Transaction Trends Nov/Dec 2014

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TRANSACTION trends The Official Publication of the Electronic Transactions Association

| November/December 2014

Ripe for the APPLE PAY:


Experts debate how this ‘game-changer’ will affect ISOs and agents

ALSO INSIDE: Biometrics Making Its Mark on Payments Discover’s Diane Offereins: Don’t Be Everything to Everyone

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TRANSACTION trends The Official Publication of the Electronic Transactions Association

Vol. 19 | No. 8


10 Apple Pay: Ripe for the Picking? Julie Ritzer Ross Since its official launch in October, Apple Pay has been heralded by some as a payments game-changer that will dominate the mobile space and finally tip the scales for adoption. But for ISOs and agents, the question is: Will it lead to disintermediation or new opportunities? Opinions abound.


FEATURES 16 Just Touch Me

By Julie Ritzer Ross Biometric technology is pushing its way into a variety of real-life scenarios, including payment authentication. Recent research and insider data reveal an increased consumer demand for wearables and a proclivity to embrace biometric technology in the near future. Is your business ready?

20 S P E C I A L S E RI E S Startup Stories: Beltway Insiders

By John Manasso Despite changes in leadership and mergers, Merchant Link’s focus on technology and security solutions powers its success just outside the nation’s capital.



ETA Gateway


Industry News


Insights from ETA’s CEO, Jason Oxman Trends, strategies, and news in the payments business and ETA member community


The Future of the Business

Up close and personal with Discover’s EVP, Payment Services, Diane Offereins

28 The Last Word

Recounting an active year for ETA’s advocacy program

Ad Index

6 TRANSACTION trends | November/December 2014 3

ETA Gateway

Thank You for a Great Year!


n behalf of ETA, thank you for being a part of this great organization during a remarkable time for payments. Our industry is growing and changing exponentially, and the future looks bright. ETA is working overtime to help our members understand the latest policy issues, navigate the new terrain, and profit from advances in technology. Based on member feedback, we’ve greatly increased our programs and activities to help you address our changing industry. We’ve added new industry and policy staff, augmented our online and in-person educational programs, enhanced our advocacy through Voice of Payments and ETA PAC, and produced the largest events in our history. As much as we’ve already done, it’s just the tip of the iceberg. In 2015, mobile payments move from discussion to imple-

mentation.Thanks to ETA member companies like Apple, Samsung, PayPal, Softcard, Google, Verizon, AT&T, and many more, secure and reliable mobile payments deployment will be the top business priority of our industry. Virtual currency companies, including new ETA members like Circle, BitPay, and CoinBase, are enabling merchants to accept Bitcoin at the point of sale.  And our card network, financial institution, and acquiring channel members are implementing new technologies like EMV and tokenized payments solutions at the points of sale. ETA provides our members the platform to seize these new opportunities. In fact, the connections you make through ETA are more important than ever. Our recent Mobile Payments Day and Silicon Valley Day events were both at-capacity with senior-level payments executives representing financial institutions, technology companies, investment analysts, and venture capitalists.  T hey were all there to learn to navigate the new pay-

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 November/December 2014 | TRANSACTION trends

ments paradigm and to prepare for the exciting industry changes ahead. Relationships and education are vital to your business and TRANSACT® 15: Powered by ETA is where you engage the partners that add value to your business. This is the one event that brings together the entire payments ecosystem, and next year, we’re taking you to the hub of technology and innovation: March 31-April 2 TRANSACT® 15 is in San Francisco! Payments is the most exciting place in technology right now. Our members are making payments easier, smarter, and safer. We are completely rethinking the way consumers and retailers view payments. ETA is proud to represent more than 500 of the world’s most innovative payments technology companies, and we look forward to working with you in 2015 to help grow your business. TT Sincerely, Jason Oxman Chief Executive Officer Electronic Transactions Association

Electronic Transactions Association 1101 16th Street NW, Suite 402 Washington, DC 20036 202/828.2635 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 Director, Industry Affairs Amy Zirkle Publishing office: Content Communicators LLC PO Box 223056 Chantilly, VA 20153 703/662-5828 Subscriptions: 202/677.7411

Editor Josephine Rossi Editorial/Production Associate Christine Umbrell Art Director Janelle Welch Contributing Writers 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 Alison Bashian Phone: 800/335.7500 Fax: 440/232.0398


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INDUSTRYnews Holiday Spending, Online Shopping, Mobile Device Use To Grow in 2014

Analysis Finds Online Fraudsters Are Bigger Spenders

The average consumer will spend $804.42 this holiday season, up nearly 5 percent over last year’s actual of $767.27, according to the National Retail Federation’s (NRF’s) Holiday Consumer Spending Survey. Overall sales are expected to grow 4 percent. A similar increase also is predicted for the e-commerce space: 56 percent plan to “shop” online, up from 52 percent last year and the most in the survey’s 13-year history.  Additionally, the average person plans to do 44 percent of their shopping online, the most since NRF first asked this question in 2006. (Note: In survey references,“shopping” does not necessarily refer to a completed purchase.) The majority of smartphone owners—56 percent—will use their mobile devices in some manner, up from 54 percent in 2013. Specifically, 36 percent will research products/prices; 24 percent will redeem coupons; and 19 percent will complete the purchase—all survey highs these questions. Those statistics increase among tablet owners: 63 percent (the same as last holiday season) will use their tablets to research and purchase holiday items: 47 percent will research products; and 33 percent will purchase items. For the first time, NRF also asked consumers about their comfort level using a smartphone or tablet to make an in-store purchase. Twenty-seven percent are “somewhat or very comfortable.” However, 42 percent are “not very or not at all comfortable” paying via mobile device. Broken out by age and gender, 41 percent of 25- to 34-year-olds are “somewhat or very comfortable,” compared to 14 percent of those ages 65 and older. Men (33 percent) also are more likely than women (23 percent) to feel comfortable using their device to pay at the register.

Card-not-present (CNP) fraud takes a big toll on consumers’ wallets, according to new information from data science company Feedzai. In analyzing more than 17.5 billion card-present (CP) and CNP transactions—representing $750 billion in payment volume—the firm also discovered the following:

info GRAPH North American Digital Currency Users: What Are the Benefits?

Protects personal identity/ anonymous transactions

36% 21%

Lower cost transactions No government interference/ No third-party intermediary


Instant international transfers regardless of time Irrevocable/Irreversible transactions

Note: n = 1,451 Source: Accenture 2014 North America Consumer Payments Survey

6 November/December 2014 | TRANSACTION trends

15% 7%

n T he avera ge CNP fraudster spends about $900 per card in five days, while CP fraudsters take seven days to spend an average of $450. n I n 2013, the 10 days with the most CNP fraud occurred in November. June saw the least CNP fraud. The most CP fraud occurred on Black Friday. n The most CNP fraud occurs between 12 and 1 pm, while CP fraud is more likely to occur between 4 and 5 pm. n The highest rate of overall fraud occurs on Monday; Sundays see the fewest fraudulent transactions. Most CP fraud occurs on Saturday, and most CNP fraud occurs on Monday. n G rocer y stores/supermarkets (25 percent) and home supply warehouse stores (8 percent) are top targets for CP fraud. Top merchant categories for CNP fraud include electronics stores (11 percent), discount stores (10 percent), and computer, peripherals, and software retailers (8 percent).

fast FACT Over the next five years, U.S. mobile payments will grow to $142 billion, according to a November 2014 report from Forrester Research Inc.




YOUR ETA: NOW Merchant Warehouse has arrived at a 75,000-customer base with the help of ETA.

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Boku Inc. , its subsidiary, Boku Account Services UK Ltd., and a number of mobile network operators have partnered to overhaul European direct carrier billing business. FIS has completed its acquisition of Clear2Pay . First Data has unveiled Clover Mobile, a new mobile POS business solution. Global Payments Inc. announced its integrated solutions division, OpenEdge, fully supports Apple Pay. Infinite Peripherals Inc. launched the Linea Pro 6, an enterprise mobility device that is compatible with the Apple iPhone 6. Ken Paull has been appointed chief revenue officer of Merchant Warehouse. Pivotal Payments announced its proprietary FlexPoint platform will support credit and debit transactions through Apple Pay. Larry Drury will join Vantiv Inc. as chief marketing officer.The company also has announced the launch of MobiMoney mobile payments app; an agreement with MUFG Union Bank, N.A., to provide merchant services to MUFG commercial and corporate relationships; and its successful completion of the first U.S. debit EMV chip transaction utilizing US Common AID.

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 3i Tech Works Inc. Boca Raton, FL

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is to quantify the economic impact of cyber attacks and to understand and observe cost trends over time” to help organizations allocate resources to fend off an attack. Highlights from the report:

Global Cost of Cyber Crime ‘Staggering’ The Ponemon Institute has released results of it fifth annual “Report on the Cost of Cyber Crime.” The global survey was conducted in the United States, United Kingdom, Germany, Australia, Japan, France, and Russia and involves 257 benchmarked organizations. “The cost of cyber crime can be very material—very significant,” said Chairman and Founder Larry Ponemon, PhD, CIPP, in an October 10 webinar. “The purpose of this benchmark research

nC yber crimes continue to be on the rise. “The rise in cost is staggering— it’s almost a 100 percent increase in five years,” said Ponemon. The mean annualized cost is $7.6 million per year, with a range from $0.5 million to $61 million per company annually. In 2013, the mean cost for 235 benchmarked organizations was $7.2 million—a more than 10 percent net change from last year (excluding the Russian sample). n All industries fall victim to cyber crime, but to different degrees. The average annualized cost of cyber crime varies by industry segment. Organizations in energy and utilities

8 November/December 2014 | TRANSACTION trends

and financial services experience substantially higher cyber crime costs than organizations in hospitality, life sciences, health care, and retail. “Retail has been the focus of lots of attacks recently, in the United States and around the world,” said Ponemon,“and quite frankly as a percentage of total cost, it is definitely on the increase.” n The most costly cyber crimes are those caused by malicious insiders, followed by denial of services and web-based attacks. These crimes account for more than 55 percent of all cyber crime costs per organization on an annual basis. “‘Malicious insiders’ are those who are in the position to capture a lot of critical information,” said Ponemon. “They can get authentication data, they can get inside enterprise systems, and they may be working with external attackers.”


Ripe for the APPLE PAY:

Picking? By Julie Ritzer Ross

Experts from across the industry weigh in on how the mobile payments system will affect ISOs KEY NOTES 8 Some experts contend that merchants will embrace Apple Pay because consumers will demand it. A combination of factors, including enhanced security and existing infrastructure rails, will speed adoption.

8 The impending EMV mandate and liability shift puts pressure on ISOs and agents to provide terminals capable of accommodating chip cards. Most EMV-enabled terminals also support near-field communication (NFC), the enabling technology for Apple Pay. This can incentivize merchants to either pay for part of the cost of the new terminals or extend their contract.

8 ISOs will need to educate their salespeople and customers about Apple Pay’s in-app functionality, its mobile rewards/

10 November/December 2014 | TRANSACTION trends

loyalty tie-in, and how to develop campaigns and analyze data to build merchant businesses. They also will need to find ways to integrate Apple Pay into existing payment systems and align with third-party processors.

8 Certain merchants are reluctant to shoulder the financial burdens of NFC technology implementation and cost of mobile payments acceptance. Others are already tied to CurrentC or generally skeptical of Apple Pay’s supposed enhanced security solutions.

8 The likelihood that merchants will eventually support multiple mobile wallets is high, say some experts. Just as many consumers use multiple credit cards, they will come to accept the idea of having more than one wallet, depending on where and when they are shopping.


alk about Apple’s Apple Pay mobile wallet service has officially reached fever pitch following its official launch in mid-October.

Not surprisingly, many continue to question how the offering—which is being heralded by some as a payments industry game-changer and a product that will dominate, if not completely take over, the mobile payments space— will affect ISOs and agents. Their questions center on whether the advent of Apple Pay will lead to disintermediation or new opportunities for these players, and how the scenario will look going forward.  As with many issues in this fastpaced industry, it depends on whom you ask and how you look at it. By some accounts, merchants will sink their teeth into Apple Pay for fear of competition, and because consumers will demand more secure options to protect their payment card data in the wake of seemingly unending breaches at U.S. retailers. Sensitive data from transactions executed with Apple Pay is not transmitted, rendering stolen data useless to fraudsters, and the Touch ID fingerprint reader incorporated into the mobile wallet makes authenticating payments more secure than password entry. Also pushing the envelope on the consumer side, experts say, is a strong existing consumer infrastructure. This includes the large cadre of individuals (25 percent of U.S. smartphone owners, according to Apple) who already use Apple’s Passbook coupon and loyalty wallet, into which Apple Pay is integrated. These users will migrate to the service because it is easier to redeem offers with a smartphone and then purchase goods (as is done with this particular mobile wallet) than it is to redeem offers with a smartphone and then pay for purchases via another payment method. Another

integral part of the infrastructure is the 42 percent of American smartphone users who have iPhones: More than half are entitled to an upgrade to an Apple Pay-compatible iPhone, according to company spokespersons. Existing technology infrastructure and future developments will give merchants a nudge as well, says Rich Aberman, founder of ISO/MSP/TPP WePay.“In

more relevant (and appealing) to online merchants.” Such acceptance could lead merchants to ISOs’ front doors in search of the technology needed to support Apple Pay—and perhaps more.The impending implementation of EMV, and the shift of liability for fraudulent transactions to merchants who do not process on EMVenabled devices, puts pressure on ISOs


the context of card-not-present transactions made online, Apple Pay will work with any native iOS application—no special hardware required,” he says. “I assume that over time, Apple Pay— like Google Wallet—will not be limited to native iOS applications, making it

and agents to provide their contracted merchants with new terminals that are capable of accommodating chip cards. Most EMV-enabled terminals also support near-field communication (NFC), the enabling technology for Apple Pay. O.B. Rawls IV, senior vice president

TRANSACTION trends | November/December 2014 11

[ COVER STORY ] and general manager, national and ISO portfolio, First Data, calls Apple Pay “a gift” to the ISO and agent community. The coolness factor alone, he believes, will drive consumer and merchant adoption. ISOs will be able to reinvent themselves, parlaying that “cool” and the overall value of NFC into the sale (or lease) of new EMV-NFC-compatible terminals and even processing services. “The question becomes: Who should shoulder the burden of the new equipment—the merchant or the acquirer?” says Greg Garson, an associate partner with research and consulting firm High Start Group, Boston. “Given the aggressive competition for acquiring volume and accounts, it is imperative that ISOs and agents fight to keep their current customers with offers and/or incentives that will encourage contract renewal or extension. Apple Pay—and NFC in general—can act as a ‘sweetener’ to try and encourage merchants to either pay for part of the cost of the new terminals and/or enter into a contract extension to shore up the relationship.”

Deborah Baxley, principal, cards and payments, at Capgemini Financial Services, a consultancy with North American headquarters in New York City, agrees. “Along with EMV enablement, Apple Pay opens doors for engaging with merchants to upgrade their payment acceptance capabilities overall and to potentially enable new features,” like upgraded customer loyalty apps and other technology that fosters the caliber of customer engagement.

Adoption at Its Core Even if ISOs stand to gain from Apple Pay in large measure, they may not fully realize such benefits without changing behavior within their own organizations. One significant change entails developing their own skillset and base of knowledge to truly advise merchants on matters such as mobile operating systems, security, privacy, and market developments. While the need for technology to support Apple Pay will offer some protection for ISOs against disintermedia-




tion, observers concede, educating their salespeople—and their merchant customers—about the workings of Apple Pay’s in-app functionality and leveraging the tie-in between Apple Pay apps and mobile rewards/loyalty incentives will be paramount. Success here also will be predicated on teaching merchants the ins and outs of developing campaigns to drive customer engagement and analyzing data amassed as a result of Apple Pay acceptance to build their businesses. “It’s a much more collaborative role and will require payment providers and partners to become much more knowledgeable in areas where they may previously have had little expertise,” says James Wester, research director, global payments, at Framingham, Massachusetts-based research and consulting firm IDC Financial Insights. Ozgur Gungor, general manager of Phaymobile, the mobile payment solutions arm of banking technology provider Cardtek Group, concurs. He says ISOs and agents will need to redefine their roles in the mobile payments space, tak11:19 AM

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ing responsibility for finding ways to integrate Apple Pay into existing payment systems and aligning with third-party processors.

Upsetting the Cart Still, Apple Pay has its bad spots for ISOs and mobile payments, sources caution. Chalk it up in part to potential limits on merchant acceptance and consumer adoption—and hence, opportunities to sell more services and technology.  This is especially so, say experts, given that major retailers such as CVS Health and

service. Additionally, Android’s share of the smartphone market stands by many estimates at 75 percent—lending further credence to the argument, sources say. For certain merchants, the trouble with committing to Apple Pay is a reluctance to shoulder the financial burden of NFC technology needed to process Apple Pay transactions. Case in point: Best Buy, which rolled out NFC-enabled scanners in many of its stores several years ago, subsequently disabled the NFC functionality because cost of supporting the platform was too high. Early

“AS LONG AS THE VALUE PROPOSITION OF APPLE PAY— WHICH HAS YET TO BE ARTICULATED BY APPLE, ISSUERS, OR NETWORKS—REMAINS OPAQUE, MERCHANTS, AND SPECIFICALLY SMALLER MERCHANTS, MAY WELL TAKE A ‘WAIT-AND-SEE’ ATTITUDE TOWARD APPLE PAY ACCEPTANCE.” —JAMES WESTER, IDC FINANCIAL INSIGHTS Rite Aide have disabled the mobile payment system, and a spate of others claim to have no intention of bringing Apple Pay to the table. (Among them are Chipotle, Coach, Bed Bath & Beyond, H&M, Kmart, Publix, and Sears, Transaction Trends has learned.) It also ties heavily into the fact that Apple Pay will only work on the new iPhone 6 and Apple Watch; some industry pundits are not convinced that the appeal of Apple Pay alone will convince consumers—even those who are due for upgrades—to spend money on a smartphone (or watch, for that matter) simply for the

this past fall, a company spokesperson publicly noted that the electronics giant does not intend to reverse its stance now that Apple Pay is here. Wester believes the issue may be less about the financial outlay and more about merchants’ reluctance to grapple with yet another technology upgrade and set of mandates. “Merchants have a long history of annoyance with payment networks and what they view to be arbitrary fees,” he explains. “Apple is partnering with those same networks and issuers, adopting industry standards for tokenization as well as NFC,

and merchants may balk at being tied to one standard. As long as the value proposition of Apple Pay—which has yet to be articulated by Apple, issuers, or networks—remains opaque, merchants, and specifically smaller merchants, may well take a ‘wait-and-see’ attitude toward Apple Pay acceptance.” CurrentC, a competing mobile wallet to be deployed by the Merchant Customer Exchange (MCX), a consortium of more than 70 retailers including Target, Best Buy, and Walmart (the latter two merchants said “no” to Apple Pay months ago) also is taking a bite out of Apple Pay dominance. In late October, two of the largest U.S. drug store chains—CVS and Rite Aid—announced their decision to block mobile payment services like Apple Pay, Google Wallet, and Softcard. Published reports indicate that the two chains are boycotting Apple Pay and its ilk in favor of CurrentC, which MCX expects to launch in 110,000 merchant locations nationwide sometime next year. MCX allegedly requires its participating merchants to eschew all payments services in favor of implementing CurrentC alone; Walmart and Best Buy alike have previously said contractual obligations preclude them from accepting Apple Pay, at least in the short term. The cost of accepting mobile payments via CurrentC will be lower than NFC, which also may spur some merchants to shy away from Apple Pay, observes Baxley.  The lower fee stems from the use of alternative payment routing over ACH, she says. The general reluctance of small merchants to adopt unproven payments solutions—especially when some of their larger counterparts seem to be just as hesitant—has the potential to slice into the market. Add to that the myriad small merchants that accept payments through Square,, and PayPal, and the roster of laggards grows quite large, says Lori Breitzke, president of E&S Consulting in Atlanta. Square,, and PayPal do not possess the appropriate technology to process NFC payments, and all three have said they have no immediate plans to enable NFC payment acceptance. Consequently, the many mil-

TRANSACTION trends | November/December 2014 13

[ COVER STORY ] lion small, independent shops and other operations served by these players will be unable to migrate to Apple Pay. Moreover, not everyone is convinced that the security being touted by Apple will place the mobile payments system head and shoulders above all others. “While Apple Pay is designed to retool a retail payment infrastructure with gaping security holes, the secure element (SE) rests inside the device, where all confidential payment information is stored—i.e., in the hardware,” asserts Michael Dager, CEO of mobile application security provider Arxan Technologies. “Conversely, Google’s Android takes a software approach to securing payments whereby host card emulation (HCE) permits a phone to emulate a payment card on a device that is enabled with NFC technology, without relying on access to a hardware SE. Supported by…secure cryptography and mobile app hardening, a solution like HCE can achieve robust levels of security with low barriers to

participation for…banks and merchants with mobile payment applications.”

Best of the Bunch In light of the many questions surrounding Apple Pay, a more likely scenario may find ISOs and agents handling merchants that support multiple mobile wallets and mobile payment iterations. Industry players note that large merchants with NFCcompatible POS hardware in place could potentially accept Apple Pay and Google Wallet alike, as the technology is used with both platforms. “There are already a lot of different wallets and NFC payment applications for mobile, and it will continue to increase in the market,” says Joe Schumacher, a security consultant at Neohapsis, a Chicago-based security and risk management consulting firm that specializes in mobile and Cloud security services. Schumacher predicts that just as many consumers pay for different purchases with multiple credit cards, they will come to accept the idea of having more than

one wallet, depending on where they are shopping at any given time. Each of any individual consumer’s mobile wallets will contain the same credit cards, but might offer a different reward or set of rewards and incentives for using it in a brick-andmortar establishment or online. Breitzke envisions a similar scenario. Despite its potential, Apple Pay is not and will never be for everyone, and there will never again be just one way for consumers to make payments, she says.Apple iPhone and Apple Watch owners will definitely adopt Apple Pay, but the availability of a CurrentC mobile app for all iOS and Android devices, as well as new entrants to the market, will definitely lead others to “carry” more than one wallet. “It’s a big payments world out there,” Breitzke concludes.“There’s a niche, it appears, for everyone.” TT Julie Ritzer Ross is a contributing writer for Transaction Trends magazine. Reach her at

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Just Touch  M e Recent data, insider

By Julie Ritzer Ross

intelligence show how biometrics is making its mark in payments

KEY NOTES 8 Various analysts and industry reports point to heightened demand for wearable technology in general and underscore consumers’ strong inclination to embrace wearable biometric technology in the near future.

8 Currently, a combination of payment capability with biometric technology for authentication is being built directly into wearable devices, such as the upcoming Apple Watch and a smart watch being developed by PayPal, Samsung, and Synaptics.

8 Other biometric devices equipped with sensors or radios also are coming to market. Instead of passwords, they convey biometric information to NFC- or BLE-enabled devices to verify

16 November/December 2014 | TRANSACTION trends

users’ identity for unlocking doors or computers—or initiating and completing the transaction process.

8 Experts say voice recognition will edge out other verification forms because it is easy to use and can secure transactions either alone or in tandem with another layer of security. Plus, end-users may be more comfortable “submitting” speech as an authentication mechanism than they would “sharing” fingerprints, retinal scans, or other visible physical attributes.

8 Still, several factors, including interoperability, security concerns, multifunctionality, and price, need to be addressed before biometrics and wearables go totally mainstream.


nce the stuff only of Hollywood movies—think “Mission: Impossible” and the James Bond series of feature films, to name a few—biometric technology is pushing its way into a variety of real-life scenarios, including payment authentication. Both Apple and Samsung Electronics have incorporated fingerprint sensors into their smartphones as a lockingunlocking mechanism. However, Apple took the concept one step further with the recent launch of Apple Pay (for more on Apple Pay, see the article on page 10). Incorporated into the iPhone 6 smartphone,Apple Pay uses near-field communication (NFC) and Touch ID, a fingerprint sensor mechanism, to authenticate consumers’ identity when making payments. Other vendors reportedly are poised to follow Apple down this path, but in the meantime, biometrics is making equally strong waves in the form of a marriage between payment authentication and wearable technology— products such as smart watches, glasses (e.g., Google Glass), physical activity and heart rate monitors, ear pods, jewelry, and remote-control units as well as devices used in health care and military applications. Recent data points to heightened demand for wearable technology in general. Earlier this year, Juniper Research, Hampshire, England, predicted the market for wearable devices would exceed $1.5 billion in 2014. Analysts there pegged the number of smart watch wearers at more than 100 million worldwide by 2019, “with a host of premium brand launches over the next 12 to 19 months” (offerings from high-end manufacturers outside the technology space) upping the sales ante, according to “Smart Watches: Market Dynamics, Vendor Strategies, & Scenario Forecasts 2014-2019,” a detailed report published in October. NFC connectivity and, by

extension, access to payment channels, will become standard in the next few years, “especially as Apple has offered payment and NFC capability via the Apple Watch,” the analysts write. Meanwhile, the number of wearable technology devices used over the next two years will rise from 14 million to 200 million, according to Englewood, Colorado-based technology research firm IHS. And, ABI Research, headquartered in New York City, predicts the number of consumers who own some

passwords with newer security technologies, such as fingerprint authentication, on wearable and nonwearable mobile payment devices alike. Goode Intelligence, a research and consultancy organization for the biometric industry with offices in London, anticipates that as of 2019, 604 million individuals worldwide will have a wearable device in some form or another. “We forecast that as a result of intense activity from the world’s largest smart mobile device manufacturers, there will

NFC- AND BLE-ENABLED TATTOOS INTENDED FOR IDENTIFICATION AND VERIFICATION APPLICATIONS ARE ON SOME COMPANIES’ DRAWING BOARDS, SOURCES CLAIM. form of wearable technology will more than double by 2018, reaching 485 million. But perhaps even more significant, research also underscores consumers’ strong inclination to embrace wearable biometric technology in the near future. In a survey conducted by PayPal and the National Cyber Security Alliance, 53 percent of Americans were revealed to be comfortable with the idea of replacing

be 393 million users of mobile biometric authentication by the end of 2014,” Founder Alan Goode writes in an updated report,“Mobile and Wearable Biometric Authentication: Market Analysis and Forecasts 2014-2019.” He notes that “this growth will continue throughout 2015,” when “we shall also see the emergence of biometric authentication for wearable devices for a wide range of use cases, including payment authentication.”

TRANSACTION trends | November/December 2014 17

[ FEATURE ] Future Is Now That emergence is already here. A combination of payment capability with biometric technology for the purpose of authentication is being built directly into wearable devices. Apple’s Apple Watch, slated for release sometime next year, represents a significant example. While Apple has yet to reveal details, the watch reportedly will use a PIN code to authorize Apple Pay, but also will incorporate sensors on its underside as a secondary biometric authentication measure. The sensors will monitor contact with the watch wearer’s skin. As long as contact exists, the sensors “assume” that it remains strapped to legitimate owners’ wrists and will allow mobile payments. However, payment authentication is no longer possible once the watch has been removed from the wrist; users must log in again to activate the sensors and access Apple Pay. Another version of the watch—this one incorporating a retina scanner to be used for payment authentication—also was made public when Apple announced Apple Pay and the Apple Watch in mid-September. Meanwhile, Samsung Electronics is reportedly partnering with PayPal to incorporate into its third-generation smart watch a mobile payment function that will leverage a fingerprint for verification purposes. PayPal spokespersons would neither confirm nor deny rumors of this development when queried by Transaction Trends, but did note that it “made sense,” given that PayPal integrated its payment app into Samsung’s Gearfit and Gear 2 smart watches (as well as into Android’s Android Wear smart watch) earlier this year. Samsung, however, has been more forthcoming about the news. “We are currently developing the smart watch equipped with fingerprint technology and relevant solutions through cooperation with PayPal…as well as Synaptics, a global company specializing in biometric verification,” one high-ranking Samsung executive told a reporter for the Business Korea news portal early this past fall. The executive added that the product may become available as early as next March, in time for Mobile World Congress 2015 and potentially ahead of

“WHILE CONSUMERS MAY NOT IMMEDIATELY TRY OUT THE PAYMENTS PIECE OF BIOMETRIC-ENABLED SMARTPHONES AND WEARABLES,” ONGOING CONCERNS ABOUT PAYMENT SECURITY AND INCREASED RECOGNITION THAT CURRENT MAINSTREAM PAYMENT MODALITIES ARE NOT ENTIRELY SAFE WILL PUSH THE ENVELOPE. —ANDREW PERON, THE SPROUSE GROUP the Apple Watch launch. In a slightly different vein, biometric devices equipped with sensors or radios also are coming to market.These devices replace passwords, instead conveying biometric information to NFC- or Bluetooth Low Energy (BLE-) enabled devic-

18 November/December 2014 | TRANSACTION trends

es to verify users’ identity so that they may perform such functions unlocking doors or computers or, in a payment scenario, initiating and completing the transaction process. Sources cite Bionym’s newly released Nymi biometric recognition wristband as an example.

The wristband authenticates individuals’ identity by matching the overall shape of their heart waves. To perform the authentication process and generate electrocardiogram (ECG) data, users put on the wristband and touch a topside sensor with one hand while the bottomside sensor touches their wrist to complete an electrical loop. The wristband transmits the ECG via Bluetooth to a corresponding payment (or other) app. NFC- and BLE-enabled tattoos intended for identification and verification applications are reportedly on some companies’ drawing boards, sources claim. Some observers believe payment authentication via biometric factors like heart waves and voice will prove more popular than using fingerprint recognition. Although fingerprints can be “easily detected and duplicated,” ECG data cannot, says Steven Hausman, PhD, president of Hausman Technology Keynotes and Consulting in Gaithersburg, Maryland. Other experts say voice recognition will maintain an edge here because it’s easy to use by consumers and device manufacturers, and it can secure transactions either alone or in tandem with another layer of security. Beyond that, some potential end-users may be more comfortable “submitting” speech as an authentication mechanism than they would sharing fingerprints, retinal scans, or other visible physical attributes. “Due to existing hardware capabilities across devices, most of the growth is expected from facial and voice authentication technologies,” concurs Jean-Noel Georges, program director of the information and communication technology practice at research and consulting firm Frost & Sullivan, Mountain View, California. “While the uptake of biometric technologies will get a boost from the proliferation of new devices with fingerprint authentication capability, their acceptance will be tepid until the market develops more sophisticated and accurate authentication software.”

What’s Next Although considerable consumer interest and product development will almost certainly move biometric payment authentication forward, main-

stream adoption will still be predicated on a number of factors. For one, industry players will need to be patient when it comes to consumer acceptance, rather than pull back if the audience for mobile payments and biometric authentication remains narrow at first, says Daniel T. Wood, vice president of strategy at VendScreen, an NFC technology provider. Consumers in “tech hub cities and young men appear to be early adopters of wearable technology and mobile payments,” Wood explains. “That said, as women—typically the finance managers of the home—begin to see the inherent security benefits…the future is bright.” “The audience, though now narrowed to tech enthusiasts largely, has the potential to be incredibly broad,” agrees Andrew Peron, director of search engine marketing at The Sprouse Group, a Chicago-based marketing and consulting firm with a heavy concentration of clients in the e-retail space. “When the Apple Watch releases to consumers, millions of payment-ready wearables will saturate the market. While consumers may not immediately try out the payments piece of biometric-enabled smartphones and wearables,” ongoing concerns about payment security and increased recognition that current mainstream payment modalities are not entirely safe will push the envelope. Interoperability ranks high on the list as well. “We are already seeing a battle between Apple and Apple Pay and the MCX consortium/CurrentC consortium,” says Derek Northrope, associate director and head of biometrics at Fujitsu Consulting (Canada) Inc.“If a customer is going to need to purchase two devices and swap between them at different stores, then you aren’t going to see mass adoption” of either wearable or nonwearable biometric authentication. The FIDO (Fast IDentity Online) Alliance, an industry consortium, is striving to develop technical specifications to enable “interoperability among strong authentication devices and relying parties to authenticate users and help protect user privacy.” These protocols would not allow user information to be tracked across different payment services, however. Users’ personal credentials

and any biometric information would never leave their devices. Two other factors with the potential to impact the future of biometric payment authentication technology pertain primarily, if not exclusively, to wearables. By and large, the adoption of wearable technology in general has been limited to fitness and health monitoring, utilizing devices like the FitBit, says Kayvan Alikhani, senior director of technology for RSA, the security division of EMC, which provides security, risk, and compliance management solutions.“Broader adoption of wearables will depend on the ability to include multifunction capabilities on such devices,” he says. “Once users can use the same wearable securely for multiple purposes [authentication, fitness/health monitoring, message notifications, time-keeping, etc.] and more appealing form factors are introduced, the relatively small real estate of wearables will provide a compelling case for” widespread acceptance among a sizeable base of consumers. Price is another issue.The majority of mainstream wearable devices are priced at $150 to $1,000. This is “understandable considering the nascent stage of the industry, but definitely not sustainable,” says Shivaprasad Chennoju, a consultant and software engineering expert at Mindtree, a global corporate IT services and consulting firm with U.S. offices in Warren, New Jersey. Prices must drop for true momentum to begin. “The PC and phone industries have also been through the same phase,” he says. “So we can assume that it is only a matter of time before the wearables become more affordable.” Although initially considered to be a passing fad, wearable technology, like smartphones, will likely become an integral part of most people’s lives in the next few years—as will the use of biometrics in such technology to perform the authentication process. Individual devices must pass marketplace and public acceptance tests, Hausman says, but the wearables concept is “here to stay.” TT Julie Ritzer Ross is a contributing writer for Transaction Trends magazine. Reach her at

TRANSACTION trends | November/December 2014 19


Startup Stories:

Merchant Link

Beltway Insiders How Merchant Link thrives in the tech-savvy, highly educated D.C. market By John Manasso

D Dan Lane, president and CEO

Scott Carcillo, chief information officer

Merchant Link Founded: 1993 Location: Silver Spring, Maryland Business: The company processes nearly 4 billion transactions annually for major chains in the restaurant, hotel, and retail industries.

an Lane received his indoctrination into the payments industry while working at a startup that was at least a decade ahead of its time. The company, Digital Radio Networks, sought to put wireless modems into merchant locations to speed up authorizations, which, at the time, were dreadfully slow. We’re talking dial-up connections that took 45 seconds. But it was the early 1990s, and the world was not yet ready for the technology, which was too expensive to build out on the scale necessary for it to succeed. The company eventually went bust, and Lane landed with an ISO in the Washington, D.C., area called Credit Link. In 1993, he became a co-founder of a spin-off of Credit Link, known as Merchant Link. Over the past 21 years, the firm has gone through ownership changes, including the purchase of the company by Chase Paymentech that coincided with a four-and-ahalf-year departure by Lane. Now, he serves as president and CEO of Merchant Link, which has 160 employees and processes nearly 4 billion transactions annually. “We all learn and grow through our various experiences, so I’ve been able to personally grow quite a bit with the company,”Lane says.“Sometimes you need to move around to get different experiences. But through that progression I’ve now worked in startup environments. Being part of Paymentech, a large processor, and [we’ve become] more independent, and [we’re approaching becoming] a mid-sized company…. so it’s really been a

20 November/December 2014 | TRANSACTION trends

whole bunch of different challenges along the way. Looking back, it is quite gratifying.” Today, Merchant Link processes for major chains in the restaurant and hotel industries and has a growing business in retail. Its clients include Marriott, whose corporate headquarters are not far from Merchant Link’s, and IHOP. Chief Information Officer Scott Carcillo came to Merchant Link in August 2013 from Wynn Resorts and has experience in the lodging sector—some of the company’s most critical customers. “It gives us a chance to speak some of the same language, which, in any partnership is important,” Carcillo says. The heart of Merchant Link’s business model is its security solutions.Among those 4 billion annual transactions are tokenizations it performs on behalf of hotel companies requiring a credit card number for customers to secure reservations.

Positioned for Growth The circuitous route that Merchant Link took to get to where it is today began 21 years ago. Originally headquartered in Bethesda, Maryland, the company moved locations to Silver Spring in 1998. Back then, it produced payment gateways to work with the integrated POS systems made by MICROS in nearby Columbia, Maryland. To this day, the two companies continue to share a partnership. Around the time that Merchant Link was founded, the Washington, D.C., area started to become known for more than just for lobbying and government contracting business.

The early 1990s were when WorldCom, located on the south side of the Potomac River in Arlington,Virginia, began to take off, as did Internet providers like AOL, also located in Northern Virginia. Lane notes that this also was a time when defense contracting began to migrate away from building planes, tanks, and ships and into creating sophisticated technology. The Washington, D.C., area also ranks among the top job markets in the United States in terms of workers having achieved the highest levels of education. “I think those two (factors) have created a pretty huge technology market around here,” Lane says of the telecom and Internet provider presence.“You’re hearing crazy numbers about how many cyber security people the government is trying to hire. It’s good and bad. It’s creating the talent but it’s very difficult, of course, to hire.”

Security Spotlight In such a vibrant business community, Lane sees Merchant Link as part of the local tech scene and views the company as a “software technology company in the payments space but (also) a services company. “Cloud computing is obviously the buzz word now, but we view ourselves as a hosted software company,”he explains. We haven’t historically distributed software to the merchant or the integrated point-of-sale companies. Everything’s been hosted in our centralized gateway, and that’s been the architecture from the beginning.We are obviously a payments company. But I think if you have to pick an industry, we really view ourselves as a technology company.” The reason for that assertion is partially because Merchant Link is an amalgamation of companies. Four years after it was founded, Merchant Link was bought by Chase Paymentech. The decision to sell was not an easy one for Lane. “I think some of that was for personal reasons—and I can’t speak for (fellow co-founder Jim Margolis)—you end up living with a lot of stress and risk as a small-business owner.  After a while, that just takes its toll,” he says.“For personal reasons, I think there’s some relief in selling the business. A   nd we have a culture here where we very much care about our employees and treat our employees well, and though we felt good that Paymentech embodied that culture and felt that Paymentech would treat people well, it wasn’t selling it to cash out.” When they sold, Lane and Margolis left for NXT, their spinoff startup whose mission was to supply the technology for Merchant Link.Then, in 2002, Paymentech bought NXT and combined it with Merchant Link, and Lane rejoined the company as chief operating officer. He became president and CEO in 2011. In the year or two before Lane was elevated to the role of CEO, the company began focusing on what it believes are the best security solutions in the industry. Lane says that security will continue to be at the heart of Merchant Link’s strategic focus.With the never-ending cycle of technology, he predicts security options that once ranked among the newest and most innovative will simply become integrated solutions. “Five years ago, we were explaining to customers what [tokenization] is and why it works and why it makes sense,”he

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Startup Stories:

Merchant Link

says.“Now people understand what it is, so it’s become more of a competitive situation. I think within a couple of years, if not already, it will just be baked into everything and sort of a box on a checklist.” Merchant Link’s long history in specializing in security also is what separates it from the competition, according to Carcillo. Merchant Link’s technology enables its merchants to take a card swipe or dip and never have the card information unencrypted within the “four walls” of the merchant, as Carcillo put it.  And its “universal tokens” allow multiple use of a token for loyalty or other purposes. Beyond staying on top of the latest in tokenization, Merchant Link is focusing on the coming EMV standard and mobile solutions. “We really focus on the integrated point of sale and those partners,” says Lane.“A lot of times, they have been historically underserved in the payments industry because their environments are more complex. So, as a technology company, we’ve been able to do a good job. We really deep-dive into their systems, we really understand them.” TT John Manasso is a contributing writer to Transaction Trends. Reach him at john_

WORDSTOTHEWISE � Go for substance over hype. “I think we compete with new companies that are trying to be disruptive, and a lot of their solutions are hyped and marketed very well,” says Merchant Link President and CEO Dan Lane. “They may be disruptive, but often times they don’t work as advertised, or they’re not as reliable as they could be. On the other side tend to be large banks and processors. They’re motivated to continually drive down costs because they’re often competing on price—so they can offer the lowest price. We do neither of those. From the very beginning, even when we were small, we put a lot of emphasis on investing in our infrastructure and investing in our service and support, even when it was very expensive to do that.” � Build your brand around quality. “On the support side in our industry, the metrics are to get the call solved as quickly as possible and move on to the next call. We have a different model—it’s more of a ‘high touch,’ ” says Lane. “We try to make sure the problem is completely resolved so that customer won’t be calling back again. …That [kind of] reliability and high-end support is expensive. Sometimes it’s difficult to sell up front, but, over time, your customers depend on it. And you do build a reputation around that— as a reliable company who listens to its customers and provides good, solid solutions that work well. …And that’s really allowed us to maintain the reputation we have and the longevity, and it’s worked well for us.” � Prevent data breaches. “EMV would not have solved any of these breaches,” says Scott Carcillo, chief information officer. “Point-to-point encryption will. So if you want to secure your environment, make sure you’re doing that.”






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New Relationships Propel Industry Growth Discover’s Diane Offereins discusses her career, market trends, and ISO survival By Julie Ritzer Ross


ueled by technological innovation, the evolution of next-generation merchant business models, and new legislative and regulatory wrinkles, the payments landscape is changing at a rapid clip. Such changes also are opening doors for new relationships among constituents from within and beyond the industry. Diane Offereins, executive vice president and president of payment services for Discover Financial Services, is eager to help develop such relationships—and recommends that ISOs also forge new alliances with entities beyond their community. A 26-year industr y veteran who joined Discover in 1998, Offereins already is credited with having united three brands—Discover Network, PULSE, and Diners Club International— into a global payments business. From 1993 to 1998, she held several positions at MBNA America Bank, most recently as senior executive vice president with responsibility for managing corporate system development. Prior to signing on with MBNA, she served for five years as vice president of retail delivery systems and wholesale delivery systems at Bank of America and for nine years at Southeast Bank, where her last position was vice president and director of application development. Transaction Trends recently sat down with Offereins to discuss her work at Discover and her perspective on the payments industry. TRANSACTION TRENDS: Please tell us more about your background, and describe your role at Discover. DIANE OFFEREINS: My background is a combination of finance and tech-

Do not try to be everything to everyone. ...Think in terms of broad solutions that would simplify commerce. nology experience. My degree—a bachelor of business administration from Loyola University in New Orleans—is actually in accounting, and I held the position of chief information officer prior to heading the payments business at Discover. As executive vice president and president of payment services for Dis-

24 November/December 2014 | TRANSACTION trends

cover Financial Services, my primary responsibility is growing sales volume and merchant acceptance of Discover around the world. I lead the payment services division, managing our networks—Discover Network, Diner s Club and PULSE—as well as our nontraditional payments partnerships. Payment services is one of the more

complex business areas at Discover because of the range of the clients and services we support. On the client side, my team and I work directly with large merchants and merchant acquirers. These merchants and merchant acquirers, in turn, deal directly with millions of small- to mid-sized companies across the country that accept Discover. I also work with more than 4,000 issuers on the PULSE network, along with more than 30 on the Discover Network and more than 80 Diners Club licensees in more than 185 countries. Outside of working for Discover, I am actively involved in a number of professional women’s organizations, including Womenetics, The Committee of 200 [also known as C200], and The Chicago Network. [Editor’s Note: Womenetics is a diverse community of women whose single goal is to “use our lives to lead, to create impact, and to improve the companies that employ us and the communities in which we live.”  T he Committee of 200 serves to connect women from the highest levels of successful public and private companies; its primary mission is to “foster, celebrate, and advance” women’s leadership in business. Similarly,  T he Chicago Network aims to generate meaningful connections among Chicago women business leaders, encourage dialogue on the advancement of women in the workplace, exchange ideas and information on women’s leadership, and cultivate the next generation of women leaders.]

success with this model with UnionPay in China, JCB in Japan, BCcard in Korea, and Rupay in India. TRANSACTION TRENDS: What is it about the payments industry that grabs you? OFFEREINS: I truly enjoy working in the payments business because of the environment. It is a global environment that has a lot of technological components and is quite complex, with a multitude of moving parts. If one of those parts changes, it creates

a ripple effect that impacts all of the other pieces. It is an ecosystem that is being challenged by change. These are, and will be, the most exciting times to be part of the industry. Discover is an issuer, an acquirer, and a network, so we have the ability to approach emerging commerce with a lens that leverages our unique combination of assets—and partners—to help shape this landscape, which is really exciting. TRANSACTION TRENDS: What are the most significant challenges ISOs

TRANSACTION TRENDS: How and why did you get into the payments industry? OFFEREINS: I have always enjoyed building relationships, and that is a big part of my job—deepening relationships with individual merchants and expanding partnerships in the U.S. and overseas. Discover’s international footprint has seen marked expansion over the past few years, and that growth shows no sign of slowing down. I also have liked, and continue to like, focusing on signing network-to-network agreements with regional payment networks overseas. Each of these deals significantly adds to the company’s ability to increase volume worldwide. Over the years, we have seen tremendous TRANSACTION trends | November/December 2014 25

face today? How should they be grappling with those challenges? OFFEREINS: The payments business is rapidly changing. Data security challenges, the omni-channel model, and the EMV global standard are all coming, and the industry is going to have to keep up with all this change. I think a big challenge for ISOs is, and will be, finding ways to keep pace with the evolving landscape and differentiate themselves from the pack. TRANSACTION TRENDS: What trends do you see coming down the pike that will affect ISOs? How should ISOs be reacting to these trends? OFFEREINS: Traditional payments are disappearing into the background and becoming a smaller component of a larger package. Software developers are coming up with solutions for companies to better manage their back-end systems, and many of these solutions include payments as one small part of their offering. ISOs need to figure out how to either work in tandem with

these software developers, or to develop innovative products and services that will make them a more valuable partner to their merchant clients. The constant evolution of technology means there are now several ways for merchants and consumers to conduct commerce—in brick-and-mortar stores, via mobile devices, and online. Merchants that can learn to do it well will definitely come out ahead. ISOs will need to help matters along and handle these changes—along with the accompanying challenge—by devising a way to facilitate commerce overall, instead of just facilitating payments alone. TRANSACTION TRENDS: In light of the changing payments landscape and other developments, what other advice do you have for ISOs that want to position themselves for success going forward? OFFEREINS: My advice for ISOs is to find the right partner that aligns with your vertical and business plan. Identify

areas that you would like to focus on, and work well within those areas before expanding to any others. Do not try to be everything to everyone. And as I said before, think in terms of broad solutions that would simplify commerce. The team I lead at Discover is committed to supporting ISOs. I am part of an acquiring advisory committee that meets several times a year and serves as an open forum and partnership between Discover and ISOs. We also sponsor a robust scholarship that funds training for business professionals, so that they may take advantage of industry education events like those offered by the ETA, as well as avail themselves of other available certification tools. We value our relationship with ISOs, and we look forward to seeing their evolution amidst the vast shift in the industry. TT Julie Ritzer Ross is a contributing writer for Transaction Trends magazine. Reach her at julierross@

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: 26 November/December 2014 | TRANSACTION trends


2014 Legislative Wrap-Up Highlights and Accomplishments An active year ends with more to tackle in 2015 By Scott Talbott


his year has been extraordinary for ETA’s advocacy program. Almost a year ago, ETA’s leadership expanded its commitment to establishing and maintaining relationships with key legislators, regulators, and their staff. Add to this the successful use of other political engagement tools like the Voice of Payments grassroots program and the ETA PAC. As we continue moving through the home stretch of 2014, here is a recap of where we’ve been and what we’ve accomplished.

Congressional Highlights The creation of a uniform national standard for data breach notification is a high advocacy priority for ETA. Although 2014 has been characterized by several highprofile data breaches, Congress has not moved any of the five bills available to accomplish this purpose. ETA and its allied partners lobbied relevant committee members to support legislation that permits greater information sharing between private industry and the government. While this bill was able to advance from the Intelligence Committee, its movement has stalled going into the final congressional working days. This issue will continue to be a priority for 2015 in the 114th Congress, with ETA again ensuring that the relevant legislation is filed.

Regulatory Updates This year also brought a wide breadth of regulatory issues to ETA’s attention.  A variety of federal agencies, including the Department of Justice, Federal Trade Commission, and Federal Deposit Insurance Corporation (FDIC), continued Operation Choke Point (OCP) activities, opposed by ETA as being overly broad and targeting certain merchants and industries even if they have not participated in any wrongdoing. The negative attention brought by OCP has resulted in continuing congressional inquiries. This includes eight legislative hearings, including one at which the ETA delivered testimony. Four letters of concern from members of Congress have been delivered to these federal agencies. 28 November/December 2014 | TRANSACTION trends

In a small victory, the FDIC withdrew its list of targeted industries. ETA is leading a joint trade effort to express concerns and promote its guidelines as an alternative. Beyond OCP, the Consumer Financial Protection Bureau issued a proposed rule to regulate prepaid cards.These regulations are expected to mandate certain disclosures and to impose restrictions on certain card features like overdraft protection, provisional credit, and disclosures. In addition, the Treasury Department is studying mobile payments and prepaid cards to understand their roles in the payments system. ETA has met with staff on both issues to provide education. Meanwhile, the Department of Health and Human Services is considering rules to make the use of virtual cards as a payment option more explicit in the implementation of the Affordable Care Act. ETA is meeting with relevant policymakers to ensure insurance companies have choices in payments options. Finally, the Department of Education is considering issuing regulations to restrict the fees of certain student financial products. ETA met with agency staff to express concerns.

At the State Level ETA also has increased its activity at the state level. In 2014, ETA successfully helped to defeat a proposal mandating the use and acceptance of EMV cards in California. In New York, the state legislature is considering a bill that requires the payments industry to report credit card sales, broken out by New York-based merchants. ETA has significant concerns about this legislation and has been educating appropriate state officials. On this state’s regulatory front, ETA has filed comments in response to proposed Bitcoin regulations, arguing that the scope of the proposed regulations is too broad and onerous. TT Scott Talbott is senior vice president of government affairs for ETA. Reach him at

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