Page 1

Transaction trends The Official Publication of the Electronic Transactions Association

| February 2011

prepaid? WHICH WAY,

The economy, industry regulations will dictate the direction of market growth

ALSO INSIDE: Market Basics That Make a Difference Risks and Innovation Spur ISO Success Are Apple Stores the Way of the Future?


PARTNERSHIP OPPORTUNITIES EVO has been recognized as a premier acquirer with one of the best and longest tenured management teams in the industry. With a relentless commitment to continue

Flexible Programs with zero, shared and full liability options. TM Individual Ownership and Portability Rights First-Rate Pricing Unique BIN Relationships Scalable Back Office Management Support Trusted Third Party Solutions to meet the needs of a broad

to lead the industry as one of the top

range of merchants.

payment processors, EVO is your partner




for success.

Advanced Proprietary Authorization System Alternative Front-end Options OnBoard — Data and Business Management System for easy merchant set up,


detailed reporting, access to marketing support and other tools.

Customized E-statements Trust. Integrity. Stability. Security. w w

Now offering… One Statement • Faster Receipt of Funding Long Term Residual Compensation One Customer Service Number for all Major Card Brands


Transaction trends The Official Publication of the Electronic Transactions Association

Vol. 16 | No. 2

cov e r s to ry

10 Which Way, Prepaid?

By Bryan Ochalla The prepaid market has seen double-digit growth every year since 2004—a trend that’s sure to continue, say experts. But which avenues prove to be most lucrative may depend on the economy and industry regulations.



14 Marketing 101

By Nancy Lundell The most effective marketing strategies often are the simplest ones. Brush up on ways to promote your company using web resources, advertising in industry publications, attending trade shows, and more.



Startup Stories: EVO’s Evolution

By Julie Ritzer Ross Innovation and risk-taking helped EVO Merchant Services’ grow into a top 20 acquiring business with more than 250,000 merchants.


d epa rtm e n tS


President’s Message


Industry News



Data Security

23 24

Ad Index

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

ISO Corner

The Apple Store model could be coming to a retailer near you.

New P2PE solutions offer benefits to merchants, processors, banks, and consumers.

Industry Insider Turnkey protection against fraud is a priority for Royal Group Services.


Transaction trends | February 2011 3

Electronic Transactions Association 1101 16th Street NW, Suite 402 Washington, DC 20036 202/828.2635

President’s Message

ETA Chief Executive Officer Carla Balakgie

Getting Ready for San Diego

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 Editorial/Production Assistant Teresa Tobat Art Director Janelle Welch Contributing Writers Richard H. Gamble, Bryan Ochalla, Julie Ritzer Ross Advertising Sales Steve Schwanz or Fox Associates (800/440.0232; 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

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 © 2011 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.


TA’s Annual Meeting & Expo registration has been open for a few weeks now, and I’m happy to say that we’re already seeing a lot of activity. Those who are registering are in for a very productive and enjoyable experience in San Diego when May 10 rolls around. If you haven’t registered yet, let me offer a little encouragement. Moving the Annual Meeting & Expo to San Diego this year is a big change, and ETA is determined to make it an unforgettable experience. We’re enhancing many of the things that make the meeting one of the most important events industry each year by expanding the opportunities for networking, learning, and gathering critical business intelligence. Compliance Day and Prepaid Day will be on tap again this year, and the Investment Community Forum, which was standing-room only in 2010, has been enhanced and expanded for 2011, to make it easier and more efficient not only to find out what investors are looking for, but also to connect with those who can provide that allimportant capital. The Expo hall looks like it will be one of the largest, most jam-packed exhibitions ever. Breakout sessions will cover all the critical topics, from legislation and regulation to international business and using social media for marketing. The Annual Meeting also will have some new features, including new online virtual components before, during, and after the meeting, along with more hands-on, close-up technology demonstrations and special events that take advantage of what San Diego has to offer. In short, ETA has pulled out all the stops to make this Annual Meeting a worthwhile, productive investment for our attendees. In fact, there is probably no better investment you could make in your business or your career. You’ll be seeing and reading much more about the Annual Meeting over the next several weeks as final details for the meeting come together, so stay tuned. As you’re preparing, this month’s Transaction Trends offers up some food for thought.To start with, we have a very informative look at marketing (page 15) and how getting back to the basics can reinvigorate your business in a world that’s become extremely competitive. And the cover story (page 10) on prepaid (including its very prominent place in the health-care vertical) is a great prep for the 2011 Prepaid Day. So read up and get ready.The ETA Annual Meeting & Expo is just around the corner. I look forward to seeing you in a few months in San Diego. Sincerely, Rick Pylant Rick Pylant is President of ETA and President & Chairman of COCARD Marketing Group, LLC

Transaction trends | February 2011 5

INDuSTRYnews MAC Announces 2011 Annual Meeting

Australian EMV Switch Increases Card Fraud

The Merchant Acquirer’s Committee (MAC), an organization of bankcard professionals involved in the risk management aspect of card processing, will host its annual 2011 conference “Revolution on Fraud” April 12- 14 at the MGM Grand Hotel in Las Vegas. This year’s conference will feature three full days of discussion on fraud and risk mitigation in the payments industry. Expect panel discussions on various topics, including PCI compliance, banking trends, as well as legislative changes, plus keynote speakers from Microsoft, FBI, and the Federal Trade Commission. The card brands also will be on hand to update participants on upcoming risk related issues.The event will feature day and evening networking opportunities as well as new product releases. For more information or to register, visit

The Australian payments industry is experiencing a rise in card fraud as the country transitions to chip technology or EMV, according to the Australian Payments Clearing Association (APCA), the country’s payments industry self-regulatory body. The switch from magnetic stripe cards, which is slated to be completed in 2013, should eventually lead to a drop in card fraud. But for now, fraud is on the rise. Key findings from APCA’s study, which compared data from June 2009 until June 2010, include: n Card frauds losses for debit and credit cards increased 9.6 percent since June 30, 2009.

n Losses from counterfeit cards increased by 5 percent to $155.5 million. n Card-not-present fraud on Australianissued scheme credit, debit, and charge cards increased 25 percent and accounted for $102.6 million in losses. n PIN-only debit card fraud at POS

n Credit and debit card fraud climbed

terminal and ATMs increased by 45 percent.

41 percent to 748,183 fraudulent transactions.

n Fraudulent PIN-only debit card transactions increased 78 percent.

n Attempts to use counterfeit network-

n Skimming increased by 94 percent

branded cards rose by 21 percent.

and accounted for $22 million in losses.

info graph PIN Debit v. Credit Pricing 5.0x


4.6 *Note: Multiple of credit to PIN debit revenue. Pricing multiple calculated as credit net revenue per transaction divided by PIN debit net revenue per transaction.

4.1 3.7 3.0




5.0x <$100K

$100K - $500K

$500K - $5M

$5M - $25M

Merchant Size (Annual Volume) Source: First Annapolis Consulting merchant database

6 February 2011 | Transaction trends


Fast Fact Global shipments of near-field communications phones will increase to 220.1 million units in 2014, up from 52.6 million to 2010. Source: iSuppli Corporation

info graph Popular Payment Methods for Online Shoppers Major credit card usable anywhere:


Major debit or check card usable anywhere:

53% Alternative online payment services (PayPal or Google Checkout):


Gift card good only at specific merchants:


Store-branded credit card:


Online credit service (such as Bill Me Later):


Prepaid card or payroll card usable anywhere:


Source: Javelin Strategy & Research

PayPal Prepares to Expand in China The world’s largest online payment system, PayPal, is planning to form a foreign exchange solution in China’s largest industrial and commercial hub, according to a press release from the online payment giant. PayPal has entered into an agreement with government of Chongqing, China’s largest municipality, to provide a diverse range of services—including a foreign exchange settlement solution—to small Chinese businesses selling to costumers abroad. Chinese authorities have set a $50,000 limit on the amount of foreign currency individuals can convert from foreign currency. This limit restricts smaller and mid-size businesses’ ability to expand through cross-border trade, but PayPal’s agreement with the Chongqing government will set up a foreign exchange settlement to make it easier and faster for Chinese merchants to receive international payments and convert it into local currency. The partnership also creates five international e-commerce centers including a verification center, investment promotion center, national telesales center, merchant training center, and regional business development center.The foreign exchange solution is in testing phases, and the company hopes to offer it to Chinese merchants during the latter half of 2011.

Treasury Launches Prepaid Tax Refund Program The United States Department of Treasury is testing the effectiveness of issuing prepaid debit and payroll cards for federal tax refunds. In mid January some 600,000 Americans earning less than $35,000 annually received letters inviting them to register for a Visa prepaid debit card, rather than a paper check, to receive 2010 tax refunds. Lower-income Americans were selected for the pilot because they are most likely to be unbanked and receive a larger income tax return, according to Josh Wright, director of financial access innovations for the Treasury. The pilot also includes an option to direct deposit refunds onto existing payroll cards. The prepaid cards will function like a traditional debit card, have no overdraft fees, and can be used to make online purchases. To test popularity of fee structures and other features among users, four variations of the card will be issued. Some cards have no monthly fee; others will charge $4.95. Some cards also will have the option of linking to a savings account.

The government mails out 45 million paper tax refund checks annually, which costs about $1 each. Issuing refunds electronically will save about $40 million, says Wright, who notes the Treasury has not set a timeline for extending the pilot and currently has no plans to eliminate paper checks altogether. “The Treasury does have a long-standing goal to increase electronic payments transactions and receipts,” Wright says. “That could happen through a variety of ways; debit cards would be just one vehicle.” Transaction trends | February 2011 7

ISO Corner

An Apple of an Idea

Are Apple’s retail stores—and the way they handle transactions—the future of payments? By Bryan Ochalla


n the third quarter of 2010, Apple Inc. set a new retail foot traffic record— approximately 74.5 million people visited its 317 stores around the world. What enticed all of those would-be consumers to walk into an Apple Store? Obviously, the company’s uber-popular iPad, iPhone, and iPod products are one reason, but another reason may be Apple’s handheld iPod Touch-based EasyPay system, which started replacing its stores’ dedicated POS stations in 2006. Although most Apple Stores still have POS devices on hand to facilitate cash- and check-based transactions, most transactions are completed on the sales floor— rather than behind a counter—by iPod Touch-wielding sales associates. Employees carry around modified iPod Touch devices that include barcode scanners, magnetic stripe readers, and Apple’s proprietary software for processing payments. After a customer’s purchases are scanned and card is swiped, all he or she has to do to complete the transaction is accept the charges and sign on the iPod Touch screen. (Receipts are sent via e-mail.) Until recently, the brass at Apple kept the technology to itself. In early December 2010, however, reported that Gap Inc. had recently started piloting the EasyPay system at some of its Old Navy stores. Are more merchants likely to follow Gap’s lead? Experts say that could be the case—although such technology is unlikely to completely replace dedicated POS stations anytime soon.

The Apple Answer Some retailers are likely to jump on the Apple Store bandwagon because of the inherent “cool factor” of a mobile POS system, says Allen Weinberg, managing partner and co-founder of San Francisco8 February 2011 | Transaction trends

“If your establishment is centered on a cash register, displacing the terminal on the counter with an iPhone isn’t really going help you with anything.” —Ken Maliga, KeyPoint based payments strategy consulting firm Glenbrook Partners. That may sound funny, “but it matters to a lot of retailers,” he says.“Many of them spend a lot of money on their image, and this kind of technology—and sales environment—can really reinforce that.” Consumers also are less interested in spending their free time shopping.“We’re definitely seeing an increase in consumers who order something online and then pick it up in the store,” he says,“and we’re seeing the converse, too—where they order something in the store and then have the product delivered to their homes.

“What that says to me is that a lot of people want to go into a store, get their stuff, and then get out,” he continues.“They don’t want to have to wait in check-out lines.” The sales environment in place at Apple’s retail stores is the perfect antidote to that kind of mindset.“It’s really nice, when you’re talking to a salesperson about an item, to be able to consummate the transaction right then and there,” Weinberg says. Moreover, having roving salespeople who can complete transactions on the spot helps merchants close more sales by preventing long check-out lines.

Other Options Although retail department stores may be the obvious benefactors of mobile POS devices, other merchants could profit from following in Apple’s footsteps, too. “I was in Amsterdam recently, and a bunch of the restaurants I ate at took care of the ordering on a handheld,” says Todd Ablowitz, president of Double Diamond Group, a payments industry consultancy based in Centennial, Colorado. “It makes so much sense, if you think about it. Why don’t we see that in the U.S.?” “When you’re in an overseas restaurant and you want to pay your bill with a credit card, the waiter hands a POS device to you and that’s it,” agrees Ken Maliga, managing partner at KeyPoint, a Dallas-based global management and technology consulting firm that specializes in electronic payments.“In the United States, if you want to pay with plastic, the waiter takes your card to the cash register to complete the transaction.” Overseas flea markets and taxi rides have opened Maliga’s eyes to the possibilities of mobile POS devices and technology in the U.S. merchant space. “When I go overseas and I want to pay for my taxi with a credit card, I hand the guy my card and he swipes it on a wireless POS device built into the taxi meter. If I try to pay for a taxi with my credit card in the UnitedStates, the cab driver pulls out a knuckle buster, puts my card through it, and gives me a paper receipt.”

Sweet Solution Despite the possibilities, Maliga isn’t optimistic that the Apple Store transaction model will spread throughout the American merchant landscape anytime soon.“I think it’ll be like mobile payments: Some segments will use it, but I don’t know if or when it will become that widespread or dominant.” Why? Maliga doesn’t see many merchants pushing for it. “The way things run today isn’t a problem for most retailers,” he says. “If your establishment is centered on a cash register, displacing the terminal on the counter with an iPhone isn’t really going help you with anything.” Before moving forward with an Apple Store-inspired makeover, merchants will want to know if it will reduce costs, make transactions more reliable, or increase security. “The answer to those questions, at this time, is ‘not really,’” he says. Until they can be answered in the affirmative,“you’re not going to see a big push to change out all of the existing infrastructure.” “I don’t think it’s realistic for most retailers to throw out the way things work today” in favor of the Apple Store model,Ablowitz agrees. “However, I do think new retailers may consider that approach when setting up their stores, and others may adopt aspects of it that they think will solve some of the problems they have with their existing stores.” But the majority of merchants—especially the smaller ones— are going to be tough sells.“They’re not going to jump on board,” Ablowitz suggests,“until someone can show them that it will offer them material and measurable benefits.” TT Bryan Ochalla is a contributing writer to Transaction Trends. Reach him at Transaction trends | February 2011 9



prepaid? As the prepaid market grows in multiple directions, smart ISOs follow the money By Bryan Ochalla

KEY NOTES 8 Corporate and government disbursements and GPR and payroll cards show promise. GPR cards, in particular, offer convenience, flexibility, and safety.

8 As gift-card producers and sellers add more functions to the products and do a better job of engaging and enticing consumers to use them, growth will pick up, says one expert.

8 If consumer groups persuaded the federal government to introduce regulations that would control fees and regulate disclosure, prepaid-card providers would feel the pain.

10 February 2011 | Transaction trends


he question at this point isn’t,‘Will prepaid grow?’ but, ‘What part of the prepaid market will grow?’” offers Ben Jackson, a senior analyst with Mercator Advisory Group’s Prepaid Advisory Service. The affirmative answer to Jackson’s first question has been a given for some time, of course.  According to his employer, Maynard, Massachusetts-based Mercator Advisory Group, prepaid products have seen double-digit growth every year since 2004—a trend likely to continue through at least 2013 (when total dollars loaded onto prepaid cards are expected to climb to $672 billion, which is more than double the $330 billion loaded onto those cards in 2009). The answer to Jackson’s second question isn’t as straightforward, although a succinct way to sum it up would be to say, “It’s going to depend on the economy.”

Prepaid as Financial Tool In Jackson’s opinion, if the economy remains in the gutter, the prepaid space likely will see continued growth related to government benefits cards—as, say, more unemployment cards are disbursed or more funds are loaded onto Temporary Assistance for Needy Families (TANF) and Women, Infants, and Children (WIC) cards. Another option that will provide a boost to the prepaid space regardless of the economy revolves around the recent U.S. Department of the Treasury rule that requires most government benefits to be paid through direct deposit

[ COVER STORY] by March 1, 2013. Americans who receive such benefits but don’t have banking accounts will be paid using prepaid cards— Direct Express Debit MasterCard cards, specifically—issued by Comerica Bank under contract with the Treasury. If the economy turns around, however, Jackson suggests the prepaid space may see growth related to general purpose reloadable (GPR) cards, which he sees consumers using as a budgeting tool, or growth related to payroll cards. Rod Boyer, president of Columbus, Georgia-based TSYS’s Loyalty and Prepaid divisions, agrees with both of Jackson’s assessments.There’s little doubt the prepaid space will continue to grow in the coming years, he says, especially since, in the wake of the recent economic downturn, prepaid cards “are becoming an important financial tool for a growing number of Americans who are without a banking relationship or who have had difficulty with credit.” Specifically, Boyer believes some of the best opportunities for growth in the space will come from “certain well-defined segments” that include corporate and govern-

ment disbursements and GPR and payroll cards. He’s especially keen on the future of GPR cards, as more and more consumers are turning to them in an effort to change their spending habits.“Branded GPR cards provide users with convenience, flexibility, and safety,” he says, “and are becoming an important budgeting tool for a growing number of Americans.” The current economic environment has played an important role in consumers’ increasing attraction to and adoption of GPR cards, he adds. “When consumers lost access to credit cards, they found the answer in GPR cards—which allowed them to pay their bills and make online purchases.” Another reason GPR cards could see a considerable amount of growth in the near future, according to Jackson: Financial institutions may start using them to entice customers away from free checking accounts. Thanks to the Durbin Amendment to the Dodd-Frank (Wall Street Reform and Consumer Protection) Act,“low-dollar checking accounts are about to become less profitable” for financial institutions, he says. “So

it’s likely a number of them will try to move some of these consumers to prepaid cards—because prepaid cards are exempt from those interchange restrictions.”There are a number of possibilities, Jackson says, with the most likely being that “some banks will try to sell these prepaid accounts as an upgrade of sorts from the free checking accounts they used to have.” That’s not to suggest the idea is without issues. For instance, many prepaid cards have more features than your typical financial institution’s checking accounts. “The question then becomes,” Jackson says, “‘If we move our low-end people onto these feature-rich prepaid cards, how are we going to justify to our more profitable account holders that they’re not getting these same features and services?’” Another issue with this idea: Sen. Dick Durbin (D-IL) recently asked Elizabeth Warren of the newly created Consumer Financial Protection Bureau to protect consumers from attempts to circumvent the Dodd-Frank Act by pushing consumers to less regulated products like prepaid cards. “With [the recent] release by the Federal

Hot Health-Care Opportunities The idea that prepaid cards could be used in the health-care space isn’t a new one— restricted open-loop cards tied to health savings accounts have been used by consumers for a while now. Those cards don’t represent the limit of that segment’s potential, though, according to Mary Dees, president and COO of Preferred Health Technology Inc., in Carrollton, Texas. One possibility, she suggests, is that prepaid cards could be used to connect a person’s medical records and payment information (and preferences) in various health-care settings and situations. For instance, she explains, “say you show up in the emergency room unconscious. If you had one of these cards on you, the ER staff would be able to access a central database that contains your medical records.” (It also could direct them to your payment preferences.) Another possibility involves “centralizing the conduit between your insurance information and your health savings account (HSA), so that you can see your HSA balance and also see your elective pay from your HSA balance directly to the doctor,” she says. The best part of such programs, according to Dees, is that “they don’t require a retrofit of interoperability between something on a card and something at the point of service, which is important because the PMS (practice management software) systems already are entrenched in that space.”

12 February 2011 | Transaction trends

Reserve of draft rules to bring down the excessive interchange fees charged on debit card transactions, the big banks and card networks are likely to start steering their customers away from traditional debit cards and toward less-regulated products, including reloadable prepaid debit cards,” he wrote in a letter to Warren. “I urge the Bureau to closely monitor the marketing, fees, and terms of these products and alert businesses and consumers about deceptive and abusive products.” Regarding a possible boost in the use of payroll cards—should the economy improve—Jackson suggests the segment’s growth could be spurred by a number of situations, such as “if people who currently don’t have bank accounts are employed by companies or organizations that no longer issue checks.” Donna Embry, senior vice president at Louisville, Kentucky-based Payment Alliance International, also views the payroll segment of the prepaid space as a prime candidate for growth and opportunity. For example, she says, program managers could target restaurants or retailers that have a small number of employees, some of whom are likely to be unbanked or underserved. “That segment of the market could really benefit from payroll cards,” she says.

Spins on Gift Cards and Incentives Gift cards are another area of opportunity for those in the prepaid space, especially if the economy—and the way such cards are used—improves. The segment has stagnated, Jackson says, because, for the most part, gift cards “simply serve as a plastic version of a paper gift certificate.”As gift-card producers and sellers add more functions to the products and do a better job of engaging and enticing consumers to use them,“I think the growth will pick up again,” he suggests. A good example of how gift cards could get a shot in the arm can be found in Sears’ Christmas Club card, which allows consumers to store their holiday-spending money on retailer-branded cards. A minimum of $5 is needed to activate one of the cards, and once a card is activated consumers can add additional funds—which can be used to pay for layaway, in-store, or online purchases—to the card online or by visiting one of the retailer’s stores.Additionally,

“With [the recent] release by the Federal Reserve of draft rules to bring down the excessive interchange fees charged on debit card transactions, the big banks and card networks are likely to start steering their customers away from traditional debit cards and toward less-regulated products, including reloadable prepaid debit cards.” —Sen. Dick Durbin Sears has offered, for the past two years, to add an extra 3 percent—which is applied toward the final card value—at the end of each season’s promotion. “Programs like that provide a great opportunity because they help people with a need—budgeting for Christmas—and they also give people a bit of a bonus,” Jackson says, “which helps retailers lock in their money, lock in that spend.” Corporate and consumer incentives represent another area that’s ripe with opportunity for folks in the prepaid space, suggests Boyer.“The power of prepaid for incentive programs is hard to beat.”After all, “prepaid cards are highly brand-able, come in carriers that can convey important messages, and are linked to Web sites on which the program organizer can continue the dialog with the recipient.” In addition, he suggests, prepaid cards “are much easier and less expensive to implement than merchandise or checks. It’s definitely an area we’re seeing tremendous growth potential in right now.”

Regulatory Impact Are there other factors—aside from the economy—that could affect or impact which segments of the prepaid space see the most growth in the coming months and years? According to the industry veterans interviewed for this article, regulations aimed at the payments industry could be one of them. That hasn’t really been the case so far— as Boyer says, although the CARD Act took aim at gift cards by stipulating that they can’t expire within five years from their

issue date and that their terms of expiration must be clear and conspicuous,“most gift-card providers were already adhering to those regulations even before they took effect”—it could be an issue in the future. Jackson, for instance, warns that “there are a lot of folks—like the Consumers Union—who think that the fees are too high and the terms and conditions are inadequate when it comes to prepaid cards, and they’d like to see the Fed introduce regulations that would control fees and regulate disclosure. If that came to pass, it could end up making life more difficult for prepaid-card providers.” Another concern, he adds, is that some segments of the federal government seem to be worried about a possible relationship between prepaid cards and money laundering.“There’s this impression among law-enforcement agencies that you can somehow load $1 million onto a prepaid card and move it, undetected, from the U.S. to any country in the world,” Jackson adds. “That’s not likely to happen, and it certainly wouldn’t happen without there being red flags raised, but there’s this impression that prepaid cards are completely anonymous, completely outside of the law—and it’s just not true.” Should Congress decide it could be true, though,“they may try to put some sort of restrictions on prepaid cards through regulation,” he suggests,“and that could be troublesome for the payments industry, too.” TT Bryan Ochalla is a contributing writer to Transaction Trends. Reach him at Transaction trends | February 2011 13

KEY NOTES 8 Several ISOs use their Web sites to educate potential customers about new products/services as well as to highlight company philosophy.

8 Trade shows are effective for building a companyâ&#x20AC;&#x2122;s brand over time.

8 Donâ&#x20AC;&#x2122;t underestimate the impact of salespeople as company ambassadors.



101 From Web sites to advertising to company ambassadors, it’s all about the basics By Nancy Lundell


n an industry where dozens of ISOs with more or less equivalent products are competing for many of the same customers, it can be tempting to spend money on the latest marketing fads. But many ISOs still believe the most effective marketing programs come from strategies learned in Marketing 101. Web sites, advertising in trade publications, trade show attendance, developing referral networks, and other basic marketing tactics are employed by most ISOs in the business. “All have a permanent place in the traditional marketing mix and they’re low risk,” says David Fish, senior analyst with Mercator Advisory Group, based in Maynard, Massachusetts.

Online Education Tool Boston-based Merchant Warehouse uses its Web site to communicate its key branding messages of trust, great products, and low overall cost. Trust is an important intangible for the company’s business success, says Brian Waldman, VP of marketing and strategy.“Our Web site content legitimizes us and communicates that we know what the customer is going through. For example, we provide education to customers about how to shop for merchant accounts, what to look for, and what to avoid when seeking a payment solution.” He likens this customer advice to a consumer site that gives tips on buying a car. The site also provides a great way for the company to present its philosophy of full

Transaction trends | February 2011 15

[ FEATURE ] transparency in pricing and contracts, such as including a copy of its month-to-month agreement (rather than long-term contract lock-in) for all to see. Accelerated Payment Technologies of Pleasant Grove, Utah, which is in the process of totally rebranding itself, now devotes about 20 to 30 percent of its marketing budget to its Web presence, says CEO Roy Banks. Accelerated Payment’s area of business is integrating its “next generation” payment processing capability directly within the business applications of partner companies, including intelligent business software vendors, VARs, franchises, merchant groups, and other software-driven solution providers. Until May 2010, the company was the payments processing division of CAM Commerce, a 25-year-old POS software company. Now on its own,Accelerated Payment faces the challenge of re-establishing itself in the marketplace with a new name but with the depth of experience earned through its 25 years in business and as the developer of its flagship product, X-Charge, previously associated with CAM Commerce. The Web site is a critically important tool for showing partners that Accelerated Payment is a go-to company for payment systems that manage and stay ahead of the ever-changing compliance landscape, according to Banks. The site serves as a resource for partners, merchants, and others seeking more information about handling regulatory issues. “The key to providing a useful site resource to multiple audiences is to provide the information your audience wants at a level of detail that interests them and in as few clicks as possible,” says Banks. “We want to provide as much technical information as possible, but also minimize the clutter by offering content-intensive pages and downloadable PDFs for those who want to delve more deeply.” Planet Payment of Long Beach, New York, has also leveraged its Web site to educate the market. The company has built a successful business partnering with other ISOs and acquiring banks throughout the world with its currency conversion programs. These products respond to the growing desire on the part of other ISOs and their 16 February 2011 | Transaction trends

online merchants to increase sales by capturing high-profit international business, says Deborah Camm, vice president for U.S. ISO/agent sales. Selling new business for Planet Payment depends, in part, on dispelling preconceived notions about what’s required to support multicurrency pricing. The company’s site offers merchant-oriented tutorials on various approaches to growing business through international expansion. Each tutorial contains links to specific products/services that support that objective.“Although the main target is ISOs and acquiring banks, this merchantoriented approach makes these relatively complex ideas easier for them to understand as well,” Camm says.“Merchants who want to go international can then push their ISOs to provide the system, which helps drive business to us.”

Shaking Hands Trade shows are also extremely effective for Planet Payment, says Camm, who attends four or five shows a year with her colleagues and meets 300-400 people at each one. Typically, their partnering ISOs and acquiring banks are also exhibiting so potential customers are getting the same messages from several sources, which strengthens the company’s market education effort. “Talking to people at trade shows and speaking at industry events don’t necessarily lead to immediate sales leads, but over time, they build knowledge among potential customers who then will call us,” says Camm. Accelerated Payment’s Banks agrees, noting that the shows he attends are sponsored by the associations to which their partners belong. “We meet people face to face and inspire them with our value perspective,” he says.

Pushing People At Merchant Warehouse, the sales team is also viewed as a marketing tool. Sales personnel are expected to communicate the company’s “trust” messages as part of the sales approach.According to Waldman, team members are first chosen for their natural openness, honesty, and consultative personalities.Then they are well-trained in

the company’s ethical sales methodology and coached on how to listen to customers and understand their needs. “We recognize that many salespeople come into this space without a strong understanding of the industry or how they can best compete,” says Waldman.“We provide specific training for all of our agents on a weekly basis.When customers call our competitors after talking with a member of the sales team, they see the difference, and we’ll close the deal every time.”

Strategic Advertising Advertising has become more effective with tracking, says Merchant Warehouse’s Waldman.Although he declines to provide too many details, he cites the company’s program of tracking phone calls, “which allows us to be surgically precise and effective in our advertising.” Every print ad, Google ad, and display on a partner’s Web site has its own unique phone number that is recorded automatically when a call comes in to the sales staff, he says. “This allows us to credit the deal back to the referral,” explains Waldman. Total Merchant Services (TMS), based in Basalt, Colorado, also advertises in print publications but is primarily focused on referrals, says CEO Matthew J. Freedman. “Marketing can just get you some attention, which may result in a short-term jump in your numbers. To make those increases permanent, you need to beat your competitors in two ways—higher commissions and better service and support.The word will get out to the right people, and the business comes in exactly according to what you deserve,” he says. The company’s philosophy is based on maintaining a “generous state of mind in all our business dealings, and developing programs that will help our employees, sales partners, and merchants succeed,” says Freedman. Developed by Zig Ziglar, the noted sales guru and motivational speaker, the philosophy depends on giving customers an “unexpected” and surprising customer experience that results in great word-of-mouth marketing and referrals. TT Nancy Lundell is a contributing writer to Transaction Trends. Reach her at


Startup Stories:

EVO Merchant Services

EVO’s Evolution Multifaceted approach to processing and willingness to assume risk foster continued growth By Julie Ritzer Ross


n June of 2009, Ray Sidhom, CEO of Melville, New Yorkbased payment processor EVO Merchant Services, received the Ernst & Young Entrepreneur of the Year Award— bestowed by global consulting firm Ernst & Young LLP to recognize “outstanding entrepreneurs who are building and leading dynamic, growing businesses.” While Sidhom didn’t expect a panel of independent judges to single him out as the award recipient for the Metro New York region, the fact that it did so is not surprising given EVO’s growth since its inception some 15 years ago. Recognized as one of the top 20 acquirers in the United States, EVO was co-founded by industry veterans Sidhom and Jeff Rosenblatt, president.The company, which began in a single small office with eight employees, now occupies an 85,000-square-foot building in Melville. Its team of more than 800 U.S. staff members is distributed among the Melville headquarters and a 15,000+ square-foot data center in Moorestown, New Jersey; EVO also maintains a similarly sized office in Montreal, Canada. What Rosenblatt deems a small cadre of customers has grown into a portfolio that includes 250,000 U.S. and Canadian merchants processing more than 385 million transactions and $26 billion in transaction volumes annually. EVO boards approximately 7,000 new merchant accounts each month.

Walk, Then Run Sidhom and Rosenblatt started the business with a clear vision of turning it into a full acquiring processor that could handle the entire transaction lifecycle, rather than involving any third-party entities. “We believed that by doing everything ourselves, we would have tighter control as well as a better platform for setting ourselves apart from the rest,” Rosenblatt says.“We didn’t want to pin everything on customer service, which we all like to say we do well, or on price.” While EVO offers credit card processing solutions in the United States and Canada, along with debit, EBT, electronic check conversion, gift and loyalty card processing, and other services at direct pricing, the company has also built its own front-end system and a management system called OnBoard. OnBoard bolts on to multiple front-end systems, including those of EVO as well as front-end systems utilized by agent banks and merchants, and facilitates file-sharing among all of EVO’s partners.A

EVO Merchant Services Melville, NY Size of Portfolio: 250,000 U.S. and Canadian merchants Annual Transaction Volume: $26 billion+

risk management component of OnBoard allows some merchants to be automatically boarded based on processing volumes and other criteria and gives EVO enhanced control over the boarding process.Additional homegrown technology includes a proprietary e-statement program for merchants; EVO Charge, a computer-based POS software; and EVOTrac, an online merchant transaction detail and reporting platform. “Everything we do is done within our operation centers,” Rosenblatt notes.“It keeps everything more streamlined and more efficient, and it allows us to deliver a complete suite of products and services directly to our customers the way we want it done.We can, and do, provide certain processing services through other front-end networks in addition to our own, but only because it allows us to give our customers whatever processing solution they may need.”

Adapt and Overcome Rosenblatt freely admits that the road to EVO’s success has not been entirely free of obstacles. As is the case for many startups, money was tight at the beginning and there were no outside investors to provide cash infusions. Rather than drawing salaries at first, the partners used their existing cash flow as best they could and reinvested Transaction trends | February 2011 17


Startup Stories:

EVO Merchant Services

their profits in growing the company. On occasion, necessary funds came from advances taken against personal credit cards. “There were sacrifices, but they were worthwhile sacrifices in the long run,” Rosenblatt says.“You have to see the big picture.” Moving forward, there were concerns about becoming too dependent on a single line of business or market—especially in the face of tighter margins as well as the advent of free terminal programs and other enticements designed to lure merchants to the competition. One strategy for grappling with these issues was establishing separate business units for various services and products, e.g., leasing, merchant cash advances, payment processing, front-end processing, and the like. Each unit is managed by a different group and team and has its own P&L. Similarly, the processor diversified its sales channels and merchant base. In addition to telemarketing and a direct sales force whose ranks Rosenblatt declines to quantify, EVO now has in place an Alliance Partnership program composed of more than 55 registered ISOs and MSPs, as well as an Associated Partnership program. Under the Alliance Partnership program, mid- and larger-sized ISOs are afforded a BIN/ICA relationship with no upfront reserve requirements; maintain their own brand; and perform most service functions, such as boarding, underwriting, and customer service, independently of EVO. They are also free to formulate decisions about fee types and amounts and risk tolerance. Growth capital and lending solutions are available, too. “The Alliance Partnership option helps large ISOs solve their No. 1 challenge: control,” Rosenblatt says.“Most of our Alliance Partners perform some back-office functions and make decisions that control fee types and amounts, risk tolerance, and customer service, while EVO remains in the background managing the end-to-end process.” 18 February 2011 | Transaction trends

Meanwhile, the Associate Partnership program permits mid-size ISOs to appear to merchants and the general public as if they are acquirers while relying on EVO’s infrastructure behind the scenes.“They can leverage our systems and customize the EVO platform to reflect their brand identity,” Rosenblatt explains. As for its customer base, EVO retains its long-term focus on traditional small- and medium-sized merchants, a tactic Sidhom and Rosenblatt consider far less risky than catering primarily to a smaller number of larger merchants that may be more difficult to replace should they jump ship. However, the company has also diversified into other markets, including nonprofits, municipalities, county government, and insurance groups. EVO launched, a Web-based payment software program for the municipal and commercial market sectors. “The time needed to bring municipal and commercial customers into the fold is greater than that needed to attract traditional merchants,”Rosenblatt says.“However, the attrition rate is lower so it evens out in the end.” An active approach to merchant retention plays an equally critical role in enabling EVO to sidestep obstacles and flourish in the face of heightened competition, he says. A merchant retention group is charged with periodically reaching out to and “re-welcoming” long-time customers by soliciting their feedback about their experience with the company, inquiring whether they have any questions regarding price, and the like. EVO has also begun to utilize a thirdparty technology application that triggers a report should one of its existing merchant customers tender an application for services from another processor.“When we know that a merchant is thinking of leaving us, we can at least find out what the concerns are and, hopefully, head things off at the pass,” Rosenblatt says.

Smart Startup Strategies n Avoid the “seat-of-the-pants” approach, say EVO’s execs. Have in place a detailed business plan and a budget. n Choose partners carefully. Investigate how they work, and don’t sign on with the first party that expresses an interest. n Continually set new goals, rather than meeting initial goals and failing to look beyond them.

The Road Ahead

our model can have a lot of value in many While EVO has clearly exceeded the ob- areas, including Eastern and Western Europe jectives established at its inception and and the Asia Pacific region.” Other strategies include augmenting throughout its history, Sidhom and Rosenblatt continue to set new ones aimed at the roster of value-added products and services designed further increasing the to increase “stickicompany’s market LET US PROFILE ness” among EVO’s share. International YOUR ISO existing merchant expansion tops the Is your company a successful base as well as roster. In mid-2009, bringing new merthe MSP made its iniISO? Let us tell your story. E-mail chants into the tial foray outside the fold. The developUnited States with the for more information. ment of mobile opening of the Mone-commerce applitreal office; Canadian merchants have come to comprise a signifi- cations is on the MSP’s “to-do” list. Not long cant portion of its portfolio. At presstime, ago, EVO configured a hosted, Web-based the company was planning a move into the thin client application intended to facilitate free-flowing, two-way information with its United Kingdom during first-quarter 2011. “This is just the tip of the iceberg for us merchant customers. The application has when it comes to markets” abroad, Rosenb- numerous uses, from checking daily POS latt says.“Long-term, we believe there are tre- information to scheduling service calls and mendous opportunities out there and that ordering supplies.

The company is developing strategies for grappling with anticipated future challenges, such as government intervention. With processors now required to report merchant processing volumes to the Internal Revenue Service, EVO is considering what measures to take should customers not provide EVO with their tax ID numbers. Economic woes are another consideration. “Many of us in this industry used to think our businesses were recessionproof,” Rosenblatt says. “As the most recent recession has taught us, we’re pretty resilient, but not entirely insulated. We need to be mindful of that by consistently looking at new angles to explore rather than resting on our laurels. Everything’s a moving target.” TT Julie Ritzer Ross is a contributing writer to Transaction Trends. Reach her at

Coming Soon in March n ETA Roundtable: Experts Debate Payments Security Trends n Consumers Drive Mobile POS Adoption n How to Encourage Merchant PCI Compliance

Transaction trends | February 2011 19


Point-to-Point Encryption Primer

How P2PE reduces the cost of security and simplifies the compliance process By Patrick McGregor, PhD


e are witnessing the dawn of a technological revolution in the payments industry. Emerging point-to-point encryption (P2PE) harbors the potential to fundamentally redefine how we analyze and mitigate risks to cardholder data. Although encryption has served as an effective tool for protecting sensitive information for some time, the complex nature of payment systems has made it challenging to deploy in a comprehensive and practical way. Only today are solutions emerging that allow encryption to fulfill its potential for protecting cardholder information. These new P2PE solutions—more commonly called end-to-end encryption solutions— leverage a variety of powerful technologies to harvest economic benefits for merchants, processors, banks, and consumers.

Understanding Encryption Traditional security solutions for protecting sensitive data focus on defending the perimeters of computing devices and IT networks. As prescribed by the PCI Data Security Standard (PCI DSS), technologies such as firewalls, antivirus software, and access controls seek to prevent physical or cyber attackers from penetrating the perimeters of IT systems.The idea is that by protecting a perimeter, one can protect the cardholder data maintained within. But perimeter-based protection is becoming obsolete because of mobile computing devices, the increasing geo-distribution of enterprise IT infrastructures, and the ubiquity of Internet connectivity. Given that cardholder information is increasingly distributed across devices and applications, it is difficult to build effective perimeters around all of the components that process that data. The damages resulting from the exploits of perimeter weaknesses are potentially enormous: Remote launches of network-enabled, software-based attacks can compromise thousands of devices at once and enable rapid, illicit harvesting of 20 February 2011 | Transaction trends

unencrypted cardholder data. Encryption is an established best practice for locking down sensitive information without relying on a perimeter to guarantee protection. If the underlying encryption technique is strong, an attacker will not be able to unlock intercepted data even if a perimeter is compromised in the worst way. With modern encryption techniques, we can scramble data such than an attacker cannot feasibly unscramble the result without having access to certain codes known as “keys.” Most commercial encryption systems use government-standardized

“breakpoints.”These occur when one encryption solution decrypts data and then a second encryption solution re-encrypts the data as it travels between applications or networked devices. An example of this process is a POS device decrypting a file that contains transaction data and then reencrypting that data before it is transmitted over a network. So, between the decryption and re-encryption, the data at the POS is exposed and vulnerable to attack.While seemingly insignificant, this is actually a major risk to cardholder data. Because of the growing sophistication of cyber attackers

Our community continues to debate the details, but it is clear that P2PE solutions will enable reduction of scope in many merchant and processor infrastructures. and vetted encryption processes (such as AES, the Advanced Encryption Standard). Despite the many colorful code-breaking scenarios concocted by literary writers and Hollywood, the encryption techniques favored by respected security architects are believed to be impracticable to defeat. Due to the nature of encryption, however, deployment in complex payment processing systems is fragmented and often requires major changes to applications and systems, which can incur significant costs.To encrypt data along an entire processing chain, merchants and processors must collaborate to implement multiple costly encryption solutions to cover all of the components. Even if a company deploys all of the necessary encryption tools, the payment system would suffer from encryption

and attack tools, the temporarily decrypted data is effectively a sitting duck.

P2PE Benefits P2PE is a system that encrypts cardholder data as soon as possible after it is received by a payment acceptance device such as a magnetic stripe reader or an integrated POS system.The P2PE system should guarantee that the data remains encrypted and secured until it reaches a trusted point downstream in the payment processing flow, where the data would be much less vulnerable. For example, decryption might occur at a payment switch in an acquiring bank or possibly at a server in a locked-down merchant data center. Point-to-point encryption holds the promise of overcoming both the high cost and inherent vulnerabilities of frag-

mented collections of encryption solutions. In P2PE, we encrypt cardholder data once, and we do not decrypt it until absolutely necessary.This delivers two key business benefits: risk reduction and PCI DSS scope reduction. Simply stated, by reducing the risk of cardholder data compromise, merchants, processors, and banks save money.A true “end-to-end” encryption solution could theoretically eliminate nearly all risk to the confidentiality of cardholder data in payment transactions. Such a solution would encrypt in tamper-resistant hardware (or within the card itself) at the moment of swipe and would decrypt data only upon transaction receipt by the issuing bank. Obviously, if today we could deploy a simple, inexpensive solution to achieve this, the benefits would be tremendous.The reality is that such an endto-end implementation would be costly, disruptive, and very time-consuming. Merchants and processors should instead implement less invasive P2PE solutions to eliminate the vast majority of threats to cardholder data without incurring much operational pain. By reducing risk—but not necessarily eliminating it—P2PE can provide significant business benefits. Software-driven solutions that encrypt within a POS device at some point after a card swipe can provide substantial risk reduction without necessarily requiring the addition or replacement of hardware. New encryption and software techniques have emerged over the past decade that allow software-based solutions to provide many of the security functions traditionally provided only by hardware systems. For Level 4 and smaller merchants in particular, a quickly deployable software-based P2PE solution nicely balances the risk-cost equation. For larger merchants, one of the most compelling potential benefits of P2PE solutions is reduction of scope of PCI DSS. In September 2010, the PCI Security Standards Council (PCI SCC) released its initial guidance on the impact and evaluation of P2PE. Our community continues to debate the details, but it is clear that P2PE solutions will enable reduction of scope in many merchant and processor infrastructures. By deploying P2PE in the proper way, large portions of the payment processing chain can be exempted from the scope of PCI DSS validation because

those portions never have direct access to unprotected cardholder data. P2PE allows companies to reduce compliance-related costs by decreasing the number of security solutions that are required to be implemented and by simplifying the PCI DSS validation process. Even with the most elegant P2PE solutions, deploying P2PE does incur some costs—changes to payment processing infrastructure, human labor, and the price of the P2PE solution itself.These costs are acceptable as long as the realized economic benefits of risk reduction and scope reduction significantly exceed the cost of P2PE deployment and maintenance. By using a novel approach to building a P2PE solution, we can minimize or even eliminate

administrative overhead and disruption to existing payment processing systems.

Enabling Technologies Three key technologies enable the easiest-to-deploy and most cost-effective P2PE solutions: format-preserving encryption, automated key management, and transparent operation. In traditional systems, the encryption of a 16-digit card number may result in the data being expanded or encoded using non-numeric characters. For example, the encryption of a 16-digit card number 5222 7600 5612 6974 may yield the result that looks like Y!o9#6nPaf8e.I70bTv$. In many payment acceptance and back-office systems, this type of “gibberish” encrypted Transaction trends | February 2011 21

ISO Corner DATA SECURITY result will break applications. To avoid overhauling thousands of applications that expect cardholder data to be represented using track data encoding standards, we can use a new encryption method known as format-preserving encryption, which is based on governmentstandardized strong encryption techniques but guarantees that encrypted results are encoded like original data.That is, with format-preserving encryption, the result of the encryption of a 16-digit account number looks like a 16-digit number. In any large-scale encryption system, implementing the encryption technique itself is much less difficult than managing the encryption and decryption â&#x20AC;&#x153;keysâ&#x20AC;? necessary to lock and unlock sensitive transaction data. In the most secure P2PE systems, we may use a unique key for each individual transaction.Therefore, over time, some banks would need to securely establish, distribute, and manage billions or even trillions of keys. For a P2PE solution to be cost effective, key management must be fully automated and electronic. By using advanced cryptographic methods and building a sophisticated administration system, we can establish and rotate keys without having to physically touch POS systems. Also, we can avoid manually initiating any of the billions of required key management operations. Lastly, given the thousands of different payment applications in use today, a broadly applicable P2PE solution must be transparent to (and independent of) payment applications. That is, the amount of required integration between P2PE and the payment applications should be minimized or completely avoided.We can achieve this goal by deploying new hardware devices or by using sophisticated system-level software. By swapping new hardware devices into an environment where P2PE is built into the hardware itself, we can eliminate the need to modify many existing systems. However, installing new hardware is expensive, and it effectively locks a merchant into a P2PE architecture that merchant may need to update over time. An alternative approach is to implement the P2PE encryption in system-level software. In this scenario, cardholder data is intercepted and automatically encrypted before it ever reaches a payment application.The benefit of this approach is the ease of system deployment and updates, and if desirable, we can leverage auxiliary tamper-resistant hardware to protect critical keys. The time has arrived for a new approach to protecting cardholder data. Security vendors are introducing a variety of P2PE solutions that provide enhanced protection for cardholder data across payment processing infrastructures. By encrypting as soon as possible after cardholder data is received and not decrypting that data before it is necessary, we can prevent the vast majority of current attacks. With the ascent of P2PE, the entire payment processing ecosystem can reap economic benefits by reducing the cost of security and simplifying the process of achieving compliance. TT Patrick McGregor, PhD, is senior vice president of application and data protection for Trustwave and is a member of the ETA Technology Committee. 22 February 2011 | Transaction trends

ETA 2010-2011 BOARD OF DIRECTORS OFFICERS PRESIDENT Rick Pylant Chairman & President COCARD Marketing Group LLC

EX-OFFICIO Carla Balakgie CEO Electronic Transactions Association

Kim Fitzsimmons Senior Vice President—First Data Services First Data Corporation Robert McCullen CEO Trustwave

PRESIDENT-ELECT Eddie Myers President & COO Payment Processing Inc. TREASURER Roy Banks CEO ACCELERATED Payment Technologies Inc.

Jan Estep President & CEO NACHA

Diana Mehochko President TSYS Merchant Solutions Jeff Rosenblatt President EVO Merchant Services

SECRETARY Tom A. Wimsett Chairman & CEO J&T Ventures

Debra Rossi Executive Vice President Merchant Payment Solutions Wells Fargo Bank

IMMEDIATE PAST-PRESIDENT Holli Targan Partner Jaffe, Raitt, Heuer & Weiss P.C.

Kurt Strawhecker Managing Director The Strawhecker Group

Sameer Govil Head of Acceptance Solutions Global Aceptance Visa Inc. Steve Carnevale Senior Vice President/Group Head Commerce Development MasterCard Worldwide Ron Shultz Vice President American Express Gerry Wagner Vice President Discover Financial Services

ADVISORY COUNCIL Tom Bell CEO Bank of America Merchant Services

DIRECTORS Todd Ablowitz President Double Diamond Group

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

Donald Boeding President—Merchant Services Fifth Third Processing Solutions

Robert Baldwin President & CFO Heartland Payment Systems Inc.

Chuck Harris President NetSpend

Gregory Cohen President Moneris Solutions

Chris Hylen General Manager & Vice President Intuit

Gary Goodrich CEO ProPay Inc.

Mike Passilla EVP, Business Development Elavon

Advertisers index Company





Electronic Merchant Systems






EVO Merchant Services



Planet Payment





Total Merchant Services, Inc


888-84-TOTAL x9411

USA ePay



Transaction trends | February 2011 23

Industry Insider

Security Guards Royal Group Services’ products and services protect the acquiring community against catastrophic loss By Bryan Ochalla


reg Richmond, CEO of Troy, Michigan-based Royal Group Services Ltd., is emphatic when he describes his company’s focus:“We’re here to be in the payments business, not just dabble.” Richmond, who started his career in the insurance space (he holds Property & Casualty, Life & Health Surplus Lines, and Counselor’s licenses), also shares that sentiment with his two partners, Robert Halsey and Scott Stangeland. It was the founding philosophy when the company opened its doors nine years ago, and it is still true today. “Our clients count on us to anticipate risk and protect them from catastrophic loss. We can only do that if we’re 100 percent immersed in the payments industry—if we work with all of the major players and stay ahead of all of the major trends.”

“The majority of the claims we’re seeing right now are [a result of] rogue employees.”

Broad Defense

The trio first immersed themselves in the industry back in 1995, when they launched the company’s Uncollectible Chargeback Protection product, which protects acquiring —Greg Richmond banks from the catastrophic losses incurred by merchants that can’t meet their chargeback obligations. The product is “100 percent underwritten by a financially strong insurance organization whose insurance companies are rated ‘A’ by independent third-party rating agencies,” according to the company Web site, and it covers acquirers regardless of whether the chargebacks result from merchant fraud or poor business practices. “That’s how we got our start,” says Richmond. Soon after, Royal Group Services (RGS) expanded its offerings to include fraud insurance for prepaid cards, remote deposit capture insurance, and data breach security programs aimed at protecting acquirers, ISOs, and their merchants. Specifically, the RGS data breach program helps clients meet the unexpected expenses associated with the theft or loss of their customers’ confidential personal or corporate information. The program covers expenses for notifying customers of data loss, monitoring the credit of customers whose data have been compromised, and paying for PCI Data Security Standard forensic examinations, assessments, and fines. It also protects against losses

24 February 2011 | Transaction trends

caused by hacking as well as losses caused by employee dishonesty, physical theft of computer or paper records, and “the simple carelessness of an employee or contractor who leaves personal [according to privacy regulations] or corporate information exposed or compromised,” according to the Web site. “This program covers a breach from the inside or outside—whether it’s due to hacking or a rogue employee,” Richmond says.“And that’s important because the majority of the claims we’re seeing right now are [a result of] rogue employees.”

Practical and Specific Although Royal Group Services’ products sound complex, Richmond assures they’re easy to implement and use. “We’ve put a lot of automation into our products,” he says, “so they’re completely turnkey. [Clients] can be up and running in a couple of weeks.” During the enrollment process, merchants are required to give only their merchant ID number, Richmond says.“We don’t ask them for an application, and we don’t ask them for their name, address, or phone number.” Acquirers and ISOs don’t have to take applications from merchants, either.“It’s just one policy, and all of their merchants are rolled up underneath it,” he explains. Merchants also are given access to Royal Group Services’ online information portal and phone-based customer service center, which is manned by licensed agents. Similarly, Richmond says his company’s concentration on the payments space gives its acquiring and ISO customers peace of mind and sets Royal Group Services apart from the competition. “All we do is payments,” he says,“and I think that sets us apart in a big way.Your typical insurance broker, on the other hand, may start his day by providing an auto liability or a general liability quote, or maybe a workers’ comp quote, and then tries to squeeze in a little knowledge about payments whenever and wherever he can.” That’s a difficult proposition, according to Richmond, who says that if you want to serve the payments space successfully,“you really need to concentrate on it, as it’s a fast moving business. It changes so rapidly.” TT Bryan Ochalla is a contributing writer to Transaction Trends. Reach him at

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

What people are saying… “Attending the ETA Annual Meeting has put me in a position to elevate my company’s profile as well as my own, by being seen and interacting with my vendors, agents, partners and competitors.” Tony Abruzzio, Vice President Global Merchant Card Services and Banking Recombo, Inc.

re e h W

nects! n o C y r t s u Ind s t n e m y a P the Why attend? Whether you are looking to create, modify or enter a payments value chain, ETA is the “go to” place! It’s the one-stop conference that will connect you with the information, opportunity and people you need for success. The 2011 ETA Annual Meeting & Expo is where merchant acquirers, financial institutions, processors, alternative payment providers, value added resellers, prepaid companies, and merchant sales teams come together for the most diverse and comprehensive show in the payment industry.

Register online at

giving it to you straight. real reps. real success.

i switched to total Merchant services 3½ years ago so I could take advantage of the Free Terminal Placement program. I have over 500 merchants now. it’s great! if i don’t need a terminal to close a deal, or if I have a really large processing account, I can maximize my income by selecting the higher 70% split instead. now, everything is transparent. I always know the exact costs of taking a free terminal and upfront bonus. i love the new lower cost structure – 3.5¢ dial-up and 2.5¢ IP! I’m able to earn more money on every deal, and it’s really helping out on closing the big ones! the level of detail with the aMplify reporting system is phenomenal. I can trace and check every cent that comes into my account. It is better than any other processor I’ve ever worked with!

Santiago Medina With Total Merchant Services, I know – down to the penny – where I am making my money.

see the difference for yourself. Join the team with a proven track record. Check out Total Merchant Services program details at or call us toll-free at 1-888-84-total ext. 9411 Total Merchant Services (TMS) is a Member Service Provider for: HSBC Bank USA, National Association, Buffalo, NY.

Transaction Trends February 2011  
Transaction Trends February 2011  

The Official Publication of the Electronic Transactions Association