Transaction Trends November 2013 by Content Communicators, LLC

Special: Merchantsâ&#x20AC;&#x2122; Holiday Guide to Mobile Payments

Transaction trends The Official Publication of the Electronic Transactions Association

| November 2013

Moving into

omnichannel Retailers harness the power of mobile to empower consumers

ALSO INSIDE: The Evolution of Risk Management Nomis Solutions Tackles Pricing and Profitability

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Transaction trends The Official Publication of the Electronic Transactions Association

Vol. 18 | No. 9

cover story

12 Moving Into Omni-Channel By Julie Ritzer Ross Retailers are harnessing the power of mobile POS and mobile payment processing solutions to support omni-channel initiatives. By offering multiple purchasing opportunities—including brick-and-mortar stores, roaming cashiers, cyberstores, and other web-based options— both large and small merchants are blurring the lines between retail and mobile shopping, and empowering consumers to shop at their convenience. 12

FEATURES

19 Merchants’ Holiday Guide to Mobile Payments

16 S PECIAL S ERIES

Mobile commerce is expected to account for 16 percent of holiday retail sales this season. Transaction Trends’ inaugural Merchants’ Holiday Guide to Mobile Payments makes the case for mobile adoption and helps merchants prepare for POS transition by explaining the technologies, functionality, and benefits of acceptance. Share this guide with your merchant clients today.

Startup Stories: Pricing and Profitability By John Manasso Nomis Solutions has partnered with Recombo to launch a program merging intelligence with automation. The goal is to price merchants correctly and combat the industry’s high attrition rate. 19

depar tmentS 4

ETA Gateway

Insights from ETA’s CEO, Jason Oxman

Industry News

Risk in Review

Trends, strategies, and news in the payments business and ETA member community

18 Ad Index 24 Industry Insider

TouchSuite offers a package deal to merchants in the restaurant/ nightclub/salon vertical

Risk management processes need to be flexible and easy to update Transaction trends | November 2013 3

ETA Gateway

Leading the Way in Times of Change

he Electronic Transactions Association is a powerful force in the payments industry, and as CEO, I’m proud to be a part of it. This past year, I’ve had a front row seat to ETA’s dynamic organization, and it has been a remarkable experience. Perhaps most extraordinary has been the opportunity to lead ETA during such a tremendous time of change. No component of the payments ecosystem has stood still—new competitors, new technologies, and shifting customer behaviors have all contributed to today’s dynamic landscape. Fortunately, ETA is responding to these changes. One of the biggest issues ahead for the payments industry as a whole is the complicated world of government regulation. ETA is the leading organization in Washington advocating for the payments

Editorial Policy: The Electronic Transactions Association, founded in 1990, is a not-for-profit organization representing entities who provide transaction services between merchants and settlement banks and others involved in the electronic transactions industry. Our purpose is to provide leadership in the industry through education, advocacy, and the exchange of information. The magazine acts as a moderator without approving, disapproving, or guaranteeing the validity or accuracy of any data, claim, or opinion appearing under a byline or obtained or quoted from an acknowledged source. The opinions expressed do not necessarily reflect the official view of the Electronic Transactions Association. Also, appearance of advertisements and new product or service information does not constitute an endorsement of products or services featured by the Association. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided and disseminated with the understanding that the publisher is not engaged in rendering legal or other professional services. If legal advice and other expert assistance are required, the services of a competent professional should be sought. Transaction Trends (ISSN 1939-1595) is the official publication, published 10 times annually, of the Electronic Transactions Association, 1101 16th St. N.W., Suite 402, Washington, DC 20036; 800/695-5509 or 202/828-2635; 202/828-2639 fax. Postage paid at Pittsburgh, Pennsylvania, and additional mailing offices. POSTMASTER: Send address changes to the address noted above. Copyright © 2013 The Electronic Transactions Association. All Rights Reserved, including World Rights and Electronic Rights. No part of this publication may be reproduced without permission from the publisher, nor may any part of this publication be reproduced, stored in a retrieval system, or copied by mechanical photocopying, recording, or other means, now or hereafter invented, without permission of the publisher.

4 November 2013 | Transaction trends

community.We recently launched our new political engagement program, ETA Voice of Payments, designed to inform and involve ETA members, citizens, media, legislators, and regulators on public policy and its importance to the survival, advancement, and success of the world-class electronic payments community. Voice of Payments also gives consumers the tools necessary to ensure elected officials hear the voices of their constituents on issues of importance to the $4 trillion payment processing industry.We added new tools to our arsenal with the launch of our new political action committee—ETA PAC—and registered a lobbyist to increase our reach on Capitol Hill. We also have brought in new staff with strong backgrounds in government relations and policy, who are well-positioned to speak out on behalf of ETA members. And there’s more. ETA has expanded the schedule for the largest payments industry event of the year—the ETA Show. In 2014, the conference kicks off on Tuesday morning, April 8, and continues through Thursday eve-

ning, April 10, culminating in the biggest networking party in payments, the ETA Closing Party at the Shark Reef Aquarium Mandalay Bay.With more educational opportunities than ever before, expanded trade show floor hours, and the industry’s best networking opportunities, the 2014 ETA Show gives you access to everything you need to succeed in the payments industry. Put it all together and it adds up to the kind of value-added benefits you need—now. More than ever, membership in this association means you’re gaining the skills for moving forward, the edge for seizing opportunities in the changing marketplace, and the expertise for becoming an even more valuable player for your organization. I look forward to working with you to grow your business.

Kind Regards, Jason Oxman Chief Executive Officer Electronic Transactions Association

Electronic Transactions Association 1101 16th Street NW, Suite 402 Washington, DC 20036 202/828.2635 www.electran.org ETA CEO Jason Oxman COO Pamela Furneaux Director, Education and Professional Development Rori Ferensic Director, Government and Industry Relations Mary Weaver Bennett Director, Membership and Marketing Del Baker Robertson Director, Communications Meghan Cieslak Publishing office: Stratton Publishing & Marketing Inc. 5285 Shawnee Road, Suite 510 Alexandria, VA 22312 703/914.9200; fax 703/914.6777

Publisher Debra Stratton Associate Publisher & Editor Josephine Rossi Contributing Editor Angela Hickman Brady Editorial/Production Associate Christine Umbrell Art Director Janelle Welch Contributing Writers Lia Dangelico, Laurie LeBoeuf, John Manasso, Bryan Ochalla, and Julie Ritzer Ross Advertising Sales Steve Schwanz or Fox Associates (800/440.0232; adinfo.eta@foxrep.com) Fox Associates Offices Chicago 312/644.3888 New York 212/725.2106 Detroit 248/626.0511 Phoenix 480/538.5021 Los Angeles 805/522.0501

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INDuSTRYnews Cashless Payments Surge Worldwide A new report from MasterCard Advisors reveals cashless payments account for 66 percent of total global consumer spending. The study, “The Cashless Journey,” tracks how 33 major economies are progressing from cash-based to cashless societies and explores the key factors behind this shift. The report identifies countries where cashless payments are nearly universal and attributes the widespread adoption of these technologies to advances in mo-

bile, contactless, EMV chip payments, and others. Top cashless countries include Belgium, where 93 percent of consumer spending is cashless, followed by France (92 percent cashless) and Canada (90 percent). Emerging economies, including Indonesia, Russia, and Egypt, are adopting these new payments methods rapidly, but cashless payments currently account for less than 30 percent of total consumer spending in those countries.

info GRAPH Smartphones Edge Out Tablets for Summer 2013 Payments Payments percentage share

8 7 Phones Tablets

5 % AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG 2012 2013

Source: Adyen Global Mobile Payments Index

6 November 2013 | Transaction trends

More than half of video gamers across the globe use alternative payments— mobile wallets, direct debits or transfers, and others—to purchase their games, according to a study by WorldPay. The research found that a majority of consumers using these methods are located in emerging markets, with 79 percent in China and 71 percent in Russia. Mobile wallets have led the way in driving alternative payment usage, accounting for more than a quarter of all video game transactions.

fast FACT

Gamers in Emerging Markets Embrace Alternative Payments

In-app mobile purchases will account for 48 percent of total app store revenue by 2017, up from just 11 percent in 2012, according to Gartner.

Mobile Retail Activity Surges Among European Smartphone Owners Smartphone users who accessed mobile retail in a month

Total smartphone audience, 2013 (millions)

Year-over-year growth, 2012 to 2013

Percent of total smartphone audience, 2013

Total European Union Five*

31,804

43.3%

20.4%

Spain

3,284

66.5%

12.2%

Italy

5,589

61.3%

19.3%

Germany

9,929

45.2% 27.2%

France

3,340

35.9% 11.7%

9,662

29.5%

27.6%

*France, Germany, Italy, Spain, United Kingdom

U.S. Consumers Adopt Homegrown AntiFraud Measures

Source: comScore MobiLens

2013 Holiday Spending in the U.S. At a Glance Total holiday spending is expected to reach $82

billion, a 13 to

15 percent increase over 2012.

Forty-four percent of consumers say they will do their holiday shopping online;

45 percent plan to use More than half of con-

social media to help them shop.

sumers will use mobile devices to look up store hours, compare prices, and purchase products.

Nearly

one quarter of

consumers say they would be more likely to make purchases

Online shoppers will spend an av-

erage of $884 on gifts and other holiday items, 20 percent more than consumers overall.

from in-store retailers if they offered self-service/mobile checkout.

Two in five Americans don’t sign the back of their credit or debit cards, alternatively writing “See ID” or leaving the strip blank, according to a new study by Jumio. This activity—or lack thereof—shows that consumers want merchants to take fraud protection more seriously, verifying IDs at the time of purchase. But merchants are not heeding the call, with more than 80 percent of respondents saying they typically are not asked to present a valid ID when making credit or debit purchases. Consumers are calling for better protection at a time when cases of fraud are on the rise in the U.S., with a 17 percent increase in incidents between 2011 and 2012, according to FICO. Likely due to retailers’ lax attitudes toward fraud, more than a quarter of respondents have had fraudulent charges made to their bank or credit card account by another person.

Sources: The National Retail Federation, Shop.org, Deloitte

Transaction trends | November 2013 7

News from the association

Make Your Voice Heard: Contribute to the ETA Blog

10 Tips for Merchants to Fight Credit Card Fraud 1. Ensure all employees are up-to-date on data security policies and the latest fraud tactics.

2. Learn to spot illegitimate transactions. 3. Use a vetted security provider that is PCI DSS certified.

As the preeminent source of thought leadership for the payments industry, the ETA trendsetter blog leverages the industry insights and expertise of ETA members and stakeholders to produce original, thought-provoking content with unique value that cannot be found elsewhere. Postings include white papers, articles, interviews, and podcasts. If you are interested in contributing content, please contact Meghan Cieslak, mcieslak@electran.org, for more information and editorial guidelines.

CALENDAR: ETA Silicon Valley Day The Commonwealth Club of California San Francisco, CA November 7, 2013

ETA Show 2014 Mandalay Bay Las Vegas, NV April 8-10, 2014

2014 ETA Strategic Leadership Forum The Breakers Palm Beach, FL October 7-9, 2014

dopt industry safeguards to protect 4. A sensitive data. 5. Form a dedicated team to monitor systems and prevent attacks. 6. Keep current on privacy protection technologies. 7. Assume all systems will eventually be hacked, and utilize multilayered security strategies. 8. D on’t collect data that you can’t protect. 9. Change the target by employing tokenization techniques.

10. L ock down system gateways and endpoints.

New Members ETA is pleased to welcome the following companies to its membership. To inquire about a membership with ETA, please contact Del Baker Robertson, director of membership and marketing, at dbaker@electran.org. Brand Velocity Atlanta, GA www.brandvelocity.com

Quick Bridge Funding Orange, CA www.quickbridgefunding.com

Riskified Tel Aviv, Israel www.riskified.com

Source: 3Delta Systems

AROUND THE HORN AnywhereCommerce was awarded a patent from the U.S. Patent and Trademark Office covering its encryption technology. Clearent announced its participation in LaunchCode, a program geared toward growing the developer talent pool in St. Louis. CSR expanded its western office in Reno, Nevada, and announced it will provide PCI compliance and breach reporting services to TriSource Solutions’ ISOs and merchants. First Data Corporation and Provident Bank extended their long-term merchant services partnership, and First Data will assist in executing mobile payments strategy for European commercial bank UniCredit. Global Payments named Jeffrey Sloan as its new CEO and a member of its board of advisors. Heartland Payment Systems accelerated its open commerce platform and mobile POS with a $20 million investment in Leaf. Network Merchants announced that Bregal Sagemount made a significant growth investment in the company. Merchant Warehouse announced a partnership with ReSource Inc., a POS and business online management systems provider. Paragon Application Systems expanded its 8 November 2013 | Transaction trends

online training offerings with new free payments industry courses. Paydiant integrated its mobile wallet solution with the Future POS restaurant and hospitality POS system. PayPal payments are now accepted on the RAIL dining payment platform. Payscape Advisors announced it opened a new central Florida office and hired David Beckman as district sales manager. SecureBuy is partnering with Demandware to integrate SecureBuy 2.0 with Demandware Commerce. Sysnet Global Solutions partnered with iScan Online to provide global acquiring organizations with mobile security solutions. Transaction Network Services and AJB Software introduced TNSPay Direct, a solution offering merchants improved control, security, and flexibility. TransFirst implemented TransClear, its new proprietary back-end system. TSYS is partnering with FICO to release FICO Falcon Fraud Manager to help protect Brazilian cardholders. VeriFone named Paul Galant as its new CEO and a member of the board of directors. WorldPay US agreed to purchase Century Payments, and earned MasterCard EMV payment processing certification.

ISO Corner RISK IN REVIEW

The Evolution of Risk Management Acquirers should regularly review and strengthen processes for better protection By Laurie LeBoeuf

any years ago, I participated in an article for this magazine that focused on all of the changes happening in the industry and how important it was for companies to ensure that their risk monitoring systems and settings were keeping up. Some key suggestions at that time were to expand beyond the basics of average ticket size, weekly limits, and keyed versus swiped, to name a few. It was important to review for duplicate cardholders, zero batches, excessive authorizations, and repeat dollar amounts.These additions were supposed to help with the “bust outs,” which are the collusive merchants, and the “change of business model.” For the most part, these additions, along with many others, were successful. However, we find ourselves once again playing catch-up with our risk mitigation strategies in order to keep losses to a minimum. Over the past few years the landscape has changed so much in the credit card industry with the expansion of e-commerce, the micro merchant, mobile terminals, and globalization. Acquirers are able to offer merchant processing services to small businesses and individuals at a different level than in the past. With this great opportunity comes a need to ensure these relationships are being monitored successfully, but this doesn’t just mean changing a few rules in your risk system. Acquirers should be re-evaluating their entire risk process and determining whether they have the necessary tools to keep up with the pace of changing technology and emerging markets.

Diversification Risks For years, acquirers have struggled to determine the accurate Merchant Category Code (MCC) or Standard Industry Classification (SIC) for merchants that are signed up for the purposes of accepting electronic payments. The distinctions used to be much clearer, as most businesses operated 10 November 2013 | Transaction trends

in vertical silos.These days, merchant businesses often cover a variety of categories, sometimes very disparate ones.Yesterday’s grocery store or supermarket today likely has an online business; may have diversified into other sectors such as electronics, perfume, and clothing; and may even have decided to stake its claim in insurance or financial services. This diversification presents new risks, and acquirers need

to ensure their risk system allows them the flexibility to segment the portfolio by vertical, MCC, terminal type, aggregation, and more. With the increased use of different applications on the iPad, iPhone, and other mobile devices, the players in the transaction are no longer limited to the acquirer/processor and card brands. Acquirers need the ability to import, review, and

verify third-party vendor solutions. With these imports, they receive the information necessary to effectively monitor transaction risk—for example, device ID, geo-location, and mobile indicators. In speaking with different acquirers that have recently implemented new risk management systems, many have indicated that these changes were not made due to excessive losses. “It was more about the lack of flexibility in the current system and needing the ability to instantly create and test new rules to see expected results before implementing,” says Georgia Stavrakis, director of loss prevention at Heartland Payment Systems.

Diversification presents new risks, and acquirers need to ensure their risk system allows them the flexibility to segment the portfolio by vertical, MCC, terminal type, aggregation, and more. HPS looked for “software that would allow us to create rules on our own and also immediately test those rules in a separate environment to ensure quality application. In this day and age, being able to instantly create and test a new rule is of the utmost importance, as there is a need to be able to accommodate changes as soon as possible,” adds Stavrakis. The implementation of a new system or an update of your existing monitoring system needs to be well-thought-out. A review of false positives should be conducted and the parameters adjusted accordingly. In addition, you should run parallel systems during the transition period to ensure that the system’s settings are identifying the intended suspicious activity. It is imperative that your new parameters work hand-in-hand with the historical activity of your existing merchants.The ideal situation is to be able to import that activity; however, if this is not possible, your analysts will need to make allowances to maintain a positive relationship with your customers. TT Laurie LeBoeuf is CEO of Take Charge Business Consulting and a member of ETA’s Risk, Fraud and Security Committee. Reach her at lleboeuf@tcbconsultingonline.com. Transaction trends | November 2013 11

[ COVER STORY ]

Moving Into Omni-Channel

Retailers of all sizes roll out multi-platform payments to stay competitive and serve increasingly tech-savvy customers By Julie Ritzer Ross

his past July, Boca Raton, Floridabased office and school supplies retailer Office Depot announced that it had deployed handheld devices to its more than 1,000 locations. The devices enable employees to provide customers with instant access to extended product information, availability, reviews, and the option to pay for their purchases anywhere in the store. Associates also use the units to generate orders for items unavailable in-store from the merchant’s website and arrange for them to be shipped to shoppers’ chosen destination free of charge. New in-store touchscreen kiosks and workstations allow customers to research the full inventory of items available at Office Depot and self-order them for delivery to a home or office. They also have access to a new “Buy Online, Ready in One-Hour” program for customers to purchase items online and pick them up at any Office Depot location within one hour; designate a friend or family member to pick up the order at the store of their choice; or have a portion of the order delivered in the same online transaction.

12 November 2013 | Transaction trends

This strategic move by Office Depot highlights the emerging trend of merchants harnessing mobile POS and mobile payment processing solutions to support omni-channel initiatives. Retailers undertake these efforts to sharpen or maintain their competitive edge, while simultaneously catering to increasingly demanding, technology-savvy customers. In a true omni-channel environment, physical stores, cyber-stores, catalog divisions, and any other outlets through which retailers sell goods operate as one, with integrated systems replacing disparate repositories of inventory and POS data.

Seamless Sales “Blurring the lines between online, retail, and mobile shopping, retailers want to enable consumers to walk into their store,‘windowshop’ a product, scan merchandise bar codes, read reviews, explore variations and price, and complete their purchase in the store, online, and/or via their own device—all within the same seamless shopping spree,”says Nish Modi, vice president, product, SecureNet Payment Systems.“A strong mobile strategy is the bridge that connects the retail and online shopping experience and, as such, is the Holy Grail of omni-channel.” Indeed, Office Depot is only one of many Tier 1 retailers to assume an omni-channel stance with mobile POS and payment processing elements at its core. Other examples, the breadth of which underscores activity in a wide range of markets, include the following: Target. In mid-August, the discount retailer revealed plans to expand a program that permits customers to buy items online and pick them up at the store the same day, starting in the third quarter. A mobile app known as Cartwheel, introduced this past June, allows customers to use mobile phones to find and share deals on Facebook and search for deals while shopping in stores.The app reportedly has more than one million users, more than 50 percent of whom used it to complete multiple transactions. Urban Outfitters. Sales personnel in the apparel retailer’s 400-plus U.S. stores are now armed with Apple iPad and iPod Touch devices. In addition to replacing traditional cash registers, the units run an “out-of-stock” app that helps shoppers find and pay for merchandise from other Urban Outfitters stores. Should an item be unavailable in-store, asso-

ciates can identify the closest three stores that do have it in stock and accept payment for both that item and other merchandise the customer was able to locate. alice + olivia by Stacey Bendet. The New York City manufacturer and retailer— whose high-fashion women’s apparel and footwear lines are available at 10 freestanding boutiques in New York, California, and Connecticut, as well as through its website and at more than 800 select and specialty department stores worldwide—has developed a series of self-service mobile apps intended to allow customers to use their own devices to locate merchandise across all channels.

“Retailers want to enable consumers to walk into their store, ‘window-shop’ a product, scan merchandise bar codes, read reviews, explore variations and price, and complete their purchase in the store, online, and/or via their own device—all within the same seamless shopping spree.”

—Nish Modi, SecureNet Payment Systems

A Mobile Plan for All But the deployment of mobile payment and mobile POS as part of an omni-channel retailing strategy is not limited to Tier 1 merchants. Rather, small- and medium-sized businesses (SMBs) have also taken the plunge—or are at least contemplating doing so. “Omni-channel is a three-legged stool, and mobile is the third leg of that stool whether the retailer is small or large,” asserts Matt Mullen, head of product management and marketing at solutions provider Epicor and general manager of the company’s Epicor Payment Exchange payment processing arm. Following are a few of the companies considered to be among the trailblazers: Moosejaw Mountaineering. The Detroit-based outdoor retailer leverages mobile devices as the lynchpin of an “endless aisle” methodology wherein its 11 stores carry only 4,000 to 5,000 products, while fulfillment of online orders is handled by a warehouse stocking approximately 80,000 items. Roving store associates utilize the devices to assist customers in the aisles, assessing product availability in-store, checking warehouse stock, and processing orders

KEY NOTES 8 A strong mobile strategy is the bridge that connects the retail and online shopping experience.

8 True omni-channel integrates systems that replace disparate repositories of inventory and POS data.

8 With significant growth potential, omni-channel adoption still faces a host of challenges, including device limitations, standardization, and branding.

Transaction trends | November 2013 13

[ COVER STORY ] and payments for in-stock items, as well as for desired goods that are not available on stores’ shelves but can be shipped from the warehouse to customers’ homes. Associates also use the technology to research competitors’ prices, extend “price matches” to shoppers to prevent them from leaving the stores empty-handed, and accept payments for the offered amounts on the spot. Henry’s Camera. Headquartered in Toronto, Henry’s Camera operates 33 stores throughout Canada along with several traditional and mobile websites and its recently launched “Reserve Online Pickup In-Store,” a program management says was created to offer customers a range of fulfillment options to support the chain’s growing omnichannel commerce strategy and operations. Under the program’s umbrella, consumers can tap into a “master” multi-location inventory module via a computer or mobile device and view available product quantities at the individual store level. The software is calibrated to automatically calculate local taxes and provide a complete order total, giving the customer an instant and transparent order summary. Store staff can view customers’ online and in-store purchasing histories and behavior profiles to help understand preferences and/or make appropriate upsell and cross-sell recommendations during the in-store pickup portion of the sale. Tennis Plaza. Employees of this Miamibased tennis apparel and equipment retailer rely on tablets outfitted with built-in magnetic stripe readers and bar code scanners to assess product availability across its four stores and website and complete customer transactions. The latter includes the sale of and shipment arrangements for merchandise that is temporarily out-of-stock in one location but available elsewhere in the chain or in the warehouse that serves the merchant’s website. Identical mobile technology is employed at two Tennis Plaza pop-up shops, which operate for a 14-day period during the Sony Open annual tennis event in March.

Consumer vs. Commercial Yet no matter how and to what degree merchants deploy mobile payment and mobile POS technology to support an omni-channel approach, the question that remains is whether the industry should push for the inclusion of rugged, commercial-grade (i.e., 14 November 2013 | Transaction trends

A Trio of Prerequisites While the use of mobile devices in omni-channel initiatives is becoming increasingly prevalent, universal adoption demands: n Widespread implementation of solutions that allow equal customer “perks” to be offered across all channels. For many years in the U.S., mobile technology has played, not second fiddle, but third fiddle to solutions used in online, in-store, and mail order/telephone order commerce, according to Jake Weatherly, CEO of SheerID, a provider of online shopping cart platforms. “Merchants are now working to catch up and fill the gaps to create a true, omni-channel customer experience, either with assistance from third-party service providers or by building out the necessary technology in-house,” he says. n Deployment of solutions that meet specific customer expectations. Understanding customers’ needs and how they interact with the merchant is key to mobile success, says Karisse Hendrick, U.S. program manager, Merchant Risk Council. “Once merchants figure out their customers’ expectations, such as search functions, interactivity, and ease and speed of payment, they can start to implement solutions to cater to these demands.” n Seamless enterprise-wide campaign delivery. In an ideal omni-channel world, campaigns are quickly created, delivered, and optimized across all digital channels, including mobile. However, many existing technology toolsets do not support integrated content delivery, making it a very complex process, observes Rory Dennis, general manager, North America for Amplience, a provider of omni-channel retailing solutions. “Retailers need to rapidly create campaigns, optimize what’s on their online sites and use changes around them—weather, competitor offerings, and seasonal events—to deliver relevant content in a timely way to the consumer, across all customer touch points,” Dennis explains. “Failure to do so compromises their ability to effectively market and merchandise products.” “retail-hardened,” “purpose-built”) devices in retailer-owned applications used by store associates and/or customers, or if versions designed for consumer use (e.g., iPhones, iPads, and the like) will suffice. At present, the issue is still up for debate. “It depends [largely] on the needs of the business,” says Michael English, executive director, product development, Heartland Payment Systems. Factors such as degree of use within a retail store, temperature, humidity, and the potential for units to be dropped (and thus possibly broken) all come into play, he explains. For example, while arming store associates with smartphones for the purpose of processing mobile payments may work well in store environments where carpeted interiors could cushion devices’ fall and limit the consequences should they hit the floor, doing so is probably not a wise move if floor surfaces are made of hard materials.

“Consumer hardware is simply not intended to be used in high-traffic retail locations or in restaurants where it is exposed to dust, steam, smoke, high heat, and other spills,” concurs Jared Isaacman, CEO, Harbortouch. In fact, he says, difficulty with such devices may impede widespread acceptance of mobile technology, for omni-channel purposes and otherwise. However,“while the retail store can represent a harsh environment in which rugged devices can be extremely beneficial, the selection…should not be driven solely by the ability to stand up to abuse,” observes Scott Moreland, North America retail solutions principal, Motorola Solutions. Other factors must be weighed, among them the features in which professional-grade solutions appear to excel. Those, note Moreland and other sources, include device and data security, wireless network performance, integrated and high-performance bar code scanning,

audio quality, support for telephony, and the tools to manage the lifecycle of the device from initial deployment to ongoing support. The enhanced battery performance afforded by commercial-grade devices also seems to make a case for their adoption over consumer-grade units. While the batteries that power a majority of enterprise devices can be independently charged and replaced on the fly, the same is not true of many consumer devices. Additionally, most easily swappable batteries typically cannot be charged outside of the device in which they are contained, rendering the management of spare batteries difficult, if not impossible. Sleds, dongles, and other companion components intended to turn smartphones and tablets into payment acceptance devices usually have their own batteries that not only need to be independently managed but also may cause replacement snafus. “A solution that has to be removed from service in the middle of a shift limits its value to the retailer,” Moreland asserts. Then, there are the issues of device obsolescence and consumer perceptions. In general, consumer-grade units have a shorter lifecycle than retail-hardened equipment. Be-

cause manufacturers offer little insight into their development roadmaps, merchants that do adopt such devices quickly may unexpectedly find themselves in possession of outdated equipment. As for consumer perceptions, Moreland cites a tendency among some merchants to opt for non-commercial mobile payment acceptance technology based on aesthetics or a belief that they will earn the respect of their customers by using the latest consumer device.“This strategy can backfire with the shorter consumer device lifecycle when the next version of the device is available within weeks of being deployed,” the executive says.“Within a year or two, the device that was once trendy may be two or three iterations behind, and consumers may not be able to tell the difference between a store associate who is there to help and one who is texting friends on a personal device.” The end-result is decreased customer engagement, thus defeating the purpose of boarding the omni-channel train in the first place. Some manufacturers of enterprise devices have launched products that may be

customized to heighten their overall appeal to shoppers. Device faceplates, or bezels, can incorporate merchants’ colors and logos, reinforcing brand identity and eliminating ambiguity about whether sales associates are using them to assist customers or to tend to personal matters. Omni-channel retailing and the use of mobile technology to bolster it are, admittedly, in the early stages. However, the growth potential is significant, and mobile will continue to play a part in omni-channel adoption. As Christopher Lybeer, vice president, mobile and marketing solutions, retail, NCR Corp., observes,“The mission of omni-channel is to deliver retail interaction where the consumers are located. Mobile is the one channel that is where the consumers are all the time, not the Internet on a PC, a TV, or anything else. So, mobile will take off in the omni-channel. We are just going through a period where the exact-use cases and some standardization and branding are being worked out.” TT Julie Ritzer Ross is a contributing writer to Transaction Trends. Reach her at jritzeross@gmail.com.

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eProcessing Network – Cloud-Enabling Payments Everywhere

(800) 296-4810 eProcessingNetwork.com Transaction trends | November 2013 15

Startup Stories: Nomis Solutions

Pricing and Profitability Using smart money to bring real-time price guidance to sales reps By John Manasso

xecutives at Frank Rohde’s company, Nomis Solutions, felt that something was missing from pricing strategy in the payments industry. In the early 1990s, Nomis’ founder, Dr. Robert L. Phillips, helped to develop software that is now famous—or infamous, depending on which end of the transaction you’re on—for its variable pricing. Phillips, a professor of professional practice at Columbia Business School, later went on to become chief technology officer at Manugistics. Nomis got its start through private equity money, including

some of the biggest names in the industry like Bain Capital, and is emblematic of the way that private equity and the so-called “smart money” is making its impact on the payments industry. Previously, Nomis has taken its pricing strategies to other industries, the mortgage industry and auto finance, among them. Through a partnership with Recombo, which has helped a number of companies in the payments industry build their technology, Nomis launched last March its Discretion Manager, a program designed to help price merchants correctly up front while increasing retention on the back end for ISOs. While customers

Nomis Solutions | San Bruno, CA

www.nomissolutions.com

Founder: Dr. Robert L. Phillips Rohde

Clayton

16 November 2013 | Transaction trends

Volume: Optimized more than $600 billion in consumer accounts

might not be fond of the way airlines price their tickets, it has proven an effective strategy for the industry—not that Nomis’ tool operates in exactly the same way. “The airlines quickly realized that you need a sophisticated algorithmically driven pricing engine to figure out, ‘How do I sell seats on a flight… while maximizing my revenue?’” Rohde says.“Pricing is a big driver of how many I sell at what point, so the airlines put in place software engines and algorithmically driven pricing engines to manage that yield management problem and that revenue management problem.” Rohde explains that, from his perspective, cost-plus pricing—the traditional method in the payments industry—is at a point where it really doesn’t make sense, if it ever did. He suggests that elements like customer service can be more valuable to the merchant than the rate of interchange plus a fixed amount. “You should understand the willingness of the customer to pay and the value the customer places on the product or service [you’re] providing and base [your] pricing strategy on that rather than some notional cost that’s hard to tag or probably doesn’t even exist,” he says.“The entire value proposition of the acquirer or the ISO can be broken down into different components, and you can model or measure how much merchants are willing to pay. How much do they truly care about the components of the value proposition [you’re] providing?” Rohde says, “You can get an empirical view of,‘Here’s the price sensitivity and the willingness to pay of different merchants.’ ‘Here’s the price sensitivity of existing merchants, and they’re willing to leave if I change my fee schedule for them.’ If I model that and empirically understand that, then I can be smarter about how I price.” Much of the way the software works is based on this premise, as Rohde explains: “A lot of the leverage is at the point where the acquirer starts the relationship with the merchant”—when ISOs and acquirers first sign up a new merchant.

Partner By Association Nomis management first embarked on this project about two years ago. At that time, Steve Bradford, the company’s London-based president, encountered Reed Clayton, vice president electronic pay-

WORDSTOTHEWISE � “Big Data and [mathematical] models are not a black art,” says Nomis Solutions CEO Frank Rohde. “They are ultimately there to support your intuition or adjust your intuition, but data and models should never tell you something that fundamentally doesn’t make sense.” But, he says, that data can help make your intuition more accurate, tangible, or leverageable. Otherwise, your intuition needs to adjust. � When it comes to models, “You never get it perfect,” adds Rohde, “but you can get it better every time. The idea is that it needs to be a continual process of testing and learning and iterating and getting smarter. Anything we can come up with comes with analytic insight—in terms of a pricing model, in terms of configuration of Discretion Manager—is a hypothesis. We test it out in the market, and we observe what the results are, and then we reiterate it. So, you’re never done. I think the benefits will go to those companies and those people who know how to do that fast… The thing we need to learn is how do we fail fast? How do we test something and either validate that it works or validate that it doesn’t work and fix it quickly? As much as we think we have a smart approach to pricing, we never get it all the way perfect when we implement.” � “I always ask, ‘How can we help?’ For me, the most important thing, whether it’s business with a client or business with a partner, you always want to make sure you’re entering into a mutually beneficial relationship,” says Reed Clayton, vice president of electronic payments and banking for Recombo. “You’ve got to have a lot of integrity in delivering what you say you’re going to deliver, but you always want to make sure it’s mutually beneficial. That, in my opinion, is the best type of business.” ments and banking for Recombo, at the Electronic Transactions Association Strategic Leadership Forum. Nomis did some consulting in the payments sphere first to test the waters of the industry before taking on a major initiative like Discretion Manager. Bradford describes what he says is the result of the industry’s highly competitive, sales-driven culture that increasingly depends on offering the lowest price from the outset:“The cause and effect of that… is you end up with a portfolio that’s quite low-value, and you need to reprice to gain back the lost value you didn’t take at the front-end of the negotiation.” The problem is that when ISOs reprice several years into the relationship, merchants leave for a new one. He muses that the industry has virtually taught merchants to act this way based on its pricing strategies. Bradford says that, based on Nomis’ research, the industry has an attrition rate of between 23 and 24 percent, so ISOs are forced to drive up volumes to compensate for a portfolio that loses longer-tenured,

more valuable merchants and replaces them with those on less valuable terms. Bradford explains that Nomis’ suite of technology is designed to solve problems in three areas: pricing correctly at the front end, repricing more strategically while being mindful of merchants’ long-term value to ISOs, and then what he calls (and as Rohde also alludes to) “some really sophisticated analytics and execution strategies around the back end.” Many of the flaws inherent in the system, according to Bradford, stem from the 60,000 or 70,000 industry sales reps having the power of pricing. For example, most sales reps are not going to understand the difference of a cost profile for a coffee shop in San Francisco compared to a coffee shop in a rural area of the United States. Nomis’ product takes that decision out of the sales reps’ hands.

Big Data, Big Help The sales rep “can literally have on an iPad or a laptop the rate quote that is preprogrammed in and recommended to Transaction trends | November 2013 17

Startup Stories: Nomis Solutions

him based on the merchant profile, and he can dynamically change any different interchange category or fixed thing, and it will dynamically recalculate the target profit margin of the deal,” Bradford says, “and, importantly, what that means to him in the sales commission.” He explains the technology is equipped for the sales manager to have the discretion—hence the Discretion Manager name—to set parameters for individual sales reps. For example, Bradford says a newer employee might get the leeway of only five to 10 basis points, while a more trusted performer could have as many as 50 basis points to close his deal. The program also has a tool that allows someone at the vice president level to gain quote-by-quote insight on a daily basis and to text notes instantly to the sales rep to provide guidance on that particular transaction. Recombo’s role in the process was to integrate Agreement Express, its onlineboarding tool, into Discretion Manager. Clayton says that Vancouver, British Colum-

bia-based Recombo works with three of the five largest acquirers in North America and that his company strives to help with automation processes. He still views the payments industry as a paper-based one— and one of the last to evolve into “real interactive processes.” “Where Nomis comes in,” says Clayton, “is the intelligence piece: using Big Data to understand merchant behavior and improve revenue on the merchants, really being able to increase visibility into sales performance, and increase sales negotiation. I consider that intelligence. So, if you’re going to take intelligence and merge it with automation, I think that’s a real slam dunk for the industry in North America. People are already doing it in the United Kingdom, so I think they’re ahead of the game.” Partnerships like those between Nomis and Recombo are trying to get North American companies ahead of the game, too. With double-digit growth year after year, the payments industry will continue to attract the private equity and

consulting types with their data-driven solutions. As Rohde, Nomis’ CEO, points out, it’s a ubiquitous trend—and not just in business. “If you go on Amazon and search for ‘Big Data,’ there’s 20 books out in the last six months on how Big Data revolutionizes and changes the way we do business, the way we consume health care, the way we interact with each other,” he says. “Almost every facet of life has the same story of there’s now this huge data trail that’s being generated, whether it’s you and I as consumers or by merchants as business or the banks out there. “What we’ve been doing for a number of years now is to try and understand,‘Can we leverage that data trail to make smarter decisions?’ And I think we’re just literally scratching the surface, all of us are as companies. How do we leverage all of this data?” TT John Manasso is a contributing writer to Transaction Trends. Reach him at john_manasso@yahoo.com.

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Merchantsâ&#x20AC;&#x2122;Holiday Guide to

Mobile Payments Benefits, technology options, and everything you need to know about accepting mobile payments at your business

Holiday Shopping

By the Numbers 2012 $1 billion

Consumers spent more than on online purchases on Black Friday and $1.5 billion on Cyber Monday—both all-time highs.

18 percent

of consumers used More than a mobile device to visit a retailer’s site—an increase of 70 percent over 2011, according to IBM.

$1 out of every $4

Adobe estimated spent online came from a mobile device.

2013 Holiday e-commerce retail sales in the U.S. will rise about 15 percent, matching last year’s gains, according to projections by eMarketer. In total, U.S. retail e-commerce sales for the holiday season (November and December) are expected to reach $61.8 billion, up from $53.7 billion last year. Mobile commerce is expected to account for 16 percent of total holiday retail sales. I n total, mobile commerce sales are expected to reach $41.68 billion and, by 2017, retail sales made on mobile devices will climb to well over $100 billion, according to eMarketer.

20 November 2013 | Transaction trends

he holiday season is upon us and with it brings the busiest shopping period of the year. Increasingly, consumers are making their holiday purchases from their tablets or smartphones. For merchants looking to cash in on this holiday shopping season, the ability to accept mobile payments is vital. Not since the advent of the credit card has payment technology so significantly shaped American consumer behavior. With 6 billion mobile phone subscriptions globally, mobile communications have a profound effect on people’s lives, both socially and financially. As a merchant, this means that consumers are walking around your store with a little computer in their hands that allows them to compare prices, read reviews, find deals, and inform their friends—all within the confines of your store. You need to be able to harness this new tool and ensure that it is working for you, not against you. If you are an online retailer, you need to leverage the power of this phenomenon to your advantage by providing a truly optimized mobile web and/or native application experience. If you are multi-channel, then you need to plan support for your mobile consumers, no matter the channel. There are many estimates on the size of the opportunity presented by mobile payments. Juniper Research predicts $670 billion in transaction value by 2015, and Yankee Group believes that mobile transaction volume will be $545 billion by 2015. In the U.S., nearly 87 percent of phones being sold are smartphones. Whichever prediction you believe, the fact remains that mobile is having a profound impact on consumers’ purchasing experiences and, as a merchant, you need to have a strategy on what to do and when to do it. For merchants and business owners, mobile payments present a unique opportunity to connect with customers and deliver value in a more personal way. Merchants should accept mobile payments not just be-

cause it’s the latest trend, but because it can enhance and deepen their relationships with existing customers— and it can create opportunities to attract new customers. Transactions Trends’ first-ever Merchants’ Guide to Mobile Payments is designed to help merchants adjust to the changing payments landscape with practical knowledge regarding mobile payments acceptance.

Merchant Benefits

As a merchant, the benefits of mobile payment acceptance will vary depending on your type of business and consumer demographics, but here are some of the benefits to expect when deploying a mobile payments system: 1. More consumer data—Many mobile payment services also include online transaction reports, which can

provide a better understanding of consumer behavior and how to better service customers’ needs. For example, you could use this data to ensure that the favorite products of your best customers are always in stock, or to deliver more targeted, promotional offers for products that consumers desire. 2. Increased consumer control— Mobile payments empower your cus-

Mobile Payments Technology Explained Select the right solution to fit your business strategy, from these major mobile payments technologies currently on the market.

Type

Initiation Method

POS Needs

Processing Method

EMV

Standard for chip cards and acceptance of cards at the POS, including terminals for authenticating credit and debit card transactions.

POS terminal capable of reading EMV-specified RFID signal.

Consumer inserts chip- or EMV-capable contactless card into the POS reader. Process flows as normal credit or debit card transaction with a deeper level of security and authentication than mag stripe.

NFC or Contactless

Short-range wireless RFID technology using secure authentication and credentials on the mobile device to transmit card information to the POS.

POS terminal capable of reading RFID and software capable of processing the NFC transaction in the POS or credit card terminal.

NFC as it exists today is a “tap-and-go” process. Once read, the transaction processes as a regular credit or debit card.

Image-Based, Barcode, or Cloud-Based

Consumers utilize a mobile wallet or application on the mobile device to securely access their account data. Once authenticated, a barcode or other image is presented on the mobile device, which the merchant uses to process the transaction. In a Cloud example, the necessary info to process is conveyed over the air to the POS.

Optical image scanner capable of reading 2-D barcodes, depending on the wallet being accepted. For Cloud-based, a POS system capable of securely being connected to the Internet.

POS system is enabled to scan the barcode as a tender type. Transaction settlement is typically between the wallet provider and the merchant. For Cloudbased, the POS accepts the card info and processes it through its existing connections.

Carrier Billing

The ability to purchase goods and services and have them charged directly to a user’s mobile bill or account.

New hardware is not required, but a relationship with a carrier billing provider is necessary.

Process is between the carrier billing system and the merchant’s host environment. Today, this is not used in retail nor for physical goods.

Transaction trends | November 2013 21

tomers and allow them to pay with their preferred method and funding mechanism while easily controlling all of their loyalty and reward points in a single place. 3. Flexibility at the register—Mobile technologies allow consumers to make purchases utilizing their devices anytime, anywhere. Merchants can enable consumers to shop utilizing mobile browsers or apps while at home or in the store. When ready to complete the purchase, the consumer simply executes the transaction. The merchant’s systems receive notification and the goods are ready for pickup at the customer service counter. This also can be coupled with a mobile checkout or tablet-based POS system that allows the merchant to interact with the consumer and complete the sale on the show floor. 4. Faster checkout—If a merchant participates in a daily deal program or offers specials via coupons, these can be automatically administered by the consumer utilizing his or her mobile device. Scanning a QR code for a payment tied to an offer can be significantly quicker than keying the offer into a computer then processing the payment. 5. Enhanced security—Mobile devices provide more security than standard mag stripe credit cards. Phones can be locked with a password, all mobile payment applications can be set to require a password, and phones can be configured to have all of their data wiped remotely.

Smartphones, Apps, and Your Business One crucial factor to the success of mobile payments in the U.S. is a critical mass of smartphones in the marketplace. Smartphones are now the dominant phone type and it will only be a matter of time before consumers start incorporating these devices into their shopping experiences.

Smartphone Ownership in U.S., 2009-2012 (Base=All respondants)

24% wth,

17%

28%

21%

Gro

2009

42%

2010

2011

2012

Source: Mercator Advisory Group

Mobile payments must do more than just provide a new way to initiate a payment at the register, online, or through an app. They need to provide a richer shopping experience and allow both the merchant and consumer to interact more intelligently. The chart below, published by Flurry Analytics, highlights the types of shopping services U.S. consumers are accessing from their mobile devices.

Growth in Time Spent per Shopping App Category in U.S., 2011-2012

525% All Shopping Apps 274%

For more on mobile commerce, download the full ETA whitepaper, “Beyond the Hype: Mobile Payments for Merchants,” at http://bit.ly/1a6pvmx.

247%

All Apps 132%

126% Retailer Apps

n = 1,863 apps

22 November 2013 | Transaction trends

228%

Price Comparison

Purchase Assistant

Online Marketplace

178% Daily Deals

Industry Insider

The Whole Package

TouchSuite sets itself apart with innovative solutions and stellar customer service By Bryan Ochalla

“T

here’s got to be a better way to do this.” That’s one of the many things that went through the mind—and on one or more occasions likely passed through the lips—of Afshin Yazdian as he contemplated his next move within the payments space. Shortly after leaving his employer of the past decade, just under two years ago,Yazdian and his partner Sam Zietz came up with a solution: cobble together a handful of POS and technology companies that Zietz either had control of or an interest in. Through their collaboration, they would create an entirely new merchant processor the pair hoped would be greater than the sum of its parts. Specifically, their product, Boca Raton, Florida-based TouchSuite, combines “internally designed and developed POS software, hardware that we manufacture “Our agents and ourselves, and our own payments merchants have one processing platform,” according to Yazdian. telephone number to “We basically offer merchants a call if they run into any package deal that focuses on proproblems—regardless viding a product, which is the POS of whether that system or the software, that allows them to manage and grow their problem is related to business while providing us recurthe software, the ring revenue through the payment hardware, or the processing,” he adds. processing.”—Afshin Yazdian At the moment, the package deals are offered primarily to merchants that reside within a narrow band of verticals: bars and nightclubs, restaurants, salons, spas, and pet-service businesses. “We try not to be the same thing to everybody because that tactic typically doesn’t work,” explains Yazdian, who serves as TouchSuite’s president. (Zietz is the company’s CEO.) “So, we’ve gone to great lengths to make sure our software is designed specifically for the verticals we want to attack.” TouchSuite, recently included on the Inc. 500 list of America’s fastest growing companies, also has “a generic retail product that will work for pretty much any other boutique or small retail establishment,” he adds, although some of those merchants may gain access to their own specialized 24 November 2013 | Transaction trends

solutions in the future as TouchSuite plans to expand into new verticals.

Improving the User Experience In the meantime, TouchSuite’s programmers will work on perfecting the company’s Cloud-based solutions—the first of which, aimed at the salon sector, hit the streets earlier this summer.Yazdian suggests those products are a great fit for merchants that prefer to use their existing POS hardware but want access to better POS software solutions. Yazdian, Zietz, and the rest of the TouchSuite staff take their customers into consideration in other ways, too. Case in point: Y azdian says that while he and Zietz were building the company,“we continually asked ourselves,‘What would make us not only different but effective? What would help solve all of the problems agents and merchants tend to have with companies in this space?’And part of our response to that was to make sure that our customers—be it agents or merchants—have a wonderful user experience.” As a result, he adds,“our agents and merchants have one telephone number to call if they run into any problems—regardless of whether that problem is related to the software, the hardware, or the processing.” That’s a far cry from what agents and merchants working with many of TouchSuite’s competitors experience, according to Yazdian. “For example, if a small restaurant owner has an issue with their system, they often don’t know who they’re supposed to call—the software vendor, the hardware vendor, or the processor—because they’re not sure exactly what the problem is, and which of their vendors is responsible.The business owner is then typically caught in a game of finger pointing between the various vendors and ends up having a horrible experience.” Yazdian assures that never happens to TouchSuite’s customers. “Ideally, they never have to call us. But in the event that they do, we’ve made sure it’s a nice experience for them.” T hat’s due in large part, he says, to the fact that “they don’t have to try to figure out what they got from whom—it’s all from us, because we developed our software, because we sourced our hardware, and because we’re a wholesale processor and we know that business very, very well, too.” TT Bryan Ochalla is a contributing writer to Transaction Trends. Reach him at bochalla@yahoo.com.

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