Transaction trends The Official Publication of the Electronic Transactions Association
on the Move
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Transaction trends The Official Publication of the Electronic Transactions Association
Vol. 18 | No. 5
cover story 10 Security on the Move
By Julie Ritzer Ross Conversion to the EMV standard in the United States has officially begun. While the major card companies are issuing EMV cards, some merchants are holding off on accepting them, citing high costs and security concerns associated with EMV adoption. 10
FEATURES 15 Big Data Gets Real
19 Special Series
By Rona Distenfeld Three companies share their strategies for leveraging Big Data to curb fraud, improve customer satisfaction, innovate products, and allocate resources.
Startup Stories: Schooled on Payments By John Manasso Tuition Management Systems offers education-focused services.
depar tmentS 4
ETA Gateway Insights from ETAâ€™s CEO, Jason Oxman
Ad Index Future of the Business Daily deal sites have brought marketing and payments together. What comes next?
Industry News Trends, strategies, and news in the payments business and ETA member community
21 22 24
Industry Insider Planet Groupâ€™s software suite assists customers in becoming their own processors. Transaction trends | June 2013 3
Great Things Lie Ahead for ETA
reetings from ETA. For those who were part of the excitement in New Orleans, let me say thank you for being a part of our largest event in ETA history. With more than 3,000 attendees and 200 exhibiting companies, the 2013 Annual Meeting and Expo broke all records. Thousands of payments and technology industry executives, venture capitalists, and media from 10 countries were there to experience the next generation of innovation in payments. More payments industry business gets done at the ETA show than any other event all year. New Orleans was just the beginning of what promises to be a groundbreaking year for ETA. We are heading to Europe with the launch of the International Acquiring Forum (IAF), a new educational and networking event that
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 10 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. Copyright © 2013 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 June 2013 | Transaction trends
will take place in London from Sept. 1719, 2013, at the Millennium Gloucester Hotel and Conference Center. The IAF will bring together experts and industry leaders from around the world to tackle issues of importance to acquirers, banks, ISOs, processors, and suppliers. The following month, our Strategic Leadership Forum (SLF) will take place October 15-17 at the Montelucia Resort and Spa in Scottsdale, Arizona. Join us and 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. And of course, our 2014 Annual Meeting and Expo is only 10 months away! Next year, we are back at the Mandalay Bay in Las Vegas, April 8–10, 2014. With the expo floor already 80 percent sold, we expect to have another record-breaking year. The 2014 ETA An-
nual Meeting & Expo is the ideal venue for positioning your company and its products and services for success. Reserve your space early—the expo floor is filling up quickly! Whatever the resources—from international expertise to enhanced features at the annual meeting—ETA is committed to helping you grow your business. Please keep in touch with us as we continue to move ETA into the future. I look forward to seeing you soon. Kind Regards, Jason Oxman Chief Executive Officer Electronic Transactions Association
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, Government and Industry Relations Mary Weaver Bennett Director, Membership and Marketing Del Baker Robertson Director, Communications Meghan Cieslak Publishing offices Stratton Publishing & Marketing Inc. 5285 Shawnee Road, Suite 510 Alexandria, VA 22312 703/914.9200; fax 703/914.6777
Publisher Debra Stratton Associate Publisher & Editor Josephine Rossi Contributing Editor Angela Hickman Brady Editorial/Production Associate Christine Umbrell Art Director Janelle Welch Contributing Writers Greg Cohen, Lia Dangelico, Rona Distenfeld, John Manasso, Bryan Ochalla, and Julie Ritzer Ross Advertising Sales Steve Schwanz or Fox Associates (800/440.0232; firstname.lastname@example.org) Fox Associates Offices Chicago 312/644.3888 New York 212/725.2106 Detroit 248/626.0511 Phoenix 480/538.5021 Los Angeles 805/522.0501
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INDuSTRYnews Poor User Experience to Blame for Shopping Cart Abandonment
because it would not go through. Other causes for shopping cart abandonment include gender factors and security concerns. Men are more likely to make mobile purchases than women, with 74 percent of male smartphone owners having attempted to make a mobile payment, compared to only 62 percent of females. Additionally, women are more likely to not complete a mobile payment due to security issues, with 56 percent saying they did not feel secure entering their credit card information.With regard to age, 62 percent of those 55 or older claimed to have concerns over the security of their credit card information.
While the majority of smartphone and tablet owners (68 percent) have attempted to make a purchase on their device, two-thirds (66 percent) failed to complete a transaction due to obstacles encountered during checkout, according to the 2013 Mobile Consumer Insights study from Jumio, Inc. Of those respondents who failed to make their purchases, 41 percent said the checkout was too difficult on their device, and 23 percent said they failed to make a purchase
The amount of funds loaded on general purpose reloadable prepaid debit cards jumped to $76.7 billion between 2008 and 2012, according to Mercator Advisory Group. The Group predicted $168.4 billion will be loaded on such products by 2015.
Infographic Best Price
Quick and easy payments Easy to navigate site or app
Access to customer reviews Filtering my search based on features that matter most to me Simple view, especially on small screens Web chat customer support
22% 19% 10%
Interactive video product demonstrations Remote QR code ordering
6 June 2013 | Transaction trends
Price Top Factor in Mobile and Online Purchasing
More than 6,000 international consumers and 60 global retailers were asked: When purchasing online or via mobile device, which influences your purchase decisions? Source: Accenture Seamless Retail Study 2013
AROUND THE HORN Clearent named Mark Sundt as chief technology officer, and was named the third fastest growing private company by the St. Louis Business Journal. ControlScan will partner with Bridge Point Communications to bring PCI compliance to Australia. CSR will partner with My Clear Reports (MCR) to make CSR’s patented PCI ToolKit and patentpending CSR Breach Reporting ToolKit available from the company’s MCR virtual business center. Dejavoo Systems announced the development and certification of CrossCheck’s check guarantee applications on the Vega (V Series) product line terminal. First Data announced VSoft will sell First Data debit processing services and STAR ATM and POS access to clients. Gemalto was selected by Merchant Customer Exchange to build its platform. MasterCard launched MasterPass digital wallet in Canada to help shoppers expedite the online checkout process. Merchant Warehouse is cosponsoring a $1 million development fund with LevelUp to make mobile payment apps less costly for merchants and will partner with LightSpeed, an Apple-based POS and inventory management system. Mercury Payment Systems announced Nick Nayfack joined the ETA Mobile Payments Committee. Moneris Solutions partnered with LightSpeed to provide Canadian retailers with an integrated mobile payment management solution. PayPros deployed PayPros Innovo, a comprehensive “Payments as a Service” platform. SecureNet Payment Systems announced the launch of its mobile payments API libraries for iOS developers, and named Nish Modi as vice president of product. Tranzlogic will partner with Aperia Solutions to provide data analytics technology to more than 3 million merchants. TSYS Merchant Solutions launched TSYS Pay in Your Currency and Shop in Your Currency multi-currency solutions, powered by Planet Payment. WorldPay US announced it successfully completed Visa EMV acquirer testing, and compatibility certification of the VeriFone VX 520 countertop payment system.
News from the association
CALENDAR : International Acquiring Forum Millennium Gloucester Hotel London, UK September 17-19, 2013 2013 ETA Strategic Leadership Forum Montelucia Resort & Spa Scottsdale, AZ October 15-17, 2013 2014 ETA Annual Meeting & Expo Mandalay Bay Hotel Las Vegas, NV April 8-10, 2014
ETA Launches Payment Processor Council
ETA’s Board of Directors created the Processor Council as a new forum to serve the needs of ETA members. Intended to be the voice of the nation’s leading payments processors, the Processor Council will focus on maximizing the value, efficiency, and security delivered by the payments industry to its customers through the development and communication of recommendations to help navigate emerging technologies, standards, and regulations. “The establishment of the Processor Council will further ETA’s mission of growing the payments industry on behalf of its member companies,” said CEO Jason Oxman.“The Processor Council has a unique opportunity to mobilize ETA’s productive and comprehensive relationship with more than 500 member companies, including the nation’s largest processors and the card networks, together with ETA’s experienced and knowledgeable staff and unparalleled network of industry volunteers to channel the voice of the processor community.”
ETA Announces International Acquiring Forum Event
Together with Global VisionGroup and industry consultant Linda S. Perry, ETA announced the launch of the International Acquiring Forum, a new educational and networking event that will take place in London Sept. 17-19, 2013, at the Millennium Gloucester Hotel and Conference Center.The forum will bring together industry experts and leaders to address issues of importance for acquirers, banks, ISOs, processors, and suppliers.
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 email@example.com. Accept Checks Today Henderson, NV www.acceptcheckstoday.com
Eminence Capital LLC New York, NY www.eminencecapital.com
InterPoynt LLC Atlanta, GA www.interpoynt.com
Advanced Technology Group (ATG) Overland Park, KS www.atginfo.com
Energy Advantage Inc. Norwalk, CT www.cardcharge.us.com
Meracord LLC Tacoma, WA www.meracord.com
Eye4Fraud Brooklyn, NY www.eye4fraud.com
nCLOSE Inc. Westlake Village, CA www.posenclosures.com
Fraud Shields Inc. Brooklyn, NY www.fraudshields.com
OneGo Inc. Santa Monica, CA https://onego.com/
Genesis Merchant Solutions Houston, TX www.genesismerchant.com
OTI America Inc. Iselin, NJ www.otiamerica.com
Intel Corp. Chandler, AZ www.intel.com
PAAY Cedarhurst, NY www.paay.co
InterceptEFT Fargo, ND www.intercepteft.com
Payliance Columbus, OH www.payliance.com
Anovia Payments LLC Irving, TX www.anoviapayments.com Bankcardlaw.com Washington, DC www.bankcardlaw.com BillGuard Inc. New York, NY www.billguard.com Casio America Inc. Dover, NJ www.casio.com CSI Enterprises Inc. Bonita Springs, FL www.csicorporatecard.com 8 June 2013 | Transaction trends
Randon Holdings LLC Nashville, TN SafePay Direct Inc. Phoenix, AZ www.safepaydirect.com T Squared Denver, CO www.tsquaredgroup.com T-Tech LLC Charlotte, NC www.ttechpayments.com UnionPay America Jersey City, NJ http://en.unionpay.com/ Venable LLP Washington, DC www.venable.com Vision Payment Solutions LLC Portland, ME www.visionpayments.com
The FUTURE of Payments is HERE™
April 8 – 10, 2014 Mandalay Bay Resort & Casino Las Vegas
Security on the Move
[â€‰COVER STORY ]
EMV, tokenization, and encryption continue slow march to acceptance By Julie Ritzer Ross
KEY NOTES 8 Both MasterCard and Visa are pursuing technology initiatives to support debit EMV transactions, with the goal to advance the U.S. marketplace toward next-generation payments.
8 Some major merchants say the conversion to EMV will impose an extraordinarily hefty financial burden while doing little to curb fraud.
8 More sophisticated tokenization technologies, in which nonsensitive substitute values replace credit card numbers and other sensitive data during the processing of transactions, are becoming available.
10 June 2013 | Transaction trends
ata security continues to evolve along with payment models, with developments occurring around the EMV (Europay/MasterCard/Visa) standard, tokenization, and encryption alike. Consider EMV adoption. Acquirers, for the most part, have met the card networks’ mandate to support merchant acceptance of EMV transactions. (The deadline was April 1, 2013.) Major issuers, such as Chase, Bank of America, Citibank, U.S. Bank, American Express, and Wells Fargo, have begun to issue EMV cards. “Things are progressing well,” says Carolyn Balfany, senior vice president-group head, U.S. product delivery, for MasterCard. “We have to our advantage the wind at our backs from the experience of other markets that have made the transition.” The “lion’s share” of acquirers have had their solutions fully tested and certified ready to accommodate EMV as prescribed, she adds. Just as significantly,“dozens” of issuers have moved up their plans to roll out EMV cards to other consumers, encouraged by positive reaction to chip-and-PIN cards provided to cardholders who frequently travel to areas where EMV has taken hold. Recent technology developments are expected to push adoption as well. Both MasterCard and Visa are pursuing technology initiatives to support debit EMV transactions. MasterCard has opened its debit technology standard, allowing acquirers to brand transactions originating from the Maestro AID (application identifier) for all debit networks within the U.S. T he move allows more financial institutions to immediately begin issuing EMV cards across their portfolios, rather than waiting for a new solution. For its part, Visa is now making some of its EMV chip technology available to acquirers in conjunction with a generic, unbranded AID, which will “advance the U.S. marketplace” toward next-generation payments, including mobile payments, said Jim McCarthy,Visa’s global head of product, in announcing the move. Visa aims to simplify EMV chip implementation for debit transactions; reduce migration costs; increase flexibility for issuers, acquirer processors, and merchants; and streamline the implementation of secure EMV chip technology. As of mid-March 2013, 10 of 17 U.S. debit networks had agreed to use a common U.S. debit AID and to work with Discovery Financial Services to license the D-Payment Application Specifications (D-PAS) as a common framework for a U.S. chip-and-PIN debit solution. “Based on our experience around the globe,” these initiatives constitute “good steps to continue the momentum of the U.S. market’s migration toward EMV,” says Jane Cloninger, director of global financial services and payments consultancy Edgar Dunn & Co. T hey fit the “need to cooperate and find a common way to support debit transactions.”
Merchants Lag on EMV On the merchant side, some large companies, like Walmart, already accept EMV cards.And many others, including those that have already deployed EMV-enabled terminals but not chip-and-PIN technology, have committed to accepting EMV prior to the October 2015 liability shift date.
ONE STUMBLING BLOCK IS THE BELIEF AMONG CERTAIN MAJOR MERCHANTS THAT THE CONVERSION TO EMV WILL IMPOSE AN EXTRAORDINARILY HEFTY FINANCIAL BURDEN WHILE DOING LITTLE TO CURB FRAUD. But the liability shift won’t be sufficient to bring all merchants into the EMV camp, at least on or before October 2015, when liability for fraud shifts to merchants that do not process at least 75 percent of their transactions on an EMV-enabled platform, or even October 2017 (the liability shift date for petroleum retailers). One stumbling block is the belief among certain major merchants that the conversion to EMV will impose an extraordinarily hefty financial burden while doing little to curb fraud. “Our actual fraud rate is so small that it’s hardly worth mentioning,” Gavin Waugh, vice president and assistant treasurer, Wendy’s International Inc., said during a panel discussion at NACHA’s Payments 2013 conference in mid-April. “Even if we pay the fraud liability, it’s a whole lot cheaper than putting in (EMV) terminals. Plus, (it seems inconceivable that) we’re going to spend an ex-
Transaction trends | June 2013 11
[ COVER STORY ] “PROCESSORS ARE RECOGNIZING THAT THE ONUS IS ON THEM TO PUT EVERYTHING IN LAYMEN’S TERMS AND WITHIN THE CONTEXT OF BUSINESS OPERATIONS.” —MATT MULLEN, EPICOR
traordinary amount of money on EMV, to protect a card-present environment, when the world is going to a card-not-present environment.” Waugh noted that for quick-service restaurants,“special difficulties” inherent in chip card acceptance constitute another obstacle to EMV migration—for example, the need to equip drivethrough lanes to handle the chip cards, which must be inserted into a terminal and left there for the duration of each transaction.
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Rue A. Jenkins, assistant vice president, treasury, for Costco Wholesale Corp., who served on the same panel, added that he’s less worried about counterfeit card fraud, which EMV addresses, than about fraud stemming from increasingly frequent data breaches. “That’s a bigger concern,” he said, pointing to “huge exposure” from malware stealing card credentials. For some big merchants, minimizing the risk of non-EMV acceptance takes a back seat to other technology upgrade priorities. “They don’t have a mandate, so it will be a decision each will make about if—and when—they fully migrate to EMV,” says Randy Vanderhoof, director of the EMV Migration Forum, a crossindustry body focused on aligning the EMV implementation steps required for global and regional payment networks, issuers, processors, merchants, and consumers to ensure the successful introduction of more secure EMV-based technology in the United States. With the exception of people who frequently travel to destinations where EMV is now mainstream, consumers still see few compelling reasons to demand chip-and-PIN cards, maintains Rob Bertke, senior vice president, research and design, for Sage Payment Solutions. Until customers’ perspectives change, merchants aren’t likely to follow with expensive hardware investments, despite pressure from processors and acquiring banks. Meanwhile, a desire to maintain a competitive edge against larger players and peer pressure from similar-size, more technologically progressive organizations is driving a small number of small- to medium-sized merchants to look at EMV acceptance. In addition to cost concerns, these merchants are being stymied by a lack of understanding about what EMV means to them in terms of compliance, system upgrades, liability, and fraud reduction, notes John Berkley, senior vice president, product management, for Mercury Payment Systems. Processors and others are trying to help. For example, Epicor Payment Exchange has developed written materials and webinars aimed at educating merchants about the benefits of EMV, the financial risks from neglecting to get on board with EMV, and how the liability shift schedules work.
“Processors are recognizing that the onus is on them to put everything in laymen’s terms and within the context of business operations,” says Matt Mullen, Epicor general manager and head of product management. New mobile EMV-compliant solutions are coming on the market—and by virtue of their affordability and flexibility, they have the potential to shorten the POS upgrade cycle, which is about four years. “There will always be a few large organizations that will hang on to using the older ways of the brick-and-mortar-type legacy units,” says Chris Ciabarra, co-founder and chief technology officer at Revel Systems. “But there is no doubt that those types of systems are on the decline and on the way out of popularity, with EMVready mobile POS technologies being adopted” and small- to medium-sized businesses primed to take the plunge. In January 2013, Revel Systems unveiled the first EMVenabled POS solution to operate on an iPad platform. Revel created the product in response to demand for mobile, non-legacy systems with the capability to handle chip-andPIN transactions, Ciabarra notes. At around the same time, Ayden, another solutions provider, launched the Shuffle, an EMV-compliant system for chip-and-PIN-based payment acceptance on iOS and Android smartphones and tablets via a Bluetooth connection. Similarly, VeriFone recently announced the addition of several EMV-capable, portable mobile payment acceptance systems. The lineup includes the PAYware Mobile e105, a PCI PTS (Pin Transaction Security)-debit approved solution that enables smartphones, tablets, and other smart devices to function as mobile POS terminals; the VX 675, an all-inone, EMV-capable wireless hand-held device well-suited for restaurant, hospitality, delivery, transportation, and similar “pay anywhere” applications; and the VX 660 3G, a portable, EMV-ready system with 3G wireless communication speed. Also introduced was the VX 520 LE, an entry-level device that can be combined with the vendor’s VX 805 PIN pad to pave the way for what the company deems an “affordable” EMV migration path.
Encryption and Tokenization Move Forward Elsewhere in the security landscape, more sophisticated tokenization technologies, in which nonsensitive substitute values replace credit card numbers and other sensitive data during the processing of transactions, are becoming available. Stateless tokenization technologies that utilize derived tokens are one example. Derived tokens can be recalculated from secret values, so they don’t need to be stored in a database where they may be vulnerable to hacking. Voltage Security’s Voltage Secure Stateless Tokenization (Voltage SST)—offered as part of the company’s SecureData enterprise security platform—is unlike first-generation tokenization options. Its configuration eliminates not only the need to maintain a token database, but to store sensitive data at all. The end result, according to the company, is a reduction in costs and in the scope of users’ compliance with the PCI Transaction trends | June 2013 13
[ COVER STORY ] DSS, as well as a decreased potential for data breach. “The SST method is truly a paradigm shift in primary account number (PAN) tokenization,” says Kennet Westby, president of Coalfire Inc., an independent IT governance, risk, and compliance firm. “Memory access is many thousands of times faster than disk access. By removing the database and practically eliminating disk input/output, performance is increased dramatically over conventional tokenization solutions.” New iterations of tokenization solutions designed specifically for mobile commerce indicate a move away from technologies wherein actual payment account credentials are linked to 2D codes or other tokens that are then scanned at the point-of-sale. Such an approach is said to be highly vulnerable to fraud because a copy or screen grab of the code can be used to make payments. Paydiant, a provider of white label mobile payment, mobile wallet, and offer-redemption platforms, has been awarded a patent for a
solution that will utilize a unique transaction tokenization approach wherein a checkout token captured via key entry, image scanning, NFC, RFID, Bluetooth, or other technology would be used to associate an end user and their payment accounts with a transaction. Additionally, the industry is seeing activity around the use of a combination of tokenization and encryption to add another layer of security to EMV transactions.“Tokenization and encryption play a significant role in the security of EMV transactions,” says Mike English, executive director, product development, at Heartland Payment Systems. “EMV does a great job of reducing the opportunity for copying cards and for customer verification through chip-and-PIN. Where it falls short, and where we will see the benefits of tokenization and encryption, is when EMV transactions ‘leave’ the terminal or PIN pad. With tokenization and encryption, it happens in the clear.” Heartland Payment Systems intends to encrypt contactless and contact EMV
transactions to protect cardholder information via its E3 end-to-end encryption technology, as well as with return tokens to the point-of-sale for merchant reference in either random or format-preserving formats. Heartland is also working with several still-unnamed suppliers to incorporate EMV, E3, and its tokenization technologies into mobile payment solutions. As EMV takes hold, tokenization and encryption—in ever more sophisticated forms—will assume an even more important role in payment security. “In markets where EMV has been adopted, the pattern of data theft has shifted from the point-of-sale, magnetic stripe side to e-commerce,” says Doug Klotnia, Trustwave’s executive vice president, compliance and risk. “That this will happen here is inevitable,” supporting the need for continued development in many facets of security technology. TT Julie Ritzer Ross is a contributing writer to Transaction Trends. Reach her at email@example.com.
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[ FEATURE ]
Big Data Gets Real How three companies are harnessing mounds of data to improve customer service, retain cardholders, innovate products, and more By Rona Distenfeld
KEY NOTES 8 Companies of all sizes and in all industries are leveraging data-driven strategies to innovate, compete, and capture value from deep and up-to-real-time information.
8 The potential of Big Data has spurred the growth of supporting companies that offer guidance, processing power, and tools to put the power of Big Data in reach.
he term “Big Data” has been buzzing around for a couple of years. As the world goes increasingly digital, the amount of data being collected, intentionally or as a by-product of consumer activity, is growing exponentially. According to Google CEO Eric Schmidt, 5 exabytes of data are created every two days.To put that in context, that is equal to the amount of data created from the beginning of civilization through 2003. A 2011 McKinsey & Co. study concluded that,“The use of Big Data will become a key basis of competition and growth for individual firms. From the standpoint of competitiveness and the potential capture of value, all companies need to take Big Data seriously. In most industries, established competitors and new entrants alike will leverage data-driven strategies to innovate, compete, and capture value from deep and up-to-real-time information.” The hypothetical or potential uses of all this data have created excitement, but how Transaction trends | June 2013 15
[ FEATURE ] does that translate into real, on the ground, use for you? Big Data doesn’t have a single definition, points out Bob Meara, senior analyst at Celent.“The term remains trendy and ill-defined, and means different things to different people.” It may be structured data, such as transaction records, or unstructured input, such as customer comments. It may use only internal records or survey a wide swath of industry information. It may include social media, newspaper articles, and complaint files. It may involve custom analytics or rely on an off-the-shelf engine. Its uses are as varied as its sources. Big Data is helping companies reduce fraud and improve customer satisfaction, innovate products and decide where to allocate resources, reduce customer service calls and break down institutional silos, identify customers at risk of switching, and much more. Yet, as Meara says, “in most companies, Big Data is only contributing a fraction of its potential because its use is limited to small projects pushed by lone individuals within a single department.” The handful of companies already using Big Data successfully share a common focus: a data-driven strategy that comes from the top down—one that sets specific goals or identifies clear problems and then defines Big Data criteria to address them.This capability is not limited to giant companies anymore, either. The potential of Big Data has spurred the growth of supporting companies that offer guidance, processing power, and tools to put the power of Big Data in reach of almost any business, from a mid-size payments processor to a new online merchant. Big banks and big retail merchants have been at the forefront of Big Data development. T his is partially because they already have the computer power in place and have been gathering and using
16 June 2013 | Transaction trends
customer data for years at some level. “Banks like to talk about ‘a 360-degree view of the customer’ although most continue to silo their data by department and have yet to achieve this,”Meara says. In fact, a 2012 Economist Intelligence Unit survey found that when asked about barriers to Big Data, access to other departments’ data was one of the chief barriers cited by executives in every industry. The potential uses of Big Data are almost limitless, but today the actual applications focus on traditional business goals: reducing fraud and growing sales, with customer service being included in that mix. A handful of companies are already using Big Data to achieve measurable results.
Case Study One: Isracard Group Isracard,the leading card issuer in Israel, is owned by Bank Hapoalim, Israel’s largest bank, and brings together four companies with activities in credit payments. The group has issued 3.5 million cards under multiple brands, including Isracard, MasterCard, Visa, American Express, and affiliate and cobranded club cards, and has differentiated itself in the market by focusing on customer service, taking advantage of new technologies and winning awards for its efforts. Isracard used a vendor-provided Big Data solution to address four key objectives: increasing the up-sell of new products and services, reducing service costs, expanding the adoption of selfservice solutions, and continuing to excel at quality customer service, explains Meara, who worked on an Isracard study for Celent. A logical starting point was Isracard’s call center. Despite being recognized for having far shorter wait times than other Israeli companies, Isracard wanted to find ways to make the customer experience even better while also addressing its other goals.Analyzing call history, the company found that more than one third of the volume centered on transaction-level inquiries. If Isracard could find a way to deflect the majority of these calls away from the customer service representatives, it could reduce service costs, one of the company’s goals. However, it would have to be done in a way that also helped Isracard achieve its other goals. The company employed a system from Personetics called Digital Banker. T his predictive virtual assistant anticipates customer banking needs and offers relevant solutions by using information about each customer, customer transactions, geolocation, and other internal and external data. This provides a high probability of understanding a customer’s intent when a query is initiated. Digital Banker’s interface uses a familiar chat format. Customers get a seamless, intuitive chat experience that automatically bumps to a live CSR in the cases that fall outside the predictive program’s scope. Isracard was able to quickly and easily implement the program’s robust, prebuilt analytics models with minimal effort. It worked. In the first three months, a significant number of Isracard’s active online and mobile users interacted with the system. More than half continue to use it, and 90 percent of the users were able to successfully resolve their call issue without speaking to a live representative. In addition, 45 percent of product/service recommendations made by Digital Banker resulted in user conversion—far higher than a typical marketing campaign.
From Big Headache to Big Data The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 created the Consumer Financial Protection Bureau (CFPB). Many in the financial services arena, especially credit card issuers, saw this as just another intrusive layer of government oversight. An unexpected benefit, however, was the creation of a consumer complaint database that could be a useful tool for these same companies. All credit card issuers and merchants have their own customer complaint data. Customer cards, letters, surveys, emails, and transcripts of customer service calls provide valuable input. With the publication of the CFPB data, individ-
ual organization data can be placed in context against specific competitors, making for bigger data than a company would have on its own. One company, Beyond the Arc, has taken this a step further, by adding data gleaned from social media. This provides more detail on the specifics of complaints that the CFPB database puts into five basic categories: billing disputes, interest rates, credit reports, account closing issues, and identity theft. It turns bigger data into Big Data. CEO Steven Ramirez sees his clients using this data to prioritize problem areas and start analyzing root causes. “The next step is to go
Case Study Two: DISCOVER Recognizing that keeping customers from jumping ship is an important issue for merchant acquirers, Discover “has developed an innovative use of Big Data to solve merchant attrition problems,” says David Fish, senior analyst at Mercator Advisory Group. “The most effective time to take retention steps is before they tell you they’re leaving, and Discover used Big Data to identify risk factors.” In late 2012, Discover Network launched the Merchant Attrition Predictor Model, a patent-pending product enabling acquirers to see key changes in a merchant’s behavior, which may indicate they are about to switch acquirers.To create the model, Discover analyzed five years of its own data, studying merchant behavior over time to develop metrics to indicate if a merchant is about to end the relationship. Using these metrics, merchants were given a score to indicate how at risk they are of leaving. The volume and quality of Discover’s merchant data over multiple portfolios gave statistical validity to the data that is applicable
deeper,” says Ramirez. “Banks can look at this data and ask themselves why they have a poor ranking in billing disputes when a key competitor has a much better record. This is where the ‘voice of the customer’ really comes in. The answers are usually there, buried in the bank’s data. They just haven’t had the know how to get those answers, and that’s where our analytics come in.” So far, Beyond the Arc is the only company mining and enriching the CFPB complaint data this way. The ongoing focus on Big Data for the next competitive edge ensures they won’t be alone for long.
to other, smaller merchant acquirers. Acquirers can run their own data through this predictive model to score their customers, then use the scores to focus retention efforts on those accounts most at risk. T he model also provides information to help acquirers better understand their merchants and refine their retention strategies for greater success.
Case Study Three: FEEDZAI It’s no secret that as the volume of online and mobile transactions grows, so does the incidence and risk of fraud. With transaction settlements made next day in most cases, the chance to detect and prevent a fraudulent transaction is limited. The giant payment processors have the processing power and expertise to help their equally big clients manage this risk using their own data and analytics. Feedzai has developed a way for smaller brands, payments processors, and online/mobile merchants to easily apply this same Big Data solution. “Processors used to see just the amount, the buyer’s name, and a merchant code,” says Nuno Sebastiao, CEO of Feedzai.“That was enough when a buyer was standing in a store, but it’s not enough in the online/mobile world.Web browsers capture a lot more data that can help merchants and processors verify a transaction, but you have to be able to use that data in real time.” For example, a fraudster sets up a merchant code to run stolen cards through. Feedzai’s software can detect whether the IP address is valid (if the merchant is in Memphis the IP address should also be in Memphis, not Dallas), and also look at a dozen other criteria before validating the purchase. “Fraud today is very organized,” says Sebastiao. “If you have enough data, and know what to do with it, you can spot patterns that can help you minimize your risk.”A large part of the problem for small and mid-size processors and merchants has been data volume and analytical skill—or the lack of these key things. Feedzai allows them to enrich their universe with a much larger data set, improve their data quality, and put it to work for their actual needs without having to be data or fraud experts. Transaction trends | June 2013 17
[ FEATURE ] Common errors and omissions, such as putting a state in a country code field, or leaving out a merchant code, would typically flag a transaction as bad even if it wasn’t. Feedzai’s larger data set and analytics immediately give greater perspective to each transaction so that if other criteria are good the transaction can go forward. Feedzai designed its original fraud detection tools for online use, and is now building on that success with a new tool specific to the mobile market. “It’s a newer arena and the volume of data specific to mobile transactions is still relatively small,” says Sebastiao.“It’s rapidly growing, however, so we’ve developed a tool mobile merchants can easily embed to get the same grade of technology that the big payments processors use to validate a transaction.We’re making it available for free for six months to more quickly collect a relevant body of data that will ultimately make the tool even more useful from a merchant’s point of view.” These real-world examples share a key factor the Economist survey found in all companies successfully using Big Data: They had clear goals and priorities that were part of a larger strategic initiative before they designed their data solution.The use of Big Data may have been pioneered by mega banks and retailers, but today a growing number of third-party solutions can be scaled to any size merchant or processor. It’s no longer pie-in-the-sky; it’s here. TT Rona Distenfeld is a contributing writer to Transaction Trends. Reach her at firstname.lastname@example.org.
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18 June 2013 | Transaction trends
Startup Stories: Tuition Management Systems
Schooled on Payments Tuition Management Systems brings multiple solutions to colleges, K-12 schools, and even parents, students, and alumni By John Manasso
C Tuition Management Systems Warwick, Rhode Island Founded: 1985 Annual Processing Volume: $4 billion Employees: 120
raig Lockwood likes to say that people tend to think in black or white when it comes to deciding whether they can afford to pay tuition for their children’s education. “Either I have $30,000, or I have to borrow it,” he says, describing parents’ thought process. And that’s where his company, Tuition Management Systems (TMS), got its start. Lockwood has served as managing director/product strategy for more than two years, but has spent nearly 10 years at the company. He says people don’t think in terms of using a combination of savings, current income, and borrowing to pay for that education—part of what TMS helps them to do. In short, TMS started out by creating interest-free payment plans. Customer service staff in TMS’s call center helped explain and simplify the plan, giving the company a leg up on the competition. As the cost of tuition increased and student debt became more of an issue, both in terms of personal
finance and national politics,TMS’s services grew in demand. “Every dollar you put on a payment plan is a dollar you’re not borrowing,” says Lockwood. Over the years, TMS’s business model has evolved, providing a wider array of services for its clients. It’s not a traditional ISO and, for the most part, charges a convenience fee on large transactions—for example, a five-figure tuition payment. However, it also gives schools an option to be charged a merchant fee on smaller transactions like those made by alumni who donate using a credit or debit a card. TMS is registered as a payments facilitator and, as such, sets up submerchant accounts for each of its schools.As a member of ETA, it deals in products such as prepaid cards and helps to prepare web-based portals for its clients that may be re-branded to help those clients accept payments.TMS also sells its software to some of its clients to allow those schools to create their own payment plans for students. Transaction trends | June 2013 19
Startup Stories: Tuition Management Systems
Located in Warwick, Rhode Island, with about 120 employees,TMS is owned by First Marblehead, an educational finance company. It was privately held until 2007. Lockwood oversees the product and operations and is two levels below First Marblehead’s CEO. Carl Firlings, managing director/national sales, reports under a similar structure. TMS handles about $4 billion annually on behalf of its 750 client schools with its average ticket being about $1,200. (About 600 of those schools—mostly higher-cost institutions—are on the convenience fee model, Lockwood says.) About $1.5 billion of that $4 billion represents automated clearing house, or ACH, payments.
Diverse Curriculum These days, as the needs of TMS’s clients have expanded, so has its business. Whether the client is a private school whose students run from kindergarten to 12th grade or a university, TMS has found clients asking it to expand its services in a variety of areas. “We’re doing portals for things like summer camps,” Lockwood says. “We’re doing portals for alumni giving. We’re putting portals up for a lot of special
events.Think of graduation weekend…. If you’re going to be joining for the alumni meals, if so, what kind of meal do you want: chicken or fish? Are you going to participate in the alumni golf tournament on Saturday?”The list goes on. Firlings says the sales force focuses on several areas. For example, “we’re trying to build strong relationships so we maintain what we have within our member schools,” he says.“As we add services or really grow, that’s where we get a lot of our growth—product expansion and more robust partnerships.”The sales force also focuses on prospecting,“where we bring on new member schools based on their needs.” Because of the increasing complexity of the education realm, prepaid cards are becoming part of TMS’s business.That aspect comes into play with regard to refunds. When a student applies for an educational loan with, for example, a university, the sum often includes more than just tuition, fees, and room and board. It can include living expenses and funds for housing if the student is not living in university housing. As a result, the university must refund the portion of the loan to the student
WORDSTOTHEWISE n Be willing to please clients as much as you possibly can. “I think what has been very helpful for us and gives us some traction is that willingness to go the last mile for the client in a way that is very vertical specific,” says Lockwood. “Schools have invested millions of dollars in Student Information Systems (SIS). So you can have the best payment engine in the world, but if you can’t integrate with this system that they’ve spent all this money on, then it’s very difficult to be successful.” n Provide a great user experience for clients. “Everybody wants immediate notification,” Firlings says. So TMS is working to make sure “they have an easy, understandable user experience that is tightly integrated and that also is supported by people.” n Customer service should be provided by real people. “Technology is a requirement, but I think we falsely believe it’s the only answer,” he says. “In higher (education), it definitely has to be part of it, but there are big dollars involved. People still will do their research, but they want to ensure that they’re doing the right thing. They want a call center, someone they can speak to, which is ultimately the most expensive, right? To have human capital. But I think it is what you need for all service or to build that customer service base.” 20 June 2013 | Transaction trends
to which the university is not entitled. TMS helps the university to manage that transaction, which can be remitted to the student in the form of direct deposit, a check, or a prepaid card. Lockwood says the issue is especially acute for schools that are governed by U.S. government Title IV laws, which apply to schools that receive Pell grants, Stafford loans, and the like. The schools generally have to refund the money to students within 14 days.This often comes as students are returning to school for the start of the semester and classes are starting up, and the schools want to look out for the students’ welfare. “Depending on the school, if they’ve got large numbers of unbanked students or under-banked students, then they’ve got the issue of students going out to check-cashing businesses and losing 2 or 3 percent of the refund,” Lockwood says. “It’s a non-core, extremely cyclical activity for these schools and something, in many cases, they’re happy to outsource.”
Learning Curve As institutions of higher education are increasingly roped into non-core functions, TMS is helping them to respond, Firlings says.The company is looking at POS technology with some of its client schools. “Really, our main buying influences have always historically been the business side of the house—finance, the controller,” he says of the company’s marketing approach. “We go in and understand what their high-level objectives are from an office standpoint: Are they looking for receivables? Are they looking to improve customer service? It could be retention, recruitment.We’re looking at what they want to do, and we talk about our product set and how we can help them meet that initiative.” One might wonder how a company that creates interest-free payment plans on behalf of its clients generates revenue. First,TMS charges fees for those payment plans, which range from $50 to $60 per year or $35 to $45 per semester. Second, it also charges late and other transactional fees. Finally, Lockwood says there is some “float” in that TMS accepts funds from the payer and holds them for a time before disbursing them to its client—the
implication being that it has the ability to earn interest on the $4 billion it processes each year. But such a business does not come without its headaches. Part of the reason TMS changed from an aggregator model to a payments facilitator was because of chargebacks. TMS receives relatively few but, when it did, it was because of a case of mistaken identity: A payer might not understand that TMS was charging it on behalf of one of its schools and so the payer would deny the charges. By establishing submerchant accounts, it rectified that problem. It’s an example of TMS helping its clients to find solutions—the kinds of solutions it was built on via its customer service. “Our differentiator in that market became our counseling ability—working with families,” Lockwood says.“It could be done electronically via our online tool. More likely, it’s done through our call center with one of our education payment advisors: helping a family work through how they were going to pay for education.” TT
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ISO Corner Future of the Business
Tapping the Deal of the Day
How the likes of Groupon and LivingSocial helped create a mobile payment revolution By Greg Cohen
ost people don’t think of electronic payments when they say the word “marketing.” And they’re right—or at least, they used to be. Until the last few years, the act of paying seemed to have little relationship to the marketing funnel. But daily deals from companies like Groupon, LivingSocial, and Bloomspot have changed the dynamics of payment and marketing forever, making the payment into a key element of the marketing ecosystem. Since Groupon was founded in 2008, marketing and payments have converged. As this connection moves closer—and offers, loyalty programs, and deals become more relevant—the value proposition to consumers and merchants is enhanced. With mobile and online tools, merchants, especially local businesses, can more easily engage customers than with traditional ads. And unsurprisingly, the convergence of marketing and payments has completely transformed retail marketing.
Simple Yet Complicated Consider the daily deal process. When consumers find a daily deal that interests them, they purchase and redeem it in a store, salon, or restaurant—often one they’ve never visited before or may never have heard of prior to receiving the offer. In fact, that’s exactly what the daily deal sites sell merchants on: bringing in new customers through a unique form of marketing that is 100 percent driven by a prepurchased offer. Yet despite the immediate success with consumers, the redemption process for daily deals is often a bad experience on the other end. Buying a deal is relatively seamless for the consumer, but retailers have to manually reconcile offers, which can be a time-consuming process at scale. It became apparent to most that a simplified deal acceptance solution at 22 June 2013 | Transaction trends
the point-of-sale was needed. It sounds simple, but in reality, the POS is extremely complicated and requires the rewiring of the infrastructure with hardware vendors, processors, and service companies. Given the complexity, tying in offers to the POS is truly an amazing challenge that all players need to account for, especially with the proliferation of smartphones. Daily deal sites have created apps to make it easier for consumers to redeem their deals with their phones. Today, 53 percent of Americans over the age of 12 own a smartphone. Forget the printer— just grab your Droid or iPhone and go. But this still leaves merchants responsible for figuring out how to accept the deals. If they just look at an email or a
code and write it down, the merchant is still stuck with a manual process. Businesses are now dealing with the challenge of determining which mobile marketing and payment solutions to offer their clients in addition to weighing the costs associated with updating to new POS technology.
The POS Connection Because more and more consumers are becoming comfortable with the idea of buying and redeeming a Groupon with their smartphone, the idea of paying with their phone doesn’t seem to be too large of a leap. It’s a logical progression for the consumer, but accepting the deals electronically requires a significant
upfront investment in new technology from the merchant. If merchants can connect their POS systems to their customers’ smartphones, they can push offers to consumers right from the POS. If the transactions are combined, businesses can accept offers, deals, and loyalty rewards seamlessly through the POS, avoiding the manual complications that daily deals initially represented. This also opens the door for a whole slew of new customer incentives. As smartphones continue to gain mass acceptance and consumers become more aware of the value of mobile deals, this interaction at the POS will become even more important to merchants. The daily deal, at least in its original incarnation, may not last forever (and in fact, we’re already seeing the early stages of decline). In all likelihood, we won’t need daily deals in the future because merchants will be able to reach
Daily deals brought marketing and payments together, paving the way for a better consumer experience—driving value for both merchants and customers through the power of mobile technology. consumers directly and in real-time with offers and incentives that are personalized to each customer’s location, interests, shopping habits, and more. Daily deals brought marketing and payments together, paving the way for a better consumer experience—driving value for both merchants and customers through the power of mobile
technology. We look forward to a future where payments, marketing services, and the POS sit together, creating value for every stakeholder. TT Greg Cohen is chief revenue and strategy officer for Merchant Warehouse and a member of ETA’s Board of Directors.
Why should I do business with an ETA CPP? ETA CPPs have the knowledge and experience to recommend the best and most appropriate payment solutions for your business. ETA CPPs have made a significant personal (and financial) commitment to the profession and agreed to adhere to the Electronic Transactions Association (ETA) Code of Conduct.
For more information visit: www.electran.org/cpp Transaction trends | June 2013 23
Planet Group’s software suite helps ISOs and acquirers become their own processors By Bryan Ochalla
lanet Group Inc. has come a long way since it first opened its doors 17 years ago. At its onset, the Omaha, Nebraska-based company provided consulting services to the payments space. Today, it focuses on software—specifically, Planet Group’s flagship Acquire360 payment processing solution as well as its Core260 (for customer e-correspondence), OptiCard (for gift, loyalty, and stored-value card programs), and Workpoint (for business process management) products. That transformation was achieved due to the hard work of its more than 150 staffers and its founders, whom Mark Spurgeon, vice president of sales and client relations, describes as “a number of people “Becoming your own with payments inprocessor is a process, and dustry DNA in and it’s one that we go through around the Omaha area who had left sucwith [our customers]—to help cessful companies them decide if they want to and wanted to do take it on, to show them how their own thing.” Initially, Spurgeon they can take it on, and then explains, they wanted to help them execute so they to create “a technolocan succeed.” —Mark Spurgeon gy company centered around Y2K activity and NT technology for rapid development for the Internet.” That desire to think outside the proverbial box helped push Planet Group’s founders and current staffers to become the boutique shop it is today—one that aims to help companies in the payments acquiring realm streamline business processes, reduce costs, and enhance productivity via a diverse portfolio of offerings that includes merchant payment processing, gift and loyalty programs, customer ecorrespondence solutions, business process management, and more. Many other companies boast a similar aim, but “only [Planet Group] and a couple of others enable people to be their own processors, which is what we’re all about right now,” says Spurgeon. 24 June 2013 | Transaction trends
DIY Approach Although Planet Group’s product suite allows ISOs and acquirers “to do their front-end and back-end settlement versus outsourcing it to processors, who also are their competition,” Spurgeon explains that not all clients are eager to jump into the deep end of payment processing from the start. “It depends,” says Spurgeon, who describes the company’s clients as “nontraditional merchant companies” (such as Square, Google, and Amazon) as well as acquirers and ISOs. Some “don’t know what they don’t know, if that makes sense. In those cases, there’s understandably a little bit of fear involved—related to things like, ‘Do I take this on?’ or ‘How do I handle the risk?’ “That’s definitely not something most people come to terms with overnight,” he adds.“It’s a process, and it’s one that we go through with them—to help them decide if they want to take it on, to show them how they can take it on, and then to help them execute so they can succeed.” Timing is paramount, according to Spurgeon. “Almost everyone wants to do it at some point. So, once they learn about what it takes and what has to be done, all they have to do is decide if this is something they want to do right now or something they want to do in the future.” The benefit for acquirers, ISOs, and nontraditional merchant companies to becoming their own processors is, according to Spurgeon, more control and “flexibility in what they do because of that control.They can put themselves in a better financial situation—from a banking and settlement perspective—moving forward because they’ll no longer be tied into their competition.” Staff Savvy As much as Planet Group’s customers come to the company for the suite of software solutions that help them become their own processors, they also come to the company for its people, says Spurgeon. “We have people who really understand this stuff.They aren’t just a bunch of technicians; they are business analysts… and merchant-industry [subject matter experts] all the way through,” he assures.“We really feel we’re as much about people as we are about software.” TT Bryan Ochalla is a contributing writer to Transaction Trends. Reach him at firstname.lastname@example.org.