Transaction Trends May 2013 by Content Communicators, LLC

Exclusive: ETA 2013 Annual Meeting & Expo Onsite Program Inside!

Transaction trends The Official Publication of the Electronic Transactions Association

May 2013

An explosion of new and existing payments models signals an industry expanding at a frenetic pace

Evolution Everywhere ALSO INSIDE: Special! ETA Annual Meeting Preview Startup Stories: Family-Run Innovation at iTransact Group

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Transaction trends The Official Publication of the Electronic Transactions Association

Vol. 18 | No. 4

cover story 12 Evolution Everywhere

By Julie Ritzer Ross Brand new payments models—and variations on established models—make for even more options for merchants and consumers to decipher. From the new Facebook gift card, to governmentissued prepaid cards, to PayPal integration sponsorships, the electronic payments industry is expanding at a frenetic pace. 12

Special puLL-OUT

FEATURES 20 2013 ETA Annual Meeting

28 Special Series

& Expo Preview: The Future of Payments Is Here

Startup Stories: Perfect Match

This year’s keynote speakers have a lot to say about how you can succeed in this everevolving industry. Isis CEO Michael Abbott and Discover Chairman and CEO David Nelms offer a sneak peek into their presentations, plus much more.

By John Manasso When two innovative family-run companies joined forces in 2010, a bigger and better iTransact emerged.

depar tmentS 4

ETA Gateway Insights from ETA’s CEO, Jason Oxman

Industry News

2013 ETA Annual Meeting & Expo Onsite Program inside!

30 32

Ad Index Industry Insider Small business payments are the sole focus of Intuit’s solution suite

Trends, strategies, and news in the payments business and ETA member community 6 Transaction trends | May 2013 3

ETA Gateway

Welcome to the World’s Largest Stage for Payments Innovation

elcome to the ETA Annual Meeting & Expo in New Orleans! For those of you who are part of the excitement here at the show, let me say thank you for being a part of our largest event in ETA history. This year’s Annual Meeting & Expo brings together thousands of payments and technology industry executives, venture capitalists, and media from 10 countries to experience the next generation of innovation in payments.The largest number of government officials ever in attendance at the ETA show will bring you a direct line to how events in Washington, D.C., will impact your business.This event is the hub of activity at the intersection of payments and technology, so our attendees include not only incumbent payments companies and financial institutions, but new mobile technology, telecommunications, and apps companies across the payments ecosystem. The 2013 Annual Meeting & Expo includes the largest selection of payments learning opportunities of the entire year. Don’t miss keynotes from industry lead-

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. 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 May 2013 | Transaction trends

ers David W. Nelms, chairman and CEO, Discover Financial Services, and Michael Abbott, CEO of ISIS, who will provide you with further insight into the future of payments and the opportunities that await you. (Read more about them on page 18.) You will also get a chance to learn from experts on electronic processing, legislation, fraud prevention, marketing, financing, recruiting, and revolutionary payment startups during our educational supersessions. From startups to industry giants, ETA’s Expo is by far the best outlet to showcase payments industry products and services. More than 200 marquee brands from across the payments and technology industry will unveil their latest innovations on the show floor, including Visa Inc., AT&T, Discover Network, MasterCard Worldwide, Wells Fargo, China Union Pay, Global Payments Inc.,VeriFone Inc., First Data, Ingenico North America, ISIS, and NPC, A Vantiv Company. The new Mobile Pay Zone will feature leading exhibitors in the mobile payments sector. T he Payments Next Zone

will showcase innovative startups seeking to launch payments technology to serve global customers. A grant from the Bill & Melinda Gates Foundation is funding the $10,000 E-Pay Innovation Award for the most innovative startup in the Payments Next Zone. This has been a year of explosive growth for ETA—more than 80 new companies have joined us over the past six months— meaning that ETA now represents nearly every major company in the payments industry. Given the rapid changes and challenges facing our industry, payments executives understand that participation in the ETA as the industry’s trade association has never been more vital. Thank you for being a part of ETA’s continued success. I look forward to working with you throughout the year to help you grow your payments 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 offices 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, 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 Atlanta 800/440.0231

Subscriptions: 202/677.7411

INDuSTRYnews Mobile the ‘Undeniable Game Changer,’ Says Study Although mobile POS proximity payments made up just 0.01 percent of total retail POS volume in 2012, mobile devices have forever altered the in-store shopping experience, acting as both a payment option and a channel for purchasing. According to Javelin Strategy & Research’s annual POS 2013-2018 Forecast, mobile POS proximity payments are expected to reach $5.4 billion over the next six years. The report details how digital technology has fundamentally altered the nature of the POS, forcing brick-and-mortar retailers to embrace elements of mobile and online channels in order to remain competitive. “The retail POS market is evolving at a remarkable rate with the increased popularity of the e-commerce and mobile payments markets,” says Aleia Van Dyke, industry

AROUND THE HORN

analyst at Javelin.“Today’s consumers are demanding more digitized payment options to enhance their in-store shopping experience. The advanced features of non-traditional payment options like mobile and prepaid cards have encouraged adoption with today’s tech-savvy shoppers.” Other selected statistics from the study: • Retail POS purchases totaled $3.98 trillion in 2012 and are expected to reach $4.2 trillion in 2018. • Mobile payments will have the highest compound annual growth rate over all other forms of payments methods over the next five years. • Prepaid card volume at the POS will surpass that of gift cards by 2015. • Debit cards have overtaken cash to become the preferred payment option for Gen Y consumers.

info GRAPHIC 58% 47%

55% 50%

Most Merchants Spend Little on Online Fraud Management

51%

60%

2009 2010 2011

40% 35% 30%

13%

11%

16% 10%

10%

15%

17%

20%

17%

25% 15%

Percentage of *Merchants

45%

5% 0%

0%-<0.2%

0.2%-<0.5%

0.5%-<1.0%

1.0%-<4.0%

Percentage of Annual Online Revenues Spent to Manage Fraud (staff, systems, tools, etc., excluding fraud loss) Source: CyberSource, Online Payment Fraud Trend Report *Survey respondents either sold goods/services online only, or both online and in-store.

6 May 2013 | Transaction trends

4.0%+

ACI Worldwide acquired Online Resources Corporation, a provider of online banking and full-service bill pay solutions. BilltoMobile now provides mobile payment services for massive multiplayer online company NCSOFT in North America. Elavon opened a mobile innovation center at its Atlanta headquarters called The Grove. First Data Corporation renewed its debit and STAR Network relationship with Associated Bank. Gemalto’s UpTeq NFC SIM cards will be used by Canadian telecommunications to allow customers to securely store data and payment credentials on mobile devices. Heartland Payment Systems and LevelUp announced they are partnering to provide the first national rollout of a mobile payment solution. Intuit announced its mobile POS solution has officially launched in the U.K. Microsoft researchers are testing its Zero-Effort Payment system, a mobile payment solution that would allow users to pay for goods without having to get out their handsets. OMEGA Processing Solutions announced it will offer CSR’s patented PCI ToolKit and the patent-pending CSR Breach Reporting ToolKit solutions to its customers. PayPal’s mobile POS solution, PayPal Here, now has an iPad version that turns the app into a de facto cash register. SignatureLink has rebranded the company and changed its name to SecureBuy to reflect its e-fraud prevention technology efforts. VeriFone appointed Jennifer Miles to president, VeriFone Americas; Bulent Ozayaz to president, VeriFone Southern Europe, Russia, Middle East, and Northern Africa; Johan Tjärnberg to president, VeriFone Europe and Southern Africa; and Eliezer Yanay to chief operations officer.

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Top 10 Payment Trends for 2013 After surveying a cross section of consumers in the United States, Vantiv and Mercator Advisory Group released their annual findings on the most popular trends in the payment industry:

1 omni-commerce 2 mobile payments proliferation 3 mobile wallets 4 payments security 5 EMV cards 6 data and offers 7 consumer behavior changes 8 micro-payments 9 share of wallet (prepaid cards) 10 banking relationships

fast FACT China had the world’s highest mobile purchase penetration rate in Q4 of 2012 with 55 percent of Internet users in that country saying they had made a purchase from a mobile phone, compared with just 19 percent in the United States, according to a GlobalWebIndex report.

Mobile Phones Factor High in Consumer Financial Decision-Making As an increasing number of consumers adopt mobile banking, mobile phones are becoming a major tool in managing personal finances, according to Consumers and Mobile Financial Services, a report by the Federal Reserve. Of those surveyed, 64 percent of mobile banking customers use their mobile phones to check financial account balances or available credit before making a large purchase, with 53 percent deciding against making a purchase because of the cash or credit amount available. Ten percent of respondents regularly use their mobile phones to manage spending and expenses. To do so, 36 percent use a mobile app, 35 percent use a web browser/ website, 19 percent keep notes in a word processor, 12 percent use a spreadsheet, and 10 percent send text messages.

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25 YEARS

2010s

OF SUCCESS

2012 - $32 Billion processed annually for nearly 300,000 businesses 2012 - EVO acquires Deutsche Card Services (DeuCS) opening up to 39 countries worldwide, becoming... EVO Payments International 2012 - EVO acquires PowerPay 2012 - EVO chooses Deutche Bank as its new BIN sponsoring bank 2009 - $20 Billion processed annually for over 235,000 businesses 2008 - EVO’s international expansion begins with the opening of EVO Canada

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2000s

2004 - $10 Billion processed annually 2004 - EVO’s first telecenter opens, driving leads to its partners 2004 - MSI is re-branded to EVO Merchant Services, differentiating itself from the competition 2003 - 24 hour technical support and customer service built in-house 2002 - Alliance partnership programs started and sets the standard for all portfolio builders

1990s

2000 - Risk department is brought in-house 1999 - Underwriting department issues its first merchant number 1990 - Terminal and supply deployment department created 1988 - MSI (now EVO) processes first merchant application

EPI113TT

News from the association

CALENDAR : 2013 ETA Strategic Leadership Forum Montelucia Resort & Spa Scottsdale, AZ October 15-17, 2013

ETA Releases Statement on 2015 EMV Liability Shift Date

ETA is requesting that each of the four major payment card networks move back the 2015 EMV liability shift date one day for each day that passes after April 1, 2013, without deployment of a U.S. common debit AID for EMV in accordance with industry guidelines. ETA CEO Jason Oxman issued the following statement on the topic on March 19, 2013: “ETA commends the 10 debit networks who today agreed to adopt a common U.S. debit application identifier (AID) for EMV using Discover Financial Services’ D-Payment Application Specification (D-PAS).This announcement signals great progress toward the goal of finding a single common debit AID for EMV in the U.S. market. ETA continues to advocate for a single common U.S. debit AID for EMV and encourages all remaining debit networks, as well as MasterCard,Visa, and American Express, to come together quickly to agree upon a single AID solution for U.S. debit routing under EMV. We remind everyone that due to the networks’ implementation timetables for EMV, time is of the essence and it is essential to determine a single common debit AID solution as soon as possible.”

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. 360 Payment Solutions Inc. San Jose, CA www.360paymentsolutions. com ACTPAY Woburn, MA www.actpay.com BetterBuyDesign Stamford, CT www.betterbuydesign.com Biz2Credit Inc. New York, NY www.biz2credit.com borro New York, NY www.borro.com BPC – USA Alpharetta, GA www.bpcbt.com Cash Flow Solutions Oxford, OH www.followthefrog.com Chyp USA Inc. New York, NY www.chyp.com

10 May 2013 | Transaction trends

Coalfire Louisville, CO www.coalfire.com

ePay Consulting Services Baldwin, NY www.epayconsulting.com

Cobre Bem Tecnologia (DBA) Usina da Tijuca, Rio de Janeiro www.cobrebem.com

Flat Fee Merchant Services Rex, GA http://flatfeemerchantonline. com

CoSentry Omaha, NE www.cosentry.com Digital Financial Group Salt Lake City, UT www.digitalfg.com EC Suite Tempe, AZ www.ecsuite.com Edo Interactive Nashville, TN www.edointeractive.com Electronic Payment Services LLC Lafayette, LA http://epsla.com Envision Payment Solutions Inc. Columbus, GA www.envisionpayments.com

GoPago San Francisco, CA www.gopago.com IRIS – Transactionreporting. com New York, NY www.transactionreporting. com Merchant Enterprises Chicago, IL www.merchantenterprises. com Nodus Technologies Inc. Anaheim, CA www.nodus.com Pagos Consulting LLC Madeira Beach, FL www.pagos.com Paired Communications Inc. Omaha, NE

Paramount Merchant Funding New York, NY www.paramountmerchantfunding.com PayItSimple Tel Aviv, Israel www.payitsimple.com Security Card Services LLC Oxford, MS http://scservicesllc.com The OLB Group New York, NY www.olb.com The Social Merchant Bronx, NY www.thesocialmerchant.com Think Finance Allen, TX www.thinkfinance.com Vizant Technologies Spokane, WA http://vizant.com Yoozy Carrollton, TX http://yoozy.com

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[ COVER STORY ]

Evolution Everywhere Electronic payments industry explodes with new developments in everything from social media-marketed gift cards to city-sponsored debit/ID cards

By Julie Ritzer Ross

f there is one general observation to be made about payment models, it’s that evolution is proceeding at a rapid pace. Recent months have seen the debut of both new models and variations on established models. While some have been met with mixed reviews, most will likely take hold. Let’s take a look at the major developments:

Gift cards converge with social payments. In late January, Facebook launched a gradual U.S. rollout of the Facebook Card, a traditional plastic gift card users can order for 12 May 2013 | Transaction trends

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[ COVER STORY ] KEY NOTES 8

With Facebook’s launch of the Facebook Card, gift cards are now converging with social payments.

Municipally sponsored prepaid programs geared specifically to the unbanked population are gaining traction.

New developments in the P2P space give users more options in making payments.

snail mail delivery to recipients.The card is an extension of Facebook’s Gifts feature, launched last September, that lets users purchase physical goods such as chocolate, shirts, or flowers for friends, make charitable donations, buy subscriptions, purchase gift cards, and more. Facebook touts the new card offering as different from other prepaid contenders because it may be redeemed at multiple retailers (for example, Jamba Juice, Target, Sephora, and Olive Garden), is refillable, and integrates with the Facebook mobile app. Givers can load the card for up to $100, designating funds toward purchases at one of the four merchants or any combination thereof. For example, if the card purchased is worth $100, the entire sum can be designated for use at Sephora or can be split among several vendors. Any gift amounts received in the future are automatically loaded onto the same card. Some observers say consumers will embrace the Facebook Card because it offers the convenience of purchasing physical gift cards online without being general (and therefore impersonal) or, in the case of “split” balances, limiting recipients to redemption at a single retailer. The cards should be appealing to merchants, too. “What the Facebook Card adds is the ability to take the impact of Facebook and set it against an offline conversion” to purchasing, writes Noah Mallin, vice president and group director of Digitas, in a recent article published in The Huffington Post.“A multiple-use card also opens up the possibility to target advertising within Facebook to us14 May 2013 | Transaction trends

ers based on balance remaining, real-world spend, or even competitive or complementary brands—think Target and Walmart as competitors or Sephora and Forever 21 as complementary.” Other experts foresee a rougher road to mass adoption. “Many (gift and reloadable prepaid) products issued by Visa, MasterCard, and American Express have more flexibility in where you can use them and where you can reload them,” suggests Gil Luria, an analyst at Wedbush Securities. “Facebook is getting into a very saturated space with a limited offering at this point.” Moreover, while recipients can monitor the balances on their card from the Facebook app, they cannot transfer money between merchants, and although balances are visible on a smartphone, no mobile payment options currently accommodate the card.The Facebook Card also is incompatible with existing mobile payment enabling technology, including NFC, QR codes, and barcodes, potentially limiting its appeal to individuals who prefer to pay for purchases with their smartphones. In another twist, Transaction Wireless Inc., a digital gift card and integrated mar-

keting solutions provider, now has a second U.S. patent for a proprietary feature of its platform allowing consumers to display the Facebook digital gift cards they own and purchase. The second patent builds upon the company’s previously secured patent for social storefronts, which, through the use of an application, gives customers the ability to select from among digital gift card brands as well as upload to and display any gift cards they already own on their Facebook profiles. Users’ Facebook friends can view their brand preferences, making it easier for them to buy desired gift cards directly on Facebook and have them sent to recipients’ email or mobile phone, along with a Facebook post, says Transaction Wireless CIO Basil Abifaker. Purchasers can “top off” any existing gift cards found on friends’ Facebook pages. A loyalty indicator gives merchants access to detailed information—for instance, the number of individuals who have viewed and “liked” a particular gift card on an individual Facebook page and the number of followers that person has on the social network. Customers can then be rewarded based on such factors as a high number of

Merchant-Focused

Mobile Developments

Plenty of evolutionary change is occurring on the mobile payments front as well. For example, PaySimple, a provider of Cloud-based automated payments and receivables solutions for small businesses, has launched an updated mobile payment iOS application known as Run-Your-Business. The app enables service-based business owners to operate their companies from their mobile devices. PaySimple’s mobile solution lets users accept all forms of electronic payments, including debit, credit, and e-checks, either through established payment methods or using a card swipe on a mobile card reader. PaySimple mobile users also can create and manage customer records, set up recurring payment schedules, and see real-time updates of settled payments and cash flow. Another solutions provider, Adaptive Payments, offers the Pentagon mobile payments platform, enabling merchants to accept PIN debit, signature debit, and credit transactions using iPhone and Android mobile phone and tablet devices. Unlike other solutions of its kind, which require the disintermediation of other relationships in order for end-users to adopt it, Pentagon is an open platform, explains Shashi Kapur, Adaptive Payments’ CEO. It’s accessible to all financial institutions and acquirers, so they can employ it without changing processors and with the option of customization.

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[ COVER STORY ] Facebook “friends” or significant digital gift card activity, with extra value loaded on to cards as a means of incentivizing members to continue uploading and purchasing gift cards through Facebook. Organized prepaid programs emerge. Prepaid cards have been marketed to the unbanked and underbanked for quite some time, but in a new trend, municipal governments are introducing formalized prepaid programs geared toward this customer segment. On March 15, the city of Oakland, California, began issuing the Oakland City ID Prepaid MasterCard, the nation’s first dualpurpose identification and debit card, under terms of a joint venture between Venice, California-based SF Global, MasterCard, and University National Bank. Designed to give undocumented residents a means of identifying themselves to authorities as well as an affordable alternative to check cashing services and the like, the card may be used for direct deposit in addition to traditional debit functions. The card alone costs $15; supplementary fees include $2.99 per month to use the prepaid features, $1.50 per ATM withdrawal, 75 cents per debit purchase transaction, $1.75 per call to customer service, and $2.95 to load money on the card. The city plans to roll out 6,000 cards this year. Richmond, California, plans to introduce an identical program, and the municipal government of Los Angeles is considering a similar initiative as well. “These developments represent the tip of the iceberg in municipally sponsored prepaid programs geared specifically to the unbanked population, which in the U.S. alone” encompasses “88 million people if one factors in the underbanked segment,” says David Luther, executive vice president, global business development, at Mozido, a provider of white-label, Cloud-based payment services for mobile network operators and financial institutions. “As an increasing number of municipalities migrate to electronic payments for services, such as transportation, prepaid programs like this one will quickly gain traction.” Still, privacy advocates have raised objections to combination ID/prepaid cards on the grounds that, because they are inscribed with a cardholder’s address and 18 May 2013 | Transaction trends

date of birth, they could open doors to fraud. But Raul Hinojosa, chairman and CEO of SF Global, disagrees, noting that such criminal attempts can easily be challenged and that discrepancies between cardholders’ addresses and those of online perpetrators would trace police to suspects. PayPal integration continues. PayPal made its first foray into the bricks-and-mortar arena in May 2012 when it announced that 16 major merchants had committed to accepting PayPal payments in-store. By January 2013, 18,000 physical stores were offering customers the option to pay for merchandise by swiping a PayPal payment card or entering the mobile telephone number and PIN associated with their account. Some of this momentum has been fueled by PayPal’s work with integrated payment solutions (middleware) provider AJB Software Design. That company’s Retail Transaction Switch now serves as a framework to support in-store payments via the PayPal platform. However, integration partnerships forged with other hardware and software players, among them ACI Worldwide, Equinox,Toshiba TEC, Ingenico, NCR, VeriFone, and others, are pushing the envelope here, says Kareem Al-Bassam, PayPal’s director of financial innovations. For example, earlier this year, PayPal and NCR formed a strategic alliance whereby PayPal’s digital wallet technology integrates with several NCR solutions, paving the way for PayPal account holders to place and pay for restaurant orders from their mobile devices, buy gas at the pump via a mobile app, and initiate PayPal transactions in store aisles, bypassing checkout queues. P2P branches out. Developments in the P2P space—which by some definitions also includes payments made by individuals to service providers and small business-

es/entrepreneurs—focus on new revenue generation. Inspire Commerce, which bills itself as a financial technology provider, has introduced a consumer-facing product dubbed InspirePay. Users primarily are attorneys, consultants, designers, and developers “who need to be paid a random amount that is usually tied to an invoice,” and who harness the Inspire Commerce website to issue direct requests for the fee due them, explains CEO Mark Fischer.“You wouldn’t think it would be a problem, but it is.With most proprietary services, the person has to go into the system to generate the money request. If he or she is using PayPal, the invoice comes from PayPal, the links come from PayPal. At no time do they see your face, or do you get a choice to pay using another method.” Fischer says user adoption of InspirePay has been growing at a rate of 25 percent month over month. Financial services technology provider Fiserv has integrated its Popmoney P2P payments service with its Mobiliti online banking and payments platform. P2P payments can now be initiated directly from mobile banking accounts, permitting monies owed to be transmitted using recipients’ email addresses or mobile telephone numbers. In addition to being available via Mobiliti, Popmoney has been integrated into Fiserv’s CheckFree RXP electronic billing and payment solution and the Corilian Online and Virtual Branch online banking solutions; it also is accessible as a standalone service. “Currently, mobile is the sweet spot for P2P,” notes Tom Roberts, Fiserv’s senior vice president, marketing.“We can expect to see more evolution there, and in new payment models as a whole.” TT Julie Ritzer Ross is a contributing writer to Transaction Trends. Reach her at jritzerross@gmail.com.

[ ETA Annual Meeting Preview ]

The

Future of Payments

Is Here

2013 ETA Annual Meeting & Expo keynote speakers share their visions for tomorrow

hen pondering the future of the payments industry, many topics come to mind: Cloud-based solutions, Big Data, EMV, NFC, various payment apps, and digital wallets. For Michael Abbott, CEO of ISIS, what he calls the “mobile commerce revolution” is top of mind, while David Nelms, chairman and CEO of Discover Financial Services, turns his thoughts to competitive advantage and “staying ahead of change.” Appropriately, these topics will serve as the focal points of both men’s keynote discussions during the 2013 ETA Annual Meeting & Expo, April 30-May 2, in New Orleans. Transaction Trends recently caught up with the two leaders for a closer look at what attendees can expect to learn at their addresses. “I want to stress the fact that ours is far from the first industry to undergo significant change,” says Nelms, who has served as CEO since 2004 and chairman since 2009 and whose keynote address will take place on May 1 at 1:30 p.m.“So we need to welcome advances in technology, regulatory challenges, new industry players, and changes in consumer behavior—and not rely on old business models.” Nelms also will touch on the various factors he believes are most likely to determine the future of the payments industry, while sharing his thoughts on how attendees and their colleagues can take advantage of some of them. He cites the evolution of multichannel commerce increasing the demand for faster, more efficient payment methods as one example. “Advancing technology will continue to fulfill and create new consumer expectations when it comes to how, when, and where people use their money. 20 May 2013 | Transaction trends

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[ ETA Annual Meeting Preview ] More to Consider

While at the 2013 ETA Annual Meeting & Expo, don’t forget to partake in these valuable events: ETA Government Panel—A discussion with the most influential professionals working on payments issues in the U.S. government. Speakers will include top officials in both the executive and legislative branches of government, including officials from the Consumer Financial Protection Bureau and the Federal Trade Commission.

Electronic Transactions Association University (ETAU)—A series of live, instructor-led, interactive classes that will address key facets of the industry that are necessary for expanding attendees’ knowledge and expertise.

“The industry must respond by being flexible and open to new and nontraditional partnerships,” he adds.“Not that long ago, people would have scoffed at the idea of creating a new network. But that’s exactly what’s happening to PayPal thanks to advances in technology and some innovative collaboration with Discover. Such partnerships especially make sense when you look at the possibilities for new marketing opportunities and loyalty programs.” Like many experts, Nelms sees mobile technologies pushing the payments space forward because of their potential to bring new payment options and more knowledge to consumers and merchants.

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ETA Small Business Panel: This forum will examine issues that small merchants face in a rapidly evolving economy including mobile payments, social media, and financing issues.

While it’s obviously an exciting time to be in the payments business, Nelms is quick to point out the critical nature of present-day business decisions: “It’s a time when rapid changes in technology are influencing consumer behavior and raising expectations,” he says.“The future of payments is ours to determine, but only if we embrace change, invest in technology, seek new opportunities, and rise above the challenges and uncertainty.” It’s important for companies in the space to “stay close to our customers, remain prepared, and anticipate changes,” Nelms suggests, in order to become truly successful in the future. “We have the challenge of continuing to improve convenience, ease-of-use, real-time experiences, added security, and flexibility that consumers already expect—and be ready for new expectations along the way.” Undoubtedly, Abbott, who spent nearly a decade with GE Capital before joining ISIS, will delve into some of those expectations as well as the breadth and depth of the “mobile commerce revolution” during his discussion on May 1 at 9 a.m.“For decades, people have imagined a cashless, cardless world enabled by their phones,” he says.“This is no longer simply a dream; the revolution is finally beginning.Together, we will transform the way consumers, merchants, and banks interact with each other, creating a more intimate and personalized experience.” According to Abbott, the “incredible progress and momentum” among current industry players has finally reached a tipping point. “In 10 years, I see a world where consumers no longer have to pull out their leather wallet to find a payment card, coupon, or loyalty card. I see a world where merchants can interact directly with their consumers and provide timely and relevant content, all on their mobile device of choice.” Abbott says he wants everyone who attends his session “to walk away with a renewed commitment to make mobile commerce a reality. While there is still a lot of work to be done, together we can effect change and transform the shopping experience.”

Beyond the Keynotes and Supersessions Along with the keynote addresses and world-renowned educational sessions—which will cover topics such as electronic processing, fraud prevention, marketing, financing, recruiting, and

[ ETA Annual Meeting Preview ] revolutionary payment startups—the 2013 ETA Annual Meeting & Expo features several new components this year. First is the Mobile Payment Innovations 2013 pre-conference event that will be held on Tuesday, April 30. Presented in partnership with Strategic Solutions Network, the creators of the Mobile Contactless Payment Innovations series of events, this all-day session will feature speakers who represent a cross-section of players within the mobile payments ecosystem and who will focus on “sharing actionable business intelligence on the dynamic mobile payments industry.” Additionally, this year’s meeting will debut the Payments Next Zone and the Mobile Pay Zone. The former is a showcase, made possible through a grant from the Bill & Melinda Gates Foundation, for innovative startups seeking to launch payments technology to serve global consumers. (The Foundation also will fund the $10,000 E-Pay Innovation Award for the most innovative exhibiting startup.) The latter is a brand-new addition to the event’s exhibit floor that will highlight the latest products and services related to mobile payments. This year’s expo will be the biggest in the 23-year history of this ETA event, thanks to a show floor that has been expanded to 150,000 square feet. Partially responsible for that expansion: Payments technology innovator PayPal, which is sponsoring the keynote address from David Nelms, has increased its exhibit space six-fold, making it the largest on the show floor. Joining PayPal will be more than 200 companies that cover the gamut of the payments and technology industry, apriva_universal_transaction_trends_mag_half_pg_horz_ad_2013_v1.1_printer.pdf

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[ ETA Annual Meeting Preview ]

including Visa Inc., AT&T, Discover Network, MasterCard Worldwide, Wells Fargo, China Union Pay, Global Payments Inc.,VeriFone Inc., First Data, Ingenico North America, ISIS, and NPC,A Vantiv Company. In addition to the Mobile Payment Innovations event, expo, and education sessions, three day-long pre-conference events will help kick off the meeting on April 30: • EMV Day—This new event will help industry participants prepare acquirers, ISOs, and value-added resellers to implement EMV in the United States. Participants will learn the critical factors for successfully managing EMV implementation, as well as a roadmap and financial model to guide investment in terminals and deployment by merchant category and geography. • Compliance Day—This industry favorite event will arm attendees with critical information on compliance, new standards, card company rules, and mandates, as well as access to experts from card brands and other entities in the compliance space who will explain how to be in full compliance and provide enhanced customer service to clients. •T he Investment Community Forum—This unique event brings together executives from the payments industry with investors and investment companies that can help fund the innovation and entrepreneurial energy driving the future of payments.Attendees will gain valuable insights into how investors make their funding decisions. TT 26 May 2013 | Transaction trends

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Startup Stories: iTransact Group

Perfect Match

Family businesses unite to create a company that’s high-tech and high-touch By John Manasso

he iTransact Group started out like some of the world’s largest technology companies, even if it hasn’t achieved the same scale. One of the founders is a college dropout. In the early 1990s, Mike Sumsion decided he had had enough of taking classes at Brigham Young University. After Mike Sumsion left, he and his father Allen began a business quite literally in the basement of Allen’s house. Mike developed a way to use telephone lines to achieve check acceptance and Redi-Check was born in 1994. Later, Mike migrated that concept onto the Internet to do the same—the first company to do so, according to the Sumsions. “Ever since we were kids, he was technically minded,” says his brother, Matt, the company’s chief marketing officer. “I would play with my toys, and he would take his apart to see how it works.” By 1999, the company’s merchant cli-

Mike Sumsion

David Hall

iTransact Group Farmington, Utah Founded: 1994 Annual processing volume: $1 billion Employees: 50

28 May 2013 | Transaction trends

ents began asking for credit card acceptance as well, and the company willingly exploited the opportunity, changing its name to iTransact Inc. Then in 2010, the company merged with another startup, National Merchant Services, which has an ingenious business strategy of its own.

Leveraging Relationships NMS was founded by two brothers, Porter and Stephen Hall, whose backgrounds were in accounting. Porter spent 33 years with Arthur Anderson where he was managing partner of the Utah office. Stephen enjoyed 27 years as a financial professional. Instead of using outside sales agents, their approach was to go through a “trusted advisor,” often a merchant’s accountant. They leveraged their relationships in the accounting industry to gain introductions and grow business. “We knew how important relationships are, and we thought we could build a company by taking advantage of CPAs and financial advisors—knowing they would have clients, and their customers would benefit,” says David Hall, Porter’s son and iTransact’s COO. “We incubated that idea within the walls of iTransact. We loved the brand, the owners. They’re good people. They caught the vision of what we were trying to accomplish. They allowed us to incubate our idea within their company for two years.Then we merged the companies.” Three years in, the merger of these two unique ideas is going strong. With about 50 employees, iTransact Group has about 20,000 merchants signed up with a processing volume of more than $1 billion annually. As the story goes, NMS’s owners found iTransact simply by driving past its head-

quarters building in Farmington, Utah, with its sign easily visible from Interstate-15. They investigated the company and the “incubation” period began. “Their skillset was very complementary to our skillset and it was just kind of a natural blending of talents when we got together,” Matt Sumsion says. “Fortunately, the personalities meshed as well. That helps.We started as two family businesses.” “They have a long history of treating customers right and developing new ideas and have been great partners,” adds David Hall.

Instant Credibility While Allen Sumsion has retired, his sons remain two of the company’s six managing partners. The others are Porter (chairman of the board), Stephen (CEO) and David Hall, and Jared Poulson, who serves as CFO. NMS was the second entrepreneurial venture started by the Hall family, which built an Internet-based wellness program, My ePHIT, used by health plans, some of which covered millions of members. After selling My ePHIT to Healthways in 2006, the Halls looked for a new enterprise. They liked the payments industry because of the possibility of earning residual income.The concept of the “trusted advisor” program dawned on NMS executives because of a friend in the insurance industry who had a nephew in the payments industry. T he nephew would introduce his uncle to merchant clients to refer business. NMS simply expanded upon that idea, realizing it could do it on a much larger scale. Because of their high-level contacts in the accounting and consulting industries, Porter and Stephen Hall had great credibility when they were introduced to

Startup Stories: iTransact Group

potential clients. As David Hall puts it, his father spoke the language of CPAs. “He understands what they’re up against—when their busy season is, what pressures they have as a firm,” he says.“Stephen has the same experience on the financial advisor side.” Matt Sumsion says that some merchants get approached so often by processors trying to sell services that they shut themselves off to sales pitches from payments processors. By going through the trusted advisor, iTransact presents a “sure save analysis,” which includes an itemized line-by-line accounting of how much they could save by changing to iTransact with its lower rates. When presented to a merchant by someone such as their accountant, the pitch can be powerful. There also is a flip side: Because relationships between accountants and their clients are so sensitive, customer service is of the utmost importance. “Our staff is instructed not just to hear the voice of our client (on the phone),but to hear the voice of our CPA, the trusted advisor who represents a portfolio,” David Hall says. He explains that iTransact’s internal software pulls up not only the name of each client but also the name of the trusted advisor. This “increases the level of customer service by multiples because we’re aware of where they came from.”

WORDSTOTHEWISE n Be transparent. “Nothing upsets merchants more than paying something other than what they expected to pay,” says iTransact Group’s Matt Sumsion. “That’s part of what I mentioned as far as our ‘sure save analysis.’ We very clearly detail what their fees are and exactly what their fees will be so there are no surprises. It’s a lot easier to keep a client if they know what they’re paying rather than when they feel ripped off and then you have to try to win them back.” n Give merchants what they want. “That’s why we’ve dialed into the payments facilitator model,” Sumsion says. “We were working with smaller firms and they said, ‘Well, I like your company, I like your offering, but I like the Square.’ After hearing that enough, we decided to do that rather than saying, ‘How are we ever going to compete?’ We provide it for them.” n Focus on developing “trusted advisor” relationships. “By working with people who already have a vested interest, it has meant the world to us in terms of our growth and our retention,” says David Hall. That customer has all the more reason to stay with us because we’re associated with their CPA or financial advisor. Developing relationships, not knocking on doors, gives me a jump and helps me to keep it longer. I can’t imagine that is not the way people will do it in the future. We see it moving in that direction, and away from agents.”

“Screw up one client and that CPA’s never going to let me visit him again,” he adds. Not surprisingly, much of iTransact’s marketing targets the accounting and consulting industries and trade groups. iTransact’s program offers a portion of residuals to those trusted advisors. If CPA firms and

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organizations have rules that do not permit them to accept fees from programs like iTransact’s, then iTransact conforms to those rules and regulations.

Looking Ahead On the technology side, Mike Sumsion continues to innovate, just as he did as a child with his toys. He has built iTransact’s internal systems, including its mobile gateway. In attempting to compete with companies like Square and PayPal, Mike Sumsion, as CIO, helped iTransact to invent the software behind its own card reader device, called the “dongle,” while outsourcing the hardware for the product. iTransact also built its own app for mobile devices. When Matt Sumsion looks back on his career, he laughs at the idea that he has spent most of it working for his younger brother. But with such an innovative mind, it’s easy to see why. He also thinks back to the early days when the company started literally in the basement. Post-merger, life is much different.“Now we’ve got this nice building pretty much full to capacity, people fanned out all over the country,” he says.“It’s gratifying.” TT John Manasso is a contributing writer to Transaction Trends. Reach him at john_manasso@yahoo.com.

Industry Insider

Single Focus

Intuit’s payment solutions serve small businesses— and small businesses only By Bryan Ochalla

hen it comes to the payments portion of Mountain View, California-based Intuit’s solution suite,“we’re completely focused on small business, which is different from pretty much everybody else in the space,” says Chris Hylen, vice president of Intuit Payment Solutions. “We’re not a mobile payments company and we’re not an e-commerce payments company,” he adds.“We’re a small business payments company, and our goal is to serve all of a small business’ payment needs.” That’s hardly surprising, considering that Intuit has been serving the needs of small businesses—as well as consumers and the accountants, banks, and third-party developers who assist them—for roughly15 years. “Our mission, from day one, has been to change people’s lives with financial products and services that are so good they couldn’t imagine going back to the old way of doing things—and that definitely carries over to the payment --Chris Hylen solutions we offer to small businesses,” Hylen says.

“We’re a small business payments company, and our goal is to serve all of a small business’ payment needs.”

$424 Million and Growing It’s taken Intuit some time to develop its small business offerings. At first, the company’s only solution was “a small payments business inside of QuickBooks,” according to Hylen. Everything changed when the company was bought in 2003 by Innovative Merchant Solutions, a Calabasas, California-based provider of credit and debit card processing services.“At the time of the acquisition, the revenue of the combined businesses was somewhere between $20 million and $40 million.We finished last year at about $424 million in revenue, so it’s been a good business for us.” 32 May 2013 | Transaction trends

It’s been a good business for Intuit’s clients, too. The company is now able to help small businesses accept and process payments in a number of ways—such as via its QuickBooks accounting software, with traditional POS devices, and through browsers, e-commerce sites, and a multitude of mobile phones and tablets (by using, in some cases, the company’s GoPayment card reader). “Mobile’s quickly becoming an integral part of our business,” shares Hylen,“with the biggest part being our QuickBooks business, the next biggest being our point-of-sale business, and the next biggest after that being mobile—but mobile is the fastest-growing piece in terms of both revenue and customers.” Hylen describes the mobile business as “becoming both a ‘what’ and a ‘how’—and by that I mean it is a business that we have, but it’s also a way that we can serve our customers more.” To further illustrate his point, Hylen points out that 70 percent of the customers that come to Intuit through GoPayment “are new to the franchise, so GoPayment is serving two roles for us: one is that it’s helping grow and protect our QuickBooks and point-of-sale businesses, and the other is that it’s bringing new customers to the franchise.” Small Business Advocate Intuit does more than assist small businesses with their mobile payment needs. The company’s mission is to offer “a broad suite of payments products that meet all of the needs of a small business,” says Hylen. “I think that’s an important piece that a lot of people in the marketplace today miss,” he adds.“They become so focused on mobile that they forget about the rest of the payment needs” of this sector. “We address all of those needs and we also integrate them into their company— and I think that gives us a distinct advantage in relation to our competitors.” Another factor that sets apart Intuit’s payments products, in particular, from the pack: “We consider ourselves to be small business advocates,” Hylen offers.“We’re focused entirely on small businesses and we’re here to address every one of their payment needs.” TT Bryan Ochalla is a contributing writer to Transaction Trends. Reach him at bochalla@yahoo.com.

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