Transaction Trends April 2011

Transaction trends The Official Publication of the Electronic Transactions Association

| April 2011

Capital

Seek and

Investors are out there, but do you know where to look?

ALSO INSIDE: ETA Roundtable Discusses Fraud-Fighting Technology High-Touch Service Stimulates ISO’s Progress

Some things are just better together.

Introducing TSYS Merchant Solutions

SM

On the heels of a thriving joint venture, TSYS and First National Merchant Solutions (FNMS) are pleased to announce that FNMS will become TSYS Merchant Solutions, now part of the TSYS family of companies.

The joint venture’s performance has exceeded our highest expectations, and TSYS’ move to acquire the remaining ownership will further diversify our business. TSYS and FNMS share many similarities — from our corporate cultures to our commitment to providing today’s global merchants with leading payment solutions.

The acquisition of the merchant solutions company — a top 10 acquirer in the U.S. — brings TSYS squarely in the middle of where buyers and sellers connect, as a full-service merchant acquirer. Everything that has made FNMS a leader in the acquiring industry — its sage leadership and Omaha-based headquarters — will remain unchanged, but new opportunities abound as we take our business to the next level.

Get to know us. +1.866.625.7112 sales@tsys.com www.tsys.com

© 2011 Total System Services, Inc.® All rights reserved worldwide. TSYS® is a federally registered service mark of Total System Services, Inc.

Transaction trends The Official Publication of the Electronic Transactions Association

Vol. 16 | No. 4

cov e r s tory

10 Capital Hide and Seek

By Kim Fernandez While some companies are having an easier time than others, just about everyone can find capital right now, provided they have a solid business plan, develop a clear strategy to present it, and are amenable to investor involvement.

10

FEATURES

14 The Realities of

21

Edited by Josephine Rossi In this first of a two-part series, ETA’s Technology Committee convenes a roundtable discussion on the value of emerging data security solutions, barriers to adoption, and more.

By Julie Ritzer Ross By focusing on largely untapped merchants via competitive pricing, high-touch service, and businessgenerating products, Electronic Merchant Systems achieved “organic and responsible” growth.

Fighting Fraud

SPECIAL SERIES

Startup Stories: From the Ground Up

14

d epartm en tS

4

President’s Message

6

Industry News

7

ISO Corner

Insights from ETA’s elected leader Trends, strategies, and news in the payments business Using social media to engage merchants

23 Ad Index 24 Industry Insider

7

Kount Inc. relies on strategic partnerships and customized service Transaction trends | April 2011 3

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 Editor Josephine Rossi Contributing Editor Angela Hickman Brady Editorial/Production Assistant Teresa Tobat Art Director Janelle Welch Contributing Writers Kim Fernandez, Bryan Ochalla, Julie Ritzer Ross Advertising Sales Steve Schwanz 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

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.

4 April 2011 | Transaction trends

President’s Message

San Diego: The Place To Be in May

E

TA’s biggest, most important event is just about here. And if you haven’t made plans to join us in San Diego there’s still time to register.

From what I’ve seen so far there will be a lot you won’t want to miss: • a huge emphasis on mobile payments and the technology supporting that • in-depth looks at the legislation and regulation facing our industry • an expanded Investment Community Forum • and much, much more.

Mobile payments has certainly been getting a lot of attention over the past year, whether you’re talking about using smartphones as POS devices or using near field communications devices to pay for purchases. Mobile is here in a big way and it presents both opportunities and risks.

One of ETA’s roles in the industry is to help members understand what’s happening around them, so they can make the right decisions for their companies and their customers.The added emphasis on mobile technology at the 2011 Annual Meeting is one way the association is fulfilling that obligation.

While some of the activities are still being planned as I write this, others are more definite.You’ll see a dedicated area in the Expo Hall where mobile-related presentations and activities will take place.There will be mobile sessions as part of the breakout sessions.The annual Technology Showcase will highlight advances in mobile acceptance with practical demonstrations.And most important, ETA is inviting many of the leaders in mobile technology–many of whom are not familiar with our industry–to come to San Diego, tell us what they can about their activities, and learn what ETA members can do for them.

We know that many ETA members already are deeply involved in bringing new mobile payments solutions to market. But we also know that secure, near-universal mobile payments technology will happen sooner if more members seize the opportunity that this new payment mode represents.

If technology is your thing, you can take part in the special appearance by Steve Wozniak,Apple co-founder, entrepreneurism guru, and unabashed advocate for the benefits of technology.

We also will hear from Sen. Christopher Dodd–one of the authors of the DoddFrank Financial Reform Act–and George Mason University professor and analyst Todd Zywicki. If you want a glimpse of the thinking behind financial reform or an explanation of its effects, there’s no better opportunity.

And, in keeping with this month’s cover story on capital formation (see page 10), ETA will be convening the second Investment Community Forum on May 10, bringing together investors and veterans of the payments business to explore the opportunities for both.

We will certainly be talking a lot more about ETA’s certification program, as well.

We’ll have more information about candidate requirements, costs, and schedules, and even an event or two focused on the program.

So much happens every year at ETA’s Annual Meeting, that it’s impossible to touch all of it here.And it’s all designed to give you an edge in the marketplace, through more and better information and personal contacts.

If your business is important to you, register today.You can be sure you’re competition already has.

Sincerely, Rick Pylant Rick Pylant is President of ETA and President & Chairman of COCARD Marketing Group, LLC

INDuSTRYnews Fast Fact

Retail E-Commerce Breaks Record in 2010 Online retail spending reached a record $43.4 billion during the fourth quarter of 2010, up 11 percent from 2009, according to comScore Inc. This is the fifth consecutive quarter of positive year-over-year growth and the second quarter of double-digit growth in the past year.

“The 2010 holiday season saw the first $1 billion day on record, and several more surpassed $900 million to help propel Q4 to record spending levels,” says comScore Chairman Gian Fulgoni.“We anticipate that the progress we’ve seen in the past year as we climbed out of the recession will continue with sustained double-digit growth rates in 2011.”

Top-performing online product categories grew at least 15 percent in Q4 2010 when compared with a year ago.They include computer software (excluding PC games); consumer electronics, books, and magazines (excluding digital downloads); computers, peripherals, and PDAs; and toys and hobbies. comScore also suggested that small and mid-sized retailers seem to be rebounding from the recession. They accounted for about 2 percent more of online spending during the fourth quarter, compared with the third quarter, of 2010.

info graph

Identity Fraud Losses Decreased in 2010 60

INCIDENCE PERCENTAGE RATE

$70

$70

TOTAL FRAUD (IN BILLIONS)

$65 $59

$56

$55 $48

50

$49 $37

40 30

4.7%

4.8% 4.3% 3.5%

3.6%

3.7%

2006

2007

4.0%

4.3%

20 10 0 2003

2004

2005

Source: Javelin Strategy & Research

6 April 2011 | Transaction trends

2008

2009

2010

In less than one month after its debut, Starbucks’ mobile payment application processed more than 1 million transactions.

Source: Starbucks Corporation

Payments Professionals’ Salaries Remain Steady

Despite a lingering economic recession, payments managers and executives are commanding compensation that reflects a reasonably steady demand for experienced, well-qualified job candidates, according to IMPACT Payments Recruiting. The Phoenix-based firm recently analyzed a year of placements for a compensation guide to be released in conjunction with the Electronic Transactions Association next month.

“What we saw in 2010 was somewhat smaller base salaries offered to top-level executives, along with more lucrative performance-based compensation,” says Curt Hensley, IMPACT’s CEO. “In other areas, there really wasn’t much change in the packages offered to candidates we placed, compared to the past two or three years.”

The placement review found that the most highly paid C-level positions commanded an average $263,000 base salary annually, while those at the vice president level brought in averages from $146,000 to $150,000.The base salary for entry-level sales reps averaged $29,000.

The full 2010 compensation review will be released at ETA’s Annual Meeting & Expo, May 10-12, in San Diego.

ISO Corner

Sales Strategy 2.0

Social media can influence merchant behaviors through engagement, not price pitching

By Bryan Ochalla

S

till looking for a reason to start using social media? Consider this: T he feeton-the-street model that dominates the ISO and acquiring industry is going the way of the dodo, say some industry players.

“I don’t think it’s dying because it no longer works,” says Steve Shivers, co-founder and CEO of Seattle-based doxo.“I think it’s dying because you’re only as good as the people you hire when you use that kind of model, and it’s getting harder and harder to find people who want to do that kind of work.”

The formerly tried-and-true sales model also is costly, especially on a large scale. Using various forms of social media—such as blogs, Facebook, LinkedIn, and Twitter—to get the word out, on the other hand, is comparatively cheap.

“With social media, you may have to touch 10 times more businesses in order to get the same amount of people interested in your products and services as you do today,” Shivers says,“but the cost of touching all of those businesses [via social media] is one twentieth of what it would be to reach them with a feet-on-the-street sales force.”

Social media also speaks to how merchants are looking to do business with payments professionals. “Most of them, in my experience, would rather not be approached in their [place of business],” Shivers says. “They’d prefer to find out about and make decisions about processors or payment platforms by going online.”

“If you’re just out there pushing price, people aren’t going to be interested.”

—Jon Perry, Merchant Services Inc.

The Right Way to Socialize To get the most out of social media, play to each outlet’s strengths, say experts. Facebook, LinkedIn, and Twitter, in particular, are great tools for creating general brand awareness and customer acquisition, but they are less useful for building deeper relationships with clients.

“Those kinds of interactions have to be private and secure, and current social media sites don’t offer either of those things,” says Shivers.

Too many ISOs and other payments

companies use these sites incorrectly, according to Jon Perry, CEO of Merchant Services Inc. in Fort Worth,Texas, which has a blog and accounts on LinkedIn and Twitter.

“There’s a lot of garbage out there,” says Perry, who leads social media seminars for small businesses every other month. He singles out blog or Twitter posts that do little more than shout,“We have the lowest rates!” or,“We’ll beat anybody’s prices!” as particularly bad.

“It’s like trying to hit a dartboard from

20 feet away while wearing a blindfold,” says Perry.“They’re ignored because they’re not influencing. If you’re just out there pushing price, people aren’t going to be interested.”

Instead, ISOs should start by developing a strategy for using social media, just as they would when employing any other form of marketing, says Perry.

“Don’t try to be a jack of all trades. If you’re spread thin, don’t try to do Facebook, LinkedIn, and Twitter and everything else under the sun,” he says. “Start where you think you can get the most bang for your buck.”

Approach each outlet individually, suggests Greg Imlay, former marketing director for Los Angeles-based CheckAlt Payment Solutions, which has a blog and also utilizes Facebook, LinkedIn, and Twitter. Once you’ve chosen a site, use it to open up a dialogue with your audience and provide useful information.

Transaction trends | April 2011 7

“Don’t just shout at them, which is what a lot of people do while using social media,” Perry says. “Communicate with them.

And ask them questions like,‘How many of you understand what PCI stands for?’ or ‘What bothers you the most on your merchant statement?’”

We all want to pound our chests and scream that we’ve got the best products and services, he continues,“but if you’re really interested in getting people to follow you on any of these mediums—and then call on your company for its products and services, of course—you have to start by providing them with information they’re going to benefit from and use.”

The Right Support The other key to a successful social media initiative is support— from the corner office to the front line.

“You know how a lot of companies take their lead from the top?” asks Imlay.“Well, that’s definitely the case here because our CEO, Shai Stern, was the primary motivator behind us getting into social media.”

Stern is “a firm believer in and supporter of social media,” Imlay adds, as are other CheckAlt Payment Solutions current and former staffers.“I really think having that kind of buy-in behind you is just as important as anything.” TT Bryan Ochalla is a contributing writer to Transaction Trends.

Reach him at bochalla@yahoo.com.

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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.

nects! n o C y r t s u d n I s t n me y a P e

h t e r Whe

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 www.electran.org

CAPITAL

[ COVER STORY]

Hide and

INVESTORS CONTINUE TO DISH OUT CAPITAL TO SOLID COMPANIES BUT REQUIRE MORE ACCOUNTABILITY TO PROTECT THEIR INVESTMENTS

By Kim Fernandez

KEY NOTES 8 Unlike real estate or construction, which suffered through significant slowdowns over the past 24 months, the electronic transactions industry has kept plugging along.

8 The electronic transactions industry is attractive to venture capitalists because, with a relatively small investment, a company can develop a differentiated product with good returns.

8 Meeting a current market need, coupled with sound business principles and a solid foundation, is appealing to investors, but companies also are expected to be accountable to investors over the long term.

10 April 2011 | Transaction trends

F

or the past two years, conventional wisdom has held that if a company needs capital, it can expect a difficult to impossible search.

Since the economy’s nosedive in 2008, cash has been an elusive treasure for companies looking for investors. And no wonder—so many were burned when the financial industry fell to pieces that the thought of diving back into the investment pool has invoked economywide involuntary shudders.

But experts say investors are starting to put their money back into promising companies.They aren’t just writing checks on handshakes as they might have five or 10 years ago, however. Companies looking for capital can expect a long process that’s rife with checks and balances, and quite possibly some hands-on management involvement by investors once papers are signed and money is exchanged.

Some business lines and models are finding capital a bit more freely than others, and established companies are having an easier time than start ups.

Still, just about anyone should be able to find some kind of capital right now, provided that they have a solid plan for the future, and a clear way to present that plan, and are willing to flex a bit and let investors have some kind of hand in things moving forward.

Transaction trends | April 2011 11

[ COVER STORY] Those who look in the right areas will find money waiting.The trick is in knowing where to look.

Evergreen and Dynamic Industry The past several years have been particularly tough for those looking for bank financing, and not much has changed, say experts.

But when asked if capital is available, some experts remain optimistic that established companies will find the cash.

“Transaction processing and payment is an evergreen industry,” says Jamie Kanski, CFO of Sage Payment Solutions.“There have been a lot of transactions over the years. Companies are going public and capital is being raised. There’s a group of people who have been involved in these sorts of things over and over again, and there are some new entrants into the market.The good thing is that it’s a very dynamic industry, where billions of dollars have been made over the past 15 to 20 years.”

That, he says, sparks interest in investors’ eyes. Unlike real estate or construction, which suffered through significant slowdowns over the past 24 months, the electronic transactions industry has kept plugging along.

“I think you can always find capital if you have a good idea,” says Paul Phillipson, managing director, USA, for Mazooma Inc. “Of course, the economy has slowed and people are managing their investments more carefully, which is typical in a downturn.

But there’s definitely money to be found for people who are looking for it and have a good idea to present to investors.”

Others agree. “The capital markets are clearly opening up and we’re seeing more credit availability,” says Todd Morrissey, principal in the private equity firm LLR Partners in Philadelphia. “There is increasing availability from lenders at some pretty attractive terms. From a strategic perspective, corporate cash balances are at historical levels and the private equity community has sufficient capital and appetite.”

Kanski says there are good reasons investors appreciate the electronic transactions industry.

“For a relatively small investment, you can make a big difference in this industry,” he says.“Other industries require bunches of people to work for three years on soft12 April 2011 | Transaction trends

“Of course, the economy has slowed and people are managing their investments more carefully. But there’s definitely money to be found for people who are looking for it and have a good idea to present to investors.” —Paul Phillipson, Mazooma Inc. ware that’s interesting. But for a relatively low investment—half a million, a million, two million—you can come up with a differentiated product that makes a difference here. T hat’s very interesting to venture capitalists,” he says.

Solid, Well-Planned Momentum “A company that has a strong history of growth with ongoing momentum—a strong track record of growth independent of the industry the company is in—is going to get some attention,” says Morrissey.

“Businesses that performed well in the current cycle are going to get that much more attention and interest. And the same is true for businesses that have a leading or growing market position, an established platform on which new opportunities can be realized, and an established business that can grow and extend its services or expand its geographies.”

Assets also are important, which is why more and more investment experts advise companies to grow slowly, accumulating assets rather than reinvesting in faster growth. Lenders want to know they’ll be able to recoup their money quickly if things go south.

“Banks are still very tight on their underwriting standards,” says attorney Mark

Kindelin with the financial institutions practice group of Barnes & Thornburg in Chicago. “Companies that don’t need the money are the most likely to get it. But good companies are getting financed.”

“My observation is that banks are lending,” Kanski adds. “They’re not financing everybody. But people view the payments industry as an attractive industry. Transactions revenue and the opportunities in the payments industry are compelling, and people are lending there.

“There are certain areas that are hot,” says Kanski.“Mobile payments are hot. Insurance transaction processing is hot. Analytics is not so much.”

Companies can work to make themselves and their ideas more attractive to potential investors.And most of those strategies are simple common sense.

“The ways to attract lenders haven’t changed that much,” says Phillipson. “If you can get to the point of an investor underwriting your business, it’s absolutely critical—especially with technologybased companies such as those dedicated to transaction processing—that all material that may be requested during the due diligence process be prepared, constantly updated, centralized, and made accessible from day one.”

“Essentially,” he continues,“the more organized your company is, the better it looks to an investor and the higher the odds are of increasing the ultimate valuation price and closing the deal.”

Beyond that, he says, investors are also looking for marks that a company will continue to thrive, and that requires some innovation.

“I think what also makes a company attractive is whether it meets a current market need,” he says.“If you can demonstrate that your company’s innovation rises from an obvious void, you’re definitely going to stand out. That said, in this economic climate, it’s not enough to be innovative.

Lenders also are looking for sound business principles and a solid foundation within a company. They need to see that the company has a clear plan and is hitting its goals on a well-defined path toward profitability.”

“You need to have a differentiator of some kind,” says Kanski.“One is customer support. If you’re well known for that or you have something else you can implement easily to differentiate yourself, or you have a partnership or something that cre-

ates a sticky relationship between you and the customer, that’s noteworthy. Investors will be more receptive to things like that.”

Startup Situations That’s all well and good for established companies, but what about those just getting off the ground? Experts say that while they can expect a more difficult path, it’s not impossible.

“Banks are very tough right now if you’re a startup or an early-stage business,” says Kanski.“It’s never been a great place to get capital, but now it’s really not an option.

Venture capitalists invest in startups and we’re seeing a lot more activity there.”

“There’s always a chance for startups to find capital, provided the idea is good, the company is solid, and the team is talented,” Phillipson agrees.“Valuations might be lower at the moment—they’re always lower in a downturn—but people are definitely looking to invest in a good idea.”

Even established companies can expect a little more oversight from investors than in the past, experts say.When there’s not as much money to go around, investors want to be sure theirs is safe, and that goes past

the day the checks are signed.

“It stands to reason that when people are being more careful, they want more oversight, which can be a very good thing for companies if the fit is right,” says Phillipson. “Borrowers should be looking for not just money, but rather investors who know their market, have great connections, and can offer their expertise, all of which serves to make the company even more profitable.”

“More involved or hands-on is the wrong way to characterize it,” says Kanski.“A better word is accountability. In the good old days, you raised your capital and you got your check and you were off getting pet health insurance and other things for employees, and, frankly, money was wasted.A big part of where companies are investing is the management team. There is this accountability factor that, I think, didn’t exist in the past.There’s an element of demanding results, tracking results, and getting results.” TT Kim Fernandez is a contributing writer to Transaction Trends. Reach her at kim@kimfernandez.com.

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Transaction trends | April 2011 13

[ FEATURE]

The Realities of Fighting Fraud Leaders from around the electronic payments business weigh the merits of emerging technologies Edited by Josephine Rossi

E

ach year, the ETA Technology Committee convenes a group of thought leaders to participate in a roundtable discussion at the annual Strategic Leadership Forum.

This past fall in Palm Beach, the group talked about data security technologies in the United States and abroad. In this first of a two-part series, we’ll share their insights on the value of EMV, encryption, and tokenization; merchant education; barriers to adoption; and more.

Participants included:

Tom Tesmer, EVP of processing, Cynergy Data, and Technology Committee chair Karin McNabb, assistant vice president, RDM Corporation, and Roundtable Subcommittee chair and moderator 14 April 2011 | Transaction trends

John Arato, vice president of retail business unit, MagTek Inc., and Roundtable Subcommittee member and moderator Scott Goldthwaite, vice president of product management, Planet Payment, and Roundtable Subcommittee member and moderator Sarah Owen, vice president of mobile commerce solutions, First Data Corp., and Roundtable Subcommittee member and moderator Paul Coppinger, president, Apriva Kiran Gandhi, vice president of business development, MagTek Inc. Tim Horton, vice president and Trans Armor product family manager, First Data Corp.

Alan Lubitz, CTO, Planet Payment Inc.

Sarah McCrary, director of product development, Heartland Payment Systems Mike Mulcahy, president and CEO, PAX Technology Inc. Paul Sabella, president and CEO, Charge Anywhere Drew Soinski, vice president, Voltage

Excerpts of the discussion follow.

QUESTION: What is the impact and how do you see the implementation of new technologies combating fraud for larger multinational companies? Where do you feel the ROI and business justifications are for both merchants and processors to implement end-to-end security technologies?

Tim Horton: First, let’s distinguish between fraud and theft. Fraud is taking a credit card and using it illegally or printing fake plastics, and theft is stealing the consumer data from a merchant processor and so forth.

EMV is trying to address the consumer— the fraud side. It requires the merchant to invest heavily in new technology and requires the issuer to invest heavily in new plastics for the consumer. It also requires consumer education on what the technology is and how to use it. We’ve seen a lot of consumers try to use their mag-stripe credit cards overseas, but they can’t.

The fraud side gets a lot of press, but it really has a smaller cost.Theft has a higher cost, both from a soft-cost and a hard-cost perspective, the soft cost being the reputation and the fine or penalty associated with it. We look at tokenization and encryption as trying to stop the theft of card data, both while it’s in the processing stream for authorization, as well as when it’s at rest with tokenization at the merchant level.

We’ve all seen some associations trying to float the concept of EMV in the U.S. But it hasn’t taken hold yet, and ROI is the reason. The cost for that new merchant POS is astronomical; same for the issuer. I don’t think it’s been proven, and that’s why you haven’t seen the huge push in the U.S. It eventually will come. We have some retailers out there that have mentioned EMV as top of mind from a consumer fraud per-

“I think the cost of the ROI relates to the scope of PCI, the costs related to PCI, and how they reduce those costs. ”—Tim Horton spective. But it’s going to take years before it actually impacts anything substantially in the United States.

The ROI on tokenization and encryption is a little bit more defined, and you’re seeing processors starting to offer that service to the merchant as part of their normal payment processing service, without a new investment in technology or new equipment.

So the ROI then becomes about the scope of PCI. Encryption on the front of it, though the private/public key can vary, does meet PCI standards. Then, the tokenization allows merchants to rid themselves of that card data, and it allows them to substantially reduce their SAQ from potentially D down to a B. So I think the cost of the ROI relates to the scope of PCI, the costs related to PCI, and how they reduce those costs.

Drew Soinski: Voltage attended a conference for retail and hospitality where a considerable amount of time was spent on the topic of EMV. At the end, a poll was conducted about whether or not EMV would, in fact, be coming to the U.S. and if it would be embraced. Seventy-eight percent responded that, yes, they believe EMV will be here within the next five years, and they will embrace it.They see the value. Canada just went through it, and found it wasn’t as onerous as they thought.The biggest efforts are hardware-related, but they believe the associations are going to offer benefits to counterbalance that and enable them to achieve faster ROI. Alan Lubitz: The ROI issue is almost irrelevant.The only place ROI makes a difference is to the issuers, and they are going to be slow to embrace EMV.When the issuers decide there’s an ROI for them—and that may come in a few years—it will be mandated, and everybody will have to do it.

We support EMV around the world. EMV comes in three flavors. In Asia, they have no PIN EMV. It seems almost incredible that

you can have EMV and nobody enters a PIN; the whole idea for EMV is you enter a PIN. But that has minimal impact on security.And then you have the European, South American, and Canadian EMV, which is chip and PIN. They have PIN entry, but it’s offline so the PIN is verified locally. Then, in the Middle East, Central Europe, and Africa, they have online PIN, which is much more secure than any other PIN.

Kiran Gandhi: We have a unique perspective because we serve both sides of the market—banks and retailers. A lot of banks use our products for branch automation. So, when we talk to the issuers, their view of EMV is that it won’t be here for the next five years—maybe not even for seven years.They don’t believe there is a ROI for them as 99.9 percent of our transactions are online.

The initial motivation for EMV in Europe was the need for offline authorization. It had nothing to do with fraud. To look at EMV from strictly a fraud perspective without cost implication is not right.The issuers in Europe had a motivation, that’s number one. Number two, outside of the United States, there is only one POS switch and only one ATM switch. In the United States, we are divided among hundreds of acquirers, gateway switches, and processors. So to get the consensus of everybody in all vertical silos—issuers, merchants, and acquirers—will be a difficult thing to do.

We are working with a bank in Chile, and they made the decision not to go with EMV.Their reasoning was not just ROI.They looked at what EMV provides—specifically offline and loyalty-based transactions—and said, “We do that online today using magstripe cards.We don’t see any need for EMV to deliver the same service.”

Paul Sabella: It’s an issuer’s game. Issuers drive everything that we do in the acquiring side of the business. But, with Transaction trends | April 2011 15

[ FEATURE] EMV, issuers can derive additional benefits at the point of sale, such as writing things into the card, and that’s really where the advantage is for the issuer. Issuers can send a message to the card: even disable the card at the POS device. And these things, I believe, will ultimately drive the ROI to issuers that adopt those technologies over time. They’re just trying to make sure that everybody’s authorizing the transaction in real-time, and that there’s great reliance in the system. As we all know, when there’s doubt in the buyer’s mind—whether it’s in commercial or retail payments systems— the transaction counts come down.And the issuers know that, too.

“I wouldn’t count on any interchange benefits from EMV adoption being directed to the acquiring side.”—Alan Lubitz QUESTION: When will there be adoption in the United States?

Gandhi: It would be naïve to assume

is really the applications other than offline authorization.The reason EBT works is because it’s application driven. If they see the value in applications, then it will happen.

Today, there is no perceived value.

that, just because you have EMV, you’re not going to have theft because you still have mag-stripe on the card. There is a perception that if we have E2E, then theft issues are going to go away. But they’re never going to go away because data is encoded clear text on every mag-stripe card. So, just because my terminal is protected, it doesn’t mean that I cannot have theft.

The reason EMV chip and PIN was adopted by some of the European countries is because it provides one additional function that E2E doesn’t provide—card authentication.You can actually authenticate the piece of plastic. You and I could be customers of the same bank. But your card is different than mine because you have a different key in your card than I do. It’s the same computer.That difference allows somebody to distinguish a fraudulent piece of plastic versus an authentic piece of plastic. So it’s not just about data theft; it’s about card authentication.And that’s where EMV comes along.

Horton: Part of the push to the U.S. is

Sarah McCrary: Another argument

because fraud migrated to the U.S. So you have the European issuer saying,“Hey, you need to do something about my fraud in the U.S. on my cards.” Or migrate it to card not present.

goes back to the merchants, specifically large, big-box merchants that advocate for a chip and PIN style EMV because they expect it will reduce their transactional costs.

For these merchants, the main motivation is not to reduce card data theft or card fraud.

For them, it’s about the economics.

John Arato: I agree.When you’re talking with the grocers, they bring up the topic of PPT and WIC. They’re essentially using EMV and chip and PIN. So if the Piggly Wigglies want to accept WIC cards, they’re going to have to upgrade their terminals anyway.There may not be a MasterCard or a Visa chip and PIN, like we’re used to, but it’s a chip and PIN by another name. So, again, it’s issuer driven. The state government is the issuer in that case. So we may end up getting EMV starting by EBT and then moving up to other cards.

Gandhi: The value of EMV to the issuer

Gandhi: As long as there is mag-stripe on the payment card, you will have to support it. It is the only ubiquitous technology supported at POS across the globe. If you ask Visa and MasterCard, they’ll say that mag-stripe will remain on the payment cards for the foreseeable future. So it’s not just a simple issue of whether it’s EMV or not. There is no schedule for EMV U.S. 16 April 2011 | Transaction trends

Lubitz: Last November (2009),Visa started to charge international interchange rates on international cards.And, when they first announced this, we thought since we support EMV, we could put some EMV devices out there for merchants that want it and save them some interchange. But before I had time to plan for anything like that, they

said,“Oh, but the interchange benefit is not going to you.” So I wouldn’t count on any interchange benefits from EMV adoption being directed to the acquiring side.

Horton: I think there is some precedent from what happened in Canada when the Canadian banks issued the guide, and the merchants saw a small reduction in interchange.

Gandhi: Going back to card authentication, it is also important for merchants to provide additional fraud alerts. Let’s say, as a merchant, I’ve got E2E, and PCI DSS compliance. I have everything that I need.Yet I still get chargebacks because somebody used skimmers in my shop.The only way to mitigate chargebacks is card authentication.

A few years ago, a gang opened a chain of three pizzerias in Toronto. Debit is very, very popular in Canada, so people come in, swipe a card, and enter their PIN—everything transaction was debit.Three months after opening, the three pizzerias filed for bankruptcy and closed down shop. In those three months, they collected 200,000 pieces of card data and PIN data.Their terminals were rigged.They were giving away food to get that data. Seventy-five people in this gang walked away with $10 million.

E2E would not have stopped that.

The point is that we serve merchants.

We need to provide them with fraud protection using dynamic data and card authentication.

QUESTION: What’s happening at the merchant level to drive awareness about these specific applications, such as end-to-end encryption, tokenization, and authentication?

McCrary: Our merchant base includes large merchants as well as small proprietors with one or two sites. The larger

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[ FEATURE] merchants know about end-to-end encryption. It’s a cost of operation. For the smaller merchants, unless we’re delivering the messages to them, unless an association they belong to delivers the message, they’re not hearing it. And they’re taking a lot of risk upon themselves. They’re basically in the dark about the risk of operating without being compliant to certain payment card industry guidelines. We see delivering the message on data security as a service—to get out there and let people know what risks they’re taking and how to mitigate those risks.

Horton: The processors definitely must educate the merchants at the smaller level.

The large franchises, like McDonalds and Burger King, are more sophisticated than the smaller franchises. They now understand what it means to not be PCI compliant or to not have the end-to-end encryption, tokenization type technologies.

They are out educating their franchisees on what needs to take place.And if they’re not compliant, then they’re going to start fining them.

McCrary: What I hear more than anything is, “Where’s the road map on technologies that will protect the data?”

Whether it’s a small, medium-sized, or large merchant, I keep hearing that theme.“Is it EMV? Is it going to be contactless or an NFC mobile technology? Or is it going to be something else? Just tell us.”

Soinski: It should be about best practices in data protection.

Approximately one third of data breaches are happening in the largest organizations; the remainder are occurring in smaller to mid-sized organizations. But the impact of a breach is far more onerous for smaller merchants; their time to recover is far greater—that is, if they recover at all.

Sabella: It’s the reverse lottery because it seems that the PCI rules are not uniformly enforced. A lot of bad things need to happen in a certain way for a particular merchant to be singled out and for a fine to actually be assessed. I’ve been in the ISO side of the merchant business for 20-some years, too, and I still own an ISO. I understand what it is to underwrite merchants 18 April 2011 | Transaction trends

“For merchants, the main motivation is not to reduce card data theft or card fraud. For them, it’s about the economics.”—Sarah McCrary and to have to make them compliant at the POS device level, and the e-commerce level, and all the different levels. And merchants get fined so infrequently that it is really not a good motivation for the merchant to switch processors or do a lot of anything because they’re willing to take the risk.

Soinski: Voltage works a lot with the hospitality industry, and I can tell you from experience that these organizations are getting fined in a major, major way. But they’re not doing anything about it because they’re weighing the investment in data protection against the amount of possible fines.

And it’s now getting to the point where the shareholder value of the organization is starting to be considered. However, now that the fines as well as the loss of revenue (due to decreased occupancy, bad press, and guest concerns) have become so onerous, it has made the initial investment in data security far more palatable, causing greater ROI in the short term and allowing technology such as Voltage to be implemented throughout the organization.

McCrary: But, if there are technologies that are economical, and the merchant can, say, for $85 or $200, take itself out of this risk, that’s a pretty strong argument. Your lottery changes.

QUESTION: What are barriers for both large and small merchants for these types of solutions?

Horton: If you look at the whole payment processing stream and players in that, it’s making sure that everybody within that stream is educated and adopting the technology and getting the technology built into their platforms. So you might have the merchant.You might have their hardware/ software providers. You might have a VAR. And then you’ve got the acquirer, as well.

So there’s that piece.And then you have the

merchants that, one, they need to be educated to your point. But then, for instance, in a tokenization environment, how do you use that token within my daily processing or analytical type environment? How do I use it for loyalty?

And the other piece that I just related to tokenization is, one, you can start tokenizing the transaction to take that data away from the merchant. But then they have to go all the way back to their systems and take out all that old card data that they’ve stored over years of time in order to maintain the compliance.

Lubitz: One of the problems is that there’s really only one entity or entities that can provide a road map so they’re the only guys that can control things. That’s, of course, Visa, MasterCard, and American Express—the card issuers. And, of course, their motivation is to protect the issuers.

Card schemes do not typically provide any road maps for merchants, unless it’s something that already fits in with their plans and strategies, on the issuing side.

Mike Mulcahy: As a merchant, I never paid any attention to this stuff. I wasn’t worried about fraud or PIN and chip or any of that. I was just worried about making sure I had product on my shelves so I could sell it. So how do you educate the 75 percent of the community that doesn’t have a clue what you’re talking about that they have to invest $50? They don’t want to change.You might say it’s only $75 or $200 dollars, but it’s like $1 million to some of these mom and pop shops. Because it’s $75 here and $75 there, and they’re working on a 1 or 2 percent margin.

So, if Visa, MasterCard, and the associations are the ones that are affected, but they want to take care of the merchant and the consumer, how does this committee or this organization or this even wider group of ISOs get that message to that type

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[ FEATURE] of merchant? Upselling is difficult. It’s hard enough to get these guys to go from this processor to that processor. At the end of the day, these merchants aren’t reading the Wall Street Journal, and they’re not reading Transaction Trends, and they’re not even reading the mail that they get plummeted with every day.They’re just trying to sell.

Paul Coppinger: The biggest obstacle right now is knowledge—knowledge of industry requirements, knowledge of how to interpret those requirements, and, ultimately, knowledge of how to implement solutions that conform to current requirements and can cost-effectively adapt to future requirements. Only after we get past this huge barrier can merchants begin to chip away at the remaining barriers, such as selecting partners and solutions providers.

It isn’t easy. Large merchants have many more resources available to them than small merchants—dedicated IT staff, trained security specialists, consultants, and knowledge workers of all sorts.Yet they struggle just as much as they ever did just trying keep abreast of everything that is going on

in this area. Small merchants, however, generally have none of these advantages, so it should come as no surprise that they are often baffled by PCI and are completely reliant on their merchant acquirer or solutions providers to equip them with compliant solutions and provide expert guidance. Unfortunately, security is still a new thing for most solutions providers. Even though merchants look to them for expert guidance, the reality is that they, too, are struggling just to keep up with current requirements.

Anyone who has been through a few PCI audits can tell you that it is getting tougher every year.We’ve been through, I think, six audits so far, and the effort required goes up every year.

We were fortunate, however. Because of our work with the National Security Agency and the Department of Defense, I believe we were much more prepared when the mandates started to come down from the card brands. We started developing secure systems for the government back in the ’90s, way before PCI—or its predecessors—became a reality. We still work closely with the NSA and the DoD,

and much of the high-security work we do eventually ends up in our payment solutions. Other solutions providers don’t have the same advantages so I can only imagine how challenging it can be for them.

Finally, while it might be convenient to hold the PCI Council responsible for the current state of affairs, in fairness we should recognize that the vendors themselves are at times responsible for at least some of the confusion.When vendors exploit standards and standards bodies to their commercial advantage, it doesn’t help matters. Who exactly is minding the store? It would be better, in my opinion, if the various committees and working groups who formulate the underlying security standards for our industry had better representation from the merchant community, rather than just let a small number of activist vendors decide what the merchant is going to have to do in the future. It’s kind of like the fox guarding the hen house, isn’t it? TT Josephine Rossi is editor of Transaction Trends. Reach her at jrossi@ strattonpublishing.org.

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Startup Stories:

Electronic Merchant Systems

From the

Ground Up For Electronic Merchant Systems, growth is a direct result of service

By Julie Ritzer Ross

“O

rganic” is not a term typically associated with ISOs/MSPs, but it aptly describes the successful strategy behind Cleveland-based Electronic Merchant Systems (EMS). In the 24 years since its inception, the ISO/MSP has expanded from an organization with a single sales representative and a temporary employee to one with a portfolio of just over 18,000 merchants and an annual processing volume of 25 million transactions totaling more than $2 billion.

Founded by the Weiland family, EMS is now headed by Chairman Jim Weiland and former ETA President Dan Neistadt, an industry veteran who, prior to joining the company in 2007, had served as executive vice president and manager of the business management group within KeyBank USA’s key electronic services division.

EMS now has countless agents and numerous partners, as well as eight sales offices, in Cleveland,Atlanta, Baltimore, Boston, Chicago, Phoenix, Pittsburgh, and Tampa.

Planting the Seeds Weiland and Neistadt note that when the ISO/MSP was formed, merchants had just begun to use electronic terminals rather than telephone calls and printed bulletins to obtain transaction authorization.

“We saw an opportunity in time and cost savings for merchants, and felt that a company focused on solutions and service could thrive,”Weiland says. Management decided to focus on the largely untapped small- and medium-sized merchant market via competi-

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Electronic Merchant Systems Cleveland, Ohio Founded: 1987 Portfolio size: 18,000 merchants Transaction volume: 25 million, or $2 billion, annually tive pricing, high-touch customer service, and effective businessgenerating products, provided with the goal of growing the company in an “organic and responsible” fashion.

EMS’ aim was to become the premier ISO/MSP within its footprint.The best way to accomplish this was the most obvious:“Take care of your customers, and they will take care of you,” Neistadt explains. EMS was founded on the idea that what matters most to a merchant isn’t necessarily just low rates, but the trust factor.“If a merchant trusts that your company is truly looking out for their best interest then they are less likely to leave and more likely to pass your name along to others.”

Along the way, the ISO/MSP has expanded its menu beyond what Neistadt and Weiland deem the “typical payment processing services.” For instance, EMS’Altus Premier loyalty and gift card program features cards that are custom-created for each merchant by employees of the company’s in-house design department. Professional graphic designers and other EMS experts work with clients to establish or expand upon, as well as to market, a strong brand identity for their gift and loyalty card initiatives.

Transaction trends | April 2011 21

»

Startup Stories:

Electronic Merchant Systems

One iteration of Altus Premier is a solution tailored for franchises, associations, and merchant groups that lets them offer a gift or loyalty card that can be issued and redeemed at all retailers participating in the program.“In combining franchise settlement services with advanced point-of-sale capabilities, we deliver a program that can be quickly and easily implemented by diverse retailers with a common goal,” Neistadt explains.

EMS also has a full complement of business and e-commerce services.Through the design services department, merchants can arrange for the configuration of custom-built Web sites, online shopping carts, and full-service e-commerce sites.A suite of proprietary solutions marketed under the name WebPak combines all components necessary for transacting business online, including Web hosting, domain name registration, shopping cart, payment gateway, and merchant account.

EMS’ agent program is intended to aid participants in attracting and boarding merchants via a “value proposition” as opposed to one that hinges on processing bells and whistles. Explaining the value proposition to prospects is heavily emphasized in one-on-one training pertaining to products and services, as well as in continuing education programs and two online training components: EMSUniversity.net and a sales portal containing a wide variety of training materials.What’s more, by automating the information, application, input, and reporting infrastructure, and by working individually with the agents’ marketing strategies, EMS has increased the average agent’s profitability and income by 37 percent.

Harvesting Great Ideas Like most organizations, EMS has faced its share of challenges. Some were born of starting from scratch, which necessitated building an infrastructure and going beyond the basic MSP menu to control

Words From the Wise: EMS’ Advice to ISO/MSP Startups n Education is essential. In an industry as dynamic as the electronic transactions arena, both aspiring and established ISOs/MSPs must commit not only to keeping abreast of changes, but to remaining one step ahead of them. Participating in industry events and designating specific individuals to monitor developments is a good starting point. n Get serious, stay serious. This means aligning your company with others that share your goals and vision, and treating the business as a full-time venture rather than as a part-time income opportunity that merely entails signing merchants and leaving them to their own devices, both literally and figuratively. n Value and respect merchants. Show them the value in the solutions and services available to them rather than subjecting them to a mere sales pitch.

22 April 2011 | Transaction trends

the entire merchant experience. Other challenges stem from the changing nature of the electronic transactions industry.“The industry itself presents unique challenges, having evolved from a largely unregulated environment to what it is today,” Neistadt observes.

“Not only is the government tightening regulations; the industry is becoming self-policing.”

The POS component is evolving as well, and MSPs must evolve along with it.“What began as a paper transaction is now electronic, from terminals to integrated systems, from vanilla to product rich, from face-to-face to MOTO. Each of these advances has brought about major changes in the industry—changes that are good for the industry and good for business if you develop the sales intelligence and infrastructure support.”

In fact, EMS recently moved in to the POS equipment business with EMS 8800, a proprietary terminal that offers onboard hardware and a choice of dial-up or ethernet connectivity.

To keep up with and influence the changing industry, EMS is active in ETA and tasks its internal employees with keeping abreast of industry news and developments and forging relationships with contacts outside the company’s walls.

Acknowledging the increasing value of giving back to the community, EMS has aligned with a number of charitable organizations.

For example, it sponsors an annual golf outing to raise funds for a branch of the Ronald McDonald House in Charleston, South Carolina. In Cleveland, the company is actively involved with Coach Sam’s Inner Circle, an organization founded by former Cleveland Browns football team coach Sam Rutigliano that promotes mentoring of inner-city youth.

Meanwhile, efforts to grow the business continue.Two years ago, EMS inked a deal to handle credit card processing for the Ohio Turnpike Commission’s E-Z Pass toll system that lets consumers pay tolls by swiping a payment card at a tollbooth or mounting a preloaded E-Z Pass transponder to their dashboards.The contract was recently renewed, and plans are in the works with other states.

EMS is also targeting the value-added reseller (VAR) channel and has developed a new product dubbed ConvenuPAY. The solution allows merchants in the government and higher education verticals to charge a convenience fee when processing credit cards, thereby offsetting transaction fees.

“We are finding that with the plethora of startups in the software arena, building applications intended for specific vertical markets is the ideal strategy,” Neistadt notes.“Our goal is to partner with small to mid-sized VARs within our desired markets.We understand their business models and can help them grow, resulting in a mutually beneficial partnership.We understand that our product serves as a ‘bolt-on’ to their applications, and we take the time to learn the ins and outs of their business in order to become as effective and successful as possible. Serving clients and helping them to build their business remains the key to organic, responsible growth.” EMS has already boarded several VARs. TT Julie Ritzer Ross is a contributing writer to Transaction Trends. Reach her at jritzerross@gmail.com.

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

EX-OFFICIO Carla Balakgie CEO Electronic Transactions Association

Robert McCullen CEO Trustwave Diana Mehochko President TSYS Merchant Solutions

PRESIDENT-ELECT Eddie Myers President & COO Payment Processing Inc. TREASURER Roy Banks CEO ACCELERATED Payment Technologies Inc. SECRETARY Tom A. Wimsett Chairman & CEO J&T Ventures

Jeff Rosenblatt President EVO Merchant Services Debra Rossi Executive Vice President Merchant Payment Solutions Wells Fargo Bank Kurt Strawhecker Managing Director The Strawhecker Group

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

Jan Estep President & CEO NACHA 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

ADVISORY COUNCIL Tom Bell CEO Bank of America Merchant Services

Gerry Wagner Vice President Discover Financial Services

Donald Boeding President—Merchant Services Fifth Third Processing Solutions

DIRECTORS Todd Ablowitz President Double Diamond Group

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

Chuck Harris President NetSpend

Robert Baldwin President & CFO Heartland Payment Systems Inc.

Chris Hylen General Manager & Vice President Intuit

Gregory Cohen President Moneris Solutions

Mike Passilla President & CEO Elavon

Gary Goodrich CEO ProPay Inc. Kim Fitzsimmons Senior Vice President—First Data Services First Data Corporation

Jeffrey Sloan President Global Payments Inc

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Transaction trends | April 2011 23

Industry Insider

Fraud Busters Kount helps merchants in an array of industries fight fraud through strategic partnerships and flexibility

By Kim Fernandez

S

ome of the best products and services are the ones developed to meet an internal business need:An executive needs a widget, deploys a developer to make his vision a reality, and later recognizes that the widget they develop could help other businesses, too.

That scenario describes how Boise, Idaho-based fraud prevention services provider Kount Inc. launched in January 2008. The idea, says Chief Operating Officer Steven Rouse, was self-serving.

In the mid-2000s, the leaders of Boise, Idaho-based Keynetics realized the company needed some kind of fraud protection for its subsidiary, Clickbooks, a large e-book and digital product retailer.

“We figured out that fraudsters were out there, and we needed a solution to protect us from them,” says Rouse.“We invested in technologies to help protect our business.”

After some research and development, Clickbooks debuted its —Steven Rouse new fraud protection system, and Rouse and his partners realized their new technology could help other business owners, too.

“We had a noncompete [contract] at that time,” says Rouse.“We couldn’t be in the fraud business. But that expired in January 2008, and we launched.What we had was really good, and other merchants could benefit from it.”

“We don’t necessarily have a card-centric model anymore.”

Flexible Customization Since then, Kount has grown to provide clients with an off-the-shelf, end-to-end fraud protection system at a fixed cost. But clients also have the ability to control their services to meet their own unique needs.

“Kount is a complete solution and not just a tool,” says Rouse. The system is designed to work for a variety of businesses, including merchants, online communities, and financial institutions.“Our system is really fast,” says Rouse.

“When it sees an inquiry on a customer, it will run analytics and generate scores, and then send back a response to the client in about 300 milliseconds. A lot of times, we’re faster than Visa or MasterCard in terms of getting a response back.”

24 April 2011 | Transaction trends

Kount’s focus on card-not-present technologies also opens doors for clients.“We don’t necessarily have a cardcentric model anymore,” says Rouse.“Someone might accept new applications for a service or an account online, and instead of a card number they might accept a Social Security number or driver’s license ID. We have to make real-time decisions about whatever they’re asking us to monitor.”

Simplicity and customization also are key, especially for smaller merchants without fraud experts of their own.

“We talk about it as a single pane of glass that a merchant can use to fight fraud,” says Rouse.“It encompasses not only the front-end fraud detection piece, but also a lot of times merchants will want to do manual reviews. So we roll to integrate front-end tools with manual review tools to offer a complete solution that their fraud group can work with.”

Strategic Partners Much of Kount’s growth has come through carefully forged partnerships with other payments industry providers. One example is its partnership with merchant acquirer and payment processor Chase Paymentech to provide a Kount-powered system called Safetech.

Most recently, Kount launched a partnership with LexisNexis to marry that company’s verification data with Kount’s fraud protection capabilities, helping them reach the next step in their business development.

“Lots of customers look to [LexisNexis] to provide information around validation, verification, and personally identifiable information,” says Rouse. “That all helps with account creation and mitigating risk, and they needed to get into fraud detection.” LexisNexis will start selling its branded Retail Decision Maker, powered by Kount, in the near future.

Similar behind-the-scenes partnerships are a hallmark of Kount’s business strategy.“It’s important to us to work with our channel partners to deploy our services,” says Rouse.

“We white-label it and give it to our partners to sell.They don’t have to become experts in fraud. They just take it, brand it, and sell it.” TT Kim Fernandez is a contributing writer to Transaction Trends. Reach her at kim@kimfernandez.com.

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