed balance from one party to another is diminished, making this service very desirable.
With Dream Payments, you are able to select your preferred payments terminal, download the app, and soon start to accept payments from credit and debit cards via the Dream Payments Terminal.
DREAM PAYMENTS Using Dream Payments, a Canadian processor, you can access your tablet or mobile device to accept cash, debit, or credit card payments anywhere, anytime. The idea being: business on the go or, going where your business goes. Right now, the platform accepts Visa, MasterCard, and Interac. Additionally, the platform is operable through Tap and Chip/ PIN. The company boasts a no sign-up, monthly, or refunds fee policy, and promises next business day deposits.
Having the ability to accept payments anywhere opens up a wide range of possibilities. Dream is hoping that this business philosophy will pay dividends in the near future as businesses become more and more comfortable with the idea of mobile business or just mobile transactions in general.
With $6 million received in 1 round from three separate investors, the company that is based out of Toronto, Ontario was off to a good start. Essentially, Dream payments enables merchants the luxury of freedom pertaining to the business space. Using the mobile payments platform, merchants can sell virtually anywhere. This service should be welcomed by an array of businesses attempting to expand the ways in which they engage in commerce.
Payment Quarterly | Q4 2015
VENTURE OUT! MOBILE WALLET WARS
VKANSEE VKANSEE is a company with a specific goal in mind. Optimizing the prospect of biometric authentication for the technology we use every day, and of which can be most useful. At 1.5mm, VKANSEE has succeeded in developing the world’s thinnest optical fingerprint sensor. However, VKANSEE kindly implores you not to underestimate the small formatting—as it accounts for fingerprint images displayed in beautiful 2000dpi resolution. Compared to the most relevant competitors, VKANSEE’s fingerprint images hold a resolution that is 4X greater.
Payment Quarterly | Q4 2015
VKANSEE has also been a thorn in the side of other major corporations’ solution for biometric authentication— pointing out the shortcomings of the current technology in place. To do so, the company has conducted demonstrations wherein they attempt to breach the security verification system of the latest and greatest devices on the market. VKANSEE has developed a unique sensor that boasts a 300 percent efficiency rate over the current iOS and Samsung fingerprint sensors. In order to demonstrate the inefficiency of the current solutions, VKANSEE effortlessly hacked into a Samsung S6 and an Apple iPad and iPhone 6 in a shocking video which can be found on our weekly website.
Using a rubberized conductive fingerprint made from a common mold, a hacker is easily able to bypass the security setting on each device seamlessly. This reveals the overwhelming vulnerability of today’s current sensory technology to top brand devices. VKANSEE prefers to keep the specific details of the science behind the sweat pore recognition verification under wraps, as well as an anti-spoofing feature which helps ensure the effectiveness of their solution.
TONETAG Bengaluru based ToneTag, the global offline proximity mobile payment tech startup has succeeded in raising $1 million thanks to Reliance Capitalâ€™s Venture fund arm. The funding is intended for technical and sales-related activities in order to allow merchants to accept cashless transactions, according to a top executive. ToneTag is designed to enable contactless payment solutions in already existing payment platforms by combining proprietary software development at merchant and customer interaction points.
The results in regard to technological efficiency will determine whether or not ToneTag was worthy of the $1 million in funding it garnered in order to optimize mobile payments for its customers. ToneTag operates with the philosophy: Any device, anytime. This means regardless of whether or not you own a smartphone, you can set your mobile device to make offline payments. The company also ensures smoother payments without any additional hardware installations required. Ultimately, the service allows the user to stay connected to their wallet, with and without data availability.
Payment Quarterly | Q4 2015
WHY BITCOIN SUCCEEDS WHERE TECH GIANTS FAIL
n August 24th, Facebook announced a milestone: one billion users logged onto its platform in a single day. Of those, 87% were using their mobile devices. It doesn’t take much foresight to see that mobile platforms are here to stay. The smartphone that started out as a tool for sharing photos and keeping up with friends on the go, has become a staple of daily life. The evolution of the smartphone is now heavily influencing payment technology. From Square to PayPal to Google, leading tech companies have taken up the challenge of making and accepting payments via phone as easy as sending a text message. Apple Pay, Samsung Pay, Android Pay, Facebook’s Messenger payments, and CurrentC have joined this landscape in the last year. There’s no shortage of innovation in mobile payments. Even the most traditional businesses may adopt these technologies to keep up with their mobile consumer
Payment Quarterly | Q4 2015
base, but there are still roadblocks to making these payment methods mainstream.
USER TRUST AND SECURITY FLAWS A recent Harris Poll shows that the majority of consumers, and the majority of smartphone users, are reluctant to start paying on their devices. The main concern? Security. They’re right to be cautious, and businesses have even more reason to worry. In 2013 alone, businesses lost nearly $14,000,000,000 to payment fraud. Consumers can turn to chargebacks to mitigate the costs of fraud, but businesses must absorb these losses, and there’s no guarantee that mobile payments will improve the situation. Mobile payments providers like Apple have made a point of addressing these fears in their product announcements. Fingerprint authentication, payment tokenization, and secure element data storage are advancements in security, but they don’t go far enough to solve the
By: Corey Glaze Senior Sales Engineer BitPay
main weakness of the credit cards they protect. For more than fifty years, consumers and businesses have been using the same insecure strings of data – credit card numbers – to authorize payment processors and banks to transfer funds for them. Since any copy of these numbers can be used to authorize transactions, consumers and businesses are left vulnerable to identity theft and chargebacks from those who acquire leaked credit card data. As reports show year after year, this takes a heavy toll.
MISSING THE POINT IN SECURITY Even the best security measures added to conventional card technology fail when those numbers are compromised outside of the mobile ecosystem. Apple Pay has hit rough waters because of this weakness. Earlier this year, their users reported fraudulent payments at higher levels than credit cards. As the New York Times reported in March, the problem begins in Apple Pay’s
registration process. Once identity thieves register stolen data on the platform, there are no layers of security that can stop them from authorizing payments on behalf of targeted consumers. The problems continue at the point of sale. When authentication methods like TouchID fail, mobile payments expose brickand-mortar businesses to the increased fraud risks of cardnot-present (CNP) transactions, which traditionally only affect online merchants. Apple Pay’s transactions mask identities to protect customers, but this leaves merchants at a disadvantage, with fewer options to verify identity and prevent fraud and chargebacks. These vulnerabilities haven’t stopped Apple Pay and others from gaining users. As holiday shopping season comes up, more customers will be paying from their smartphones, and more merchants will be accepting those payments. It will be interesting to see how these platforms face the test of higher transaction volume, but it’s unlikely that they’ll reduce the workload for fraud departments. That problem remains unsolved, and mobile payments will be handicapped until it is.
MOVING CONTROL TO USERS Moving full control of payments back to users, rather than authorizing permissions, is the best hope for mobile payments.
THE TECHNOLOGY USES SECURE “PUSH” TRANSACTIONS INSTEAD OF ALLOWING THIRD PARTIES TO “PULL” FUNDS FROM ACCOUNTS. THIS SETS BITCOIN APART AMONG ONLINE PAYMENT METHODS. Bitcoin anticipated the problems that face mobile payments several years before Apple Pay and its competitors. The technology uses secure “push” transactions instead of allowing third parties to “pull” funds from accounts. This sets Bitcoin apart among online payment methods. Bitcoin is often called “cash for the internet,” and the comparison is accurate: only the user holding the private key (password) for the bitcoin can initiate a transaction. Therefore, Bitcoin transactions do not attach any sensitive information that could be used to withdraw funds by criminals – just the sending address, the receiving address, and an amount. A distributed network of servers process these transactions, so there is no centralized authorization in Bitcoin. There are no central parties to process and settle transactions and no identities to steal. By bringing the privacy and security of cash transactions online, Bitcoin solves the major problems in any transaction: chargebacks for merchants and identity theft for customers. Bitcoin isn’t carrying the dead weight of securing an insecure
“pull” payment system. The technology has solved a lot of problems, and the mobile payment industry should pay attention.
MEETING THE CHALLENGES OF MOBILE PAYMENTS Even with its strengths, Bitcoin has challenges in becoming a payment method that average consumers and merchants can easily use. The Bitcoin development community has work to do to scale Bitcoin’s payment network and the technical awareness that makes its security appealing. Fortunately, Bitcoin is an open source technology, unlike its competitors. It avoids the brand wars plaguing tech giants and their software, while benefiting from the growing group of developers looking to innovate with this technology. Whether or not they use digital currency, businesses looking toward the future of mobile transactions need to look at the structure and security of Bitcoin technology. As more companies and individuals build on Bitcoin’s open network, the opportunities for real innovation in this new payments space will only grow.
Payment Quarterly | Q4 2015
NY Regulator Grants First BitLicense to Circle The New York State Department of Financial Services (NYDFS) awarded the first-ever BitLicense to Circle, a leading bitcoin wallet provider. To ensure full compliance for its services, the startup also has a Money Transfer License for US dollar transactions in the state of New York. Backed by Goldman Sachs Group, the Boston-based company rolled out a list of updates to complement the issuance of the controversial license. Now called Circle Pay, the payments app (available on iOS and Android) offers tiered cash limits for basic cashing and spending transactions. Initially, users will start with a $300 weekly limit. After hitting various account milestones, customers can eventually reach a threshold of $3,000. In addition to Circle, the NYDFS is currently processing over 24 BitLicense applicants, which are composed of bitcoin startups, service providers and exchanges. The institution expects the number of applicants to increase, as the technology hits mainstream markets.
Payment Quarterly | Q4 2015
CFTC VIEWS LEVERAGED BITCOIN CONTRACTS AS SWAPS By: Mike Dautner
n an unprecedented decision,
the CFTC maintains that bitcoin as well as other virtual currencies are deemed as a commodity under the Commodity Exchange Act. The CFTC or, the U.S. Commodity Futures Trading Commission just today submitted an Order filing, as well as settlement of charges against Coinflip, Inc., doing business as Derivabit, based in San Francisco, CA– as well as its Chief Executive Officer, Francisco Riordan. The Order is a result of Riordan conducting activity pertaining to commodity options transactions without properly complying with the mandates related to the Commodity Exchange Act, as well as CFTC Regulations i.e., without registering as a Swap Execution Facility. To be more specific, Derivabit was operating for the purpose of trading or processing commodity options without first complying with the Regulations set forth
by both the CEA and CFTC. This action is aligned with the applicability of swaps, in addition to activity in accordance to the CFTC’s listed exemptions for trade options. “This Order provides a new perspective of how the CFTC views leveraged bitcoin contracts. It is likely that the CFTC will set up its efforts in prosecuting market participants for offering leveraged bitcoin contracts without the appropriate registration with the CFTC and NFA,” said Felix Shipkevich, of Shipkevich PLLC, a derivatives and bitcoin regulatory attorney in New York. This decision from the CFTC is substantial due to the level of regulatory uncertainty behind bitcoin, as well as other virtual currencies. It is a rude reminder of the fact that despite the hype surrounding these innovative financial developments, they too, are subject to the regulations and standards set forth by the CFTC as well as the CEA.
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If you represent a government agency or a technology company, telecom company, or other government contractor looking for card processing expertise and leading-edge solutions, give us a call. 1-(888) 561-7888 • info@GovPayNet.com
BITCOIN BATTLEFRONTS 3 AREAS WHERE BITCOIN IS REVOLUTIONIZING MONEY the challenges in its path - and it’s already moving forward.
By: John McDonnell CEO Bitnet
he world is ready to embrace new payments methods better suited to leveraging the profound advantages of more frictionless and globalized commerce. Just as the telephone made communication across continents commonplace, and the Internet enabled online commerce, the digital and decentralized nature of Bitcoin allows money to be moved with an ease never before realized. The power of individuals and merchants to engage in transactions free from costly fees and other traditional barriers is poised to usher in a new era of access, openness and breadth in the marketplace. While it will mean acting as a disruptive force and displacing entrenched payments systems, Bitcoin has the innate advantages to take on
Payment Quarterly | Q4 2015
These are the three battlefronts where Bitcoin is pressing to make the biggest impacts on how we’ll use money in the coming years (while working to become the global currency of the 21st century):
1. BITCOIN VS. CREDIT AND DEBIT CARDS Whereas Bitcoin is indeed a 21st century solution designed to support frictionless transactions, credit and debit cards are a technology that was never designed to stand up to the rigors of digital commerce, and it shows. Their ubiquity and the fact that the card issuers insulate users with zero-liability policies does much to hide the technology’s flaws, but a look at the news almost any given week will offer a sobering reminder of just how easily massive data breaches of sensitive card information occur. Because of the flawed security of the cards system, fraud and identity theft plague consumers and merchants. Merchants accepting card transactions risk
taking losses from chargebacks, returning money when a cardholder claims a charge is fraudulent. These flaws not only lead to card issuers and merchants overactively declining $40 billion in legitimate transactions annually (a real hassle if you’re an unassuming customer just trying to spend your own money), but card issuers also charge “interchange fees” of sometimes over 3% on every purchase made, justifying them as necessary to cover the costs of cardholder defaults and fraud. As merchants pass on that cost, the vulnerabilities and high transaction fees of cards effectively raise the prices consumers must pay on nearly everything. Of course within the payments industry, interchange fees have a huge target on their backs, with everyone from Bitcoin to Apple Pay, CurrentC and the new Samsung Pay eyeing that 3% as an inefficiency ripe to be disrupted and improved upon. Bitcoin comes to this effort to eliminate interchange fees equipped with a cryptographically secure system that unequivocally removes the justification for them, curtailing
fraud and granting merchants the confidence to accept transactions without trepidation. Most importantly, Bitcoin empowers customers and lowers prices, winning them their 3% back.
2. BITCOIN VS. INTERNATIONAL BORDERS People and goods traveling internationally by way of cardbased transactions are often subject to some hefty cross-border fees. Just as cards include fees on purchases made within their home countries, they often include additional foreign transaction fees of up to another 3%. These fees - as well as steep foreign ATM fees - are due to friction between the different networks processing those payments. Fees like these unfortunately put a high hurdle in front of merchants looking to participate in international commerce. For traveling consumers, cards still come with the risk of legitimate transactions being declined and the cards frozen, a frightening circumstance when a traveler in a foreign land cannot access their own money. Of course if a traveler prefers they can try to operate with just cash, in which case they are subject to traditional exchange fees, which are most often costly beyond anything the card companies charge. On this front, Bitcoin again eliminates the need for any of these fees. As a global currency digitally accessible from anywhere, travelers never lose
access to their money or need to pay transactional fees, regardless of which side of any border they may be on. Bitcoin has been making inroads in alleviating these barriers to the benefit of global commerce, inviting consumers and merchants to imagine a future where someone might shop online from anywhere and be able to compare product choices from all over the globe on their merits, without stifling fees being a factor.
3. BITCOIN VS. REMITTANCE FEES Right now, individuals sending money across borders, often home to family members who operate solely on a cash basis, must pay remittance fees of over 12% even on small transfers. Luckily, the spread of mobile technology is equipping many in the world with digital versions of financial tools taken for granted in the developed world, enabling these same users to avoid the exorbitant fees and instead transfer money between Bitcoin wallets at a tiny cost. These are individuals and regions that are leapfrogging cards and traditional banking systems, instead directly adopting a system based on mobile access and digital transactions â€“ and leaping over the inherent barriers ingrained in those systems as well. Via Bitcoin, people who currently only use cash and transact locally will be able to control their finances digitally and shop anywhere. What this means is literally billions more people
OF COURSE WITHIN THE PAYMENTS INDUSTRY, INTERCHANGE FEES HAVE A HUGE TARGET ON THEIR BACKS, WITH EVERYONE FROM BITCOIN TO APPLE PAY, CURRENTC AND THE NEW SAMSUNG PAY EYEING THAT 3% AS AN INEFFICIENCY RIPE TO BE DISRUPTED AND IMPROVED UPON.
gaining command over their own money and access to the global marketplace, a transformative historical event which will prove to be a boon for the prosperity of everyone on the planet. Bitcoin is the technology by which countless individuals will be economically empowered, merchants will flourish, and global commerce will be let loose - free from fees, free from fraud, free from fear. Any person in this world should be able to send their own money to anyone or purchase from a merchant anywhere without needing to traverse obstacles or pay steeply for the privilege. This is the reality that Bitcoin is battling to bring about.
Payment Quarterly | Q4 2015
OVERCOMING BARRIERS IN GLOBAL PAYMENTS WITH SMARTER FINTECH SOLUTIONS
T By: Mike Laven CEO Currency Cloud
he rapid innovation and accelerating investment into the international payments space is driven by the pressing shortcomings in legacy banking and global money transfer systems. So far this year, venture backed fintech firms raised more than $8 billion in funding and Goldman Sachs estimates the entire fintech industry is worth a whopping $4.7 trillion globally. This activity is part of a broader movement to improve legacy banking systems, international monetary transfer infrastructure and financial services, and a significant number of the players -- both emerging and existing -are Currency Cloud partners.
Payment Quarterly | Q4 2015
EMPOWERING COMPANIES TO MEET UNMET DEMANDS IN GLOBAL PAYMENTS Addressing the industryâ€™s limitations (e.g. inefficient, costly, slow) are established banks, wealth management firms, FX brokerages and a rising crop of fintech companies, using Currency Cloudâ€™s Payment Engine. This payment technology is a platform that provides quick and inexpensive conversions on currency exchanges so companies who use its API can concentrate on more strategic areas of their businesses. For example, TransferWise is a pioneer in the peer-to-peer money transfer space that essentially
cuts out banks to help users save money. When there is a deficit of a currency in its internal conversion engine, it taps into the institutional interbank markets via Currency Cloud to deliver low cost, transparent and consistent pricing on currencies and process end customer transactions quickly. Another pioneer in the payments world is WorldRemit. Challenging the likes of Western Union, the online, user-friendly money transfer service leverages Currency Cloud’s Payment Engine to make it easier to securely and more cost-effectively send international remittances to friends and family abroad. Regarding foreign exchange, Xe.com is the most-visited site in the world for currency conversions. By combining Currency Cloud’s API technology with its own, it developed a new international payments service, XE Money Transfers, which offers UK businesses a secure, multi-user payments platform that delivers greater transparency to both business users and consumers in the foreign exchange space. Further demonstrating industry milestones, Fidor Bank is the first bank in the world to have a multi-currency regulated eWallet that lets users easily make payments and view balances in a range of currencies (e.g. GBP, USD, CHF). This unique ability is made possible by integrating
Currency Cloud’s Payment Engine capabilities into its systems. Lastly, fixed income brokerage RM Capital relies on Currency Cloud’s managed technology solution to offer easier and cheaper international payments to its customers. By being able to whitelabel Currency Cloud’s status with the FCA, it helped speed up time to market and is able to overcome much of the complexity and time it takes to get the right approvals for providing FX services. Collectively, these companies and the many other fintech innovators that work with Currency Cloud are dedicated to meeting a growing demand for better, more convenient and effective solutions.
WHY TRADITIONAL INSTITUTIONS ARE USING, AND RAPIDLY TURNING TO, FINTECH INNOVATION These examples, among many others, paired with the sheer volume of investment happening in the fintech space underscore the pressing and still unmet global demand for better ways to conduct banking, transfers and meet financial needs. For example, a report just issued by the Partnership for New York called “At Risk: New York’s Future as the World Financial Capital” discusses how, although New York City is the proverbial headquarters of the global financial services industry, there
is an overwhelming threat as this sector accelerates the movement of jobs and operations to more business-friendly environments outside of New York. For example, Nashville, Tennessee is increasingly attractive for fintech business environments because of lower taxes, as is Canada for its government support of subsidized salaries for software engineers. However aside from New York City, the US as a whole risks experiencing this shift on a much broader scale. By many indicators, innovation in the US lags behind that of the UK and Europe when it comes to both international payments infrastructure and solutions. This is particularly relevant via the lens of fintech innovation and its pivotal role in modernizing legacy institutions. In order for New York to maintain its leadership – and more importantly, for the US to carry the next wave of sector growth and development -- legacy enterprises and Wall Street’s business leaders will need to rely more heavily on fintech innovators. If traditional institutions continue to depend on in-house product development in order to compete with international competitors, they will lose market share to the growing contingent of fintech innovators offering more transparent, efficient, cost-effective and convenient solutions.
Payment Quarterly | Q4 2015
GLOBAL ADOPTION OF NEWER, MORE COMPREHENSIVE, END-TOEND SOLUTIONS ON THE RISE Global fintech investment volumes aside, consider the activity Currency Cloud is experiencing that plainly illustrates why traditional institutions are choosing to turn to fintech, and will continue to do so in accelerating numbers.
process to 6 weeks, on average, by using Currency Cloud. This allows them to pass on the heavy lifting involved with global payments infrastructure, provide a better user experience and complete set of end-to-end capabilities to their end customers, and focus resources on their core business.
As a result, Currency Cloud now processes $10B in payments annually (roughly a $1B/month), services more than 150,000 Traditional financial institutions end customers and operates in typically need 12-18 months in 212 countries. It has plans and order to bring a set of FX tools and a funding to expand operations into UX comparable to that of Currency Asia next year and dramatically Cloud’s to market. However these strengthen its existing presence in 16932 Circle Bank 2_Layout 1 22/09/2015 17:12 businesses areAdvert able to shorten this the US.Page 1
The team at Currency Cloud has also been in regular discussions with a number of US banks and financial institutions about improving and expanding their services and user experience online. With the rapid pace of technological innovation and adoption in this space – and the paramount need to retain customers and wallet share, or risk losing business to emerging fintech providers and other institutions with newer and expanded services – it’s likely we’ll see more American banks and financial institutions update and scale their international money transfer services in the near-term.
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Payment Quarterly | Q4 2015
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TRANSFERWISE IS CHANGING HOW FOREIGN EXCHANGE IS TRANSFERRED By: Mike Dautner
ransferWise was nominated as one of the top 20 innovative companies in 2015 and its aim is to solve the problem of high fees associated with sending and receiving cross border foreign exchange. Traditionally, using a bank was the only option to send and receive foreign currency, and it is still used by individuals and large corporations. However, sending money via banks is a time consuming and costly affair. Most international wire transfers through banks take over 3 days and costs on average $30-$45, depending on how lucky you are. Commenting on the inefficiency of the traditional way of sending money abroad, TransferWise’s founder, Taavet Hinrikus, commented that “If you look around, whether it’s lending, asset management, or money transfer … we’re seeing specialist companies who are doing a much better job than the incumbent banks.” “That’s happened in the last couple of years because consumers are fed up with their banks. At the same time, people are feeling safer about using the
internet. I’m convinced we will see 30-40% of finance being done by new companies, similar to what we see in other industries,” he added. TransferWise was formed to speed up the transaction and reduce the cost of it by not doing any cross-border transactions at all! As it happens, the company just moves money around within the country to match the transaction. For example, if Person A in France wanted to send Person B in the United States $100 and Person C in United States wanted to send $120 to Person D in France via TransferWise, it would simply transfer the $100 from Person A to Person D. By doing so, TransferWise eliminates the need for making any actual transactions as the funds are instantly sent from their bank accounts, and the book is updated to keep everyone happy. Hence, TransferWise can offer a very competitive fee to its customers compared to other institutions that sends funds around the globe. For transferring $1,000, TransferWise only charges $5.
WorldPay Aims To Double Business by 2020 with IPO When WorldPay rejected the bid from its French competitor Ingenico, it seemed to be a planned decision. Recently, the CEO of WorldPay, Philip Jansen, told the Financial Times that they had always wanted to raise funds from the general public through an IPO instead of selling the business. Jansen feels that the payment industry is very “fragmented” and once WorldPay gets access to public funds, it would help them to buy out smaller competitors and consolidate cutting edge payment technologies under one roof. However, it appears that WorldPay is not solely relying on acquisitions to expand its business. It has already spent around $600 million building a brand new in-house payment technology platform that is capable of handling 326 other payment solutions from around the world. WorldPay can now deal with payments from many regional competitors. For example, China based UnionPay, Russian next generation payment service Qiwi, and Boleto in Brazil are now compatible with the WorldPay payment platform.
Payment Quarterly | Q4 2015
GOLDEN RULES OF GOING GLOBAL P By: Michael Doron Managing Director PAY.ON America
ursuing a cross-border strategy is increasingly popular, especially amongst U.S. payments companies that are competing in an increasingly saturated and commoditized domestic market. There is no magic formula for success, but there are a few ‘golden rules’ that should guide any payments business – or online merchant - looking to expand their international footprint and go global.
ESTABLISH THE ‘RIGHT TO WIN’ The world has effectively shrunk as global e-commerce has exploded, and merchants increasingly want to expand beyond their domestic market to secure new revenue streams. ISOs and payment service providers (PSPs) are eager to follow their merchants, in order to reduce attrition and win new business. Acquirers also want to expand their business, not
Payment Quarterly | Q4 2015
only geographically, but also by offering end-to-end payment services and becoming merchants’ sole payments providers. Although technology has made it possible to reach consumers in far-flung corners of the global marketplace, it remains critical for any payments business pursuing a cross-border strategy to differentiate between ‘could’ and ‘should.’ Merchants need a clear strategy of how they will carve out market share, and must consider – if selling physical goods – how to handle warehousing, shipping, and other logistics. Local shopping habits also need to be taken into account. Is there a taste for shopping cross-border, or is e-commerce dominated by local players? Payment providers have to work on many fronts simultaneously; regulatory and compliance issues,
technical connectivity to local acquirers, and enabling locallypreferred alternative payment methods. This varies on a countryby-country basis, and sometimes also between market verticals. When it comes to choosing the best place to start expanding internationally, many payment providers simply look at the growth potential of a given market. But more important is whether you and your merchants have the right to win in that market – in other words, the right set of tools at your disposal, the right strategic partners, and the right timing. Take Europe as an example. Countries like Ireland, UK, the Netherlands and the Nordic countries are very pro-business, and have simplified bureaucratic processes. These established markets lack the growth potential of China or LATAM, but the benefit is ease of market entry, and the ability for cross-border entrants to compete alongside domestic players. Because payment providers should price in local currencies (i.e. through dynamic currency conversion) and support multiple languages, the U.K. and Ireland – due to common language – can be good starting points for North American businesses establishing a foothold in Europe. When the ‘right to win’ is established, and a course for cross-border expansion set, speed becomes all important. Global e-commerce moves quickly, and
competitive advantage can be fleeting in nature.
DETERMINE THE PAYMENT SETUP
This is often overlooked in the U.S., where credit cards are particularly entrenched, but ‘going global’ requires that shoppers can pay with their preferred payment method. Now, this does not mean integrating every esoteric payment method under the sun, but it has been shown that simply by offering the three most popular payment methods in each country, sales can be increased by over 30%. In many global markets, socalled ‘alternative payment methods’ are actually the incumbents. In the Netherlands, for example, iDEAL (online bank transfer) is preferred by 54% of shoppers. In the neighboring DACH region (Germany, Austria and Switzerland) there is an expectation of ordering now, and paying later. Offering payment by open invoice and direct debit involves risk for the merchant, but the fact the two-thirds of all shoppers have broken off the purchase process because these preferred methods were not available, indicates just how important it is cater to local expectations. What constitutes the right payment setup will continue to evolve as online shopping behavior changes. Despite the hype around Apple Pay and co., the convenience of biometrically-
authenticated, one-touch checkout is undeniable, and this trend will continue in tandem with smartphone penetration rates. One of the fastest growing markets for mobile is China, which is also one of the most appealing for international expansion. Chinese e-commerce giant Alibaba reported that 51% of gross revenue (GMV) through their websites came from mobile in the first quarter of 2015. The message for payment providers is that they need to think beyond relevant payment methods for each market, and support in-app payments via mobile SDKs, as well as enabling one-click checkout and recurring billing. The complexity of determining the right payment setup in multiple international markets puts a strain on resources, and is simply untenable for a business that wants to expand globally, rapidly. That brings us to PAY.ON’s raison d’être, which is supporting and simplifying international expansion for payment providers. Our clients, who partner with us for a technology solution as well as cross-border expertise, can easily ‘switch on’ the alternative payments they need, because we have already integrated them into our global network.
SAFETY FIRST: TAILORED FRAUD SOLUTIONS The diversity of payment methods on a global scale requires a tailored approach to risk management. In the card-dominated U.S. market, chargeback management Payment Quarterly | Q4 2015
solutions help companies manage fraud and avoid penalties from card schemes. But what about in Germany? 28% of online purchases are completed by open invoice (compared with just 10.8% for credit cards). Accepting open invoice payment may increase conversions and drive revenue, but it also brings the risk of payment default. Local partners can help manage this risk, which can be especially beneficial for international players that want
Kount, and ThreatMetrix, which are all integrated with the PAY.ON platform and can be configured alongside our 120 internal risk checks. When going global, configuring the right fraud prevention tools for each market is a logical next step to determining payment setup.
to come in and compete in the DACH region. For example, GFKL Group’s PayProtect performs an invisible background risk check, to determine whether a shopper should be offered open invoice or direct debit payments when they reach the checkout. PayProtect also guarantees payment, taking on collection duties on behalf of the merchant in the event of a payment default.
China, as already mentioned, is the international market that many payment businesses are eyeballing, but the regulatory environment presents challenges in moving money in and out of the country. Raymond Qu, of Geoswift, made an interesting point in his Q&A in the previous issue of Payment Quarterly; the key to understanding the regulatory landscape in China is understanding the culture, not just the language.
To give another specific example, 3D Secure is seen by many as a ‘conversion killer’, but in some markets – most notably India, but also in Czech Republic and Russia – 3D Secure has been shown to have a positive impact on conversions. Dynamic 3D Secure solutions should be used to set specific rules depending on the country where the card is issued, the value of the transaction, and the level of risk involved. Depending on the business case, it is also worth looking at specialist fraud solution providers, such as ReD Shield, 54
Payment Quarterly | Q4 2015
PARTNER FOR SUCCESS: LOCAL ACQUIRING, COLLECTING PSPS, LEGAL ENTITIES, AND REGULATIONS
Cultural insight is not available at the flick of the switch, so rapid international expansion requires local partners. Brazil, the biggest market in Latin America and another popular choice for U.S. businesses, is a perfect example. The regulatory environment is complicated (Brazil ranks 120 out of 189 economies on the ‘Ease of Doing Business Index’), especially the taxation laws, so local expertise is essential in turning opportunity into profit. Collecting PSPs, such as allpago Intl., have carved out a niche as specialist
partners that do exactly this. Local acquiring offers another opportunity to optimize international business. Online merchants may use a multinational acquiring license, but in markets such as India, Brazil, Mexico, and France, local acquiring significantly increases card authorization rates. Local acquiring also puts global merchants on an equal footing with domestic competitors, as they benefit from optimized pricing, and a reduction in foreign exchange fees. This adds another layer to cross-border complexity though, as a U.S. merchant that wants to sell in Europe needs to establish a legal entity in order to sign contracts with processors or acquirers. When establishing an entity, you may want to have an e-money (banking) license for Europe. Remember it takes time to sign commercial deals in Europe and other countries, so it is imperative to work in parallel on all fronts. The desire to integrate with local acquirers and processors often leads to a ‘build versus buy’ argument for payment providers who need technical connectivity for international expansion, and we are increasingly seeing the ‘buy’ argument win out, due to the benefits of specialization that result from effective partnerships. PAY.ON sees this particularly clearly, as we are constantly growing our global network of
card acquirers and processors so that our clients can optimize their acquiring setup according to local conditions. We engage in a lot of pre-sales consulting with our clients too, helping them understand differences in payment cultures and behaviors.
BE OPEN Global e-commerce is moving fast, and the underlying payment technology needs to enable, and not restrict, companies that want to keep pace. The speed of innovation is leaving many payment providers behind, stuck with legacy systems that are costly and time-intensive to upgrade. RESTful API architecture is becoming the foundation for greater technological openness,
as it allows for innovation and individualized solutions. While this is applicable to payments generally, it is particularly pertinent when operating in multiple international markets. Alongside technological openness, there is also a trend toward more open business practices, which brings us back to the idea of partnerships. PAY. ON is only one of many companies championing the mantra “focus on what you do best and partner for the rest”. For us, that means giving partners a scalable open payment platform they can leverage according to their needs. By being able to build upon existing gateway infrastructure, developers can create their
own features and applications according to specific business cases. Being open means being willing to constantly adapt and evolve. Move too slowly, or try to do it all yourself, and the great opportunity for competitive advantage will slip away. However, the complexities should not disincentive any company from pursuing a global strategy, as the rewards – if it is done right – will justify the time and effort. PAY.ON’s interactive list of global coverage can be accessed at: globalcoverage.payon.com
Payment Quarterly | Q4 2015
KEYS TO SUCCESSFULLY
NAVIGATE INTERNATIONAL COMMERCE By: Christian Spaltenstein, General Manager of the Americas, AFEX
lobalization presents both opportunities and challenges to businesses seeking cross-border growth, and according to the U.S. Department of Commerce, more businesses than ever are looking to increase their international levels of trade. Earlier this year, the Department of Commerce announced that exports in 2014 set a record for the fifth consecutive year at $2.35 trillion, marking an increase of $760 billion since 2009. World Trade Organization data shows merchandise imports into developing economies grew by five percent in 2014 versus an average global Gross Domestic Product growth rate of two percent. Perhaps driven by the Great Recession that began in 2008, businesses are increasingly seeking to diversify and engage in commerce overseas. In a recent survey of our more than 25,000 global clients, nearly half (48 percent) indicated that they expected international trade to increase versus the previous 12 months, compared to 38 percent when polled in 2014. As highlighted by the survey data, expanding and growing beyond
Payment Quarterly | Q4 2015
the U.S. has become more the rule than the exception. And the U.S. economy has strengthened alongside this international push. This is all encouraging news for businesses and the economy, but expanding into new geographies comes with a unique set of challenges which companies must be prepared to meet. In the past year, economic policy, euro-zone issues, falling oil prices and geopolitical events (such as Russia annexing Crimea and the Scottish secession vote) have all conspired to impact markets, particularly in the form of currency volatility. Whether itâ€™s the CFO of a large conglomerate or a small business owner, staying on top of turbulent swings in currencies can be taxing. The sheer volume of international payments can also pose headaches, particularly if processing is done manually or if payees demand a myriad of payment methods. Scalability is an exciting prospect for new revenue streams, until an e-commerce business finds itself selling wares from 30 different regions, each with their own currency. With the torrid pace of todayâ€™s global
economy, there wonâ€™t likely be any decrease in payments on the horizon. To compound the matter, each country or region has its own financial reporting requirements, often times with dynamic local tax laws and regulations. It can be a monumental challenge keeping up with just the U.S. regulations stemming from the Great Recession, dealing with multiple foreign jurisdictions can get complicated in short order. One country might require a payer to utilize a SWIFT (Society for Worldwide Interbank Financial Telecommunication) code, while in another country a routing number would suffice. The complexities and challenges multiply rapidly as a business enters new markets, requiring a global payments partner to automate back office functions seamlessly and efficiently. Any business, small or large, and currently engaged in international trade, or seeking to increase their level of trade, would be wise to consider these five key components before engaging with a global payments partner.
SOPHISTICATED, AUTOMATED PAYMENT INFRASTRUCTURE
An automated payments system should integrate with your existing interface, systems familiar to the business from which traditional payments and trades are made. This can be achieved via an Application Program Interface or API. Once implemented, time consuming processes are eliminated, the risk of human error is reduced and scalable efficiencies are achieved. No longer is the back office tasked with taking extra steps to export payment data to reports or Excel spreadsheets, communicate the data to an account executive or manually input individual payments into the payment interface. Beneficiaries are automatically validated, storing recipient banking details and proper payment format accurately. When it comes to paying suppliers or customers, delivery and execution are of paramount importance. Multiple settlement methods should be available, including wire transfer, check or direct debit, to ensure third parties and clients alike are satisfied with delivery.
BROAD CURRENCY EXCHANGE Be sure your global payments partner can allow you to access a broad range of currencies, ask for a complete list. The Group of Ten (G10) currencies are most commonly traded, but should a business find itself engaged in an emerging market, it will need access to buy and sell them at a fair rate of exchange. Also check that the payments firm has expertise in China.
SOUND RISK MANAGEMENT STRATEGY
Having the ability to access currencies throughout world demands that you have a suitable risk management strategy in place to mitigate the threat of currency risk. While the turbulent market swings grab headlines, even small movements in currencies can impact your bottom line. If conglomerates with large financial teams can have their earnings or revenues hit by volatility, any business is vulnerable. Your provider should be familiar with your business and your industry and work with you to decide what percentage of revenue to hedge. In terms of products, spot or forward contracts suffice to reduce currency risk. Inquire as to whether the payments firm has more sophisticated products such as options available, should your business require them as you expand. Your needs today may not be the same in the future.
With fraud an omnipresent threat, be sure the solution has dynamic, intelligent fraud protection systems in place to thwart potential nefarious activity. Data breaches are becoming more commonplace, so be sure to inquire about what security protocols are in place to protect your banking details. Automated security features can detect suspicious activity within an account and block payments temporarily, until the client can verify them. The provider should also adhere to international banking and ever-changing compliance requirements, including Anti-Money Laundering (AML) laws.
HIGH-TOUCH CUSTOMER SERVICE
Technology has affected our lives in so many beneficial ways, including the streamlining and automation of payments. However, there are still times when personal guidance or advice is needed. Seek a provider with high-touch service, ideally one with a single, dedicated point of contact who fully understands your business model and can offer assistance when questions arise. Technology is only as good as the support and service backing it and the human element should not be overlooked when selecting a global payments provider.
Payment Quarterly | Q4 2015
SELF SERVICE IS THE NEW
CUSTOMER SERVICE a suite of solutions that empower their customers to control and personalize their own experience.
By: Pete Ohser EVP, Business Development MoneyGram
rom self-checkout at grocery stores to ordering car service from virtually anywhere, consumers are increasingly taking control of their own customer experiences. Self-service is the new normal. The evolution of the self-service economy has coincided with technology becoming more innovative and consumers becoming more sophisticated. The transformation is no longer confined to the retail and travel industries, today’s financial service providers must also offer
Payment Quarterly | Q4 2015
Take the money transfer industry for example. A $600 billion business grounded in the idea of providing financial connections to the more than 2 billion consumers around the globe who either don’t have access to banks or don’t use banks for financial services. These are the customers who depend on money transfer services for their everyday needs. Whether it’s the migrant worker who sends money home to his family or the mom who sends money to her college student, every customer has a story and a need to get money from one place to another quickly, conveniently and securely. With 7.3 billion increasingly mobile consumers around the world, this is a need that will continue to grow.
ENHANCING CUSTOMER CONVENIENCE The “do it yourself economy” is transforming the way MoneyGram meets those needs and the way our customers connect. We are revolutionizing the consumer experience with our innovative self-service solutions. For the majority of customers who still prefer to transact a physical location, our convenient, time-saving kiosks are a very popular self-service option, and can be found in thousands of CVS Pharmacies throughout the U.S. The kiosks simplify and streamline transactions for customers while creating a new source of revenue at a low cost for MoneyGram agents. The platform also reduces the need for dedicated customer service areas which frees up vital store space and personnel resources at MoneyGram agent locations.
Kiosk popularity and consumer adoption is growing around the world. In the U.S., Saudi Arabia, Australia, and Ukraine, kiosks are helping attract new customers and improve customer productivity. The kiosks are convenient and easy to use. The product can store a customer’s previous activity so there is no need for re-entering information every time they log in, making transactions faster. The streamlined experience that accompanies kiosks is attractive to many customers but MoneyGram understands the importance of giving consumers choices. That’s why MoneyGram recently re-launched MoneyGram.com and created a new mobile app, both of which allow customers to easily send money or pay bills from virtually anywhere. The re-imagined platform was designed with the customer in mind. It’s the first online service of its kind to enable customers to send money from their computer, phone or tablet to approximately 200 countries and territories without needing to create an account. They can even check the status of online and offline transfers with a new “Track a Transfer” tool. Our second quarter results show that our customers are embracing these new self-service options. Revenue from MoneyGram selfservice channels increased 58 percent and now represents 12 percent of money transfer revenue. On an annualized basis,
self-service channels generated nearly $150 million in revenue. By focusing on accelerating our self-service strategy, we are working to ensure we are meeting customer needs now – and in the future. Culture, macroeconomic and generational influences will drive varying adoption rates across global corridors, and we want to provide consumers the ability to choose these newer channels as they are ready.
SAFETY FIRST Each new innovative product that MoneyGram brings to market is grounded in the same world-class compliance platform that the company has invested heavily in to strengthen the integrity of our services, and enhance the security of consumer transactions. We use industry leading tools to identify unusual transactions that require closer review. We have robust due diligence, comprehensive monitoring and regional teams to provide local expertise. MoneyGram also takes our commitment to consumer protection and awareness very seriously. While we want to make it as simple as possible for our customers to send and receive money – we also want to make sure that they don’t become prey to fraudsters. That’s why we invest in consumer education programs online, in the media and at point of sale, that help alert consumers to possible schemes.
WE HAVE ROBUST DUE DILIGENCE, COMPREHENSIVE MONITORING, AND REGIONAL TEAMS TO PROVIDE LOCAL EXPERTISE.
We founded the Scam Awareness Alliance (ScamAwareness.org) in an effort to provide industrywide information about the ways in which criminals attempt to use legitimate money transfer services to engage in fraud.
OUT OF SIGHT, NOT OUT OF MIND As more consumers adopt selfservice and begin to manage their own financial transactions, financial service providers must remember that although the customers may be out of sight, they should never be out of mind. MoneyGram remains committed to providing the same excellent customer care to our self-service customers that we provide to our traditional customers with whom we personally interact. Whether through face-face-face, a mobile phone, at a kiosk or online, we will continue to provide our customers with a secure network all while continuing to offer fast, reliable and convenient services however, wherever and whenever they want it.
Payment Quarterly | Q4 2015
B2B PAYMENTS OUT OF THE DARK AGES By: BC Krishna President and CEO MineralTree
he expected renaissance in business-to-business payments is not here yet. And, the way things are going, it may never take place. We are in the middle of a major makeover in consumer payments, with an amazing array of situational payment choices. Online bill pay is convenient and ubiquitous. Uber has completely transformed the payments
Payment Quarterly | Q4 2015
experience by eliminating the act of paying. And ApplePay appears to be setting down the foundation for the edifice of convenient, secure mobile payments.
check-based paper payments that need a stamp to be licked, an envelope to be sealed, and a mail carrier to slowly carry a payment to its destination?
In stark contrast to the bright, shiny world of consumer payments is the incredibly drab, old-as-Gutenberg, paper-based, antiquated world of businessto-business payments. How is it possible that we, the very same human beings that delight in the seamless payment experience of the Uber ride, can rationalize the use of ridiculously backward
Amazingly, the vast majority of businesses are mired in manual, paper-based, ad hoc, poorly controlled, insecure processes for processing invoices and paying bills. The so-called â€œInvoice-toPayâ€? process usually consists of filing paper invoices, printing paper checks, stapling them to invoices, and passing them around the office to department heads,
controllers, CFOs, and others for approval and signatures. Once invoices have physically made their way around the office – and in some cases between offices – someone has the unfortunate job of licking and stuffing envelopes, and dropping them in the mail. Yes, these decades-old processes are still the standard at most U.S. businesses, regardless of their size, location, or market vertical. Critical business payments are handed around the office for signatures in basically the same manner as birthday cards, and control of cash flow is surrendered to the speed of the U.S. Postal Service. And despite what conventional wisdom might suggest, reliance on these processes is actually increasing. According to research from the Federal Reserve, companies wrote about 3.9 billion checks for business-to-business payments in the year 2000, and that number has since doubled to more than 8 billion checks annually. Other independent research indicates that those 8 billion checks are the result of processing about 15 to 20 billion invoices, about half of which are processed manually. This old way of doing things is not just inefficient and mindbogglingly backward, but also extremely costly. Industry analysts studying the problem have shown that manually processing approvals on a paper invoice can cost between $10 and $15 per invoice, and the cost of issuing the associated paper check can range
from $2 to $10. Every year, the aggregate Invoice-to-Pay cost to businesses – the cost of processing 8 billion invoices and issuing 8 billion paper checks – adds up to a staggering $100 billion. $100 billion wasted every year. That’s equivalent to the budget of the State of Texas. It would buy you eight aircraft carriers. Or pay for the annual healthcare costs of 15 million Americans. You get the idea.
COMMERCIAL PAYMENTS SOLUTIONS ARE NOT BUILT RIGHT There are many reasons why businesses are still awaiting their payments renaissance, but one of the biggest is that today’s commercial payment solutions are not built around the core asset that practically every business depends on: its accounting/ERP system. Whether it is an entry-level accounting solution like QuickBooks or an enterprise ERP system like SAP, these are the financial systems of record at most businesses. Tying business payments to the hub of a company’s financial operations is an essential step to modernizing the invoice-to-pay process, but it’s something that very few solutions currently offer. Unfortunately, the accounting systems being used by most businesses are adept at producing paper checks, and not much else. Conversely, bank-offered payment alternatives are generally poorly connected to the business
system of record as well. This gap between accounting/ERP solutions and modern electronic payment methods is what is breeding an ever-increasing number of payments made by paper checks. Many banks offer bill pay solutions as well, but less than 2 percent of their business customers use them. They are not tied into the business accounting system, do not support basic payment controls and workflows, don’t produce the kind of rich remittance that needs to go with a payment, and generally end up sending payments by paper check! Even businesses that have tried to put the right systems in place have struggled to find effective alternatives to paper checks. ACH is the most promising alternative, but it is inaccessible to, and unusable by most businesses. Any business can walk into a bank branch, sign up for an account, and walk away with a check book, but signing up for ACH is much more complicated. It’s a highly specialized product that is sold by a specialized bank sales force that only targets large corporations making higher volumes of payments. Further, ACH payments are not priced for mass adoption. A typical ACH package includes a setup fee, a monthly “maintenance” fee, a file transmission fee, and a per-transaction fee. When you add up these fees and take into account the average size of a Payment Quarterly | Q4 2015
business payment, companies have to be making at least 500 ACH payments a month to average a reasonable 15 cents per transaction. The vast majority of businesses simply don’t make that many payments per month. Other alternatives are similarly impractical. The high-average ticket size of a business-tobusiness payment makes credit card merchant fees very expensive, and real-time wire payments are risky, expensive, and tedious.
IT IS DARKEST BEFORE THE DAWN Depressing as the current landscape in business-to-business payments is, the past year has seen some very promising developments. Principal among those is the
Payment Quarterly | Q4 2015
Federal Reserve’s push towards payment system modernization. In January 2015, the Fed released “Strategies for Improving the U.S. Payment System,” a document that highlights the need for, among other things, faster settlement times, and enhanced security. Faster payments are inevitable. Shorter clearing windows provide businesses with greater control over cash flow, more effective use of capital through reduced float, and smaller opportunities for fraud. Thankfully, we’re starting to take steps to achieve these benefits. In May, NACHA – the organization that administers the ACH network -- voted in Same Day ACH: a set of rules to enable the faster settlement of ACH payments. It is an important step that will help
modernize business-to-business payments and make them more efficient for companies of all sizes. Until recently, most available solutions for automating Invoiceto-Pay have targeted a few thousand large, billion dollar organizations. These expensive custom solutions are generally out-of-reach for most of the other 4 million or so U.S. businesses that could really benefit from them. Most finance and accounting professionals don’t know that affordable, cloud-based solutions that work out-of-the-box with their accounting system actually exist. As awareness increases, expect to see a major shift in business payments that will chip away at that $100 billion annual spend in slow, insecure, paperbased, inefficient business-tobusiness payment processes.
THE EVOLVING PAYMENTS INDUSTRY
AND ITS IMPACT ON BUSINESSES’
PAYMENTS STRATEGIES By: Thomas Gregory SVP Cash Management TD Bank N.A
ith additional technology and regulatory changes on the horizon for conducting payment transactions, it’s more important now more than ever before, for businesses of all sizes to develop payments strategies to help prepare for the revolution ahead. There were no appreciable overhauls to the payment system in the digital age until Check 21 – a federal law designed to enable banks to process and transmit checks electronically - was implemented in October 2004. But now, with the development of mobile payments, EMV chip enabled cards, and other technologies, consumers have a variety of payments options at their disposal. Businesses need to stay ahead of the curve, but consumer experience should not be the only focus of their efforts.
Business customers are looking for similar innovative payments solutions as consumers. For example, businesses now have the ability to use commercial card accounts to “push” monies to their suppliers for B-to-B payment enhancements. The business making payment does not present an actual card, but sends card information securely, and the business receiving the payment does not need to operate a credit card terminal, but simply receives the payment into their merchant bank account. More enhancements to B-to-B payments are on the horizon. The $300 billion-a-year payments industry is evolving for all users and will face some major shifts in the near term, particularly as it relates to Automated Clearing House (ACH) payments, which move $39 trillion annually in batches. In addition to the changing speed and methods of payments, the industry is becoming more crowded. As noted by retired Federal Reserve Bank Executive Vice President Richard Oliver
Notable ACH Developments ACH payments remain an industry standard, particularly for payroll. ACH payments still take upwards of 24-48 hours to process, however, same day ACH will become a reality in September 2016. The ubiquitous nature of ACH and its low cost make this payment channel attractive to business end-users, and the faster cycle times coming soon will make it even more attractive. The Federal Reserve has published a document that sets out a course for a faster payments system strategy. Today, wire transfers remain the only real-time payment option – but they also can be prohibitively expensive. ACH will become faster, but will that be fast enough? Additionally, while prevalent in the U.S., ACH is not an international system, despite its linkages with some other payment systems overseas. The Clearing House, a private sector association made up of key participants from the various payment systems, has announced its intent to develop a global, real-time payments system. Checks are becoming obsolete. The use of checks has decreased by 9.2% since 2009, while pre-paid cards have increased nearly 16%.
Payment Quarterly | Q4 2015
during a recent seminar series sponsored by TD Bank’s Treasury Management Services, the emergence of third-party players is changing the payments landscape. However, these companies aren’t subject to the same regulations as banks, noted Oliver, who oversaw technology and payments for the Fed in Atlanta for 38 years before retiring in 2011. Many of the technologies being brought to market by third parties – including those that allow payments on mobile devices – capitalize on the shift in consumer behavior and technology. Not surprisingly, in the current mobile-friendly environment the person-to-person payments (P2P) market is dominated by third-party vendors who have developed applications enabling quick, accessible transactions. A recent report from The Economist found 80% of the world’s population will own a smartphone by 2020. There is already steady demand for mobile payments and it’s likely to increase as global access to smartphones spreads. With the emergence of additional payments providers and recent headlines on cybersecurity, there has been an increased focus on preventing fraud and theft among payment technologies, both mobile and traditional. Most noteworthy on the traditional payments side of the business is the move to EMV cards, which 64
Payment Quarterly | Q4 2015
include an embedded chip that sends an authentication code for each transaction. Already a common technology in Europe and Australia, EMV will become the new standard in the United States beginning in October. Businesses that accept payments must invest in new readers to receive the cards or potentially be responsible for fraudulent activity. While this measure should improve the security of in-store purchases, EMV technology – also known as Chip and PIN – is not coming into the mainstream for online transactions just yet. Given the majority of fraudulent transactions occur online, there is significant opportunity for EMV technology to develop in the online payments space. With a multitude of changes recently instituted and more on the horizon, businesses should be actively preparing their organizations to support the new industry standards. Before addressing infrastructure upgrades, businesses need to be well informed about emerging technologies and regulations. Leveraging key payments associations as resources, business leaders can develop a better understanding of their near- and long-term payments needs to inform their payments strategy and better manage their working capital to meet these demands.
A preliminary consideration could be as simple as determining how to merge the demands of new technologies and regulations with daily payment transactions. A “Money In” strategy, capturing remittances of money from consumers to businesses, companies will need to reconcile their current infrastructure with emerging demands for biller centricity, point of sales technology (both mobile and EMV-enabled) and same-day ACH. Within the “Money Out” strategy, streamlining trade and remittances from businesses to suppliers and other parties, companies will need to consider managing multiple channels, the regulatory requirements of e-payments, and the capabilities and preferences of counterparties with which they engage in commerce. Regardless of your business size or type, how you manage payments is about to become more complex. A strategy to keep ahead of these changes is more essential now more than ever before, but businesses cannot rely on a static strategy. In the rapidly evolving payments environment, businesses need a dynamic strategy, implemented by informed leaders, because the pace of change is not going to slow any time soon.
REMOVING PAYMENT FRICTION FOR CONTRACT WORKERS
I By: Michael Ting SVP, Digital Markets Hyperwallet
t doesn’t matter what restaurant you go to— from the greasiest diner to the fanciest Michelin-starred establishment—the experience always ends the same way. When you finish eating, you’re left to wait for the server to bring your bill so you can settle up before heading home. Sometimes you have to wave your arm to catch the waiter’s attention, other times the server is awkwardly hovering in your peripheral vision. Either way, it’s an annoying process that takes unnecessary time and can often leave a bitter taste in your mouth—regardless of what you just ate. It’s one of those persistent problems that companies like OpenTable are attempting to tackle restaurant by restaurant, to the point where “dining and
dashing” is totally acceptable. The same thing happens when you take a cab. You get to your destination, fumble around in your wallet to find cash or a credit card, and then wait while the driver rings you through. It’s a small hassle, and one that you probably don’t really even notice—that is, until you take an Uber or a Lyft for the first time. This is because passengers never have to dig in their purse or pant’s pocket in order to complete their transaction. They simply open the car door and leave. As the leaders of the “invisible merchant payment” movement, these ondemand driving services handle all passenger transactions seamlessly through their mobile apps. Simply signup for the service, enter your preferred credit card information
Payment Quarterly | Q4 2015
once, and the next time you exit an Uber of Lyft vehicle, your card will automatically be charged the corresponding amount, right before a receipt pops up in your inbox. It’s such a simple thing, but the impact on the passenger’s overall experience is enormous. Invisible payments are popping up all over the collaborative economy landscape—Styleseat is currently offering early access to their new Express Pay system in salons, and there’s no fumbling for cash when DoorDash comes a knocking. All payments are handled in the background, entirely out of sight.
NOT PAYING IS THE NEW 1-CLICK ORDERING The quest for frictionless merchant payments has been going on for years. Just think back to Amazon’s 1-Click patent (filed in 1997). Designed to eliminate the arduous checkout process from online purchases, 1-Click was considered a major payment breakthrough at the time. Apple even licensed the technology from Amazon in 2000 in order to incorporate it into their iTunes, iPhoto and Apple App Store experiences.
The only thing better than one click? No clicks. The merchant end of friction-free payments is rife with emerging technologies trying to tackle this task on various levels. PayPal introduced us to the notion of a payment being as easy as sending an e-mail back in 1998; since then, Square has given it a try with their Wallet product (which was sunset last year), and Starbucks has made mobile payments a foundational part of their checkout process. It’s becoming easier and easier to spend money, but what about the other end of the payments chain? What is being done to ensure invisible payouts to Lyft’s drivers, Doordash’s dashers, or any of the millions of other contract workers logging hours on behalf of the collaborative economy?
THE FUTURE OF PAYOUT OPTIMIZATION The emergence of the collaborative economy—anchored by thousands of marketplace platforms—has done more than improve our food delivery options and ride share availability. These businesses have upgraded our expectations around how commerce will be
WHAT IS BEING DONE TO ENSURE INVISIBLE PAYOUTS TO LYFT’S DRIVERS, DOORDASH’S DASHERS, OR ANY OF THE MILLIONS OF OTHER CONTRACT WORKERS LOGGING HOURS ON BEHALF OF THE COLLABORATIVE ECONOMY?
Payment Quarterly | Q4 2015
conducted in the future. They have redefined “seamlessness” by virtually eliminating the friction associated with paying for goods and services. Not only do they make the act of the transaction easier, but they insulate all the parties from the trust and security considerations inherent to transacting anonymously. Thanks to this shift, the buyer no longer worries about whether or not the seller will receive payment for their goods or service. Conversely, the seller can deliver the service/ goods without worrying whether the buyer’s payment method is valid or fraudulent. The same train of thought now needs to be applied on the other end of the payment chain. In a standard employer/employee payment transaction, employees
are paid on a regular schedule and, for most of us that use direct deposit, our paychecks simply appear in our bank accounts every two weeks. As an employee, we’re not expected to do anything to ensure our payment is made... other than our job duties, of course. The employee doesn’t have to worry about deduction or any other tax reporting, that’s what payroll companies are for. So what’s the corresponding solution for workers in the new collaborative economy? Who’s helping them manage their taxable income and keep track of business related expenses? It’s quite possible these workers would prefer to keep their business income and expenses separate from their regular household bank account; are marketplaces able to
accommodate this need and assist their workers with the necessary tracking and reporting? And what about different global contractor regulations? While employees can rely on payroll companies to keep things straight, contract workers are left to struggle with these issues on there own.
FRICTIONLESS WORKER PAYOUTS Our clients tell us who to pay and how much, and we coordinate all the logistics to ensure the payment is delivered in full and with total reliability. What’s more, like a payroll company, we ensure that your workers have the ability to track and manage expenses and taxable income. It’s not terribly different than the way you might drop a package with FedEx and
entrust them to deliver it. We don’t need to dictate whether it’s delivered by plane, train, or automobile, nor do we need to tell FedEx whether the recipient wants the package delivered to their doorstep or if they want to pick it up. We leave that to them to coordinate and fulfill. Through a combination of white-labeled interfaces and a comprehensive suite of APIs, Hyperwallet can interact deeply with any worker or payee while simultaneously safeguarding the integrity of the user experience on behalf of the company. As this new economy continues to flourish, companies will need solutions like this in order to ensure the lifeblood of their marketplaces— the providers, sellers, hosts, drivers, couriers, etc.—are capable of working and earning seamlessly.
Payment Quarterly | Q4 2015
THE MOBILE CFO
TREASURY SOLUTIONS FOR THE 21ST CENTURY We speak with Mike Cummins, head of Treasury Solutions at Citizens Bank, to talk about the upcoming changes in the banking industry and how Citizens is keeping up with these new technologies.
PQ: What are you doing from a mobile perspective in dealing with treasury solutions? CUMMINS: From a mobile strategy perspective, we have a robust offering right now. In commercial banking, it’s important for clients to be able to use the technology for convenience, decision-making and approval -- whether that’s for wire initiation of templates, approval of those wires, release of those wires, ACH transactions or even positive pay exception items. We continue to make that offering more robust, more efficient and more intuitive to use for our clients. There is a lot of discussion in the market around mobile payments. If you think about the new generation, they don’t have checkbooks. All of 68
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their payments are being made via mobile device technology. They’re going to be looking for the best technology as it relates to a mobile device. Our goal is to enhance the convenience and the decisionmaking capabilities around our mobile offering and then continue to expand what clients can actually do via the mobile technology. PQ: Specifically, what kind of features are you looking to add, in the next few months or year? CUMMINS: We’d like to be able to initiate free form wires or free form payments, which right now are from templates. We are also working to capture clearer images on the exception items around positive pay.
PQ: From the treasury management perspective, one year from now, how will you be securing your business? What technological innovations are there, such as big data, risk & fraud management, are you hoping to implement or integrate? CUMMINS: It’s not only a year from now, we think about these potential threats daily, whether its malware or denial of service attacks or card fraud. We look at all of those measures to make sure that from a Treasury Solutions perspective, our offerings are the most secure not only to protect our clients and their money, but also to protect their information. We understand what the latest technology and software is in the market to help us protect
our clients and we install that as soon as possible We’re constantly looking at ways to make it more secure for our clients. PQ: And how do you guide your clients through integration, transition to these new security methods? CUMMINS: It is all about training. We are constantly letting our clients know to be on the lookout for new threats because some are not even necessarily bank-related. Things can happen on the clients’ side of the house as it relates to fraud. PQ: On the consumer side, the EMV talk has deepened the conversation about security, fraud attempts and related things. For
treasury management, what kind of threats do you face? What’s the number one method to actually attack a bank and how are you defending against it? CUMMINS: We have a robust process in house from an early detection perspective. We have software that can detect the early onset of such attacks and there are certain measures that are obviously confidential that we follow internally to prevent those types of attacks. That’s something that we spend a fair amount of time talking about because they’re ever-changing and they’re evolving. It’s something that you can’t just put in place and expect it to be secure for a year. You have to be constantly monitoring your systems and protocols to make
sure they are doing what they are supposed to be doing in light of new types of attacks. PQ: Are your clients or are you hearing a lot of commentary on real time payments? Kind of a move away from ACH? CUMMINS: We are members of the clearing house. We have colleagues who sit on different committees and are part of all of those discussions because they are good discussions and they are going to change the industry. We are absolutely engaged in the dialogue and the infrastructure framework discussions that accompany that.
Payment Quarterly | Q4 2015
t’s around this time of year that we become inundated with holiday retail predictions – endless chatter around who will be the winners and losers of the holiday season. I’ve generally watched this game from the sidelines. There are far too many factors impacting and eventually determining how a business measures success during this make or break time of year. However, I don’t have to be a gambler to make at least one big bet this year. I think we can all collectively agree that the 2015 holiday shopping season will be unlike any other the payments industry has seen. And the big winner? Consumers. Here’s why:
Unless you’re new to payments, you know that October marks the deadline for the liability shift in the U.S. This milestone will usher in a new era for payments and security, just in time for the holidays. As banks and retailers embrace the EMV technology that has been shown to minimize fraud in other countries, consumers too are ready to embrace this new way to pay. A recent MasterCard survey showed that the majority of consumers (69 percent) use chip cards or plan to use them soon. But our efforts to fight fraud don’t stop with the transition to chip cards. Our mission is to make sure that digital payments are as, or even more, secure than anything we can do in the physical world.
As technology evolves, so does MasterCard, and we continue to lead the way in innovation and security in the areas of EMV, end-to-end encryption, tokenization and biometrics, to name a few. Everyone in the payments ecosystem benefits from these efforts, and consumers in particular can feel confident knowing that when they use their MasterCard – whether they use a plastic card or a mobile device, and whether in-store, online or in-app, they won’t lose any of the security or benefits they enjoy today. This holiday season and beyond, greater consumer peace of mind wins. According to IBM’s Digital Analytics Benchmark, mobile devices accounted for more than 22 percent of all online sales for the 2014 holiday season, a 27 percent increase over the previous year. Mobile is clearly changing the entire commerce experience. More and more, consumers are using their mobile devices as their primary shopping companion. However, it’s important to remember that mobile, as compelling as it is, is just a device, it’s not the device. Payments goes far beyond mobile, or any single device. With new players and new devices entering the payments space, we believe there will be lots of different environments for payments. Consumers will have a plethora of ways to pay based on what best fits their needs at the
Payment Quarterly | Q4 2015
By: Max Chion Group Executive Emerging Payment Products MasterCard
moment. One of our mantras is that every device is going to be a commerce device. So, your game system and your car could all become places where commerce takes place. Wearables will continue to proliferate. As more devices get connected and smarter, those create opportunities for commerce. That’s why we developed the MasterCard Digital Enablement Service – to enable a wider audience to take advantage of digital commerce. A consumer can shop online with their MasterPass enabled bank wallet, then use Apple Pay, Samsung Pay or Android Pay to pay in-store. These services are complementary and together they empower the consumer to shop how, when and where they want. More consumer choice wins. None of this matters if these new solutions don’t offer a fundamentally better experience than what consumers can do today. We know that digital convergence is radically altering consumers’ day-to-day shopping experience and habits. Consumers will shop and pay in whatever way best fits their needs and lifestyles, from every device they have. They want shortcuts – simpler and faster experiences. And they want all this to work together seamlessly from the accounts they already have. As we think about the rapid adoption of mobile payments, the promise of services such as Apple Pay, Samsung Pay and Android Pay lies in creating safer and richer experiences for consumers.
We’ve seen in countries around the world that once people start to use contactless payments two or three times, they never go back to their prior behavior, because it is faster and more convenient. We know in-app payment is a better, richer experience. Being able to order dinner ahead and pay for it with a touch is a better, richer experience. Better, richer experiences drive adoption.
THERE ARE THOUSANDS OF PRODUCTS IN THE MARKET, BUT THEY ARE ESSENTIALLY “ME TOO” OFFERINGS WITH LITTLE DIFFERENTIATION.
This goes beyond just paying for things. It can be sending money to a family member in another country for the holidays. Or an easy way to split the bill with friends during a festive night out. When you move into a connected world, things change. No one wants to have to log on to their computer to send a friend $20. It’s easier to just hand them the cash. But if you’re texting a friend, how easy would it be to transfer that $20 right from your phone? That’s why P2P services powered by MasterCard Send are taking off because people are more
connected and it’s changing the way we interact and transact with businesses and each other. It’s a much better experience. Better consumer experience wins. Yes, the holidays are a critical time of year for many businesses and, when it comes to the evolution of payments, this year will be one for the history books. But it’s just the beginning, and we anticipate that in the next five years, we will see more change in payments than what took place in the previous 50. Over the next year alone, we will see payments built into all the major operating systems, allowing a level of choice and convenience that hadn’t been there before. We will see an acceleration of consumer interactions, particularly around commerce, in all devices. And we will see a relentless pursuit against fraudsters to protect every payment and cardholder. There’s never been a more exciting time in payments. Consumers will be the biggest beneficiary of these advances through greater security, choice and convenience around the ways they pay. But doing all of this successfully requires good collaboration across the industry. Above all, our goal in working with issuers, merchants, governments, and new digital players is to make it easy to deliver innovations, and we believe no one is better at creating safe, simple and smart ways to pay than MasterCard. This holiday and beyond, working together, we can all win big. Payment Quarterly | Q4 2015
SHELLEY HUNTER GIFT CARD GIRLFRIEND GIFTCARDS.COM
Payment Quarterly | Q4 2015
IS YOUR E-GIFT CARD READY FOR A
DIGITAL DECEMBER? By: Shelley Hunter
or several years now, we’ve heard that digital gift cards will one day replace plastic. So far, that is not the case. However, GiftCards.com recently released gift card sales data that shows consumers are buying egift cards at such an increasing rate that, if the trend continues, this online company will sell more digital gift cards than plastic during the 2015 holiday season—and not just late in December when shipping deadlines have passed. According to the numbers, “egift cards will make up 50.2%, or just over half, of all gift cards sold between Black Friday and December 25th through our online and mobile channels.” As the largest and most-trafficked gift card website, GiftCards.com sells exclusively online so while not every merchant can expect a complete “Digital December,” those that do sell both plastic and virtual gift cards on their websites (and mobile apps) should be prepared for the shift. But are they?
MERCHANTS MISSING THE MARK For the second year in a row, I reviewed the egift cards offered by the nation’s top stores and restaurants. In 2014, I looked at 134 merchants, and this year, my list stopped just shy of 200. With digital technology commonplace and mobile wallets trying to dislodge our leather pocketbooks, I expected to find significantly more merchants with egift card programs than last year and improved functionality to existing programs. That’s not what I found. The overall percentage of merchants offering egift cards increased from 64% in 2014 to just 68% in 2015. And although a couple of merchants made major improvements (e.g. American Eagle Outfitters), few had added anything special other than new gift card designs. In fact, the downgrades stood out more than the upgrades. Starbucks discontinued their “Tweet a Coffee” option, a handful
of merchants dropped Facebook delivery and Jo-Ann Stores has temporarily stopped selling egift cards altogether. With some merchants in flux and many not entirely committed to digital gifting, it’s no wonder consumers are confused.
CONSUMER EGIFT CARD CONFUSION Last year, I focused on egift card personalization features (e.g. ability to add a photo, upload a video, record a message, select a custom dollar value and more) to show that although digital gifting is highly convenient, the experience can still be made personal. Since then, however, I discovered that consumer concerns regarding digital gifting are far more basic. People want to know how egift cards work, where egift cards can be used and what egift cards look like (particularly to the recipient). My quest to provide these simple Payment Quarterly | Q4 2015
answers turned into a scavenger hunt on each merchant website that included digging into Frequently Asked Questions (FAQ) pages, gift card FAQ pages (often separate from the main FAQ) plus gift card Terms and Conditions pages. In some cases, I even had to call the merchants to get the answers. In essence, very few websites provide the egift card information customers are seeking at the point of sale. The Boscov’s egift card process is an exception. Though the interface is not as elegant and the egift card itself not as customizable as many others reviewed, the website provides a full recipient preview plus the answers to basic questions. The technology also includes a link the recipient can use to send a thank you note back to the giver—a feature I didn’t see in any other program. The hardest question to find an answer to on nearly all merchant websites is how the recipient should present the virtual gift card at a physical location, if allowed. While several FAQ’s said that redemption instructions would be sent to the recipient, the giver should be privy to that information as well because it could dictate the egift card selected. If the virtual gift must be printed but your college student only has access to a common printer in the dorm, for example, an egift card that can be presented digitally may be a better choice. If the egift card is best accessed 74
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WITH EGIFT CARDS BEING A RELATIVELY NEW FORM OF GIFTING, MERCHANTS SHOULD PROVIDE BASIC REDEMPTION INFORMATION PLUS A PREVIEW OF THE EGIFT CARD TO HELP CONSUMERS UNDERSTAND (AND FEEL COMFORTABLE WITH) THE UPCOMING EXPERIENCE. with a smartphone, but your mom only has a flip phone, she will have more success with a printable egift card. Believe me. This information is critical. I’ve sent an egift card to the wrong email address, to a littlechecked social media account and to a user without the technology needed to access the gift. In all cases, I managed to recover the egifts via calls to customer service, but my intended “surprises” turned into hassles when I had to involve the recipients in the resolutions. (“Can you check your Twitter account?”) With egift cards being a relatively new form of gifting, merchants should provide basic redemption information plus a preview of the egift card to help consumers understand (and feel comfortable with) the upcoming experience.
GETTING YOUR EGIFT CARD ON TRACK For merchants who sell both plastic and digital gift cards online, the likelihood that this holiday season will see a digital increase similar to the GiftCards. com prediction means that
companies should be making small adjustments now. The best way to prepare for a Digital December is to test your egift card offering before the holidays hit. Get online, send an egift card and see how the process works. Then go to the store and redeem the egift card. You may be pleasantly surprised at the ease with which you’re able to use the virtual gift or you may discover a training opportunity instead. JCPenney cashiers, for example, have confidently processed every payment method I’ve ever presented. Restaurant staff, on the other hand, often stumble when I present a digital image at the table and don’t want my mobile device taken to a cash register in another room. (Hint: write the egift card number on the receipt. Take the receipt to the cash register.) Whether this year marks the egift card eclipse of the traditional gift card for every merchant or just for GiftCards.com, we know that the digital version is on the rise. The more merchants can do to provide a predictable gifting experience, the better the transition will be for everyone.
PAYMENTS TOOLS TO PLAY
GAME-CHANGING ROLES IN HOLIDAY RETAIL THISYEAR CREATE A SEAMLESS CHECKOUT EXPERIENCE
By: Teri Llach, CMO, Blackhawk Network & Rodney Mason, VP of Marketing at Blackhawk Engagement Solutions
he holidays are here, and it is more important (and competitive) than ever to capture shopper attention. This season, payments tools can play a major role in engaging consumers at retail—both online and in store. With advancing checkout options, increasing adoption of gift cards/ egifts and consumer incentives that pay out with the most indemand payments tools, payments should be at the front and center of every retailer’s holiday strategy. These are our suggestions for leveraging payments effectively for a successful holiday season:
Whether shopping in store or online, consumers want to be able to pay for each purchase they make in the most convenient way possible. Today, consumers are using various forms of payments at any given time. In fact, a Blackhawk Network study, How America Pays in 2015, found that shoppers are using a larger variety of payment options with digital and mobile payments serving as supplements to the traditional cash and card-based payments tools. While prepaid cards, credit and debit cards continue to be the most used methods of payment, select digital forms of payment were not far behind. But what causes a consumer to choose one form of payment over another? The answer is convenience. Even more than the “cool” factor or speed, convenience is driving consumers to select different forms of payment for different circumstances.
For instance, using a PayPal account online, which already has your credit card saved and only requires you to enter your username and password, is the obvious choice when the alternative is entering your card information manually. And while there are still instances where cash or check may be preferred— like at small, local retailers that don’t accept alternative forms of payment—there is a movement to supplement those payments with mobile and other new payment forms. In fact, our research showed that 68 percent of mobile payment users report that they are using alternative payment methods more than last year and mobile wallets are now used by 25 percent of smartphone owners. However, consumers still have a place for traditional methods of payment in their mobile wallets: 64 percent of users have debit cards in their mobile wallets, 58 percent have credit cards and 45 percent have Payment Quarterly | Q4 2015
gift cards. Our research shows that 54 percent of shoppers would likely use a mobile wallet over a traditional wallet if it were accepted everywhere. Payment is one of the last and most important steps in the path to purchase, providing a strong brand imprint. As usage of newer payments tools continue to grow, it will become important for retailers to map out a longterm strategy for responding to consumer demands for payments evolution. Planning for this now will be more effective than trying to react quickly to short-term hype. No brand wants to see an abandoned cart or leave a poor impression because a consumer wasn’t able to pay in what they consider the most convenient way.
INTEGRATE A COMPREHENSIVE GIFT CARD STRATEGY Gift giving isn’t always as easy as it should be, but the good news is gift cards are often the perfect gift for a special occasion; according to the National Retail Federation (NRF), gift cards have been the most requested holiday gift for eight years in a row. Gift cards provide the freedom of choice without the hassle of returns. Recipients appreciate the ability of being able to buy something for themselves without spending any of their own money. Gift and prepaid cards also help save shoppers time. With broad 76
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selections of gift and prepaid cards readily accessible in the places consumers frequent regularly, like grocery stores, consumers can easily find a gift for anyone on their list without making a separate trip.
with them. More than half (52 percent) of shoppers surveyed who have purchased egifts would buy an egift in store for immediate use, and this number jumps to 83 percent if there is a discount attached to the egift.
Since not everyone starts their holiday shopping in advance, consumers also want access to last-minute gifts or gifts that can be purchased in a hurry. We’ve all been there—picking up a gift on the way to a gift exchange or finding last-minute stocking stuffers. eGifts, which provide more consumer flexibility and sometimes added value, are growing in popularity with consumers, according to a new shopper study which found that for the first time, more than half of gift card buyers have also tried egifts. In many instances, especially when there is a special offer, egifts are used by the purchaser and not given to someone else, making them supplemental to the gift card sale.
Additionally, with the introduction of gift card exchanges like Cardpool, which allow consumers to sell unused gift cards and purchase previously-owned gift cards for a discount, gift givers can rest assured that gift cards are a safer and more versatile choice than ever.
eGifting is following the overall trend of consumers increasingly shopping and purchasing on mobile devices and online. The research showed, however, that more promotion of egifts is needed to drive initial trial, with 56 percent of consumers surveyed who have never received an egift saying they would be interested in getting one. Furthermore, 44 percent of shoppers surveyed who have never bought egifts report it’s because they’re not familiar
With all of this in mind, it should be a top priority for all retailers to have solid gift card strategies, including physical gift cards and egifts, in place for the holiday season.
INCENTIVIZE SHOPPERS WITH THE RIGHT REWARDS Today’s deal-saturated retail landscape has led to shoppers that demand the very best value every time they shop. In fact, 81% of consumers would drive 5–10 minutes out of their way for a $10 rebate on a $50 item, according to shopper research from Blackhawk Engagement Solutions. So naturally, strategic discounts and promotions must be integral to every holiday retail strategy. Rebates are a strategic promotion vehicle, because today’s shoppers understand that rebates offer a deeper discount than other instore deals or sales. Additionally,
the rebate experience has improved greatly and 72% of consumers find rebates easy to use. But whether using rebates or other promotional incentives, retailers should consider which reward vehicles make the most sense for todayâ€™s shopper. The answer in almost every case is a payments tool of some kind.
the preference was 10 times over the most popular gift cards. Thatâ€™s why most incentive programs reward with an open-loop card. But a sound strategic marketing strategy will drive those rewards dollars back in store, particularly branding the open-loop card with the store brand where it came from and providing reward choice that includes a gift card option during the redemption process.
Prepaid and gift cards have been indemand incentives for years now. However, consumers significantly prefer an open-loop gift card that can be spent anywhere the payment network brand is accepted over a store gift card; in our most recent shopper study,
eGifts (delivered via email or text message) are also on the rise because they can be delivered to recipients immediately, providing a powerful tool for incentive providers. In our most recent study, 33 percent of all shoppers preferred a digital reward over
a physical reward card for a $25 reward. The number goes down a little to 26 percent on higher based rewards of $100 or more. Overall, in this growing age of payments innovation and at a time where there are many online and brick and mortar options for consumers to choose from, consumers will continue to seek out and choose those retailers that cater to the complete, seamless shopping experience they are looking for. Payments companies and retailers will be required to keep their fingers on the pulse of the consumer, working sideby-side in order to create the most sought after shopping and checkout experience.
Payment Quarterly | Q4 2015
TAKING GIFTING TO THE
Vift is the new e-commerce product that allows online shoppers to send personalized videos as gifts to their respected loved ones. The videos can be received via email or SMS and bring a new level of intimacy to shoppers. We recently sat down with the founder and CEO, Jon Loew, and the VP of Marketing, Mike Shelton, to talk about Vift’s beginnings, future and its plans for the upcoming holiday season.
PQ: What was the idea motivation behind Vift?
LOEW: Vift is actually a product produced and created by a company called Keep Tree, the parent company of Vift. Keep Tree allows people to record videos and send them to people at anytime in the future or a scheduled date. This was primarily used by people who were traveling overseas to get in touch with people back home, people in the military used it and people who have health concerns used it to record videos for their kids and grandkids for when they are no longer around. So after a couple of years of seeing what people use the tool for, we saw that a lot of people were using it to send video messages for people’s birthdays. We took that usage and came up with the idea to allow people to record a personal gift 78
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message along with an online gift purchase, so that when the gift is delivered to the recipient, the recipient also receives the video at the exact same time. It was born out of our core business of sending videos automatically in the future. PQ: Can you give us a breakdown of how the product works and how someone would go about sending a video to their recipient? SHELTON: Basically it’s a simple plug-in that goes into an e-commerce company’s website shopping cart and then when a customer is actually purchasing a gift, they have the option to add the vift to their cart. Then after ‘checkout,’ they are then prompted to record their video gift message. They can do it right there on their computer or on their mobile device, if they order from a mobile
device, or they can do it at a later date if they’re not ready to record right there. They can record it anytime up until the gift package gets delivered. PQ: As you know the Holiday season is around the corner, what are you guys doing to prepare for this upcoming shopping season? Do you think that consumers are going to be more likely to use Vift for sending their holiday gifts? LOEW: We have already launched with a dozen clients and we expect to launch with one of the most recognizable names in retail before the holiday season kicks off. We anticipate a lot of people learning about our product through them but we’re also creating a consumer facing version of our technology. So that anyone who buys anything
anywhere, if they’re shipping it, they can come to our website, Vift.com, and purchase a video gift message and send that out for a $1.99. We’ll sync up with their tracking information, so they just record the video and we take it from there. So we’re going to be doing a big push this last quarter, not only to retailers but to consumers. Also one of the things we’re going to be doing is offering free video gift messages to anyone sending a gift to a member of the U.S. military. Around the holiday season lots of people send gifts to men and women deployed overseas whether they’re in an active war zone, like Iraq or Afghanistan, or if they’re posted in Asia or Europe, we’re going to let them send a personal video gift message for free. We do quite a bit to support the U.S. military with our core technology so we felt that this was another way to give back to them. PQ: Do you think this is going to be a product that is going to become synonymous with gift giving? Do you think that personalized gifts are the future of gift giving? LOEW: Yes. When we attended the IRCE conference, which was our first conference of its type. Everybody at every booth was talking about personalization and I can’t think of a way of making something more personal than attaching a video of your person to the gift. When we were thinking about the gift giving process online, we realized that gift giving and the options associated
with it, have been the same since the 1800s. People buy a gift and from some of the most amazing technology companies in the world, like Amazon, eBay, Target. com, you name them. They have the most advanced technologies but they have the same gift options: ‘Would you like to wrap the gift?’ ‘Would you like a gift note to go along with that?’ And that’s what my grandfather was able to do a hundred years ago. This is actually one of the first, if not the first, capitalization on technology that we’ve seen. So now there will be three options. Gift note, gift wrapping, or a video gift message. My guess is if retailers are giving this away for free to their customers, a good percentage of those customers are going to choose to personalize their gift giving. PQ: Lastly, where do you see Vift fitting into the gift giving sector? LOEW: We would like to see our video technology as ubiquitous as PayPal, so that anytime somebody is sending a gift to someone anywhere anytime, whether it’s online or offline, they think that they need to personalize it. We would like to become a part of every retailers’ gift giving process.
Citrus Pay & Qwikcilver Get Together For Gift CardDriven Mobile Payments Citrus Pay is one of India’s biggest names in payment services, and it’s recently joined up with Qwikcilver’s Woohoo gift card services to give fully 17 million users access to in-store mobile payments on the strength of gift cards. Basically, the service allows users to take funds stored in the Citrus Wallet system and route these to a gift card, which can then be used like a debit card at over 5,000 stores throughout India. Users log into the Woohoo app, and generate vouchers good for in-store use by just choosing a certain brand name. Meanwhile, merchants need only scan a barcode to accept the voucher, and if the voucher isn’t used in 30 minutes time, the voucher essentially breaks apart, becoming useless, and the funds involved in establishing the voucher go back into the Citrus Wallet app. Several major brands ranging from Arrow to Van Heusen are in on this action, and several entertainment venues like PVR Cinemas will also accept the setup.
Payment Quarterly | Q4 2015
FOR THOSE WHO SERVE GovX, an e-commerce destination for active duty, reserve, and retired members of the U.S. Armed Forces. We got a chance to speak with Dave Alberga, one of the newest members of the board of directors, about upcoming changes for this fast-growing company.
PQ: What are your particular motivations behind joining the e-commerce space?
to help the GovX leadership team to avoid some of the mistakes I’ve made.
ALBERGA: I don’t really see it so much as joining the e-commerce space, I more so see it as joining this particular effort. I love and respect both the team and the mission at GovX. As a career technologist and veteran there are very few opportunities to combine these passions in a meaningful way.
PQ: Why do you believe niche e-commerce website’s like GovX are performing so well? Growing quickly?
PQ: What expertise or experience are you hoping to bring to the board of directors at GovX.com? ALBERGA: I spent nearly 14 years building a software company that among other things enabled e-commerce for a very large, but underserved segment of the market. If nothing else, this experience along with former leadership positions in multiple high growth technology companies puts me in a position 80
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ALBERGA: I think the most dangerous position to be in, in both e-commerce and publishing these days is that of the “Tweener.” Amazon is really well positioned to compete with Big Box retailers, Mass Merchandisers, and now Grocery, serving a broad slice of the general consumer population. GovX by contrast has chosen to serve a very specific, distinct, and defensible customer set with a strong affinity to its defining characteristics. The complexity of serving this group in scale and authentically cannot be overcome by traditional bricks and mortar beyond local offerings, and it’s not really in Amazon’s DNA to build out the capability to segment their
customer set in a verified way. The “Tweeners” that I referred to are e-commerce providers that don’t have a large passionate, loyal and defensible customer segment of GovX or other vertical providers, nor the scale of Amazon...tough place to be. PQ: What expectations do you have in particular for the future of GovX? ALBERGA: I think the GovX team has built a defensible channel that delivers real value to both manufacturers and service members/first responders. With these rails laid, I think there is tremendous scalable growth to be had and any number of additional product categories that can be carried through the same channel. All the while bringing real benefit to those who serve, or like me, have served. Hard not to get excited about that.
Whether itâ€™s investments, partnerships, or customer acquisition, Money20/20 Europe will be time well spent WWW.MONEY2020EUROPE.COM | EUROPE@MONEY2020.COM Payment Quarterly | Q4 2015
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Payment Quarterly | Q4 2015
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MORE MORE EXPERIENCE We just celebrated 17 years! We are more established, more experienced and more credible as your finance partner.
MORE CAPITAL CAN Capital has helped provide small businesses with access to over $5 billion in working capital, in over 543 unique industries.
MORE SUPPORT Our partners enjoy a dedicated account team, access to educational resources, and our new Partner Portal featuring real-time deal tracking.
Having more experience, more capital, and more support have made us the ideal partner for ISOs and bank partners. With CAN Capital, you have a trusted leader in alternative business finance who will work to make your success easier.
Find out more at cancapital.com/partnernow1 or call us at 888-358-9717
CAN Capital, Inc. makes capital available to businesses through its subsidiaries: Merchant Cash Advances by CAN Capital Merchant Services, Inc. (CCMS) and business loans through CAN Capital Asset Servicing, Inc. (CCAS). All business loans obtained through CCAS are made by WebBank, a Utah-chartered Industrial Bank, member FDIC.
Closing in on Fraud! Catch up on the latest in payments with the Q4 issue of Payment Quarterly.