Transaction trends The Official Publication of the Electronic Transactions Association
| May/June 2014
The Next Disruptor? Side-stepping mobile carriers, host card emulation could supercharge mobile payments
ALSO INSIDE: Selling Big Data to Small Merchants TRANSACT 14 Highlights: Partnering for Success
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Transaction trends The Official Publication of the Electronic Transactions Association
Vol. 19 | No. 4
12 HCE: The Next Disruptor? By Julie Ritzer Ross Host card emulation (HCE)—a technology in the Cloud that allows near-field communication payment applications to operate without a secure element—promises to simplify purchasing via mobile wallets and apps and accelerate market growth. While HCE is being embraced by players such as Google, MasterCard, and Visa, banks are weighing the inherent security risks.
22 E TA SH OW R E C A P
24 S PE C I A L S E RI E S
By John Manasso Big Data can give small businesses a competitive edge, helping merchants track sales and inventory, analyze customers’ purchasing habits, and design loyalty programs. But it’s up to ISOs and acquirers to offer these value-added services and explain how merchants will profit from data collection.
By Josephine Rossi Whether they were networking in the exhibit hall, attending top-notch educational sessions, or taking advice from industry expert keynotes, attendees of ETA’s revamped TRANSACT 14 conference learned the power of partnership for future success.
By John Manasso Delego, an Ontario-based payments software business, has increased annual revenues by finding a niche and taking a flexible approach with customers.
Big Data for the Small Merchant
TRANSACT 14: Partnerships Fuel the Future of Commerce
Insights from ETA’s CEO, Jason Oxman Trends, strategies, and news in the payments business and ETA member community
Startup Stories: The Power of Transformation
Future of the Business
A recent survey looked at how the industry is balancing mobility and security and what the implications are for the future
32 The Last Word
Takeaways from TRANSACT 14 on the current and future regulatory landscape
Transaction trends | May/June 2014 3
Connectivity, Leadership, Education, and Advocacy
R ANSACT 14 is histor y, and TRANSACT 14 made history. More payments business was accomplished during our three days together in Las Vegas than at any other event in the year. Thank you to everyone who exhibited, attended, spoke, and supported ETA. Each year, we’re building on our success, growing our expertise, and offering the best opportunities for networking in the industry. We’ve heard your feedback and we promise that TRANSACT 15, March 31-April 2, 2015, in San Francisco, will be even better! With the opening reception back on the show floor and new attendance options for smaller ISOs and agents, we know that TRANSACT 15 will be our best show ever. ETA also is working to bring you the Strategic Leadership Forum (SLF)—the most exclusive event in payments. The premier event for top payments, technology, mobile, and e-commerce ex-
Editorial Policy: The Electronic Transactions Association, founded in 1990, is a not-for-profit organization representing entities who provide transaction services between merchants and settlement banks and others involved in the electronic transactions industry. Our purpose is to provide leadership in the industry through education, advocacy, and the exchange of information. The magazine acts as a moderator without approving, disapproving, or guaranteeing the validity or accuracy of any data, claim, or opinion appearing under a byline or obtained or quoted from an acknowledged source. The opinions expressed do not necessarily reflect the official view of the Electronic Transactions Association. Also, appearance of advertisements and new product or service information does not constitute an endorsement of products or services featured by the Association. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided and disseminated with the understanding that the publisher is not engaged in rendering legal or other professional services. If legal advice and other expert assistance are required, the services of a competent professional should be sought. Transaction Trends (ISSN 1939-1595) is the official publication, published eight times annually, of the Electronic Transactions Association, 1101 16th St. N.W., Suite 402, Washington, DC 20036; 800/695-5509 or 202/828-2635; 202/828-2639 fax. POSTMASTER: Send address changes to the address noted above. Copyright © 2014 The Electronic Transactions Association. All Rights Reserved, including World Rights and Electronic Rights. No part of this publication may be reproduced without permission from the publisher, nor may any part of this publication be reproduced, stored in a retrieval system, or copied by mechanical photocopying, recording, or other means, now or hereafter invented, without permission of the publisher.
4 May/June 2014 | Transaction trends
ecutives, SLF, October 7-9 at the Breakers in Palm Beach, Florida, is where leaders expand their networks, explore the next generation of innovation, and chart the future of electronic payments. This event is imperative for senior-level professionals who are advancing the payments technology industry. This year, SLF will offer unmatched insights from keynote speakers Frank Bisignano, chairman and CEO of First Data, and Diane Offereins, executive vice president of payment services at Discover. When we gather together as an industry, whether at TRANSACT or SLF, we are connected through ETA membership and we can face challenges with a unified front. ETA is the leading organization in Washington advocating for the payments community. Our political engagement program, ETA Voice of Payments, is designed to inform and involve ETA members with policymakers on issues before state, federal, and international governmental bodies that are important to the future of our industry. With the launch of ETAPAC, our new political action committee, and the addition of a seasoned government affairs team in Wash-
ington, we’ve added new tools to our arsenal and increased our reach on Capitol Hill. Additionally, ETA is leading the effort to educate policymakers, payments professionals, and the public on Operation Choke Point, the initiative from the Department of Justice and Federal Deposit Insurance Corporation designed to hold banks and processors responsible for acts by unscrupulous merchants. ETA has developed a new educational program for members, ETA Guidelines on Merchant and ISO Underwriting and Risk Monitoring, to help ISOs and agents avoid becoming the next target of federal law enforcement. More than ever, our industry faces a rapidly changing technology and regulatory landscape. ETA tirelessly advocates for the industry’s best interests. Through educating ourselves and working together, we are changing the way the world makes payments.
Electronic Transactions Association 1101 16th Street NW, Suite 402 Washington, DC 20036 202/828.2635 www.electran.org ETA CEO Jason Oxman COO Pamela Furneaux Director, Education and Professional Development Rori Ferensic Director, Membership and Marketing Del Baker Robertson Director, Communications Meghan Cieslak SVP, Government Relations Scott Talbott Publishing office: Stratton Publishing & Marketing Inc. 5285 Shawnee Road, Suite 510 Alexandria, VA 22312 703/914.9200; fax 703/914.6777 Subscriptions: 202/677.7411
Kind Regards, Jason Oxman Chief Executive Officer Electronic Transactions Association Publisher Debra Stratton Associate Publisher & Editor Josephine Rossi Managing Editor Lia Dangelico Editorial/Production Associate Christine Umbrell Art Director Janelle Welch Contributing Writers Lia Dangelico, Bill Elrick, John Manasso, Julie Ritzer Ross, Josephine Rossi, and Scott Talbott Advertising Sales Linda Baker Advertising Sales Manager Phone: 703/964.1240, ext. 13 Fax: 866/466.9187 Lbaker@conferencemanagers.com Alison Bashian Phone: 800/335.7500 Fax: 440/232.0398 firstname.lastname@example.org
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INDuSTRYnews 93,000 Records Stolen Every Hour
Report: Consumer Authentication Good for Business Selective usage of consumer authentication has been well received by the global payments market, according to Cardinal Commerce’s 2014 Consumer Authentication Survey. A majority of the respondents, which included merchants, acquirers and payment solution providers, card associations, and issuers, say that consumer authentication is a valuable asset that has a positive impact on business. Consumer authentication—including device verification, email verification, Verified by Visa, MasterCard SecureCode, and more—has experienced slow growth in North America despite its widespread adoption across the globe. Nearly half of all merchants surveyed say they are using consumer authentication programs today. According to the findings, of those participating merchants: • 81 percent are happy with consumer authentication overall. The largest number of satisfied users are in South America with 93 percent “satisfied,” followed by Eastern Europe with 90 percent, and the European Union with 88 percent. • 63 percent believe consumer authentication has had a neutral to positive impact on overall user experience. • More than 70 percent have been using, supporting, or offering authentication for at least three years. Nearly half have been doing so for five years or more.
Between January and March 2014, more than 200 million personal records were stolen worldwide—the equivalent of approximately 93,000 records stolen every hour—according to a new report from SafeNet. The surge represents a 233 percent increase over the same time last year. The breaches included financial access, identity theft, existential data, and more and affected a wide range of sectors, with more than half of all data records lost or stolen from the financial industry, 23 percent in government and education sectors, and 9 percent in health care. Out of the 254 breaches that occurred during the first quarter of the year, only 1 percent were “secure breaches,” or breaches where strong encryption, key management, or authentication solutions protected the data from being used. South Korea experienced the most breaches of any country, with loss of 158 million records across a variety of industries and four of the top five breaches worldwide. The number of breach incidents in Asia Pacific as a whole accounted for only 7 percent of the total number of global breaches, as compared to 78 percent in North America and 13 percent in Europe.
info GRAPH Cash Still King But Electronic Transactions’ Value Highest Shares of Transactions by Payment Instrument Number of Payments
Value of Payments
7% Check 19%
17% Debit 18%
Source: “Cash Continues To Play a Key Role in Consumer Spending: Evidence From the Diary of Consumer Payment Choice,” The Federal Reserve
6 May/June 2014 | Transaction trends
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CHARGE Anywhere announced that its mPOS solutions have been approved by the Visa Ready Program. Chase Paymentech launched its Mobile Dashboard, an interactive merchant reporting display for merchants to view their payment account activity on their iPads. First American Payment Systems announced that the latest software update to 1stPayPOS will allow users to accept multiple payment cards on a single sale, and named Michael Manos chief technology officer. First Atlantic Commerce is partnering with CTEX to deliver IT and ecommerce services in the Latin American Caribbean Region. First Data Corporation named Christopher Foskett head of global, strategic, and national accounts, and announced Jose Garcia joined the company to lead its government solutions business. Harbortouch released version 3.0 of Lighthouse, its Cloud-based POS management and reporting portal. Heartland Payment Systems is offering customers the VersaPay ARC eInvoicing system to eliminate time and cash flow challenges associated with paper invoices delivered by mail, and named Samir Zabaneh CFO. Meritus Payment Solutions is partnering with X-Cart, an open-
source PHP ecommerce platform and shopping cart for high-performing online stores. Payment Alliance International announced its global sponsorship of the ATM Industry Association, and announced Senior VP of Strategic Development Donna Embry was named One of the Most Influential Women in Payments for the second time by PaymentsSource. Shopify announced it has integrated 2Checkout global payments into its platform. Total Merchant Services launched Groovv, a new suite of products and marketing solutions designed to help retail and restaurant businesses grow and thrive. TSYS announced the expansion of its Cloud- and tablet-based POS technology offerings through a partnership with ShopKeep POS. VeriFone Systems and First Data Corporation announced the launch of the VeriFone edition of the First Data TransArmor solution for U.S. multi-lane and petroleum merchants, and VeriFone announced it has expanded its network of channel partners offering GlobalBay Merchant to more than 100 ISOs and acquirers. Worldpay announced the launch of its new corporate brand, which will include a new website and an updated logo.
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pos.epson.com/financial 8 May/June 2014 | Transaction trends
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News from the association
New Members ETA is pleased to welcome the following companies to its membership.To inquire about a membership with ETA, please contact Del Baker Robertson, director of membership and marketing, at firstname.lastname@example.org.
1st American Card Service Murrietta, CA www.1stAmericanCardService.com
Law Offices of Venable Washington, DC June 4, 2014
Alipay Santa Clara, CA www.alipay.com Allegiance Merchant Services Charlotte, NC www.allegiancemerchantservices.com
Global 1 Wholesale Merchant Services Las Vegas, NV www.global1wms.com IMPS Group New Smyrna Beach, FL www.impsgroup.com Inpayments Westlake Village, CA
Arnall Golden Gregory Atlanta, GA www.agg.com
Jet Capital Chandler, AZ www.jetcapital.com
Bankable Ventures Los Angeles, CA
KTD Systems Las Vegas, NV
Banquest Payment Systems Lakewood, NJ www.banquestpayment.com
Leaders Merchant Services Camarillo, CA www.leadersmerchantservices.com
BlueSky Merchant Services Las Vegas, NV www.blueskymerchant.com
Master POS North Miami, FL www.master-pos.com
CenPOS Miami, FL www.cenpos.com
Metrics Global Henderson, NV www.metricsglobal.com
Community Merchant Solutions Irvine, CA www.communitymerchantsolutions.com
Metro Inspections Glendale, AZ www.metrositeinspections.com
Compliant Security Services Scottsdale, AZ www.datainsure.com EpicPay Frisco, TX www.epicpay.com First National Financial Corporation San Francisco, CA www.businesscapitalusa.com
10 May/June 2014 | Transaction trends
MFS Global Las Vegas, NV www.mfsglobal.com Mobile Payments Interchange Naples, FL www.mobilepaymentsinterchange.com Optimal Payments Montreal, Quebec, Canada www.optimalpayments.com
n International Payments Day
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Powered by ETA Moscone Center San Francisco, CA March 31-April 2, 2015
PayAssist Newport Beach, CA Premium Card Solutions Harrisburg, PA premiumcardsolutions.com Punchey Boston, MA www.punchey.com Quest Payments Ontario, CA www.questpayments.com Six Payment Services Oak Brook, IL www.six-group.com Starmount Austin, TX www.starmount.com Total Merchant Services OC Dana Point, CA www.tmsoc.com
[ COVER STORY ]
The Next Disruptor?
Host card emulation has the power to revive NFC without surrendering customer ownership
By Julie Ritzer Ross
n recent months, the payments industry has been abuzz with talk about host card emulation (HCE), a technology that mirrors the function of near-field communication (NFC) in the Cloud and allows NFC-based applications of all types (including payment applications) to operate without a secure ele-
ment and trusted service manager. HCE allows any app to “talk” directly to a merchant terminal and eliminates the need for issuers to conform to card provisioning restrictions, many of which are imposed on issuers by mobile network operators when secure elements are in place. 12 May/June 2014 | Transaction trends
KEY NOTES 8HCE mobile wallets are already emerging, but by eliminating mobile operators’ restrictions and fees, HCE is opening doors for developers to create a variety of other NFC apps.
8HCE could undermine the role of carriers in mobile payments because it calls for credit information to be stored in the Cloud, rather than on a secure chip embedded in consumers’ smartphones.
8Isis is considering using HCE to store users’ loyalty card and coupon information in the Isis Mobile Wallet and for credit card payments, provided that banks do the same.
8App scalability, transaction security, and Apple’s lack of support for NFC present potential barriers to adoption.
[ COVER STORY ] The HCE chatter seemed to reach fever pitch in March, when Google revealed that as of April 14, consumers will only be able to make contactless (NFC) payments via Google Wallet if their mobile device supports HCE and runs Android 4.4 or higher on any carrier network. Versions older than Android 4.4, Google announced, would no longer be supported for “tap and pay” transactions. Support for HCE from such a force as Google—followed in quick succession by other developments—now begs the question of whether HCE will be one of the catalysts in moving NFC and mobile payments forward and shaking up the payments ecosystem. The answer appears to be yes. “In removing mobile network operators from the mobile payments picture, HCE definitely simplifies the value proposition for mobile wallet and hand-held point-of-sale devices that rely on NFC, giving NFC an enormous shot in the arm,” says Kevin Cherry, vice president, mobile products, Vantiv. “It’s especially good for mobile wallet because it takes the telcos out of the equation. But to say it stands alone in bringing NFC and mobile to the table is much too strong a statement.” Other experts agree.“After years of selling and promoting NFC, it has become clear that there is no single killer app that will enable the broad range of potential NFC applications,” says Jeff Fonseca, regional sales director, Americas, for connected devices at NXP Semiconductors (which touts itself as the “co-inventor” of NFC technology).“That said, HCE is an unblocking point for mobile payments with NFC.”
Support and More Support Beyond the Google move, many other recent developments underscore the potential and power of HCE to disrupt the payments ecosystem. Notably, in mid-February, both MasterCard and Visa announced that they are developing standards-making initiatives on HCE. MasterCard already has partnered with Capital One on an initial HCE pilot in the United States, and with Banco Sabadell on a pilot in Europe. Additional deployments in conjunction with other financial institutions around the world are planned for this year. “The 14 May/June 2014 | Transaction trends
By eliminating mobile operators’ restrictions and fees, HCE is opening doors for developers to create a variety of other NFC apps, for purposes that range from payment at the point of sale to loyalty and transportation. use of HCE provides a very attractive way forward to launch an increased number of NFC-based offerings,” says James Anderson, group head, emerging payments at MasterCard. For its part, Visa is extending its Visa Ready Program to support financial institutions and partners that want to securely deploy Visa accounts in the Cloud. Sam Shrauger, senior vice president, digital, developed markets, says a new Cloud-based format of Visa’s payWave service will permit all developers to embed POS options into their apps, thereby enabling banks and merchants to transform their apps into mobile wallets. “For the first time, there is an ecosystem that is wide open to anyone to start enabling contactless payments,” Shrauger says. New mobile wallets with an HCE component already are emerging. At least one company has launched a white-label mobile wallet solution. MeaWallet, from the Norwegian company of the same name, supports mobile payments via HCE, as
well as NFC, Bluetooth Low Energy, quick response (QR) codes, and more. Partnering with MeaWallet on the venture are IBM,Tieto, Elavon, PayEx, Retain24, Bell ID, and C-Sam, as well as Visa and MasterCard. Similarly, Atos Worldline has introduced a digital wallet that, like MeaWallet, utilizes HCE to support NFC payments; its configuration allows for the convergence of contactless proximity payments and online or remote mobile payments. Another player, Wirecard, in late March integrated HCE support into its mobile wallet platform, with the intent of enabling telecommunications companies, financial service providers, banks, and retailers to enter the mobile payment market via NFC. But mobile wallets represent only the tip of the HCE iceberg. By eliminating mobile operators’ restrictions and fees, HCE is opening doors for developers to create a variety of other NFC apps, for purposes that range from payment at the point of sale to loyalty and transportation. Case in point: In April, Aconite, a provider of
EMV and NFC payment solutions, added HCE support and EMV tokenization to its product offerings.The former will let customers use their mobile phones to make payments at the point of sale, while the latter will render these payments more secure than those executed with standard EMV cards, according to the company. Additionally, earlier this past spring, solutions provider NBS Technologies upgraded its Xpressi Trusted Service Manager platform to include HCE support; its customers can now deploy both Visa PayWave and MasterCard PayPass NFC services in the Cloud. In announcing the upgrade, Robin Ehrlich, the company’s chief software architect, claimed HCE could be “the breakthrough our industry is looking for.” And in a slightly different vein, DCR Strategies, which offers prepaid programs, announced in early April that its merchant clients in the United States, Canada, Europe, and Latin America would be able to accept mobile payments using “conventional” NFC and HCE-based solutions alike, as well as to execute mobile gift and loyalty applications through HCE. Moreover, Amazon, Facebook, and/or Twitter could conceivably build payment solutions around the technology, according to industry consultant Lori Breitzke, president, E&S Consulting. Visa and MasterCard issuers—most notably, retailers with co-branded credit cards—might do the same, integrating the service into their apps, she says. Even PayPal could get into the act—albeit, far down the road and most likely in a limited fashion. In an April 16 PayPal blog entitled,“Three Trends That May Transform the Payments Experience,” PayPal President David Marcus deems “NFC with HCE, BlueTooth Low Energy, and smart [wearables]” the three technologies that will significantly impact the retail segment. He concedes that although he previously questioned the viability of NFC, HCE has rendered him cautiously optimistic about its future. “The crux of the issue of the original approach of NFC was the secure element,” Marcus writes.“The secure element, as its name indicates, is meant to keep financial information secure. The problem? Everybody keeps fighting over who gets to control it, because the entity that controls it
Speaking of Game-Changers… At TRANSACT 14, more than 60 businesses debuted over 100 new products and innovative services, including products for mobile, e-commerce, retail, and loyalty. Check out these companies that showcased their products at this inaugural event. @Pay - Two-Click Email Payments: @Pay for Resellers
Merchants’ Choice Payment Solutions: Merchant Foundry
MySingleLink: MSL Wallet and MSL POS, MySingleLink Gift Card
Affirmative Technologies: WebPayHub Aperia Solutions: NSR – Non-Stop Retail APG Cash Drawer: NetPRO Ethernet Interface for Cash Drawers, BluePRO Bluetooth Interface for Cash Drawers Ascert: Ascert Hosted Testing & Certification Services AuthoTrans Digital Marketing: Mobile Marketing Campaigns Avalon Solutions Group: ZoeyTERMINAL, ZoeyMOBILE, Waypoint Pathware BPC Banking Technologies: SmartVista for Retailers BridgePay Network Solutions: MyBridgePay CardFlight: SwipeSimple CHARGE Anywhere: ComsGate eCrypt Clear Payment Solutions: eGivings CloudMyBiz: Salesforce.com Application for Funding Companies ControlScan: ProTect Mobile CUSTOS MOBILE: CLOUD POS
National Merchants Association: 2014 ProAgent Partner Program, ProAgent Partner Program North American Bancard: PayAnywhere Storefront Northern Leasing Systems: Tablet Lease Application OfferPipe: OfferPipe ONPEX: opx,io Open-Ended Response: Open-Ended Response Pivotal Payments: GlobalOne – Payment Gateway & Global Acquiring Platform, FlexPoint – Integrated Payment Solutions Principis Capital: Total Deposit Advance (bank only) PulseWallet: PulseWallet Red Oak Payment Solutions: e25, zXis, c200T Repeat Returns: Chatterbox Retailcloud: SmartShop
Digital Donations: ATM Charitable Giving – Powered by Digital Donations
ROAM | an Ingenico company: ROAMmcm 5 Mobile Commerce Engine, RP750x Chip & PIN Mobile Card Reader
SecureBuy: SecureBuy Powered with FICO
ETS Corp.: PMONEY
First American Payment Systems: 1stPayPOS
Star Micronics: Cash Drawer
Forte Payment Systems: Forte Checkout ID TECH: SREDKey Ingenico: iCT250 JetPay Payment Services: JetPay OneCall Lenox Recovery Group: RapidEnroll – Visa/MasterCard Settlement
The Funding Tree: Cash Advance Total Merchant Services: Groovv TransFirst: Process Now United Merchant Services and UP Solution: UP TAB for Restaurant V12 Group: Launchpad Marketing Platform
Transaction trends | May/June 2014 15
[ COVER STORY ] becomes the toll master for every transaction that takes place. But something changed late last year. The Android team at Google started supporting and pushing HCE, or host card emulation.The beauty with this move is that it doesn’t require the whole industry fighting over control for the secure element.” Marcus believes HCE has a place in “very specific shopping use cases,” wherein customers must be in a specific location within a store (e.g., at a cash register) to pay for their purchases. He cites as an example multi-lane supermarkets, “as opposed to” environments like the Apple Store, where it is practical for shoppers to complete payments while standing in the aisles or in front of merchandise displays.
More Wrinkles In light of these developments—and in particular, Google’s recent moves—certain industry observers have deemed the advent of HCE a signal that trouble lies ahead for the Isis consortium (formed by AT&T, T-Mobile, and Verizon Wireless) and its Isis Mobile Wallet offering. Some also believe HCE could
“We would not be moving forward with HCE were we not entirely confident of its security and its potential.” —Sam Shrauger, Visa undermine the role of carriers in mobile payments because it calls for credit information to be stored in the Cloud, rather than on a secure chip embedded in consumers’ smartphones. However, if other recent actions by Isis are any indication, it may experience a boost—not a blow—from the new technology. In early March, the consortium announced that it is considering using HCE to store users’ loyalty card and coupon information in the Isis Mobile Wallet and also is open to leveraging the technology for credit card payments, provided that banks do the same.According to Isis CEO Michael Abbott, the company’s move stems from its discovery that Isis Mobile Wallet is catching on far faster and to a greater extent than had originally been anticipated.Two in three Isis Mobile Wallet users have added a payment card to it, and new users leverage the Isis Mobile Wallet option an average of six to seven times each month. “It’s very likely that banks will embrace HCE,” says Breitzke. “After all, financial institutions have long-established relationships with many consumers who may trust them more than they do other entities to handle sensitive data. They see HCE as an enabler here.” Fonseca concurs, noting that only larger financial institutions will adopt HCE.“Major IT infrastructures would be needed by issuers in order to support deployment,” he explains. While banks declined to reveal their intentions around HCE, 16 May/June 2014 | Transaction trends
efforts by at least one software provider indicate that groundwork is being laid for financial institutions to integrate the technology into their portfolios. In late April, Sequent Software added support for HCE (along with tokenization and Cloud-based issuance) to its digital issuance platform. The solution is said to yield banks “flexibility of deployment” by leveraging Cloud and secure element technology to work with all partners for secure mobile payments using NFC as well as QR codes and other options.
Yellow Light Ahead Such progress notwithstanding, even staunch supporters of HCE and those who consider it a strong catalyst for moving NFC forward concede that the road to adoption may not be a smooth one. Some believe only large developers will be able to create executive scalable apps that yield a viable financial return. “It’s also important to remember that although HCE is going to run NFC back up the flagpole, Apple still doesn’t support NFC— and it’s a pretty dominant force,” asserts Al Vrancart, founder and advisor to the International Card Manufacturers Association.
Strategic Leadership Forum 2014
Then, there are the security concerns. In a statement issued on March 20, the NFC Forum, an industry consortium dedicated to the global deployment and adoption of NFC services, voiced its endorsement of HCE as “a promising addition to the portfolio of NFC solutions that could potentially accelerate market growth” and “an exciting development for the NFC market because it provides an additional means by which to perform NFC transactions.” Still, the NFC Forum urges service providers to evaluate and determine the best place to store credentials, keeping in mind the tradeoff between security risks and convenience. “Each model has its merits, depending on the use case,” the statement reads.“For instance, use cases that rely today upon bar codes could immediately benefit from HCE without raising new security concerns. However, transactions currently relying upon tamper-resistant secure storage of assets would need more thorough consideration.” Meanwhile, the SIMalliance, an association of SIM card manufacturers, holds that although HCE is “good for the NFC ecosystem as a whole,” it remains “immature,
unstandardized, and, relative to secure element-based deployments, vulnerable to malicious attack.” HCE is “a force for good in NFC, but it’s no silver bullet,” SIMalliance Chairman Frédéric Vasnier said in late April, when the association released a white paper on the topic. “It will make NFC more accessible and versatile to developers and help to speed more services to market which, as a result, will drive consumer familiarity and encourage adoption. However, service providers evaluating HCE for payment and other high-value NFC services should proceed with caution; HCE presents a new raft of challenges and has the potential to diminish both the transaction security and the end-user’s NFC service experience.” Still, many remain undaunted. “We would not,” Shrauger concludes, “be moving forward with HCE were we not entirely confident of its security and its potential.” TT Julie Ritzer Ross is a contributing writer to Transaction Trends. Reach her at email@example.com.
Engage with the Innovators Capitalize on the knowledge of hundreds of frontline leaders, business visionaries and senior level professionals who are advancing the payments industry — Top Executives at the nexus of technology, mobile, and e-commerce will share smart techniques and explore the next generation of innovative ideas.
October 7-9, 2014 The Breakers Palm Beach, FL
Transaction trends | May/June 2014 17
BIG DATA for the
S MA L L
M E R C H A N T
How ISOs and acquirers tout value in the numbers By John Manasso
18 May/June 2014 | Transaction trends
ark Alexander, an account manager with North American Card Services, specializes in working with brick-and-mortar merchants of the smallest size, often of the mom-and-pop variety. Generally, their businesses have fewer than five stores. Their monthly sales tend to range from $5,000 to $10,000, although
they could be as high as $100,000.
With merchants this small, the owners may not have the most sophisticated business savvy, let alone the resources to maximize their business. Alexander cites the example of merchants that conduct inventory by counting items on the shelves. “You’d be surprised how many very successful business owners we come across [who] don’t have a clue where they’re making their money,” he says. Individuals like Alexander, who work for ISOs and acquirers, are leaving behind the business model of simply trying to provide merchants with the lowest processing costs, and instead harnessing Big Data to better serve clients and help drive their profits. In this context, Big Data can now be used to analyze even the smallest transactions of the smallest merchants. Previously, such data were only available to the largest merchants with enormous resources and hefty staffs to collect, crunch, and synthesize the numbers.
Positive Correlations Advances in Big Data have saved a lot of time and money for businesses across many industries, says Professor Stuart Madnick of MIT’s Sloan School of Business, who has served as the head of MIT’s Information Technologies Group for more than 20 years and was a founder of the Very Large Data Base Foundation. He cites the example of one company that ran a calculation that took 18 hours on Amazon Cloud Computing, a service that enables users to rent thousands of servers, if necessary, to conduct Big Data analysis. The project cost $33,000. The same calculation would have required 264 years on a single server, and it would have cost an estimated $68 million to build and run a similar computer installation, says Madnick. For a small merchant, $33,000 could represent months of revenue, which is why it’s so valuable for ISOs and acquirers to offer these services. Nonetheless, raw data can only be useful if it is pre-
sented in a meaningful way. This is the proposition that Alexander and others are offering to small merchants. “We tried to come up with a valueadded transaction for our merchants so they’re no longer looking at [interchange fees] as taking money away from them,” he says. “We’re giving the benefit of using our services.” ISOs and acquirers can offer their merchants the ability to collect data on their sales, track their inventory, and gather information about their customers. Such information helps to increase merchants’ efficiency so that they are not overstocking products that do not sell as well or are not as profitable and, at the same time, not running out of best-selling items that are most profitable. Additionally, merchants can access key times of the day for peak sales so they can staff their businesses most economically. There also are other ways that information is being delivered to merchants
KEY NOTES 8New technology and Cloud-based storage have expanded the ability of businesses to gather meaningful data on sales, inventory, and customer preferences that can boost efficiency.
8Businesses must decide between investing in a costly in-house analytics program or outsourcing those efforts, opening doors for ISOs and acquirers to create a value-add for their services.
8Big Data can be used to help ISOs and acquirers aggregate for reporting purposes and build predictive models to better price their services to merchants.
Transaction trends | May/June 2014 19
[ FEATURE ] at the most granular level, according to Tom Fraser, president of 1st Pay Gateway. He says analytics can provide reports on sales by employee and by product category, which can be parsed to the modifier level. He uses the example of a coffee shop and product categories, such as hot drinks and cold drinks. Modifiers could include drink size and which flavor shots sell best. By analyzing employee sales, merchants can identify and strengthen weaker employees. Tender type (cash, credit or debit card, or gift card) can be tracked as well, says Fraser. Increasingly, if ISOs and acquirers can help merchants set up customer loyalty programs—which can be as easy requesting an email address or a phone number—then merchants can gain access to even more information. And tender type can provide more insights for merchants. “We traditionally see credit card sales probably average almost twice as much as cash sales,” he says. “So that’s an important thing for merchants to understand. Gift card sales are the same way: People generally have a higher average ticket, so it shows the power of some of those different types of tender.” Such insights underscore the fact that by using loyalty programs associated with gift cards, merchants can reap even higher sales.
Exponential Storage One of the main factors enabling ISOs and acquirers to provide such data to small merchants is the reduction of cost in data storage in the Cloud over the last few years. The Cloud offers many advantages, including constant access to information and unprecedented amounts of backup. While in the past, this data had to be stored on personal or work computers, overloading their memory and often causing them to crash, “now, with the Cloud you’re able to have basically unlimited storage capabilities and a much lower price point—and it’s secure,” Fraser says. Having this information “opens up some doors” for a merchant’s accountant to access the analytics, says Frazer. Such reports or data can make it easier 20 May/June 2014 | Transaction trends
The Cloud offers many advantages, including constant access to information and unprecedented amounts of backup. Having this information “opens up some doors” for a merchant’s accountant to access the analytics. and less expensive for a bookkeeper or accountant to compute sales tax owed or calculate time and attendance of employees. Big Data is driving such advances as Beacon, which will be offered by PayPal. Through the use of Bluetooth and an app, customers can receive coupons as soon as they walk into or near a store. At the root of this technology are algorithms that use customer-provided information. Purchases can be made as long as card information is entered on the app. PayPal bills it as “hands-free payments.” Apple has a similar technology called iBeacon.
‘Meaningful’ Variables Of course, Big Data brings its own set of challenges for merchants, and Nomis Solutions President and CEO Frank Rohde has studied many of these issues. His company uses Big Data to create models that help ISOs and acquirers better price their services to merchants. With respect to the payments industry, Big Data can be applied in two
ways, says Rohde. One is a “meaningful” aggregation for reporting purposes, and the other is sampling to build predictive models. First, he explains the aggregation approach. “[We] look at segments of customers instead of individual customers,” he says. “We look at transaction types rather than individual transactions, but we look at geographic regional markets rather than each individual transaction or customer within a geographic market. So you basically have the ability to average, and aggregate, and sum up individual transactions into meaningful segments… That then allows you to look at those in a spreadsheet or a report in a way that’s humanly comprehensible.” Rohde says sampling has “historically been the approach of some of the merchant acquirers” to look at merchant behavior or customer behavior. “They can’t analyze everything, but I can take a meaningful sample or snapshot of a subset of all of the transactions of the last two years and build a model
based on that,” he says. “We’ve helped merchant acquirers, for example, build efficient models to look at which merchants are sensitive to price and the likelihood they will leave and sign up with another merchant acquirer based on price.They can do that based on pulling sample data historically and analyzing that sample set.” By offering merchants Big Dataoriented services, ISOs and acquirers essentially are offering high-level consulting services to businesses as part of a value-added proposition. While some small merchants might not be able to afford to develop an in-house analytics staff because of the requisite expensive hardware investments, Madnick says others that might be able to afford it would still prefer to outsource services. Some merchants see it as a diversion from what they think their core business is, he says. “Other people feel an outside organization will never have as much understanding as someone deeply embedded inside the organization. Of course, there’s no right answer. Different companies will pick different points
Big Data can be applied in two ways. One is a “meaningful” aggregation for reporting purposes, and the other is sampling to build predictive models. on this Big Data-as-service spectrum, depending on what they think is the most appropriate given where they are and the kind of culture of the place.” Building such software for ISOs and acquirers can be painstaking and expensive. The merchant also tends to need a different POS machine that can record the kinds of data that the system is look-
ing to track. Fraser says 1st Pay Gateway incorporates insights from its customers to make upgrades. In addition, sales staffs tend to understand intuitively what the products do, making it easier for them to make their pitches to merchants. “We want to sell merchants on growing their business, increasing profitability, looking at the bottom line—what they all care about,” says Alexander.“The hardest part with agents in the field is it’s going to take time to transition [them] over and not sell [merchants] only on price. We want to sell on volume, and we’re offering a product, not just customer service. “We’re talking about something tangible, something that merchants can hold. Reports in their hands that are going to show them what they’re doing to their business and in their bank account. [So they can be] more efficient, more profitable.” TT John Manasso is a contributing writer to Transaction Trends. Reach him at firstname.lastname@example.org. 11:02 AM
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Transaction trends | May/June 2014 21
TRANSACT 14: Partnerships Fuel the Future of Commerce Keynotes emphasize the need for collaborative relationships and innovations By Josephine Rossi
Stars Shine The ETA Star Awards recognize contributions of individuals and companies to the payments industry, whether through innovation, business practices, or contributions to the association. Award winners were announced at the ETA President’s Dinner on April 9: n Business Partner of the Year: SecurityMetrics n ISO of the Year: North American Bancard n Member of the Year: Mike Strawhecker, The
n Technology Innovation: CardFlight n ISO of the Year—Rising Star:
n Member of Congress—Payments Industry
Leaders: Sen. Thomas Carper (D-Delaware) and Rep. Shelley Moore Capito (R-West Virginia) n Committee of the Year: TRANSACT Program Planning n Volunteer of the Year: Scott Goldthwaite, ROAM Data In addition, Pamela Joseph, U.S. Bancorp, was recognized as the 2014 Distinguished Payments Professional during the awards ceremonies. 22 May/June 2014 | Transaction trends
hile the future of payments belongs to mobile, stronger relationships— with consumers and the merchant acquiring community—are needed for commerce to thrive, according to TRANSACT 14 keynote speakers. Their message of empowerment through collaboration reached more than 3,000 payments and technology professionals—the largest turnout in ETA’s 24-year history. As outside industries’ business models merge with payments, players will need to find a way to coexist “in a way that is energizing and not less relevant to the consumer,” said Bill Sheedy, Visa’s executive vice president, corporate strategy, M&A and government relations. “We are listening to you, and we are organizing ourselves around the acceptance part of the business,” he told the audience, reemphasizing the company’s plan for growth through relationships with issuers, merchants, and acquirers. Sheedy said Visa is committed to making “commerce and transactions frictionless,” but emphasized that solutions need
to put safety before convenience. With regulators at federal and state levels now examining payments security, industry players must have straightforward answers on how they are going to handle security concerns, he said. Otherwise, “we run the risk of regulators and legislators making the decisions for us.” Explaining solutions only to large merchants won’t be effective either, which is why Visa is in a position to help the acquiring industry communicate the value of market solutions to even the smallest of merchants and the feds. Sheedy alluded to upcoming initiatives, including a possible partnership with ETA, saying, “We not only need to get the roadmap clear, but we need the messaging to be crystal clear.” In terms of new technologies, he recognized that the initial deployment of the V.me negatively affected the merchant acquirer relationship; he noted that Visa is revamping the electronic wallet and processes associated with V.me, although he did not offer details. Because consumers have “not yet spoken” and the merchant community
is diverse with different priorities, Visa will not be investing in a single payment solution. Rather, it is betting on a host of unnamed solutions to ensure interoperability and security while also “bringing value to the merchant community and improving processing. “Growth will not come from GDP anymore, but on the back of innovations and the ability to add services on top of payment transactions.That will only happen if we can align,” said Sheedy.
Growing ‘the Pie’ Similarly, Google’s Ariel Bardin, vice president of product management, said to expect new partnerships, some of which may seem unorthodox, over the next year. Aiming to align with “likeminded companies,” the tech giant has made growing the mobile ecosystem a top priority. “The key point here is partnerships. We don’t do this alone—partnerships are a key part of the mobile story. We all have to work together to make the pie grow.” Focusing on enhancing the user experience, Google has rolled out a number of services that answer consumers’ demand for immediacy and help merchants reach them in real time and improve historically low conversion rates. With Local Product Listing ad offers, a consumer’s search yields access to a merchant’s real-time in-store inventory feed and pricing, as well as a “digital local storefront” for more information. Consumers also should expect expansion of Google Shopping Express, which allows consumers to shop local stores online and get items delivered on the same day. Google Wallet Instant Buy (on mobile web and Android app) uses Sign In with Google to help consumers bypass the lengthy registration process at checkout. The payments still go through usual processor channel. Google Wallet Objects is an open platform that merchants can integrate for free. It stores coupons and loyalty rewards. “We’re not a loyalty provider and we are not going to be creating a loyalty program to compete with them; we want to partner with merchants to
Global Startups Receive 2014 E-Pay Innovation Awards The “Shark Tank”-like Payments Next Zone brought together startups from across the globe to showcase their innovations at TRANSACT 14. Prior to the event, 10 finalists were awarded scholarships to attend the competition. Of those finalists, two companies received 2014 E-Pay Innovation Awards. Funded by the Bill & Melinda Gates Foundation in cooperation with ETA, the awards recognize startups developing innovative financial services for the unbanked and unserved worldwide. “This year’s Payments Next Zone competition far exceeded expectation in terms of the quantity and quality of applicants,” says Andrew Barnes, managing director, emerging payments, Payment Week, and member of the judging panel. What distinguished the finalists, he says, “was the depth of understanding they displayed for the unbanked markets they serve.” FIRST PLACE: Social Trade Organization (www.socialtrade.org), based in the Netherlands, won top honors and $50,000 for its market-tested Cyclos software (www.cyclos.org), which lets organizations build dedicated payment systems from scratch by changing the configuration without making code changes. SECOND PLACE: MoWoza, a South African company, captured second place and $20,000. Its SMS mobile shopping solution provides access to pricing info, inventory, orders, and more for communities in Africa and beyond, where retailers often must rely on inefficient and corrupt supply chains.
allow them to easily attach loyalty to the transaction,” said Bardin. Even with one billion devices running Android and 1.5 million new devices activated each day, user choice will reign, and Google Wallet will have to compete with other payment apps, said Bardin.“If the user chooses to default to a different app for tap-and-pay, that’s cool,” he said.
Empowering the Consumer Devices powered by high-speed networks and connected to the Cloud are at the heart of a “transformation from payments to commerce,” said Paul Galant, VeriFone’s CEO. They’ve also created great disruption at both ends of the value chain. Success in the future will incorporate “flexible value arrangements” that empower the consumer to create their own experience, he said, stressing that TRANSACT attendees play a critical role in making the in-store encounter as insightful and convenient as online. Consumers want “actionable advice”—advertising, coupons, and loyalty promotions—“delivered contextually” at the point of sale. “If the value is high, don’t underestimate the consumer’s willingness to be identified; if it’s spam, they don’t want it.” Like Sheedy, Galant stressed the need
for a more collaborative role in the security and soundness of the payment system, as the levels of transparency afforded by social media allow for no margin of error. “Consumer loyalty can be compromised along with their data,” he said. VeriFone is heavily investing in P2P encryption and tokenization, and 70 percent of its hardware is already EMV compatible. The company also is devoting 10 percent of its R&D budget to “100 percent partner-focused” solutions. And like Google, its “payments as a service” platform will be capable of hosting third-party apps as well. With an emphasis on the convergence of data-driven marketing and a seamless approach across all channels—store, website, or mobile—Galant said the audience could look forward to bundled, flexible packages, with subscription-based pricing. “We know our success hinges upon us becoming a better and more consistent partner for you—one that is not arrogant, one that is not difficult to work with, and more importantly, one that does not compete with you.” TT Josephine Rossi is editor of Transaction Trends. Reach her at jrossi@ strattonpublishing.com. Transaction trends | May/June 2014 23
Startup Stories: Delego
The Power of Transformation A life-long fascination with computers gives way to a budding payments software business By John Manasso
elego Founder Richard McCammon was interested in process automation when he graduated with a master’s degree from Ontario’s University of Waterloo in chemical engineering in 1984. Long before the dawn of the personal computer, McCammon was captivated by the machines—and back then, they truly were machines. He fondly remembers the first he worked with. It took up an amount of space similar to what his company’s present office occupies. Memory modules, holding 4K, were 2.5 feet long by 9 inches wide by 9 inches deep. In high school, he wrote programs to grade tests. “My fascination was with computers way back when,” he says—in the early ‘70s, when he was in eighth grade. Upon graduation, he pursued that interest by moving east to Canada’s Maritime Provinces to help construct a new pulp and paper mill. Hardly a growth sector—most of it had moved overseas where trees grow faster than they do in North America’s long, cold winters—McCammon returned to Ontario where he went to work for a sugar manufacturer. Still interested in the idea of marrying process with computers, he was involved in his company’s deployment of a product it purchased from German software company SAP. Ultimately, he quit and, in 1997, he founded McCammon Enterprises, which, at the time, was mainly a consulting firm.Two years later, he transitioned into the payments industry. “I happened to be consulting at a place that needed a credit card solution,” he says, “but there weren’t a lot on the market
Founder: Richard McCammon Established: 1997, as a SAP consulting business Employees: 25-50 24 May/June 2014 | Transaction trends
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Startup Stories: Delego
at the time—there was only one on the market. So I saw an opportunity and started producing credit card processing software.”
Rebranding and Rethinking The company has grown through fits and starts and rebranded itself in 2008 as Delego Software, named after its first product.The name derives from the Latin root of the word, meaning “transfer.” McCammon says the company name is meant to convey the transference of money and of authority. The rebrand was part of a broader effort to transform the company. On the advice of his financial advisor, McCammon formed a small, independent corporate board. He says he realized there were better utilizations for his time, and characterized himself as a “dumb engineer,” who is not interested in the legal and financial minutiae of the business. McCammon recruited Donald Hathaway as chairman of Delego’s board. Hathaway has numerous degrees and his career has spanned both the business world and academia. According to Delego’s website, he specializes in corporate governance, strategy, and organizational effectiveness. On Hathaway’s recommendation, the company hired Larry Chevalier as its president and CEO in 2011. Chevalier came to the job with a 22-year background in retail finance and banking. He also founded his own company, Conversys, which used PDF files to help retailers put their catalogues online. Chevalier later sold the company and began looking for other opportunities, eventually ending up at Delego. Chevalier’s goal has been to double the company’s revenues every two years and make the company into a major player in the payments space. So far, he says, the company is on track to meet that goal. McCammon says the new corporate governance and management team helped the company to take the next step:“Rather than percolating along at 20- to 25-percent growth, it kick-started, getting to 30- or 50-percent growth,” he says.“Really getting the marketing out there, getting the name out there, and making that complete overhaul of the corporation [helped us achieve that growth].” To ready the company, which is privately held, to hit its growth targets, Delego 26 May/June 2014 | Transaction trends
WORDSTOTHEWISE � Find your strength and be the best at it. Delego President and CEO Larry Chevalier says that companies in the payments industry should “figure out what you do well and be best at it… On the surface that sounds a little bit trite… but it definitely holds in this market. The payments market is immense. I’ve read stats anywhere from $40 trillion to $100 trillion annually in electronic transactions, so it’s an enormous marketplace. You can be very successful doing one small thing very, very well, and most of those things have their own unique value proposition. If you can figure out how you can best provide value in that space, be a leader in that space, your business will thrive, and that’s certainly been our approach.” � Be flexible. “We’ve found success because we’ve been able to be flexible with our customers,” says Chevalier. “The technology landscape grows very complex. [In] this space, particularly where you have so many new innovations with payments, we’re reading more and more about alternative payments and alternative currencies like Bitcoin, so it’s really important to have the flexibility to customize and evolve with customers’ needs because they will change and every merchant has its own set of requirements. We just found that a one-size-fits-all approach, while it might be an efficient, cost-saving approach internally, from a business point of view, it doesn’t necessarily work for customers. We’ve always marinated that philosophy of flexibility and working with the needs of our customers.” Chevalier also adds that, “if you ignore Bitcoin, you do so at your peril.” � Consider an independent board. Delego Founder Richard McCammon says that for small, growing companies, an independent board can prove an indispensable resource. “I can’t underestimate, from a business perspective, what having an independent board gives a company—if you get the right people,” he says. “It’s like anything else. You have to get the right people, you have to get the right mix, and I’m just incredibly lucky to [have found] a chairman of the board who really fit what we wanted to accomplish and helped guide me and, subsequently, the whole.”
went after private equity money. Citing the desire to keep some information private from competitors, Chevalier would not say exactly how large it is but McCammon says the company has between 25 and 50 employees. It’s located in London, Ontario, which sits about two hours’ east of Detroit and an hour west of the KitchenerWaterloo area—the home of Research In Motion, which later rebranded itself after its most famous product, BlackBerry. Owing to the University of Waterloo’s information technology program, the region is home to numerous startup technology companies. In February, Facebook made big news by purchasing one of them, fiveyear-old WhatsApp, with 55 employees, for
$19 billion. Chevalier refers to the University of Waterloo as the MIT or Stanford of Canada. “It’s a very good feeder of talent,” he says.“We’ve had co-op students who have worked with us from Waterloo. “We’ve got a number of companies, probably not as high-profile but certainly very good, solid, early-stage technology companies,” he adds.“It’s not a Silicon Valley but it’s a very good base of some really solid small technology.”
Looking to the Future Ever since his involvement in the SAP deployment with the sugar manufacturer, McCammon has oriented his business
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Startup Stories: Delego
around SAP’s software. The company’s foray into the payments sphere arose from early on when he was working with a client and realized that its SAP solution did not integrate with its payment channel. A gap existed between capturing the authorization and settlement of payments and then having that information captured in the accounting system. Rather than creating a custom solution for every transaction, McCammon saw the need for a so-called “middleware” product that could be implemented and repeated for numerous customers. That was around 2002. That also was around the same time that PCI Data Security Standards were introduced to the marketplace. “It really stimulated demand,” Chevalier says, “so the company added a number of global customers in that period and continued to grow from there.” That growth continues. In January, Delego announced an integration between its electronic payment processing platform and WorldPay, specifically for online payments. According to a press release,
“We’re not a huge company by any stretch of the imagination but we’re making our contribution to the tax rolls.” —Richard McCammon, Delego the integration “allows merchants to process payments in 120 different currencies and settle in 14, and provides access to WorldPay’s portfolio of more than 200 payment methods globally.” With relationships like that one, Delego is well positioned.“We’re not a huge company by any stretch of the imagination but we’re making our contribution to the tax rolls,” says McCammon.
Chevalier says he sees Delego continuing to grow at its current pace—broadening its footprint with existing customers while adding new ones. He says Delego is adding reporting and analytic suites and enhanced security features, which will include 3-D Secure protocols, to its software. It appears freeing up McCammon has been good for business—providing the company with a structure to grow while helping it improve its products.The company’s owner previously had the title of vice president of professional services; now, he oversees product integrations and is excited about new markets for Delego to explore. “From my perspective, I’m really excited about the future,” he says. “We’ve done very well since we brought on the board and Larry and expanded the sales group. I’m very much looking forward to the future.” TT John Manasso is a contributing writer to Transaction Trends. Reach him at email@example.com.
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Balancing Mobility and Security
Industry priorities and implications for the years ahead By Bill Elrick
s new technologies continue to surge into the market, it is easy to focus on consumer demand for innovation, but just as much—if not more—focus must be placed on the security of these new payments methods. The payments leaders of the future will be those who keep a finger on the pulse of each area and thoughtfully integrate the most desired technologies with comprehensive security innovations. In that vein, a recent survey by In-
finite Peripherals explored how the payments industry is balancing mobile technology innovation with security concerns and what the implications will be in the years ahead. Respondents included more than 6,000 online and in-store retailers, app developers, and mobile device manufacturers and resellers across North America. Conducted in late 2013—prior to the Target breach— the 2014 Payment Technology Trends Survey included many high-level deci-
sion makers, nearly 60 percent of whom were CEOs, C-level executives, and vice presidents/directors. Sixty-seven percent of respondents reported that mobile technology innovation is their first priority, which appears to be driving payment technology trends. The risk of fraud and criminal payment activity is a distant second, with 38 percent. More than one third of respondents confirmed that customer preferences will drive retail priorities,
Highlights from the 2014 Payment Technology Trends Survey Swipe-on-Mobile POS Seen as Most Reliable, Secure Payment
of respondents expect swipe-on-mobile POS device to meet or exceed security expectations over the next three years, compared with only 4 percent who have concerns.
n Nearly one quarter of respondents are concerned that swipe-at-register payments will be unable to keep up with the evolving threat from fraud and theft in the coming three years. n Less than one third of respondents believe fraud losses justify the cost of implementing EMV chip-and-PIN payment technology, the payment technology most frequently promoted as a solution to losses from fraud and theft.
Swipe-at-Register, Swipe-on-Mobile POS Leading the Way
of respondents have a swipe-at-register payment option. However, 62 percent of respondents also have developed some form of swipe-onmobile POS device payment option.
n More than 35 percent of respondents are using EMV chip-and-PIN payment technology.
30 May/June 2014 | Transaction trends
Swipe-on-Mobile POS Device Expected To Dominate the Market
of respondents expect swipe-on-mobile POS device to dominate the payment technology market within the next three years, exceeding all other forms of payment.
n E MV comes in second, with 25 percent of respondents expecting chip-and-PIN to become the primary payment technology of retailers. n Seventeen percent of respondents expect swipeat-register technology to remain the most utilized payment technology over the next three years.
onsumer Use of Mobile Technology To C Drive Future of Payments
of respondents see the increased consumer use of mobile technology in everyday life as the single-most influential factor in future payment technology trends.
n M ore than half also see an increasing demand from consumers for mobile shopping as driving payment technology trends in the next three years.
above the influence of payment providers (29 percent) or payment legislation (16 percent).
Mobile POS Seen as Most Secure, Popular Given this focus on mobility and consumer preferences, it is not surprising that respondents expect swipe-on-mobile POS devices to dominate the payment technology market in the future. It was rated highest by respondents (30 percent), who were asked which single payment technology they thought would lead the market over the next three years. Just 17 percent of respondents said they expect swipe-at-register technology to remain the most utilized payment technology over the next three years. And when it comes to security, 23 percent of respondents are concerned that swipe-at-register payments will be unable to keep up with the evolving threat of fraud and theft in the future. Only 4 percent of respondents are concerned about the ability of swipe-on-mobile POS devices to meet or exceed security expectations in three years’ time. Resoundingly, mobile payment technologies are referenced as the most exciting
and secure innovation in the sector and are seen as the consumer’s champion payment technology. As consumer demands continue to drive developments in payment technologies, successful merchants will pay close attention not only to what their consumers buy, but also how they prefer to buy.
No Single Solution for Security In light of the Target breach in late 2013, payment security has come under intense scrutiny in the past several months. Merchants are responsible for ensuring that cardholder data is secure throughout the entire payment ecosystem.And security of a payment ecosystem is multilayered; each component must be analyzed. Certain technologies, such as hardware encryption and EMV chip and PIN, may reduce the risk of certain types of breaches. However, they are not a cure-all against every possible attack. A cardholder transaction is touched multiple times throughout the payment chain—from PCI DSS-compliant hardware and software to gateways, servers, and payment processors. Each component in the chain must be reviewed and secured. Merchants must be sure all hardware
and software is PCI DSS-compliant. In addition to hardware, other key points of the transaction process where security is integral include network components, such as firewalls, switches, routers, wireless access points, network appliances, and other security appliances; servers, including web, application, database, authentication, mail, proxy, network time protocol, and domain name server; and applications, such as all purchased and custom applications, including internal and external (for example, Internet) applications. Finally, internal processes and employee training must be assessed with security top of mind.At any point in which humans are involved in the process, user errors are possible. Closely examining all points along the payment chain and carefully training all employees involved in those processes can help minimize errors. And, when it comes to critical points in the payment chain, backup—such as automatic shutdown of software that might have been compromised—should be in place to mitigate possible user delays or errors. TT Bill Elrick is director of mobile payments at Infinite Peripherals. Reach him at firstname.lastname@example.org.
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The Last Word
Payments Industry Prepares for Unprecedented Government Attention TRANSACT 14 speakers reinforce ETA’s expanded focus on policymakers in Washington By Scott Talbott
RANSACT 14 may be behind us, but the critically important industry issues discussed in sunny Las Vegas remain prominently on the ETA’s legislative and regulatory agenda and on the minds of ETA member companies. From the Federal Trade Commission’s (FTC’s) “Regulatory Update” to the “New Face of Government Enforcement” to Operation Choke Point Boot Camp (OCP) and everything in between, TRANSACT 14 attendees heard from and spoke with state and federal officials about the various public policy initiatives facing the payments industry. Because so much relevant government activity is currently taking place, both the Government Affairs Policy Track as well as the Compliance/Risk/Fraud/Security Tracks included educational and informational sessions offering updates, analysis, insights, and projections about our industry. Here are the highlights: FTC Regulatory Update. TRANSACT 14’s Policy Track began with FTC Associate Director of Marketing Practices Lois Greisman, who discussed the merits and pitfalls of self-regulation versus government regulation and discussed the FTC’s current role with the industry. She spoke favorably about ETA’s new Guidelines on Merchant and ISO Underwriting and Risk Monitoring, saying the guidelines are a living and dynamic tool, subject to evolution as the market changes, and that the industry can be its own best watchdog. Operation Choke Point Boot Camp. Three sessions comprised the OCP Boot Camp—a coordinated effort to help TRANSACT 14 attendees understand OCP, the Department of Justice’s action targeting the payments industry for fraud committed by certain segments of merchants. Panelists from Zunion Bank, Vantiv, and Venable discussed OCP as well as the current compliance environment in the executive agencies. The session also provided an overview of ETA’s recently published guidelines, which, in concert with ETA’s corresponding educational program, are a giant step forward in helping ETA members reduce their regulatory, legal, and reputational risk. Data Breach Summit. In the April column, I shared information on the six topical sessions ETA created in response to the intense focus on data breaches, and I’m proud of the breadth of content, exceptional speakers, and extensive attendance for TRANSACT
32 May/June 2014 | Transaction trends
14’s Data Breach Summit. The series opened with “Cyber Attacks,” a recap of the payment card security events of 2013 and emerging threats in 2014, as well as a robust discussion of the lessons learned and methods for integrating security into evolving payment systems technologies—especially in the aftermath of high-profile breaches. “Beyond PCI: What You Should Know About Data Security and PII” reinforced the industry’s commitment to protecting sensitive personally identifiable information (PII) data. Relevant legislative and regulatory policies and proposals were reviewed, and practical approaches as well as preferred policy solutions for protecting data compromises were discussed. A subsequent summit session focused on the inevitability of the EMV standard for chip cards, the business challenges of implementation, PIN mandates, whether EMV will truly prevent fraud, and whether this is the best technology available. Charles Henderson of Trustwave’s SpiderLabs Division led a related session on POS security, focusing on the internal (defender) and potential attacker perspectives while emphasizing vulnerabilities and proactive steps for POS data protection, applicable to both small and large retailers. ETA Policy Overview, Industry Outlook. Together with top D.C. policy analysts Jaret Seiberg of Guggenheim Securities and Isaac Boltansky of Compass Point Research and Trading, I provided a candid and lively (hopefully) look inside the current political landscape and the mindset of legislative and regulatory policymakers. It’s undeniable that TRANSACT 14 was buzzing with energy around the uncertainty that several policy proposals could have on the payments industry and how it does business.Therefore, it is more important than ever for ETA members to get involved with ETA’s policy efforts and stand ready to act as payments advocates. If you haven’t done so yet, please sign up to receive Voice of Payments updates at www.voiceofpayments.org. Your business depends on all of us amplifying our voices. TT Scott Talbott is senior vice president of government affairs for ETA. Reach him at email@example.com.
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