Transaction Trends

TRANSACTION trends | April 2010

The Official Publication of the Electronic Transactions Association

2010 20 10

Empowering Payments

ALSO INSIDE: Federal Legislative Update ISO Prospects in Healthcare

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Transaction trends The Official Publication of the Electronic Transactions Association

Vol. 15 | No. 4

cov e r s to ry

14 The Fed Takes Aim

By Bryan Ochalla

From the newly effective CARD Act and possible“red flag” rules to the potential fallout from the interchange-focused Credit Card Fair Fee Act, 2010 will be a busy year for payments professionals.

F EAT U RES

20

20 Rx for Payment Processing

By Julie Ritzer Ross

Looking for a vertical with little competition? Dramatic changes in the health-care landscape reveal immediate opportunities for ISOs to deliver specialized offerings required by providers.

24 Welcome to Main Street

By Bryan Ochalla

The ETA Technology Product Showcase demonstrates innovative and workable products ISOs can resell into the marketplace now.

28 Special Series: Startup Stories Halfway Mark

By Julie Ritzer Ross Hear from our three new ISOs as they achieve some initial goals and adjust others.

31

ETA Anniversary Special: Empowering Payments for Two Decades 24

20 YEARS 31

6

A look back at the payments evolution and the people who shaped it.

d epa rtm e n tS

5

President’s Message

6

Industry News

Insights from ETA’s elected leader Trends, strategies, and news in the payments business

10

ISO Corner

44

Risk in Review

Making the case for p-cards The hazards of cloud computing

54 Ad Index 56 Industry Insider

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Electronic Transactions Association 1101 16th Street NW, Suite 402 Washington, DC 20036 202/828-2635 www.electran.org ETA Chief Executive Officer Carla Balakgie ETA Director, Communications & PR Thomas Goldsmith Transaction Trends Publishing office: Stratton Publishing & Marketing Inc. 5285 Shawnee Road, Suite 510 Alexandria, VA 22312 703/914-9200 Publisher Debra Stratton Features Editor Angela Hickman Brady Managing Editor Josephine Rossi Art Director Janelle Welch Contributing Writers Richard H. Gamble, Bryan Ochalla, Julie Ritzer Ross, Michael Petitti, Robert Cortopassi Advertising Sales Sharon Miro or Fox Associates (800/440-0232; adinfo.eta@foxrep.com) Fox Associates Offices Chicago 312.644.3888 Atlanta 800.699.5475 Los Angeles 213.228.1250

New York 212.725.2106 Detroit 248.626.0511 Phoenix 480.538.5021

Ad Production/Billing Carrie Wood 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 monthly, 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. Postage paid at New Richmond, Wisconsin and additional mailing offices. POSTMASTER: Send address changes to the address noted above.

Copyright © 2010 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. Nonmembers, government agencies, $150 per year; single copy, $20. Subscriptions are available for 12-month periods only, at the quoted rates.

President’s Message

The Network Effect

O

ne of the most important accomplishments attained by the Electronic Transactions Association is something you won’t see in any official history or list of ETA milestones. Somewhere between ETA’s incorporation in 1990 and this month’s celebration of ETA’s 20th anniversary, we became a robust community—a diverse group of companies and people who share a common interest in the payments business and a commitment to making it grow and prosper.

This month, at the Annual Meeting & Expo, we’ll celebrate that community by convening in Las Vegas. We will do business with one another, renew acquaintances, confer with colleagues and meet new people in the business.

The term the network effect describes the ETA community perfectly. It refers to the phenomenon that as a network expands, and the amount of activity on the network grows, the value of the network increases exponentially.

Everyone in the industry—every large company, every small company, every sales representative—who cares about our business and becomes active in the ETA, adds value. But the benefits to all members of the community increase by a far greater amount.

Being active in the ETA and participating in events like the Annual Meeting will expose you to hundreds of individuals who share a common experience. But that’s only the start. Those who take part get unparalleled access to information. It informs them about fast-paced legal, regulatory, card company, and legislative developments. Participants share in all the resources ETA has to offer, from industry best practices to technological developments and educational programs. The community amplifies the voice of each member, whether by influencing government actions or improving relations with card companies.

Perhaps the most important attribute of this network effect is that the benefits are tangible. They often flow right to the bottom line, helping member companies—and their profitability—grow. There is a reason that the largest payments companies in the world are part of ETA. They participate in ETA activities and contribute to the growth of our community because doing so provides unparalleled value to them.

Without the community that has grown up around the association and the benefits that come from that, we wouldn’t be having this 20th anniversary celebration. So if you’re an active part of the community, congratulations. You’ve been part of an amazing story. If you are new to the industry or haven’t joined us yet, get involved, and be a part of the story for the next 20 years. The rewards far exceed the investment.

Warm regards, Holli Targan Holli Targan is president of ETA and a partner at Jaffe, Raitt, Heuer & Weiss, P.C.

Transaction trends | April 2010 5

INDuSTRYnews ETA Anniversary Fast Facts

20 YEARS

› I n 1994 and 1995, ETA introduced

›

its first industry certification program and video, and in 2002 it partnered with Visa to offer free classes on e-commerce.

T he first ETA University course “Intro to Electronic Processing” was delivered at the 2003 Annual Meeting in Las Vegas. In 2008, “Sales Channel Development” was the first ETAU course deployed online.

These moments in ETA’s history are brought to you by Jaffe, Raitt, Heuer & Weiss, P.C.

Big Number for Mobile Online Shopping Researchers expect about $119 billion to be spent on goods and services purchased via mobile phones in 2015—about 8 percent of the total e-commerce market.

“Mobile online shopping is reaching critical mass,” says ABI Research Senior Analyst Mark Beccue. “In the United States, mobile online shopping rose from $396 million in 2008 to $1.2 billion in 2009. While definitions of ‘mass market adoption’ vary, a more than threefold increase in one year indicates significant consumer interest.”

However, that number is dwarfed by the size of the mobile online shopping market in Japan, which exceeded $10 billion in 2009 alone. ABI expects the European market to outpace the U.S. by the end of 2010 as well.

“The driver for mobile online shopping in the U.S. has been the recent sharp spike in smartphone adoption and the corresponding enthusiasm for mobile Internet. Also, many more retailers have been launching mobile commerce Web sites,” says Beccue, noting that in many less-industrialized regions, mobile is virtually the only way to access the Internet.

The firm also reported during the fourth quarter of 2009 an increasing number of consumers visited brick-and-mortar stores to see a product in person, but they used their phones to comparison shop. In addition, trade in virtual goods, generally associated with online gaming, has seen a rapid uptake.

Mobile payments are an easy option for online purchases of less than $20, particularly by gamers who are often younger and do not have credit cards.

ETA Launches Advocacy Campaign This month, the Electronic Transactions Association will unveil a new grassroots advocacy program designed to encourage ETA members to make their views on industry issues known to their elected state and federal representatives.

Named “The Voice of Payments” program, the online effort will offer up information about the latest legislative and regulatory actions could affect electronic payments businesses; encourage participants to take action and speak up 6 April 2010 | Transaction trends

on issues that are critical to their businesses and the electronic payments industry; and educate ETA members, government officials, the media and the public about issues that are important to the survival, advancement, and success of the payments system.

The new grass roots tools will be available through ETA’s Web site at www.electran.org and will be introduced to attendees at ETA’s Annual Meeting & Expo in Las Vegas.

According to ETA’s CEO, Carla Balakgie, the Voice of Payments

effort will involve the association’s members in every aspect of its advocacy efforts. “ETA will keep members and others in the industry informed about what’s going on in Washington and state capitals,” she explains. “But we also will rely on members to keep us abreast of what’s important to them and real-life impact of legislation and government regulation.”

The project also will be a resource to legislators and their staffs, to help them understand how their actions will affect the payments industry.

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INDuSTRYnews Mobile-Based Authentication to Grow 566%

Fast Fact

to financial services companies and their customers in the prevention of more sophisticated attacks.”

Other findings from the report: • The growing adoption of smartphones, the iPhone, and Google’s Android device, for instance, by corporate and personal users will drive the market for soft-token one-time password (OTP) deployments.

• Short-message service (SMS) OTP products and services will be the fastest growing area for mobile phone authentication in the next one to two years and will be aided by mobile carriers changing their SMS fees to reduce the cost of receiving SMS text messages.

• The total number of mobile OTP users (both SMS OTP and soft-token OTP), as a percentage of the total OTP market (both hardware token and software), will increase from 12 percent of the market in 2010 to 61 percent of the market in 2014.

• By 2014, almost 114 million unique users globally will generate nearly $760 million in revenue for technology vendors involved in products and services that enable the mobile phone to become an authentication device.

The market for mobile phone-based authentication products and services is set to grow significantly over the next five years, according to a new analyst report from London–based Goode Intelligence.

The firm predicts about 3 million people will have mobile phone-based authentication products and services in 2010, and that figure will grow to more than 20 million users by 2014.

“The mobile phone gives financial services companies incredible flexibility; the mobile phone can be used to provide strong two-factor authentication into all financial channels, including physical and virtual, and also provides an excellent method to verify financial transactions, including payments,” says Alan Goode, Google Intelligence founder and author of the report.

“The same technology that is being used to successfully authenticate financial services customers using their mobile phones can also be adopted to provide an added level of verification to secure financial transaction and payments. This type of technology is increasingly important

Online P2P Transfers 2006-2014 Projected

70 Actual (smoothed)

58

60

100%

50

50

80%

46 42

40

38 32

30 25

28 44%

20 31%

34%

48%

51%

54%

57%

61%

60%

40%

38% 20%

10

0%

0 2006

2007

2008

Source: Javelin Strategy & Research

8 April 2010 | Transaction trends

2009

2010

2011

2012

2013

2014

Percentage of U.S. Households

Millions of U.S. Households

54

Six in 10 retailers have POS systems that do not support customer-specific promotions (down from 72 percent in 2008).

Source: National Retail Federation

Consumers Crave Digital Coupons In 2009, digital coupons—which include save-to-loyalty-card and mobile promotions— dramatically outpaced the growth of their newspaper counterparts by more than 10 to one, according to new information from Coupons.com.

More than 45 million American consumers are using online coupons, up from 38 million in 2008, according to the company.

“For the first time in almost two decades the use of coupons increased in 2009, in part due to the growth of digital coupons as more consumers made them part of their shopping routine and more brands tapped them to engage with their consumers,” said Steven Boal, CEO of Coupons.com Inc. “We expect the adoption of digital coupons will continue to accelerate in 2010.”

Printed savings from the company’s Web site and network exceeded $858 million last year. This 170 percent increase over 2008 is far more than what the company experienced the prior year. (2008 grew 133 percent compared with 2007.)

The company attributes the growth to increased consumer adoption of online printable, save-to-loyalty-card, and mobile coupons, as well as increased use of digital coupons by brand marketers, including manufacturers and retailers.

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Counsel to Century Bankcard Services

Counsel to Fast Transact, Inc.

Counsel to Paymerica

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ISO Corner

B2B: Worth the Effort?

As p-card programs expand, more suppliers accept card payments. It’s good business if you can get it.

By Richard H. Gamble

A

s with consumers, corporations have developed a strong liking for using Visa, MasterCard, and American Express cards for more of their procurement, which means that larger transactions are showing up as card purchases. It’s a market that even aggressive feet-on-the-street ISOs have largely ignored.

Consider one law firm whose clients paid for services with corporate purchasing cards.The firm used a terminal for high six-figure transactions and paid more than 3.5 percent in interchange, reports Aaron Bills, chief operating officer of 3Delta Systems Inc. in Chantilly, Virginia. The firm switched acquirers when alert salespeople showed officials how to get a 1.2 percent interchange rate. Now, they are saving 230 basis points on a lot of money by qualifying for interchange breaks for large transactions and for reporting Level 3 data (line item detail).

“They saved over $1,000 on their first transaction, which was for more than $50,000,” Bills reports.

No doubt p-card-driven business-tobusiness transactions are lucrative and a lot less saturated than the familiar world of consumer-to-business transactions. However, going after this market can be a mixed bag for ISOs.

The Rewards The commercial payments sector is largely untapped for card payments, according to consultant Ali Raza, executive vice president of Speer & Associates in Atlanta. “It’s a high-growth, high-potential market,” he says. “It’s still dominated by paper check payments. Both Visa and MasterCard are clearly seeing this as an area of opportunity.”

“B2B is good for ISOs looking to expand,” Bills insists.“Salespeople drive across town to call on a new store or restaurant, passing industrial parks full of merchants that they are not calibrated to see.”

3Delta Systems, a provider on the merchant side of the p-card market, is getting calls from ISOs that “feel punished in to10 April 2010 | Transaction trends

day’s consumer retail space, where businesses are closing, sales are down, and consumers are cutting back, partly because issuers have clipped their credit limits,” Bills reports.“P-card volumes are not sharing in that decline.”

B2B also is more profitable because those merchants “work closely with you over the years and tend to stay with you if you work hard for them,” says Diane Merrigan, B2B specialist at Heartland Payment Systems in Princeton, New Jersey.

Charge Card Systems, an ISO in Boca Raton, Florida, recently entered the p-card supplier ranks and has boarded its first supplier. “We wanted to provide our agents with opportunities beyond knocking on doors of retail merchants that see so many salespeople they get numb. P-card suppliers represent vast potential,” says Adam Moss, vice president for sales. “Now salespeople can go to merchants that want to hear about solutions, not price, and welcome a consultative approach. It gives them a chance to break out of the pack.”

A small retail store may do $10,000 or $20,000 of transactions in a month. A B2B merchant might do hundreds of thousands, Moss points out.“Our profits are based on

volume, and B2B merchants have volume.”

The key to supporting such business, Moss reports, is having the right partners.

“We sign them up and turn them over to 3Delta, which has a lot of experience,” he explains.“They provide a gateway that connects merchants to First Data, our processor, and First Data is set up to handle Level 3 data.”

Small-dollar p-card purchases started years ago and are showing modest growth, Bills reports. What’s new is a push to take purchases requiring purchase orders and approval of invoices before payment is authorized, sometimes by providing a card number to the supplier at the end of the approval process.This move to high-ticket card purchases has pushed the average p-card transaction size from around $650 to around $1,300, with approved invoice transactions often in the six figures, he notes.

The Obstacles B2B card commerce is no secret, and there are reasons that most ISOs haven’t pursued it. Heartland has been active in the B2B space for 12 years, but that business line remains relatively small. That’s because “it

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ISO Corner

takes a lot of work and a different customer sales structure,” Merrigan says.“It’s not for everybody. It’s a long sales cycle.The prospects are harder to find.You’re dealing at a corporate level, and customer service can be intensive. This is not a quick-sale business, and that turns off some merchant level sales reps.”

Identifying prospects, however, may be the greatest impediment.The world’s largest procurement operation is the U.S. government, and Uncle Sam requires most suppliers to accept p-card payments for large and small transactions, so government suppliers are an obvious target.That’s because there are so many of them, because volume can be high, and because these suppliers can be identified relatively easily.“You can go to a government Web site and see a list of suppliers. It’s public knowledge,” Merrigan points out.

Finding suppliers taking corporate pcard payments is harder because they are not listed on a public Web site, Merrigan explains. “The banks are keeping most of

“This is not a quick-sale business, and that turns off some merchant level sales reps.”

—Diane Merrigan, Heartland Payment Systems

that business for themselves,” she says. It’s probably not worth the effort to try to cultivate a relationship with p-card issuers like USBank, JPMorgan Chase, or Bank of America to sign up the suppliers of their p-card clients, she suggests.

But an ISO could survey the merchants in its portfolio to determine which of them lack corporate purchasing card programs and would be interested in considering them. Then the ISO could approach an issuer and offer to make introductions in return for getting a crack at the merchants’ suppliers.

The best approach, Moss suggests, may

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be to focus on businesses such as law firms, accounting firms, printers, trucking companies, janitorial services firms, and landscaping firms that primarily serve businesses, he reports. And don’t overlook trade associations that represent such businesses. “We love trade associations,” he adds.

Delivering service is no cinch either.

These merchants want solutions that integrate into their POS systems, and the larger ones have ERP systems in which a merchant processing solution would have to be embedded, says Greg Cohen, president of Moneris Solutions in Chicago.

“A salesperson would need to partner with a gateway or middleman to round out the service offering a B2B merchant would expect,” he adds. The best approach is not simply to supply Level 3 card processing but to offer a “full processing suite that encompasses all types of payments,” he says.

Ideally, a sales organization would partner with a p-card issuer since this business is largely issuer driven; the issuer sells a procurement operation a p-card program and then goes after a list of suppliers to get them to accept the card, Cohen explains.

“The payment gateways are doing an excellent job, but they need sales channels.”

Data security can be another hurdle. In the p-card world, buyers often want to use the card-on-file model, which means that suppliers have to store sensitive card data, raising the stakes for PCI compliance, Bills points out. “The more you store, the bigger your exposure and potential liability and the bigger your compliance burden under PCI,” he notes.The solution, he says, is tokenization and outsourcing storage of the sensitive real data to a provider with robust security rather than forcing merchants to build security fortresses around their stored data and go through a lot of PCI compliance.

B2B is a major niche that is “showing tremendous growth and is still underserved,” Cohen concludes. “As more cards are issued, buyers need more suppliers to accept card payments. If a salesperson has the fortitude and patience, the profit margins are higher and the merchants are stickier.” TT Richard H. Gamble is a contributing writer to Transaction Trends. Reach him at gamble10@earthlink.net.

12 April 2010 | Transaction trends

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[ COVER STORY ]

The Fed Takes Aim From the CARD Act to IRS reporting requirements, federal legislation trickles down to payments space.

Are you ready?

By Bryan Ochalla

I

f 2008 was the year that Congress, for the first time,“took an action that injected the U.S. government into the payments process,” then 2010 is the year those actions will affect companies in the payments space, according to ETA Director of Government and Industry Relations Mary Bennett.

Case in point: T he American Housing and Rescue Foreclosure Prevention Act, which was signed into law in July 2008 and goes into effect at the end of this year, and the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act, which was signed into law last May and went into effect in late February.

But that’s not all. Other on-the-horizon pieces of legislation and regulation—such as the on-again-off-again “red flag” rules associated with 2003’s Fair and Accurate Credit Transactions Act and whatever bill follows in the footsteps of the interchange-focused Credit Card Fair Fee Act of 2008 and 2009—are sure to affect the electronic payments space.

“It could be a very busy year” for payments professionals, says Marc D’Annunzio with the Siavage Law Group in Atlanta.

CARD Act Fallout The CARD Act, which restricts an issuer’s ability to charge late payment fees, raise interest rates, unilaterally change cardholder agreements, and adjust payment due dates, 14 April 2010 | Transaction trends

KEY NOTES 8 Some say the CARD Act may lead to higher fees and rates for consumers as well as fewer cards in circulation, while others suggest it may be less impactful.

8 New housing rules requiring acquirers and ISOs to obtain a merchant’s TIN add a new layer of reporting and thus operating expense.

8 The thrice delayed “red flag” rules—now with implementation set for June 1—may be delayed again.

8 While new interchange legislation isn’t likely in 2010, it certainly isn’t going away.

went into full effect February 22 (a few provisions were enacted Aug. 20, 2009) and could be the first piece of legislation to impact acquirers and ISOs in 2010.

Although the legislation was aimed at issuers, “its effects could trickle down through our businesses, from top to bottom,” says Bennett. The act removes riskbased pricing from an issuer’s arsenal, which Bennett says is likely to lead to “increased costs for consumers in the form of annual fees or higher rates.”

The CARD Act also could lead to a reduction in the number of credit cards in circulation as a result of “issuers deciding some consumers are too risky to give cards to,” she adds.Those two things taken together “could well mean fewer cards in circulation, which would affect everyone in the chain of this business.”

Although the obvious effect of the CARD Act is that “it’s going to make it harder for cardholders to get credit and it’s going to make it harder for issuers to make revenue in the numbers they used to make,” its effect on acquirers and, in turn, ISOs, is “a little less clear,” suggests D’Annunzio.“From a short-term perspective, we’re probably going to see a bit of a dip in the overall transaction dollars that would have gone on cards had there not been an economic downturn [as a result of the CARD Act], but at the same time I don’t think it is going to squarely affect acquirers and ISOs unless it results in a lot fewer people with cards and those people decide to put a lot less on those cards. But I don’t see anything to suggest that that’s happening.”

Todd Ablowitz, president of Denverbased Double Diamond Group, agrees, saying that “if issuers reduce availability of credit because issuing is less profitable, it would be a natural consequence that it might affect acquirers.” But in general, he believes the CARD Act “is going to change issuer dynamics, but it’s not going to reverse the trend from cash to electronic payments. So those who are not overleveraged Transaction trends | April 2010 15

[ COVER STORY ]

A Brief History of Advocacy Until Congress added verbiage to the American Housing and Rescue Foreclosure Prevention Act requiring acquirers and ISOs to report to the IRS the card transactions of each of its merchants, it had never “injected itself into the payments process,” says ETA’s Mary Bennett.

But Congress isn’t through injecting itself into the industry.

Lawmakers and regulators “are paying a lot more attention to this industry than they did five or 10 years ago,” says Marc D’Annunzio with Siavage Law Group. “That attention and, as a

result, legislation and regulation aimed at this industry, is only going to increase in the years to come.”

Although Bennett says ETA has, historically, “played defense” when it comes to combating legislation and regulation aimed at the payments industry, it recently went on the offense by releasing a policy position on data security and breach notification.

The policy position (see www. electran.org/docs/gr/2009Da taSecurityPolicyPosition.pdf)

20 YEARS

asserts that the association “strongly supports industry self-regulatory efforts for the protection of cardholder data.”

However, it also asserts that “in the area of government regulation, ETA believes that a uniform national standard for data security and breach notification with respect to Personal Financial Information would best balance the rights of consumers to be notified of a breach when the security of their Personal Financial Information is truly at risk, while minimizing the compliance and legal risk to businesses.”

“In the case of data security, there has been so much local and state legislation, and it has created a patchwork set of rules across the country,” says Todd Ablowitz, president of Double Diamond Group.

In particular, the creation of a uniform, federal standard for data security and breach notification would be beneficial for those in the payments space “because it would give us a standard set of rules to live by,” he adds. “I think there are very few, if any, stakeholders that would be against that.”

Moneris ETACongrats-2010.pdf 2/18/2010 4:04:21 PM

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THANK YOU for being a voice for the Electronic Payment Industry.

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16 April 2010 | Transaction trends

establish “red flag” rules requiring financial institutions and creditors to develop and implement written identity theft prevention programs.

The implementation of those rules has been delayed three times since they were finalized in 2007 because the FTC “recognizes the difficulty of getting all different kinds and sizes of companies to be in compliance with that reporting construct,” says Bennett.

As of press time, the rules are set to be implemented on June 1 of this year, though D’Annunzio admits he wouldn’t be surprised if that implementation was delayed once again.

Interchange Still Alive

and who can manage through growth that is flatter than it has been in the past will be fine because paper will continue to go to electronic.”

Merchant-Reporting Redux Next in line: The American Housing and Rescue Foreclosure Prevention Act, which requires acquirers and ISOs to report to the IRS the card transactions of each of its merchants.

Bennett suggests the act will have a “big impact” on acquirers and ISOs because if, while boarding, signing, or processing a merchant, they don’t obtain that merchant’s correct, valid tax identification number (TIN), it can trigger a back-up withholding of 25 percent, something that “would be pretty brutal for any business.

Every ISO, every salesperson going to sign a new merchant, has to get the correct TIN and has to get the correct name that the TIN is registered to,” she adds. She’s heard numerous stories of a TIN being in the 18 April 2010 | Transaction trends

IRS system, for example, as “Jones and Son Inc.,” while the merchant fills out the form with the ISO as “Jones & Son Inc.” and a mismatch occurs. “So the big message to ISOs is that they not only have to get the numerals of the TIN, but the name under which the TIN is registered.”

Ablowitz, on the other hand, says that while “it’s an irritant to have to [report your TIN to the IRS annually], I don’t think it moves the needle.”

“It basically imposes an additional operating expense on acquirers to do the business that they’ve already been doing,” adds D’Annunzio.

“Red Flag” Rules One of the big question marks coming into 2010 was whether the “red flag” rules associated with the Fair and Accurate Credit Transactions Act would finally be implemented.When the act was passed into law in 2003, it directed the Federal Trade Commission and federal banking regulators to

Another on-again-off-again legislative and regulatory issue that is likely to show its face in the payments space in 2010 involves interchange. Although bills dealing with interchange—in the form of the Credit Card Fair Fee Act—were introduced in Congress in 2008 and 2009, neither made it out of committee.

But Bennett doesn’t expect the issue to go away anytime soon.“As long as merchant groups devoted to reducing the amount of interchange they pay continue to lobby Congress and get bills introduced, the issue will be kept alive.”That said, she doesn’t think the issue is a priority for most members of Congress.“I don’t think it’s on the top 10 list of the House and Senate financial services committees. I don’t see both houses passing it into law in 2010.”

D’Annunzio agrees, but adds that it’s not going away. “It’s starting to attract the attention of consumer groups as well as merchant groups. It seems like the conversation is beginning to shift and if consumer groups get involved and increase visibility on that side of coin, I think it could provide an additional push to get something passed.

“The legislation that was introduced in 2008 and 2009 had a fair amount of flaws, and there are a lot of things that would have to be done to make it more palatable to everybody, but I don’t think the topic is going to go away,” adds D’Annunzio. In fact, I wouldn’t be surprised if it popped up again this legislative session.” TT Bryan Ochalla is a contributing writer to Transaction Trends. Reach him at bochalla@yahoo.com.

Save The Dates ETA Annual Meeting & Expo May 10 – 12, 2011 San Diego, CA

Where the Payments Industry Connects!

[ FEATURE]

Rx for

Payment Processing

By Julie Ritzer Ross

20 April 2010 | Transaction trends

Changes in the health-care payment landscape, spurred by consumer preference, legislation, and business conditions, signal ISO opportunities

W

hile recessionar y conditions and other factors are precipitating change in myriad industries, health-care ranks among those most affected. “‘Shift’ probably isn’t a strong enough word; if anything, it’s a seismic shift,” says Mary Dees Griffith, president and COO of Preferred Health Technology Inc. in Dallas.

To reduce the cost of health insurance coverage, many employers and individuals are selecting consumer-directed health plans (CDHPs) or high-deductible health plans (HDHPs) that allow providers to be paid for their services only after patients have remitted the applicable deductibles.

Some patients are electing to forgo insurance entirely.

“The end-result here is a worsening of the financial situation of most health-care providers, which by most estimates are now only being paid roughly half of what they are owed,” Dees Griffith asserts. She cites a study by research firm Celent, which estimates each provider location in the U.S. will be responsible for collecting $317,000 from patients in 2014. Assuming that the current patient self-pay bad debt levels of 40 percent to 50 percent remain stable in a market with rising deductibles and copays, the study says, this equates to $158,500 in bad debt per location.

Such changes in the overall health-care landscape clearly are not good for providers, but they bode well for ISOs. While the market as a whole is rife with generic payment processing solutions and services, few players have ventured heavily into the health-care arena or found applications development partners to configure the specialized offerings required by providers.

“If an uncrowded vertical segment is what ISOs seek, this is the one to consider—and now, rather than later,” Dees Griffith asserts.

Positive Prognosis Inefficiencies in payment collection systems currently used by physicians, clinics, and hospitals also contribute to a positive health-care opportunities prognosis for ISOs, because they render solutions that address providers’ payment pain ever more appealing. Under the new “system,” health-care providers can’t determine what patients owe until after insurers’ network discounts have been reflected. Payments from patients come in slowly, with providers typically waiting 60 to 90 days or longer to receive payment,“if they arrive at all,” Dees Griffith asserts.

To further complicate matters, patients are often in the dark about their financial obligation. Individuals with insurance coverage generally have to guess whether they’ve met their deductibility requirements.

“Under this very real scenario, physicians and hospitals typically collect only about 50 percent of the balance due from insured patients, and only 10 percent to 20 percent of the balance from self-pay patients,” notes John Grubmuller, vice president, government health and human services for Atlanta-based First Data Corp. “Across the health-care sector, this dismal response results in almost $60 billion of bad provider debt each year.”

At the same time, payments administration accounts for a staggering 15 percent or more of U.S. health-care costs, according to “Overhauling the U.S. Payment System,” a report by McKinsey & Co. analysts Nick A. LeCuyer and Shubham Singhal. Bill, payments, and processing expenditures, coupled with bad debt and other transactions, total more than $300 billion annually. Such expenses are so high in part because 60 percent of these transactions are executed using manual methods, and an estimated 80 percent of payments remitted to providers in 2008 were paper-based.

“The cost to process a manual claim and issue a paper check is almost $9” apiece, Grubmuller asserts. “By comparison, the cost of generating a payment using an automated process averages about 80 cents per claim. These costs can be significantly reduced through the use of proven payment technologies and processes.”

Cure for Business Ills However, industry players wishing to capitalize on opportunities in health-care payment processing face significant challenges. Notably, although it is not uncommon for ISOs to ink deals with merchants immediately after the first sales call, successful boarding of health-care providers can take weeks or even months, depending on the size of the practice. ISOs and the solutions/services they propose must first win the approval of an office manager or administrator before being vetted by the practitioner or practitioners in question.

Administrative personnel generally func-

KEY NOTES 8 The cost to process a manual claim and issue a paper check is almost $9, while the cost of generating a payment using an automated process averages about 80 cents per claim.

8 Health-care providers are beginning to understand the need to implement “retailstyle” collection methods, as the bulk of responsibility for health-care expenditures shifts to consumers.

8 Health-care processing has multiple components, and while payment processing isn’t the part getting the most press, it offers a proven solution to address the 15 to 20 percent of health-care expenditures dedicated to administrative processes.

Transaction trends | April 2010 21

[ FEATURE] tion as gatekeepers for their employers, so getting their attention and support often requires an intimate knowledge of how most health-care practices operate on a day-to-day basis, sources assert.

In promoting solutions and services targeted toward this segment, ISOs also need to consider that providers are now understanding the need to implement “retailstyle” collection methods, as the bulk of responsibility for health-care expenditures shifts from their shoulders to consumers.

“Admittedly, the presence of third-party payers in the mix prevents a complete transition to a true retail payment environment in health care, wherein the entire bill is handled upfront through one payment vehicle or another,” Dees Griffith says.“Nevertheless, with more money coming out of patients’ pockets, there will definitely be a shift to ‘retailish’ health-care payment technologies that support transparency, speed, and collection/payment assurance.” Components of these systems, some of which are already available in the marketplace as part of revenue cycle management (RCM) applications, include: • Tools for determining service eligibility and estimating patient costs in real time, much as point-of-sale systems tally up the whole of consumers’ purchases. Additionally, just as merchants’ POS systems interface with other applications, such as accounting and inventory, these tools are integrated with patient scheduling and/or registration modules. They also take into account patients’ remaining deductibles and out-of-pocket payment maximums.

• Real-time claims adjudication capability.

• “Account on file” functionality that automates the processing of payments for which patients, rather than insurers, are responsible. Transactions may be executed via a credit or debit card, bank account, or tax-advantaged account (flexible spending account) selected by a given patient.

• Provisions for patient financing, including credit scoring and/or automated installment plans (i.e., configuration, calculation, and billing/debiting of the appropriate account on file).

• Electronic bill presentment and payment via e-invoices, patient portals, or online bill pay.

• Automated customer relationship man22 April 2010 | Transaction trends

“With more money coming out of patients’ pockets, there will definitely be a shift to ‘retailish’ health-care payment technologies that support transparency, speed, and collection/payment assurance.”

—Mary Dees Griffith Preferred Health Technology

agement (CRM) and messaging capability across patient collection process steps. Examples include sending patients information pertaining to pre-visit cost estimates, regular and installment payments due, and payment receipt verification.

• Automated payment reconciliation and posting via electronic payments coupled with billing information.

Booster Shot Some experts believe health-care reform under the American Reinvestment and Recovery Act of 2009 will lead to additional enhancements in health-care payment systems. The act allocates approximately $20 billion in funding for health-care information technology.While the most significant portion of these monies has been allotted for the launch of an electronic health records system, a portion of the funds can be used to develop a higher level of electronic eligibility assessment and claims transactions functionality, Grubmuller purports.

Real-time verification of eligibility and claims adjudication are currently complicated by the fact that there currently is no all-inclusive automated procedure for eligibility determination, claims adjudication, and payment processing, the executive explains. For the most part, providers and insurers alike use proprietary disjointed processes, many of them manual. Even with

existing automated solutions, it is not always possible to obtain an accurate assessment of eligibility and patient fees owed.

“The vision for a reformed health-care payment processing system,” Grubmuller says, incorporates the implementation of “a consolidated ‘hub’ for transactions, like verification of eligibility and adjudication of claims.” Accessed in providers’ offices via personal cards or tokens presented by patients upon check-in at each visit, the “hub” would be used by all providers and all payers in a collective system, i.e., within a state or even at the national level. Such a “hub” does not exist today, but creating one has become a key health reform initiative already undertaken by a number of states, among them Vermont.

Additional fallout may come from the federal level. In September of 2009, the Senate Finance Committee unveiled a comprehensive health-care reform framework containing several proposals for improving quality of care, reducing costs, and financing expanded coverage. Among such proposals is the establishment of a $10 billion innovation center at the Centers for Medicare and Medicaid Services (CMS).

The center would have the authority to test new provider payment models and expand successful programs into the Medicare side.

A second proposal centers on the development of a voluntary pilot program wherein hospitals, physicians, and post-acute-care providers could achieve savings through collaboration and coordination on the Medicare payments front.

“Health-care processing has multiple components, and while payment processing isn’t the part that’s getting the most press, it offers a proven solution to address the 15 percent to 20 percent of health-care expenditures now dedicated to administrative processes,” Grubmuller says. “Key stakeholders believe positive results in payment processing reform can be achieved by 2012. With consideration for putting together the technology, the streamlined processes, the legislation, and the funding, significant health-care payment processing reform can be a reality within just a few years.” TT Julie Ritzer Ross is a contributing writer to Transaction Trends. Reach her at jritzerross@gmail.com.

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[ FEATURE]

Welcome to

Main Street ETA’s Technology Product Showcase shines a light on today’s hottest payment technologies— technologies you can use to drive sales and increase profits—in actual merchant environments

By Bryan Ochalla

24 April 2010 | Transaction trends

A

s important as it is to gaze into the proverbial crystal ball from time to time and ponder all of the bleeding-edge technologies that may or may not be coming down the payments pipeline, it’s just as important—if not more so—to take stock of the industry’s current technological offerings.

After all, as nice as it is to dream about the former, merchants—and, thus, the ISOs that serve them—are looking for real, tangible examples of the latter to meet their needs today.

That’s exactly what attendees of ETA’s Technology Product Showcase will experience, according to Sarah Owens, vice chairperson of the ETA Technology Committee and vice president of business development at Atlanta-based First Data.After all, ISOs “want to see innovative technologies that they can use to drive sales and increase profits,” she says.

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[ FEATURE] The Technology Product Showcase takes things a step further by demonstrating to attendees how those technologies can be used in actual merchant environments, adds Tom Tesmer, chairperson of the ETA Technology Committee and chief technology officer at Pipeline Data Inc. in Atlanta.

“Our goal is to show potential customers— with the typical potential customer being an ISO that’s looking to buy a cutting-edge product it can resell into the marketplace— that these products and services are real and workable,” he explains,“as opposed to being so strategically futuristic that they’re still only a gleam in someone’s eye.”

Building Main Street Thus, ETA has recreated Main Street, USA, right on the Annual Meeting exhibition floor. Walk along the street and you’ll see an average person’s home, a restaurant, a beauty salon, and a boutique retail location.

Two or three vendors will showcase their wares in each environment. For example, the area that will be set up to look like an average person’s home will show someone ordering a product over the phone—showcasing Planet Payment’s Shop BuyVoice solution—as well as someone delivering that product and accepting payment for it— showcasing PAYware Mobile, VeriFone’s iPhone payment application.

The area set up to look like a restaurant will showcase, along with First Data’s Payment Essentials solution, Hypercom’s Optimum M4240 portable payment terminal by demonstrating how a waiter can bring a payment terminal to the customer to pay his or her bill, including a tip, with a credit card. “By bringing the terminal to the customer, the card never leaves the cardholder’s possession, which will greatly reduce skimming fraud in restaurants,” says Stuart Taylor, vice president of global marketing at Hypercom.“Additionally, the customer-controlled payment process can speed up the payment process, which greatly increases table-turns for busy restaurants. With payment portability, restaurants can expect higher revenues during rush hours and better guest experiences from quicker service and greatly improved cardholder security.”

American Bancard’s TouchSuite system, which allows checkout from multiple mer26 April 2010 | Transaction trends

The Evolution of POS Technologies Point-of-sale technologies have come a long way since the days when merchants compared customers’ credit card numbers with information in printed bulletins to determine whether they should accept or reject card transactions.

The evolution of these technologies seems to have increased in speed exponentially in the last 10 years. A decade ago, explains Tom Tesmer, chairperson of the ETA Technology Committee and chief technology officer at Pipeline Data Inc. in Atlanta, “it was uncommon for people to get paid via a prepaid card. Today, it is 20 YEARS not uncommon at all.”

Another example can be seen in the transportation industry. In particular,“it used to be you had to carry cash if you wanted to take a cab since they refused plastic,” he adds, “but five, six, seven years ago they began to accept it. Today, it’s a requirement; you can’t find a cab in New York City that doesn’t take plastic these days.”

Unsurprisingly, Tesmer expects the evolution of POS technologies to continue in the coming years. During the ETA Annual Meeting in 2008, he says, he led a presentation on bleeding-edge, cutting-edge technologies. “One of my slides featured a guy who had inserted in his wrists tiny identification tags that were about the size of half of a straight pin,” he says.“I don’t know if or when that kind of technology—or biometric identification technology, for instance—is going to become commonplace in the payments space, but it’s clear that things will continue to change going forward.” chants, will be one of the products, along with the Ingenico IPA 280 Payment PDA, showcased in Main Street, USA’s beauty salon.“In the salon industry, half of the salons are ‘renter shops,’ which means that each stylist is his or her own company and generally maintains his or her own merchant account to accept credit cards,” explains Sam Zietz, president/CEO of Boca Raton, Florida-based American Bancard.

If a client goes to a salon and has multiple services—has her hair cut by stylist A, has her nails done by stylist B, and buys some product on the way out—traditionally this would require multiple payment transactions, he adds, as each stylist would have to charge independently for his or her service (resulting in three separate card swipes and receipts, in this instance).

“With the patent-pending process we have developed, each charge is listed on the checkout screen, one receipt for all services and products is printed out, the client’s credit card is swiped one time, and the system automatically settles each service/product to the appropriate merchant account simultaneously. One credit card receipt is printed out for signature,” Zietz says.

The boutique retail portion of the Technology Product Showcase will also shine a

light on SoundPOS’s Virtual Electronic Cash Register (vECR) and USA ePay’s PaySaber (SBR-1000), a full POS software and hardware solution for iPhone/iPod Touch.

Cashless Moves Closer The products and services showcased on Main Street, USA, also showcase the everbroadening spectrum of environments where plastic is accepted, according to Tesmer.“We’re rapidly, as a society, moving toward a cashless society,” he says.Although the capability for such a society already is in place, “it is a matter of endorsing it, embracing it, and pushing it downward, which is what we in the payments space are doing.”

That will be plainly evident to Technology Product Showcase attendees, as the products and services set to be demonstrated at the event prove that “payment by plastic offers an ever-broadening convenience for consumers,”Tesmer says.“And as that convenience continues to evolve, the requirement for carrying cash will become rarer and rarer.” TT Bryan Ochalla is a contributing writer to Transaction Trends. Reach him at bochalla@yahoo.com.

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»

Startup Stories:

A special series following three newly launched ISOs (6th installment)

Halfway Mark As entrepreneurs achieve many of their initial goals and refine others, they establish themselves as forces to be reckoned with

By Julie Ritzer Ross

» Express Transact, Orem, UT » Leap Payments, Agoura Hills, CA » PayMint Partners, Brooklyn, NY ISOs We’re Following:

28 April 2010 | Transaction trends

W

hen Transaction Trends began following three ISOs six months ago, one of the first questions we asked this select group of entrepreneurs was what goals they had set for their companies. Today, some of their objectives have indeed been achieved, but others have been refined as new lessons are learned and different challenges enter the mix.

“With our reseller program and large merchants, our revenue goals are now more aggressive,” says Richard Davis, founder and executive vice president of Express Transact.“The focus is no longer solely on number of set-ups, but on a combination of quantity and quality.”

Express Transact has attained several of the objectives set at its inception, most notably to convert more than 10,000 merchants to its proprietary e-commerce platform by its first anniversary in late 2009 and to maintain the momentum going forward. The ISO has also fulfilled its mission to begin serving multiple merchant aggregators as a merchant services partner. It has significantly grown its reseller program through a network of such aggregators, most of which cater to enterprise-level merchants, Davis reports. Resellers and merchants alike receive comprehensive one-on-one education from the ISO, with all fees laid out on the table at the outset of the relationship.“As a result, we’re getting larger, more quality merchants in terms of processing volumes,” Davis notes.

However, a few initial goals required some rewriting. For example, while Davis’ original plan had dictated signing up all e-commerce clients for a full merchant account solution, he no longer intends to pursue such a path. “We realized it doesn’t make sense for everyone. It’s easy to take advantage of, and make money from, small (‘micro’) merchants that are labeled as ‘e-commerce’ by selling them

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»

Startup Stories:

A special series following three newly launched ISOs (6th installment)

a solution they don’t really need. But this benefits nobody.”

The ISO now relies on startup and monthly fees to garner profits from working with clients whose size doesn’t warrant a complete merchant account solution.The company takes a careful approach to setting these fees in case a merchant becomes unable to afford even basic payment processing services. “The account goes into collections, nobody makes money, the merchant cancels, and with the number of

Got a question for our startups?

Send it to abrady@ strattonpublishing.com.

signups we’re doing, that kind of model just results in a high attrition rate,” Davis asserts.

“We’ve learned that it’s better to charge affordable prices and find other ways to maximize revenue.”

Targets With a Twist Leap Payments has also hit several of its targets in recent months, but with a twist, according to CEO Will Detterman. Exceeding revenue goals tops the list. The ISO’s original business plan dictated signing a high volume of merchants in relatively short order. But managers quickly realized that boarding a steady stream of merchants was far less important than keeping total revenues on an upward climb.“Our target merchants had higher transaction volumes than we had projected, so while we missed our account goal, we were able to exceed our revenue goal,” Detterman notes.

Meanwhile, although Leap Payments’ business plan had specified a six-month interval between its inception and “being completely up and running,” the ISO was writing business only three months after opening its doors. Detterman attributes this feat not only to his finely honed network of industry contacts, but to the efforts of a team of behind-the-scenes employees.

He deems the considerable number of referrals Leap Payments has received from existing customers an even bigger coup. “We have yet to pay a single penny to acquire these referrals, and that tells us 30 April 2010 | Transaction trends

that we’re achieving what we set out to accomplish.”

On the flip side, Leap Payments has yet to meet its objective of optimizing Web search engine placement to ensure prospects looking for ISOs can easily find the company in the mix.“We’ve had to be very strategic in pursuing niche markets to get any placements,” Detterman says.“The big ISOs out there have bid up keywords to more than $15 per click, which is just too much for smaller companies to justify. We have to maneuver faster and focus really tightly to compete. This exercise is very educational and requires laser focus on a target audience, but we think that there’s a place for all of us.”

The past few months have also taught Detterman the importance of striving hard to protect his turf from less scrupulous competitors. Not long ago, one of Leap Payments’ merchant clients informed Detterman that it had been solicited by another ISO that claimed to represent its existing processor.At the merchant’s invitation, Leap Payments’ sales representative attended its meeting with the company that was attempting to solicit its business.“The competitor’s sales rep was clearly seasoned in this industry and recited a well-practiced pitch,” notes Detterman.“But what was truly shocking was that not once, but twice, this company lied to the merchant about where they worked. During the initial call, they led the merchant to believe that my company was calling, and during the inperson pitch, the sales rep claimed to work directly for one of the largest processors, when in fact he represented a small ISO.” Detterman urges fellow ISOs to register with the card associations so they can cease hiding behind other companies’ names and instead set goals for building their own organizations.“Bottom line: Stop

lying just to set a sales appointment, and start meeting your own objectives,” he advises.The former “gives us all a bad name.”

Upping the Count For its part, PayMint Partners continues to strive toward its goal of developing partnerships in verticals not served by many ISOs, like building management firms. At one point, principals believed they had forged a deal to work with an overseas company “that had the infrastructure/ software design in place” to build the technology needed to attain this objective, says Steven Feldshuh, vice president, business development. “However, the physical distance and cost proved to be too much.”

Feldshuh and his partner, George Sarantopoulos, have since identified another potential software design partner with a demonstrated interest in PayMint Partners’ project and are currently hammering out terms of an agreement with that firm.

The ISO has also formulated a new objective—increasing its volume of merchant applications.The company recently launched a program Feldshuh and Sarantopoulos believe will double the merchant application count over the next three to four months.

The program calls for offering agents an upfront application bonus of $200 per account. Agents can apply the funds toward terminal purchases, lead generation, and/or telemarketing campaigns.

“We are dealing with a tough environment and smaller margins,” Feldshuh admits.“With that said, it appears that January was our best month to date. I think the program was part of that.We have to keep refining our goals.” TT Julie Ritzer Ross is a contributing writer to Transaction Trends. Reach her at jritzerross@gmail.com.

Let us profile your company!

If you launched a new ISO in the last 12 months and would like to be considered for the second Startup Stories series, contact abrady@ strattonpublishing.com.

20 YEARS

Networking

LEADERSHIP ADVOCACY

EDUCATION

Growth and Progress

2010

ETA Flashback

JOE KAPLAN: SAFEID AND KAPTIVATION

“There have been so many memories throughout my membership with the ETA—each with their own unique imprint on my life. In general, however, watching the maturation of the payments industry by myself and through the eyes of my competitors, who are also my friends, coupled with my 11-year tenure as a board member and officer, has been absolutely wonderful. To watch a group of individuals bond together for a common goal to create a well respected, well educated, and financially viable opportunity from its Wild West beginnings has been incredible as well.”

Since the first ISO meeting at O’Hare Airport and its founding in 1990, ETA has evolved into an international professional association providing leadership through education, advocacy, and the exchange of information.

1990 32 April 2010 | Transaction trends

20 YEARS

Empowering Payments for

Two Decades ETA leaders reflect on the organization’s impact and point to an exciting future

By Angela Hickman Brady

T

here is rarely a sharp line that marks the point where an association such as ETA reaches maturity. But as ETA celebrates its 20th anniversary, it is clear that somewhere in its brief history, ETA and its members have made that transition. The acquiring industry, with ETA at the fore, has grown into a solid community that still—after 20 years—thrives on entrepreneurship and innovation, yet has gained respect throughout the greater financial services industry and beyond.

And it all came about thanks to a group of payments professionals who got together in Chicago in 1988 and agreed to invest $1,500 apiece to launch an organization to represent their interests.

“In the early days, there were just a handful of us meeting in hotels,” recalls Paul Garcia, chairman and CEO of Atlanta-based Global Payments Inc. “Even then, I noticed a bit of a dichotomy in that some of the board members came by private plane, though most by commercial, and a there were a couple who indicated that they would have taken a Greyhound if it was available. Fast forward, everybody who attended has done very well and built businesses of considerable value. I believe camaraderie and the support that the ETA provided had a lot to do with that success.”

Indeed, the organization that started with a $10,500 investment has done much to advance

ETA Flashback

RICK BRENNES: THE BRENNESJONES GROUP

“My best memory of the ETA is my time on the ETA Board of Directors. It was very satisfying to work with a great group of dedicated professionals and assist in the direction and development of the ETA. In fact, all of my best memories of ETA came as a result of being involved in the organization as a volunteer, and I encourage others to become involved, as well.”

the careers of payments professionals, as well as navigate and influence a constantly changing business landscape.

“ETA has provided an unparalleled opportunity to stay close to our customers in both business and informal settings,” adds Garcia.“We all know that it is our customers who write the checks, and it all begins and ends with them.”

Seven years ago, in 2003, it achieved another milestone during what some say was the most Continued on page 36

Transaction trends | April 2010 33

ETA Through the Years.... Major Milestones

1990s

’90

The Bankcard Services Association (BSA), ETA’s precursor, holds its official charter meeting in Denver, and later hosts its first Annual Meeting in San Diego with 36 attendees.

’91

BSA membership reaches 28.

’92

BSA hosts both Annual Meeting and Mid-Year Meeting for the first time.

’93

’97

Transaction Trends launches, and ETA’s first Web site goes live.

First trade show held at Mid-Year Meeting: 14 exhibitors

Merchant Acquiring Committee (MAC) forms.

Visa joins BSA’s advisory council.

261 ISOs are registered with Visa.

’98

’94

First-generation certification initiative launches.

’95

ETA produces first generation of virtual training.

ETA annual meeting is established as a stand alone event, no longer in conjunction with the ABA.

Annual Meeting held in New Orleans: 665 attendees, 49 exhibitors Microsoft Corp. and First Data Corp. introduce online bill payment.

Annual Meeting held in New York City: 291 attendees MasterCard joins the board advisory council.

’99

Mid-Year Meeting held in Baltimore: 790 attendees, 38 exhibitors Membership surpasses 150.

’96

As BSA membership surpasses 50, the organization changes name to Electronic Transactions Association.

These Milestones brought to you by:

American Express joins ETA’s advisory council.

Visa tests chip-loaded cards.

ISOs begin selling Web-based merchant services.

These Milestones brought to you by:

pre ’90s 1950 First Diners Club cards used in New York City restaurants.

1951 Franklin National Bank offers first bank credit card.

1966 MasterCard starts as an association of banks.

1970 Magnetic strip standards are established.

1971 First Data begins processing bankcard transactions.

Visa starts as an association of banks.

1982 First ISO launches: Amcor, founded by Paul Green.

1989 S everal ISOs meet at O’Hare Airport to collaborate on improving industry business practices.

These Milestones brought to you by: Retail Cloud-Inventrak.

34 April 2010 | Transaction trends

ETA Flashback HOLLI TARGAN: JAFFE, RAITT, HEUER & WEISS

“I remember the year, around 2000, when I walked in to the Annual Meeting trade show floor and realized, due to its sheer size and the buzz of activity, how large the ETA had become. I was amazed at the impact the organization was having on the industry.”

Another memorable moment was “the President’s Dinner at which I was honored to receive the ETA Member of the Year award. The recognition by the organization of my contributions was humbling and so very much appreciated.”

20 YEARS

2000s ’00

ETA hosts Mid-Year Meeting and 10th Anniversary celebration in Chicago: 1,512 attendees, 75 exhibitors.

Discover Financial Services joins the advisory council.

E-Sign legislation is approved.

’01

Membership surpasses 300.

Annual Meeting held in San Diego: 1,772 attendees, 80 exhibitors

’06

ETA Compliance Day is launched.

Transaction Trends goes monthly.

’02

Mid-Year Meeting held in Seattle: 1,583 attendees and 100 exhibitors Chinese government establishes China UnionPay (CUP) bankcard association.

’03

National headquarters opens in Washington, DC.

First edition of ETA Currents is launched.

Signature and PIN debit cards account for 57% of card transactions.

’07

SLNF held in Palm Beach, FL: 375 attendees

’08

SLNF held in Chicago: 307 attendees ETAU deploys first online course.

First Strategic Leadership Networking Forum (SLNF) replaces Mid-Year Meeting and welcomes 512 attendees. SLNF panel session serves as a catalyst for development of PCI Data Security Council.

ETA launches a Webinar product line on key compliance issues and emerging opportunities.

PayPal has 68 million active accounts.

ETAU delivers first course at Annual Meeting.

Visa and MasterCard have approximately 350 interchange categories.

Electronic payments exceed paper checks in number of transactions.

’04

ETA publishes first encyclopedia of industry terminology.

Annual Meeting held in Las Vegas: record-setting 3,382 attendees, 185 exhibitors

’09

The Stategic Leadership Forum (formerly SLNF) held in New York City: 331 attendees NACHA joins the board advisory council.

’05

ETA releases first proprietary research product: Economic Indicators Report.

Annual Meeting held in Las Vegas: 2,789 attendees, 178 exhibitors

Electronic payments account for more than half of all payments by dollar volume and more than two thirds of all noncash payments.

ETA establishes a Washington-based advocacy function.

W.net is founded.

These Milestones brought to you by:

’10

Membership surpasses 500 companies from 14 countries.

ETA celebrates its 20th anniversary.

These Milestones brought to you by:

Opposite page: (Top) Entrance to the 2001 Expo floor. (Bottom) The ETA booth at the 1994 Annual Meeting.

This page TOP: (Left) Cover of the July/August 2000 10th anniversary issue of Transaction Trends.

(Right) Attendees hit the links at the 1996 Mid-Year Meeting.

This page BOTTOM: (Left) Attendees shoot craps at an early ETA meeting. (Right) A scenic view from the 1994 BSA Annual Meeting in Tucson, AZ.

Transaction trends | April 2010 35

20 YEARS USA ePay: Industry Newsmaker

Announcing PaySaber USA ePay is pleased to announce the PaySaber, an innovative product that will revolutionize business transactions.

PaySaber is a lightweight, portable credit card machine that connects with the iPhone® or iPod touch®, allowing businesses to process financial transactions on the go. Small business entrepreneurs to corporations of any size can use PaySaber.

PaySaber offers efficient and costsaving payment solutions to iPhone® and iPod touch® users. It allows merchants to accept mobile payments anywhere, anytime. PaySaber’s built-in encrypted card swiper ensures all transactions are safe and secure.

The device works with the USA ePay PCI certified payment gateway, which stores all of the data securely.

ETA Flashback www.usaepay.com 866/872-3729

Retail Cloud–Inventrak: Industry Newsmaker

Hundreds of Retail Needs—One Solution!

Inventrak, powered by Retail Cloud, is an affordable retail management solution for Micro, Small, and Mid Size Retailers. Merchants have found Inventrak simple to use, simple to implement, and simple to manage. The ON DEMAND, Web-based system offers merchants peace of mind, so they can focus on growing their business. The result, retailers are able to manage their inventory levels, while optimizing their revenue growth; they can identify their customers’ spending and focus on increasing sales. Add Inventrak to your product line to increase merchant retention and reduce margin compression. Visit Retail Cloud at Booth #907. www.retailcloud.com 800/776-1450

36 April 2010 | Transaction trends

Continued from page 33 significant board meeting in ETA’s history. The organization hired its own internal staff, including its first CEO, Carla Balakgie, replaced its accounting firm and attorney, relocated its offices to Washington, D.C., and totally rewrote its bylaws. “You could see the lightbulb pop on in all of our heads that in order to propel ETA forward, it was vital to hire dedicated staff in Washington, D.C.,” recalls Holli Targan, partner with Jaffe, Raitt, Heuer & Weiss in Southfield, Michigan, and ETA’s current president. “This was a turning point for the organization.”

MARY GERDTS: POST INTEGRATIONS INC.

Gerdts recalls the 2001 Annual Meeting when ETA added the position of presidentelect. “There was extreme turmoil on the ETA board at that time, and there was great opposition to my desire to rise to president and lead ETA. The day of the Annual Meeting, I was standing on stage with Jim Plappert (who was being voted in as president) and I had to be voted in as president-elect (so we had two votes that year) and all of a sudden, it was announced that I was successfully voted in. I looked out in the audience and saw my good friend Linda Perry, who gave me a ‘thumbs up’ and a big smile because we both thought there was no way the opposition was going to let me get voted in to succeed to president. The good news: The vote was successful and the rest is history!”

Gerdts also has a funny ETA memory when she was assigned to one of the event’s highprofile speakers. “We were talking one-onone when the room started to fill up for the speaker’s session. He excused himself and a few minutes later, out of one of the speakers in the meeting room, I heard a ‘whoosh’ sound. Everyone started looking around, trying to figure out what the strange noise was, when I suddenly realized the speaker, who had excused himself to use the restroom, had left his lavaliere microphone on during the process!”

20 YEARS

ETA Flashback DONNA EMBRY: PAYMENTS ALLIANCE INTERNATIONAL One of Embry’s most memorable ETA moments occurred in the organization’s first couple of years of existence, then as the BSA. “It was one of BSA’s first meetings and it was held at the Waldorf Astoria in New York. It basically was in a large meeting room off the lobby. We had three tabletop vendors set up in the actual lobby. The meeting had about 150 attendees. I was one of the featured speakers (we only had three or so) and I was to talk about product opportunities, mainly focusing on the big emerging PIN debit products. I had put together a slide presentation, but I got in the room and they did not have a slide projector. All they had was an overhead for ‘foils.’ I quickly scrambled to convert my slides, which when shown, all turned out to be pink. I was embarrassed, but the presentation went off OK. I remember thinking that the BSA, as crudely put together as it was, was a valuable organization that would have merit and value ongoing.

I was proud and excited to be part of it.”

38 April 2010 | Transaction trends

Those moves set ETA on the journey it continues today, as it promotes the highest level of individual professionalism, integrity, and skill in the transaction processing industry.

“Participation in the ETA has given me an appreciation for the growth in the payments industry attributable to ISOs and how those accomplishments benefit all players in the payments industry—acquirers, issuers, payment companies, equipment vendors, VARs, and, of course, merchants,” comments Gerritt Kerkstra, MasterCard’s group head of acquiring & operations, U.S. commerce development, in Purchase, New York.

Those efforts are obvious to ETA members who, with their peers, are creating the future of the electronic payments field. “ETA has always given me the opportunity to share my

A N O T H E R D A Y, A N O T H E R 9,0 0 0

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After all, it’s what we do more than 9,000 times a day.

Find out more at www.TASQ.com or call 1-866-410-5689.

Visit us at ETA in Las Vegas in booth #319.

20 YEARS Jaffe, Raitt, Heuer & Weiss P.C. : Industry Newsmaker

Solving Legal Issues The electronic payments business is complex and rapidly changing, placing a premium on access to the expertise needed to solve problems and take maximum advantage of opportunities.

Let our knowledge work for you. We have decades of experience in card processing, ACH, and stored value, and we constantly track regulatory and card association developments.

Jaffe advises companies ranging from large processors to sales representatives on legal issues, strategic alliances, and corporate direction, bringing industry-specific knowledge to bear on: n Mergers and Acquisitions n Litigation n Corporate Matters n Compliance n Contract Drafting and Negotiation Contact Holli Targan 248.727.1460 htargan@jaffelaw.com

knowledge and vision of this industry through speaking opportunities,” says Donna Embry, senior vice president of strategic and product development for Louisville, Kentucky-based Payment Alliance International. “It has opened the doors to meet many new associates and make new business relationships and lasting friendships. I would like to say that as my universe and career have grown, many of the successes that I have achieved have been as a result of being involved with ETA.” Joe Kaplan, president and CEO of of SafeID and Kaptivation in Calabasas, California, agrees.“ETA membership has provided me with guidance to succeed, and along the way I have created lasting friendships that I cherish daily. I look back on my involvement and my interactions with everyone associated with ETA and couldn’t be thankful enough.”

Career Builder www.jaffelaw.com

Process Pink: Industry Newsmaker

Process Pink with Anthony Holder There is something deep within us that seeks to make a difference in this world; to leave a footprint; to know that someone’s life has been made better because of what we do.

We are certain that a higher power planted this desire into the hearts of all of us at Process Pink Payments. Together, we collaborate on all levels to achieve this common mission—to have every merchant in America participate in Process Pink. As an ISO or agent of Process Pink, your full confidence in our Process Pink Program is of critical importance to us. Please join us!

Please visit www.processpink.com or call 708/261-6595 for more information. www.processpink.com 708/261-6595 40 April 2010 | Transaction trends

ETA has successfully impacted members’ careers by offering a broad slate of learning and networking opportunities, including the Annual Meeting, the Strategic Leadership Forum, robust committees of active members, member periodicals Transaction Trends and ETA Currents, and ETA University webinars and other continuing education opportunities.

ETA Flashback GERRITT KERKSTRA: MASTERCARD

Kerkstra’s most memorable ETA moment is a sober one. It was “learning upon landing at Dallas-Fort Worth airport on the morning of Sept. 11, 2001, that the World Trade Center had been attacked, and subsequently meeting with other ETA board members to cancel the Mid-Year Show, which was scheduled to open the next day. It was the only possible decision despite the impact to the ETA’s finances.”

20 YEARS Trustwave: Industry Newsmaker

TrustKeeper 3.0 for PCI Compliance The simplicity of TrustKeeper 3.0 is ideal for Level 4 merchants; it’s an easy, straightforward tool. The innovative technology and user experience makes TrustKeeper 3.0 ideal for both Acquirers and ISOs looking to roll-out and manage large-scale compliance programs. The TrustKeeper 3.0 experience is simple and efficient, making PCI certification an attainable goal for all merchants, regardless of their size or level of technical knowledge.

For more information on Trustwave’s expertise with ISO and Acquirer Level 4 PCI programs, visit www.trustwave.com/level4PCI.

www.trustwave.com 888/878-7817

NPC: Industry Newsmaker

Industry Champions National Processing Company has a rich heritage dating back to the mid 1960s.

That is 45 years of experience and stability! We are the largest provider of merchant processing services in the U.S. dedicated exclusively to merchant processing and acquiring services.

By partnering with NPC, you instantly gain the benefit of one of the deepest and most experienced management teams in our industry.

NPC takes pride in the fact that we are a key business partner with some of the most successful ISOs in the industry. Consider this a personal invitation for you to join our family of successful partners!

Tom Wimsett President & CEO

“ETA has been such an enormous impact on my career,” says Mary Gerdts, CEO and president of POST Integrations in Phoenix.“We should all be very proud of what we have accomplished over the years to better ETA. I have made so many lifelong friendships as a result of my involvement on the ETA board and have learned so much from my colleagues. I know in my heart, my career would have been less rewarding if it was not for my involvement with ETA.” Clearly, those relationships have been a key benefit of ETA involvement for many ETA members, particularly those who have served on the board of directors and committees. “I have built a relationship base with a broad sector of the payments industry,” comments Mary Dees Griffith, president and COO of Preferred Health Technology Inc. in Dallas. “This helped me not only in my business development efforts for organizations that I worked for, but helped me in establishing and maintaining the consulting practice I had for seven years.”

And she’s not the only one. The relationships Charles Creamer built enabled him to take the entrepreneurial plunge 10 years ago. “I’ve met incredibly wonderful people who molded the industry yet still had time to help me start my own ISO,” says Creamer, founder of Lansing, Michigan-based Midwest Transaction Group.

Talk to anyone in the industry and they’ll tell you that ETA networking events are where business gets done.

“ETA has enabled me to meet, face to face, twice a year, the movers and shakers of the industry,” says Targan. “Those interactions gave me the inside scoop, facilitated the conversations that led to deals getting done, and introduced me to amazingly talented people, both mentors and protégés.”

Global Force www.npc.net 877/453-5933

42 April 2010 | Transaction trends

While ETA has come a long way in 20 years, there’s still plenty of work to be done. “Our organization has reached a significant size and scope, but I can

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© 2010, Network Merchants Inc.

see us having more impact in legislative circles. In fact, without the ETA taking on this active role, the acquiring community would not be represented,” says Garcia.

Gerdts also would like to see the ETA’s advocacy role expand. “My single greatest vision for the future of ETA is for ETA to become a recognized global force with regard to world economics,” she suggests.“We are an integral part of the economy, yet we are not recognized at the level we should be or given the global voice or power that we deserve.

I am confident with the continued great leadership of ETA, this is a goal that is no doubt obtainable.”

Becoming a global force is certainly a goal worth pursuing, say others.“As the acquiring industry has moved beyond ‘bankcard’ and the reach has grown to an international market, I see the ETA expanding its reach and perhaps having meetings beyond the United States,” notes Embr y. “What ETA has done

ETA Flashback TOM TESMER: PIPELINE DATA Tesmer, now CTO at Pipeline Data, recalls pulling together the materials for his (then) company’s booth at ETA Annual Meeting in Hawaii. “I knew I could rely on Federal Express to give me guaranteed overnight delivery so I packed everything up, dropped it at FedEx, and caught a plane to Honolulu, only to find out that, of course, the overnight guarantee only applied in the contiguous 48 states. I had to spend a day at the meeting with nothing to display. We had a great laugh over it, but as always at an ETA meeting, I still made friends and did a lot of business there.”

POS Portal congratulates the ETA on

20 years of leadership

in the electronic transaction processing industry.

Thank you for providing a collaborative forum for innovation.

44 April 2010 | Transaction trends

20 YEARS

TSG congratulates and thanks the ETA for its 20 years of being both the voice and the biggest supporter of the Acquiring Industry.

—Your Loyal Supporters, Kurt Strawhecker, Jamie Savant, and the entire TSG Team

At ETA’s Live Learning Center Don’t forget! ETA Annual Meeting & Expo educational content can be purchased for online viewing.

Listen and view educational sessions (as released for inclusion) in audio synchronized to PowerPoint™ presentations. Access up to 14 educational hours at ETA’s Live Learning Center! Plus, have the ability to download the MP3 files onto your iPod™ for education on the go!

Purchase the recordings for: • $99 Onsite • $199 Post Meeting Visit ETA’s Live Learning Center booth located in the registration area in the Bayside Foyer. www.softconference.com/ETA

Transaction trends | April 2010 45

20 YEARS domestically to educate, legislate, and open doors has a place worldwide.There are many emerging markets in desperate need of education and organization.”

ETA’s role in education will be a critical component as the organization moves forward, as well. “I believe the ETA will continue to grow substantially and expand in its value to the payments industry, not only in its advocacy role but in its ability to provide essential education, networking, and the essential event that showcases the latest technology and developments in the payments industry,” says Dees Griffith.

“One thing will always remain constant: People love to buy things and to do that, they need us,” concludes Kaplan.

“As long as the ETA continues to morph and accept change, it will continue to be the premier organization to be part of.” TT Angela Hickman Brady is features editor of Transaction Trends. Reach her at abrady@strattonpublishing.com.

46 April 2010 | Transaction trends

ETA Flashback JEFF ROSENBLATT: EVO MERCHANT SERVICES “The ETA has not only helped my career personally, but our company as well. The networking and business opportunities that have been available to us has been extremely valuable. Additionally, the ETA has done a great job keeping me informed on so much of the interesting news and exciting developments constantly affecting our industry all the time.”

Rosenblatt also recalls when Newt Gingrich spoke at the 2002 Annual Meeting. “I remember not only how much of a dynamic speaker he was, but also how friendly he was when I was given a chance to meet him and shake his hand after his speech was completed. That day was certainly a huge thrill for me and one that I have never forgotten.”

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ISO Corner RISK IN REVIEW

Working in the Clouds

While cheap and easy to use, cloud computing is risky business

By Michael Petitti and Robert Cortopassi

C

loud computing has grown in popularity largely because it is an inexpensive way to increase IT resources. But potential security and compliance problems can cost users, particularly the payments industry, far more than they expected.

As spending on IT cloud services is expected to hit $42 billion by 2012, ISOs, merchants, payment processors, and gateways should have at least a working knowledge of the technology and the data security and compliance issues associated with offering services in the cloud.

The Basics Cloud computing is the use of hosted, Internet-accessible servers for a variety of computing needs. It can be dynamically scalable and is usually a virtualized resource primarily used in four categories: • Software as a Service (SaaS) is a mod-

48 April 2010 | Transaction trends

el of software deployment where an application is licensed for use as service on demand.

• Platform as a Service (PaaS) describes a company using another company to host all of its applications.

• Infrastructure as a Service (IaaS) is a computer infrastructure delivered in a virtual environment.

• Virtualization Technology transforms on-premise data centers into their own clouds.

Google, Microsoft, Amazon, Citrix, and Salesforce.com are just a few companies offering some or all of these cloud computing services.

Cloud computing is cheap: By renting computer usage from a third-party provider, companies avoid capital expenditure. These typically “pay for what you use” services are ideal for organizations that may have one or two busy months (i.e., holiday season) and need a larger platform just for that time of the year.

Compliance Considerations The cost savings a company achieves with cloud computing could potentially be offset by additional security measures that might be necessary. Experts continue to debate whether these are able to meet regulatory compliance requirements.

No hard rules or standards currently exist, although the Cloud Security Alliance (CSA), a non-profit organization promoting best practices for providing security assurance with cloud computing, has issued an ongoing “Security Guidance for Critical Areas of Focus in Cloud Computing.” Some of CSA’s best practice recommendations for compliance with payment card transactions include: • classifying data and systems to understand compliance requirements • understanding data locations, in particular the copies of data that are made and how they are controlled • m aintaining a right to audit on demand as your regulatory mandates and business needs may change rapidly • p erforming external risk assessments, including a Privacy Impact Assessment.

While these recommendations may be valid, the PCI Security Standards Council has not issued formal guidelines for cloud computing as it pertains to payment card applications or data.

However, the council recently commissioned two special interest groups to research these issues and provide guidance to the technology working group. One group is dealing specifically with the compliance and security ramifications of hosting multiple server environments, with potentially varying security requirements, on a single physical server. Another is reviewing potential uses of technology solutions (such

as tokenization, strong encryption, and virtualization best practices) to limit and more clearly define which systems are in or out of scope for the purposes of PCI Data Security Standards assessments.

All About Implementation Several companies offer resizable and configurable computing capacity that can be paid for by the hour or in multi-year terms, making it an attractive option to many businesses. Unfortunately, cloud computing systems are not inherently PCI DSS compliant, and using them to store, process, or transmit sensitive credit card payment information can lead to compliance and other costly risks.

In a recent article at Data Center Knowledge, Amazon provided insight into the issue of compliance and cloud computing, reaffirming that PCI DSS compliance is dependent on how the merchant implements various solutions.

Reaching out to customers to address compliance concerns, Amazon spokesperson Kay Kinton stated: “Under the PCI Data Security Standard, merchants, regardless of their size, are independently responsible for complying with PCI when they collect, process, or store credit card information. When using a shared hosting service, like AWS, where the merchant controls what credit card information touches the service, the merchant is responsible for using the services in a manner that permits them to be PCI compliant, such as the proper use of encryption and key management.Therefore, it is possible for a merchant to use Amazon EC2 and Amazon S3 and meet PCI compliance standards depending on their specific implementation.”

But some cloud providers are claiming to be certified as PCI DSS compliant or are offering PCI solutions. The authenticity of these claims is not certain, and merchants should consult a Qualified Security Assessor when evaluating a vendor’s proposed solution.

Because cloud service can originate from anywhere in the world, it is difficult to know exactly where the data resides, or even if the provider is meeting the physical security requirements of the PCI DSS. Further complicating matters, most cloud providers do not allow onsite auditing of their facilities. While PCI DSS compliance doesn’t automatically make a company safe from security threats, it does help businesses ensure appropriate security measures are in place to prevent or deter security compromises and data theft as much as possible.

In many ways, cloud computing is an evolving IT experiment and still has some growing to do before the complexities surrounding payment data security are fully resolved. Therefore, merchants should wade cautiously into its waters. TT Michael Petitti is chief marketing officer for Trustwave, and Robert Cortopassi is vice president of product development, CAM Commerce Solutions. Both are members of ETA’s Risk and Fraud Committee.

50 April 2010 | Transaction trends

ETA 2009-2010 BOARD OF DIRECTORS OFFICERS PRESIDENT Holli Targan Partner Jaffe, Raitt, Heuer & Weiss, P.C. PRESIDENT-ELECT Rick Pylant President & Chairman COCARD Marketing Group LLC

Kim Fitzsimmons Senior Vice President–First Data Services First Data Corporation

Advisory Council Robert Baldwin President & CFO Heartland Payment Systems, Inc.

Heidi Goff President & Managing Director, The Americas Hypercom, Inc.

Joe Cohane CEO Veracity Payment Solutions

Stuart Harvey CEO Elavon

TREASURER Eddie Myers President & COO Payment Processing, Inc.

Robert McCullen CEO Trustwave

SECRETARY Roy Banks CEO CAM Commerce Solutions

Bob Philbin Industry Consultant

IMMEDIATE PAST PRESIDENT Nick Baxter Senior Vice President First National Bank of Omaha

Debra Rossi Executive Vice President Merchant Payment Solutions Wells Fargo Bank

DIRECTORS Todd Ablowitz President Double Diamond Group

Dave Siembieda President & CEO CrossCheck, Inc.

Greg Cohen President Moneris Solutions

Tom Wimsett President & CEO National Processing Company

52 April 2010 | Transaction trends

Dean Leavitt Chairman & CEO Unicorn Partners, LLC Ed Myers U.S. President Global Payments Deana Rich President Rich Consulting

ex-officio Carla Balakgie CEO Electronic Transactions Association Jan Estep President & CEO NACHA Sameer Govil Head of Acceptance Solutions Global Acceptance Visa Matt Johanson Vice President Acquirer Relations Discover Network

Jeff Rosenblatt President EVO Merchant Services

Gerritt Kerkstra Senior Vice President Acquirer Relations MasterCard International

Kurt Strawhecker Executive Partner The Strawhecker Group

Bryan O’Malley Vice President American Express

Buzz Stryker President & CEO POS Portal, Inc.

LEGAL COUNSEL Dave Goch Attorney at Law Webster, Chamberlain & Bean

W NE

ETA’s InAugurAl InvEsTmEnT CommunITy Forum

A pre-conference event at the 2010 ETA Annual meeting & Expo Mandalay Bay, Las Vegas • April 13, 2010 • 10 a.m. - 4 p.m.

Who will you meet

Whether you are a stakeholder in the



payments supply

Executives from established and emerging payments companies



chain or an investor

Institutional financial firms



looking to learn more

Private investors including venture capital and private equity



Other payments industry service providers

about the players and potential, this event

What to Expect

offers you unparalleled access, education



the payments system, the potentials and the pitfalls.

and information on opportunities in



Company Presentations: Emerging payments companies will discuss the solutions that will define the payments industry in the next decade.

the ever-expanding electronic transactions

Sessions: High level panels and discussion will provide an understanding of



Networking Opportunities: Representatives from the many facets of the payments value chain will be available for introductions and conversations.

business.

Meet and greet processors, ISOs, acquirers, emerging technology companies and other key stakeholders in the industry.

How To register 

Go to www.electran.org and register for the Investment Community Forum, or register for the full conference.*

celebrating 20 years 1990-2010

*Full conference registration includes access to the 2010 ETA exhibit hall, an international exhibition of major payments companies showcasing their products, technologies, and services.

Advertisers index Company

Page

Apriva 54 Authorize.Net C2 Chase Paymentech Solutions 29 CrossCheck, Inc. 38 Cynergy Data C3 Discover Network 23 Elavon 7 eProcessingNetwork 12 CREDCO Merchant Screening 47 Fifth Third Processing Solutions 25 First American Payment Systems 51 First Data Corporation/FDIS 27 First Data Corporation/FDIS bellyband First Data Corporation/TASQ 39 Hypercom Corporation 37 International Cybertrans 16 Retail Cloud-Inventrak 2, 36 Jaffe, Raitt, Heuer & Weiss 9, 40 Merchant Warehouse 41 Moneris Solutions 16 Money Movers/Process Pink 11, 40 National Processing Company 4, 42 NMI - Network Merchants Services 43 Now Prepay 38 PacNet Services Ltd. 52 Pax US 49 Payment Processing, Inc. 46 Planet Payment 50 POS Portal 44 The Strawhecker Group 45 Total Merchant Services, Inc C4 TransFirst 13 Trustwave 1, 42 USA ePay 36, 55

Phone

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54 April 2010 | Transaction trends

Industry Insider

Back in Business Cynergy Data finds its way back into the industry after filing for Chapter 11 in 2009

By Bryan Ochalla

I

t was smooth sailing for the first 14 or so years of Cynergy Data’s existence, according to Marcelo Paladini, who started the company with John Martillo in 1995. Since then, the New York City-based firm has grown from a two-person operation to one with more than 130 employees.

Late last year, however, Cynergy Data (under the leadership of Paladini, who bought out Martillo in 2007) filed for Chapter 11 bankruptcy. At the same time, company leaders also sold its assets to The Comvest Group, a private equity firm based in West Palm Beach, Florida.

“We had been growing very fast, and we had positioned the company for a much different forecast than what proved to be,” who Paladini who now serves as the company’s vice chairman and executive vice president of business development.

Rebuilding The bankruptcy process and the sale to The Comvest Group allowed the company to “cleanse” and “take care of the financial challenges” it was facing, says Paladini. “They are helping us rebuild not only our name but our strategy—and the long-term goals that we set for the company in the first place.”

The Comvest Group’s involvement is improving Cynergy Data “This process has enabled us in other ways, too. “They own to be even more competitive other companies in this space,” in the marketplace than we Paladini says, “so we took a close look at these companies and were before.” came up with a plan to integrate -—Marcelo Paladini the best aspects of each of them into our own.”

As a result, Cynergy Data has expanded not only its product offerings, but its processing platform as well.

“We now have multiple front ends and back ends. And multiple gateways, too,” Paladini explains. “In other words, this process has enabled us to be even more competitive in the marketplace than we were before.”

Originally, the ISO-servicing company made a name for itself by processing a wide range of payments— 56 April 2010 | Transaction trends

from checks to credit, debit, gift, and phone cards.

Today, it continues to offer those services while also helping customers with payroll management and alternative business funding.

“We’re able to process transactions from any kind of merchant and any kind of POS system,” Paladini points out.

Customer Focus “Along with customer service, we’ve always focused on providing our customers products and tools to help them be more efficient and more successful at what they do—because we know that if they succeed, we will succeed, too.”

That customer-centric attitude was in full force even while Cynergy Data was fighting its way through the bankruptcy process late last year. While Paladini and his crew worked to get the company back on its feet financially, they also worked to maintain all of the company’s relationships.

“I always believed that our partners and providers shouldn’t have to suffer the consequences [of our financial problems],” Paladini explains. “So we did our best to ensure there were no major delays in payments and no interruptions in the processing of daily transactions. Basically, we tried to make sure everything kept working as close to normal as possible.”

That, possibly more than anything else, has helped the company bounce back from backruptcy in a matter of months.

“I think it gave the resellers that work with us a sense of trust and confidence,” Paladini says. Regardless, they continued to do business with the company as usual after the process was completed.

Today, Cynergy Data is, once again, in growing mode, according to Paladini, and is ready to regain all that it lost through the bankruptcy process.

“As painful as the process was, it really positioned us well for growth and success in the future,” he adds.

“We’re capitalizing on what we learned from it, and we’ve built a much better company as a result.” TT Bryan Ochalla is a contributing writer for Transaction Trends. Reach him a bochalla@yahoo. com.

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