Transaction Trends by Content Communicators, LLC

Transaction trends The Official Publication of the Electronic Transactions Association

| November 2011

Big acquisitions, new market entrants, and emerging payments rock the tech sector

Sei smi c ALSO INSIDE: Mobile Wallet Madness Are Your TINs Matched Yet?

ft Shi s

1.866.437.0491 www.authorize.net

Give your merchants more than great savings. Give them more customers. Paycloud® drives customers to merchants through mobile loyalty features, without the need for plastic. Or NFC. View a demo at sparkbase.com/paycloud or call 877-797-7275 to learn more.

Stores - Customers view nearby stores and can search by city or zip. One tap enrolls them in any merchant’s loyalty program. ISOs can board merchants for less than $100 in under 48 hours. Wallet - Customers see a branded billboard for your merchants each time they use Paycloud, and are instantly reminded of available offers and cash balances. Offers - Merchants increase sales and proﬁtability with custom offers designed to ensure the highest ROI. Customers redeem offers in store through the Paycloud sensor that interacts with existing terminals. No NFC required.

Recommended - Merchants win new customers through Paycloud, which recommends stores to users based on their shopping habits.

Proﬁle - Customers control their proﬁle to share information with merchants and pin-protect their loyalty programs.

Paycloud is a registered trademark of SparkBase, Inc. iPhone is a registered trademark of Apple, Inc. SparkBase has no commercial association with Apple, Inc. or its products. Patent Pending.

Transaction trends The Official Publication of the Electronic Transactions Association

Vol. 16 | No. 11

cov e r s to ry

8 Seismic Shifts

By Julie Ritzer Ross Discover how acquisitions in the POS market and the push for mobile and EMV are shaping the technology landscape and making it more competitive than ever before.

FEATURES

12 Mobile Wallet Madness

By Bryan Ochalla From issuers to mobile carriers, a number of industries are paving the way for mobile wallet usage. But financial institutions may have the largest influence on consumer adoption.

16 SPEC I A L SER I ES

Startup Stories: Investing in Solutions By John Manasso By investing in a high-tech facility, staff training, and the surrounding community, International Bancard thrives.

d e pa rtm e ntS 6

President’s Message

Industry News

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

ETA New Member Listing

23 Ad Index 24 Industry Insider

Apriva provides solutions tailored to merchants’ individual needs

NEW! Washington Watch

The latest in regulations and legal issues affecting the payments industry

Transaction trends | November 2011 3

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

President’s Message

ETA Chief Executive Officer Carla Balakgie

No Time for Complacency

ETA Director, Communications & PR Thomas Goldsmith Transaction Trends Publishing office: Stratton Publishing & Marketing Inc. 5285 Shawnee Road, Suite 510 Alexandria, VA 22312 703/914.9200 Publisher Debra Stratton Editor Josephine Rossi Contributing Editor Angela Hickman Brady Editorial/Production Assistant Teresa Tobat Art Director Janelle Welch Contributing Writers John Manasso, Bryan Ochalla, Julie Ritzer Ross Advertising Sales Steve Schwanz or Fox Associates (800/440.0232; adinfo.eta@foxrep.com) Fox Associates Offices Chicago 312/644.3888 Atlanta 770/977.3225 Los Angeles 805/522.0501

New York 212/725.2106 Detroit 248/626.0511 Phoenix 480/538.5021

Editorial Policy: The Electronic Transactions Association, founded in 1990, is a not-for-profit organization representing entities who provide transaction services between merchants and settlement banks and others involved in the electronic transactions industry. Our purpose is to provide leadership in the industry through education, advocacy, and the exchange of information. The magazine acts as a moderator without approving, disapproving, or guaranteeing the validity or accuracy of any data, claim, or opinion appearing under a byline or obtained or quoted from an acknowledged source. The opinions expressed do not necessarily reflect the official view of the Electronic Transactions Association. Also, appearance of advertisements and new product or service information does not constitute an endorsement of products or services featured by the Association. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided and disseminated with the understanding that the publisher is not engaged in rendering legal or other professional services. If legal advice and other expert assistance are required, the services of a competent professional should be sought. Transaction Trends (ISSN 1939-1595) is the official publication, published monthly, of the Electronic Transactions Association, 1101 16th St. N.W., Suite 402, Washington, DC 20036; 800/695-5509 or 202/828-2635; 202/828-2639 fax. Postage paid at Pittsburgh, Pennsylvania, and additional mailing offices. POSTMASTER: Send address changes to the address noted above. Copyright © 2011 The Electronic Transactions Association. All Rights Reserved, including World Rights and Electronic Rights. No part of this publication may be reproduced without permission from the publisher, nor may any part of this publication be reproduced, stored in a retrieval system, or copied by mechanical photocopying, recording, or other means, now or hereafter invented, without permission of the publisher. Nonmembers, government agencies, $150 per year; single copy, $20. Subscriptions are available for 12-month periods only, at the quoted rates.

4 November 2011 | Transaction trends

f you haven’t noticed—and I sincerely hope you have—ETA’s advocacy efforts have grown tremendously over the past few years. When ETA was founded more than two decades ago, advocacy on behalf of members was pretty much focused on improving the industry’s relationships with the card associations and their member banks. Today that work continues, but it now shares the spotlight with government relations. The “GR” component has gone from almost zero to full speed ahead in little more than three years, starting with a letter-writing and petition campaign to educate members of Congress about the impact of merchant transaction reporting, to the point where ETA is tracking legislation and regulatory activity at the state and federal levels and engaging more often and more directly with legislators, legislative staffs, and regulatory agencies. A nd while we’re positioned to react to developments more quickly and effectively, we’re also able to be more proactive, when that’s appropriate. This past year alone, ETA has represented members and the payments industry in discussions with congressional staff and with individual lawmakers on issues from data security to intellectual property, and participated in discussion with the agencies such as the Federal Reserve and the Internal Revenue Service. A nd while it’s not easy to measure, we believe these activities have had a very positive effect—and will continue to do so. This month’s Transaction Trends carries the first of what we plan to be a regular department called Washington Watch, which is designed to help keep you abreast of what is going on in the nation’s capital. ETA members also now have access to quarterly Legislative and Regulatory Reports that detail the issues ETA is tracking and the association’s GR activities. As advocacy continues to grow in importance, it is extremely important that every individual who works for an ETA member company—and really, everyone in the industry—gets involved. T he payments business employs thousands in every state and every congressional district. It is important to the economy by itself, and it supports a vast portion of the economy indirectly (two-thirds of GDP is consumer spending, after all).That message is best conveyed by all of you reading this column. By now you know that I am a big proponent of volunteerism, especially where ETA is concerned.Advocacy is one area where being a volunteer is easy. ETA has a very sophisticated Voice of Payments website where you can get informed about issues, sign up for alerts, and use our tools to take action for yourself, your company, and our industry.And the more you participate in this grassroots advocacy, the more effective ETA becomes as a representative for association members and the industry. Join in. It’s your chance to make a difference.

Sincerely, Rick Pylant Rick Pylant is President of ETA and Chairman & CEO of Strategic Processing Systems Inc.

INDuSTRYnews info graph

Possible Debit Replacements Payment types consumers might move to if fees for debit use become a factor

Square Turns to Wal-Mart

Strengthening its connection to the very smallest merchants, Square says it will soon be distributing its credit card reader and software through Wal-Mart, bringing to 9,000 the number of retail locations where the device can be purchased. The Square reader sells for $9.99 at the retail outlets, but buyers can get a refund through the Square website. Square, which uses an audio-to-data conversion to read mag-stripe data from payment cards, is expanding its footprint as rapidly as it can as NFC-based payment systems begin to arrive in the marketplace, and is taking on NFC head-to-head. “We don’t currently believe that NFC as a payment technology is likely to improve either the merchant’s experience or the buyer’s experience,” says a company official.

Fast Fact

Heartland Payment Systems has deposited more than $11.7 million in signature debit interchange reductions into merchant bank accounts. 6 November 2011 | Transaction trends

Would use cash more

53%

Would use checks more

26%

Would use a credit/charge card more Would open a PayPal account Would use retailer private label more

24% 21% 8%

Source: 2011 Consumer Debit Research study by TSYS and Mercator Advisory Group

Durbin Repeal Effort Launched The Durbin Amendment capping debit interchange fees is under renewed attack after U.S. Representatives from both sides of the aisle introduced legislation to repeal the controversial measure. The Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which limits the fee to an average of 24 cents per transaction instead of the previous industry average of 44 cents, went into effect October 1. Rep. Jason Chaffetz (R-Utah), who co-sponsored the bill with New York Democrat Bill Owens, says “these legislatively enacted price controls have compelled banks to charge consumers higher (and in some cases new) fees to make up for lost revenue.” While the amendment included an exemption from the new cap for

smaller banks, the banking industry has repeatedly argued that competitive forces will require them to adopt fees comparable to the big banks. Owens says he was backing the repeal bill because smaller institutions would bear a disproportionate burden. “While Congress clearly intended to exempt these smaller institutions from the cap on interchange fees, it’s clear the Durbin Amendment will have unintended costly consequences for my constituents and their checking accounts,” he says. The Fed rules that put the Durbin Amendment into effect also have come under fire from merchants who depend on small-ticket purchases. They have been hit hard as issuers have applied the maximum allowable fee to all transactions, effectively increasing the fees on micropayments.

Subway Embraces Contactless, Boosts Google and MasterCard

The Subway restaurant chain has announced it will install MasterCard’s PayPass contactless technology in 7,000 of its retail locations, giving a boost to Google Wallet as well as the card company. Google Wallet already is set up to handle PayPass transactions, so users of that app will be able to take advantage of the Subway decision as quickly as PayWave terminals can be installed. “This is important because Google and its partners are taking the first step in making digital payments on your phone a reality,” a Subway spokeswoman says.“We believe Google Wallet will save consumers time and money as they shop and will give merchants like us new ways to forge lasting relationships with customers.”

AROUND THE HORN Trustwave has appointed veteran security software marketer Leo J. Cole as its new chief marketing officer. Zenius bested seven other companies to win top honors for the most disruptive technology at the CTIA’s Disruptathon Mobile Enterprise event. Accertify says Global Payments Inc. will offer its e-commerce merchants a fraud screening solution based on the American Express subsidiary’s risk management technology. The solution will be offered through Global’s TransportR gateway. TSYS has purchased the merchant portfolio of Florida-based Vanguard Payment Systems. Payment Alliance International has been named a Fast 50 Company by Business First of Louisville for the third consecutive year. EZCheck is now offering the Paycloud mobile wallet by SparkBase to its gift and loyalty program.

Transaction trends | November 2011 7

[ COVER STORY ]

i Sei sm c TECHNOLOGY COMPETITION SHAKES UP WITH BIG ACQUISITIONS, EMV MOMENTUM, AND NFC ADOPTION By Julie Ritzer Ross

ompetition in the electronics business today is a rollercoaster ride of big acquisitions, new market entrants, global expansion, and emerging technologies. The rush for customers is particularly fierce in the NFC/contactless space, where technology vendors are launching new products one on top of the other. And, finally, mainstream adoption of the EMV (Europay/MasterCard/Visa) global standard for interoperation of integrated circuit cards (IC cards or “chip” cards) also will bring new competition to the payment technology vendor landscape. “There are going to be players attempting to come into the market from all sides, not just EMV, and probably not just mobile.Things are going to get tighter,” predicts Greg Buzek, founder and president of IHL Consulting Group, a retail/hospitality technology research and advisory firm in Franklin,Tennessee.

POS Posturing

KEY NOTES 8

While VeriFone’s swallowing up of Hypercom leaves only two major POS heavyhitters left standing, smaller international companies may view this industry consolidation as an opportunity to cultivate small U.S. merchants. Isis, Google Wallet, and others will redefine the mobile/NFC contactless space. As EMV takes hold, 8 to 10 million credit card readers will need to be replaced, bringing tremendous opportunities for investment.

8 November 2011 | Transaction trends

Consider the POS/terminal market.Today VeriFone Systems Inc. and Ingenico “own” 93 percent of the market, according to research firm Aite Group. Acquisitions have been instrumental in the building of each company’s empire. For example, last August, VeriFone picked up rival Hypercom Corp. for $485 million, selling its U.S. card payment terminal business to private equity firm Gores Group LLC.“In the U.S. market, Hypercom has been an also-ran, but internationally it was able to build business in a number of important markets,”

ft Shi s

[ COVER STORY ]

Mobile Momentum Particularly fraught with competition is the contactless/mobile/near-field communication (NFC) payments space, where companies are launching hand-held mobile POS devices as well as applications that turn smartphones into POS terminals. VeriFone earlier this year launched PAYMEDIA Solutions, a subscription-based offering that provides small- to medium-sized merchants with payment solutions and access to payment-enabled media at the checkout counter. The solution integrates online services, including digital couponing, loyalty, location-based social media, and value-added services. “PAYMEDIA for small businesses represents our vision of how smaller merchants will be able to capitalize on the move to 10 November 2011 | Transaction trends

Hosted POS Revenue Potential, 2011 to 2015

$350

Millions

says VeriFone Senior VP of Global Marketing Paul Rasori.“This acquisition builds on our strategy of creating tremendous geographical and product and services diversification.” VeriFone is now adding its brand identity to the international product lines it acquired. Earlier this year,VeriFone bought the POS solutions business of Gemalto, a digital security solutions provider. And in 2006, the company spent $793 million in cash and stock to buy Lipman Electronic Engineering Ltd., another provider of payment systems. Four years ago, Ingenico merged with solutions provider Sagem, and more recently acquired 55 percent of Fujan Landi, a major POS solutions provider in the People’s Republic of China. While VeriFone’s swallowing up of Hypercom leaves only two major heavy-hitters left standing, smaller international companies may view this industry consolidation as an opportunity to cultivate small U.S. merchants, suggests Gil Luria, a senior analyst with Wedbush Securities in Los Angeles. He points to CyberNet Inc.of Korea,Chinabased Shenzhen Zhengtong Electronics Co. Ltd., and Taiwan’s Uniform Industrial Corp. “They are a fraction of the size of VeriFone and Ingenico, but it isn’t inconceivable now that between the consolidation itself and certain changes VeriFone and Ingenico could make—for example, raising prices and offering fewer discounts—they will try to wrest their way into the market,” Luria observes.

$163

$57 $2

$12

e2011

e2012

e2013

e2014

e2015

(Source: Aite Group)

mobile payments and NFC,” Rasori explains. “History shows us that small merchants are not eager to buy new payment systems to catch hold of the latest craze.”The monthly subscription-based pricing model “eliminates upfront hardware costs and ensures compatibility with new capabilities and services as they become available.” The company’s also working on new NFC-equipped POS and smartphone terminals.“VeriFone sees opportunity for highly capable POS terminals that can deliver not only payments functionality, but also couponing and other retailing services,” says a recent blog post from George Peabody, director of emerging technologies advisory service for Mercator Advisory Group.“This kind of device will require significant research and development, and (the) larger VeriFone should have more resources at its disposal.” For its part, Ingenico—whose technology roster includes a range of mobile payment solutions—intends to leverage its acquisition of Hypercom’s POS assets in part to sharpen its competitive edge through further forays into contactless NFC solutions innovation, says CEO Philippe Lazare.Twenty-one percent of Ingenico terminals sold to merchants in 2010 were NFC-enabled, a 50

percent increase over 2009.The company’s recently unveiled Telium series, which can handle value-added applications like couponing, loyalty, and rewards, is largely responsible for the uptick, executives say. Smaller companies also are carving out some market share in the contactless/NFC space.ViVotech’s ViVOpay 8100 terminal incorporates NFC checkout technology that lets merchants accept and process coupons, personalized offers, loyalty program tallies, and payments through proprietary mobile applications. Consumers insert, swipe, or tap their payment cards, or tap their NFC mobile phones, to pay for goods or redeem an electronic coupon or discount voucher. The device also accepts PIN entry for secure debit transactions. In a less traditional vein, the Google Wallet mobile payment platform, which was fieldtested in New York City, New York, and San Francisco, California, earlier this year, made its commercial debut during the summer at such retailers as Walgreens, Subway, T oys “R” Us, American Eagle Outfitters, and Macy’s. Essentially, Google Wallet is a free Android app that securely stores multiple credit cards, or a Google prepaid card linked to a credit card issued by Google. Consumers open the app on an NFC-enabled

smartphone and tap that device against a supported credit card reader for transactions to be instantly charged to their cards. Google Wallet works on Sprint’s Nexus S 4G, MasterCard credit cards issued by Citi, and at retailers equipped with MasterCard’s PayPass terminals. Transactions are processed by Atlanta-based First Data.VeriFone is among the technology vendors that have configured some of their hardware to accommodate Google Wallet. Isis, the multimillion-dollar mobile payments platform formed by Verizon, AT&T, and T-Mobile, will go toe-to-toe with Google Wallet when it makes its debut next spring. Like Google Wallet, Isis will leverage NFC chips in newer smartphones to pave the way for consumers to charge purchases to their credit cards via their mobile phones. But the platform will offer an added competitive dimension in the form of choice, says Jaymee Johnson, Isis’s marketing chief. Isis will work on Android and other operating systems, with support from multiple banks and retailers.“It’s safe to say that when Isis launches, we will have multiple payment networks, multiple issuers, multiple handsets, multiple operating systems, and multiple manufacturers,” Johnson says. The battle for mobile payment processing business is heating up, too, with the three major players in this sub-space—Square, Intuit, and VeriFone—making adjustments to their pricing structures or adding other accoutrements to be more competitive. Square recently stopped charging merchants a transaction fee of 15 cents but continues to collect a 2.75 percent fee on purchases. Intuit has extended its GoPayment “no-monthlyfee” deal available with a credit card reader; the offer was originally intended to be temporary.VeriFone’s PAYware solution carries charges similar to Intuit’s—a transaction fee of 15 to 17 cents and a 2.75 percent fee on purchases—but its card reader is somewhat different in that it features a bar code scanner to facilitate transactions. Merchants appear to be taking the bait. Research from Aite shows 53 percent (or 6.7 million) of U.S. merchants will have POS systems that support NFC and chip-based transactions in 2015, and 13 percent (or 1.1 million merchants) will actually use it. By Aite’s estimates, providers of such services could earn $350 million in monthly

“EMV is going to be a huge terminal replacement ‘carrot’ for merchants, given all of the catalysts pushing adoption forward.” —Greg Buzek, IHL Consulting Group

and transaction-based revenues in 2015, up from only $2 million this year. In a recent statement, VeriFone Chief Executive Douglas Bergeron pegged the replacement of POS terminals by devices capable of chipbased and mobile payments as having the potential to generate “hundreds of millions of dollars” in new business annually.

EMV Opportunity EMV also is expected to shake up the competitive landscape. Overseen by EMVCo LLC, which is jointly owned by American Express Co., JCB International Credit Card Co., MasterCard, and Visa, the standard was rolled out in the United Kingdom in May 1997 and has garnered worldwide acceptance, with the exception of the U.S. But initiatives announced by Visa last summer—along with louder stakeholder cries for worldwide payment technology interoperability and consumer frustration with fraud-wary

merchants abroad refusing magnetic stripe cards—are propelling U.S. adoption. Visa expanded its Technology Innovation Program (TIP) by eliminating the requirement that eligible U.S. merchants annually validate their PCI DSS compliance for any year in which at least 75 percent of their Visa transactions originate from chip-enabled terminals.The terminals must support contact and contactless chip acceptance, including NFC mobile contactless payments. Additionally, per Visa’s new requirements, U.S. acquirer processors and subprocessors must support merchant acceptance of chip transactions by April 1, 2013. Effective Oct. 1, 2015 (or, for merchants that sell fuel through automated fuel dispensers, Oct. 1, 2017), liability for counterfeit card-present fraud may shift from the card issuer to the merchant’s acquirer should a contact chip card be presented to a merchant that has not adopted, at minimum, contact chip terminals. “EMV is going to be a huge terminal replacement ‘carrot’ for merchants, given all of the catalysts pushing adoption forward,” especially the lifting of the burden of PCI DSS compliance validation, says IHL Consulting’s Buzek. By IHL’s estimates and those of other analysts, a total of 8 to 10 million credit card readers will need to be replaced as EMV takes hold.“When you look at the potential replacement volume—the sheer numbers— there is nothing else to do but question why companies like Fujitsu, NCR, IBM, and Wincor Nixdorf wouldn’t invest in bringing EMV lines to the marketplace, rather than why they would,” Buzek says. TT Julie Ritzer Ross is a contributing writer to Transaction Trends. Reach her at jritzerross@gmail.com. Transaction trends | November 2011 11

[ feature ]

mobile wallet

MADNESS Heavy hitters from a number of different industries join the mobile wallet fray. Here’s why—and how—they will succeed. By Bryan Ochalla

KEY NOTES 8

Most, if not all, of today’s smartphones can make payments, redeem coupons, and store merchant loyalty cards, and consumers are becoming more comfortable with using them for more than just making calls.

Others say card brands—not consumers—are pushing the move into mobile, because such moves give card brands even more control in the market.

A range of entities must come together for widespread adoption of mobile commerce and mobile wallets—consumers, financial institutions, merchants, mobile carriers, and payment networks among them. In the end, financial institutions may pull the most weight.

12 November 2011 | Transaction trends

n a few years, will we look back on 2011 as the year of the mobile wallet? Given the plethora of mobile wallet-related announcements already made this year, it certainly seems possible—even more so when you consider the companies behind many of the aforementioned announcements, such as American Express, AT&T, Citi, Discover, First Data, Google, MasterCard, Sprint, T-Mobile, Verizon, and Visa. Citi, First Data, MasterCard, and Sprint joined forces with Google to produce the just-launched (in mid-September) Google Wallet, while AT&T, T-Mobile, and Verizon paired up to form Isis, which will launch its mobile wallet in 2012. (Check out the “Mobile Wallet Cheat Sheet” on page 14.) The level of smartphone penetration in the U.S. is driving much of the development. It’s“reached critical mass,”says David Messenger, an executive vice president at American Express. (He’s also head of the company’s online and mobile business unit.) “We think consumers are primed and ready” for mobile wallets.“They’ve got the tools in their hands, and we’ve got the right people in place who can drive both scale and acceptance.” Most, if not all, of the smartphones on the market are capable of making payments, redeeming coupons, and storing merchant loyalty cards, and the

e ee

consumers who are carrying them are becoming increasingly comfortable with using them for activities other than making calls. In addition, mobile wallets will allow companies in various industries to strengthen their relationships with consumers while helping them save time and money (coupons and loyalty functionality), according Marc FreedFinnegan, a senior business product manager at Google Wallet. But not everyone’s so sure the current ruckus surrounding mobile wallets can be pinned on consumers.“I think it’s being driv-

en more from a competitive standpoint than a ‘customers are clamoring for this’ standpoint,”says Brad Strothkamp, a vice president and principal analyst at Forrester Research. It all starts with the card brands, specifically MasterCard and Visa, he says.“Their desire to be more front and center in the transaction is clear, and if they can become the ‘wallet,’ if they can build an application that replaces a consumer’s physical wallet with a digital one, they will accomplish that. And if they accomplish that, they’ll be more in control than they are today.”

Financial institutions, mobile carriers, and other payment companies then follow suit. “They see what Visa and MasterCard and Google are doing, and they get worried that they’re going to lose their place” in the proverbial pecking order,“so they jump in, too,” Strothkamp adds.

Murky Future Regardless of why they’re doing so, companies from many different industries are currently jumping into the murky mobile wallet waters en masse. Transaction trends | November 2011 13

Mobile Wallet Cheat Sheet Get the lowdown on the mobile wallets already available or soon to be launched. Here’s some information about each:

American Express Serve

» » » » »

Launched March 2011. llows consumers to make purchases and person-to-person payments A at merchants, online, or using mobile phones. ccessible via the Serve iOS and Android apps or online (via Facebook A and Serve.com). ustomers are issued Serve reloadable prepaid cards that are linked to C their Serve accounts and can be used anywhere American Express is accepted. ccounts can be funded by bank account or any debit or credit card, A or by receiving money from another Serve account.

Apriva Mobile Wallet

» » » »

Expected to launch in either late 2011 or early 2012. nlike many of its competitors, Apriva’s product won’t be tied to any U particular presentation method. Rather, it will work with EMV, NFC, mag-stripe, and more. resident Paul Coppinger says the company intends for the product P “to be sold through the merchant acquirer, to continue to give them a competitive advantage.” priva is developing this mobile wallet alone. “We’re not putting toA gether a coalition of people to do it,” Coppinger explains. “We have 160 people on staff and the vast majority of them are technologists. So we have the resources to make it happen.”

Google Wallet

» » » »

Launched September 2011.

llows consumers to “pay with an NFC wallet and redeem consumer A promotions all in one tap while shopping offline.” ccessible via an app that is currently only included on Nexus S 46 A handsets. (Additional handsets are expected to be enabled.) ccounts can be funded by PayPass-eligible Citi MasterCards and A Google prepaid cards. (Additional funding options are expected.)

Isis

» »

ill launch in Austin and Salt Lake City in the first half of 2012, with a W wider rollout expected to take place later in the year. llows consumers a “secure and convenient way to pay, redeem A coupons, and store merchant loyalty cards, all with a tap of their [NFCenabled mobile] phones.”

This joint venture (between AT&T, T-Mobile, and Verizon) recently formed relationships with American Express, Discover, MasterCard, and Visa—an important step toward its goal of providing consumers with options.

Editor’s Note: PayPal and Visa also are reportedly prepping mobile wallets, but official details were not readily available at press time.

14 November 2011 | Transaction trends

“In my mind, any new technology or process or product has to provide incremental value if it’s going to get people to change their habits,” says Strothkamp. That’s especially true when the technology or product involves people’s financial lives.“We all have pretty well-defined habits that we go through to pay bills and make payments, and we’re not quick to change them. So anything that comes along has to be not just better, it has to be significantly better than the way that we’re currently going about it.” Viewed in that light, Strothkamp says the future of mobile payments in general, and mobile wallets in particular, is far from clear, “because it’s just not that difficult to take out your credit card and swipe it.” Messenger agrees:“At the moment, swiping a card is as fast as any other type of transaction. Tapping and paying using an NFC phone isn’t any faster than that. So we’ve got to make it a better, easier, and more seamless experience for customers, and we’ve got to solve some of their pain points.” But Google is betting that the coupons, offers, and loyalty functionality that have been integrated into its mobile wallet will go a long way toward making the product more appealing to the masses.“When we first looked at this, we looked at the technology and thought,‘How can we get this onto a phone? Also, is it something we should launch?’”says Freed-Finnegan.“The conclusion we came to was that it may be cool to tap and pay with your phone, but that by itself wouldn’t be enough since plastic cards are not so bad [for doing the same thing].So we knew we’d have to add more value—like synching offers and loyalty cards to the wallet—if we wanted to create something that was attractive to both consumers and merchants.” The thinking is similar at Isis. “Mobile coupons and loyalty programs provide value to both consumers and merchants,” says Jaymee Johnson, the joint venture’s head of marketing.“The convenience of making coupons and loyalty programs available in a mobile wallet will simplify consumers’ lives, help drive mobile commerce adoption, and allow merchants to interact with consumers in new and exciting ways.” For his part, Strothkamp says that while he can see the possible appeal of integrating coupons, offers, and other promotions into a mobile wallet,“I don’t think that’s going to be enough to drive [adoption]. I think we can all see that folks are in general getting inundated with offers, so that’s not going to

for

Business

Apriva announced in mid-September it would launch a mobile product in the last quarter of 2011 or the first quarter of 2012. The as-yet-unnamed offering will differ from at least two of its current competitors in the space in that it won’t be tied to NFC, says President Paul Coppinger. Rather, “it will work with EMV and NFC. Also, it will work with mag-stripe and it will work with credit, debit, prepaid, open-loop, and closed-loop.” As for why Apriva is taking such an open approach to its product, Coppinger says, “It’s going to take a long time for any new presentation method to gain dominance. Mag-stripe has been around for a long time and, frankly, the cards in my wallet don’t expire until 2015. A card issuer isn’t going to spend extra money to replace a card in my wallet that is working perfectly well, so those cards have to expire and be reissued before some new kind of presentation technology can be introduced.” Additionally, the Apriva product’s open architecture will “give the consumer and the merchant the advanced purchasing experience that they’re looking for, but won’t force the whole infrastructure on the point-of-sale side to change,” he says. But Apriva isn’t the only company touting its mobile wallet as an “open solution.”

American Express, Google, and Isis use similar terms when describing their

offerings. American Express’ Serve is “open in terms of funding sources, open in terms of form factors, and open in terms of technology,” says David Messenger, an EVP at American Express. Marc Freed-Finnegan, Google’s senior business product manager, calls Google’s product “open,” too, even though Google Wallet currently is available on just one phone and allows just one funding source. That will change eventually, he adds, as the product is “meant to support any payment card and work across any handset or carrier. This is just the beginning for us. We’ve released a set of features that we call 1.0, but of course we’re already working on 1.1.” As for Isis, Marketing Head Jaymee Johnson says that “consumer choice will be key to adoption.” Isis is focused on “convening a truly open, secure platform that benefits payment networks, banks, merchants, and consumers. Isis will allow consumers the freedom and choice to pay with any card, from any bank and at any merchant.”

do it. It’s got to be something beyond that. I can see the benefit of adding things like loyalty or gift cards to the wallet, but when it comes to [adding] credit and debit cards, the benefit to the consumer is less clear to me.”

Banks’ Role Even if the benefit to consumers was more obvious, however, Strothkamp says he’d still have misgivings about mobile wallets.“The problem that’s going to continue to exist for some time is that mobile payments aren’t

going to be accepted everywhere. That’s a pretty big obstacle to have to overcome, because if they’re not going to be accepted everywhere, I’m still going to have to carry my credit card with me—and pulling out and using that card just isn’t that difficult.” Clearly, a lot of people will have to come together for widespread adoption of mobile commerce in general and mobile wallets in particular to occur—consumers, financial institutions, merchants, mobile carriers, and payment networks among them.

In the end, financial institutions may prove to be the most important of the bunch, maintains Strothkamp. “If you look at the applications you’re going to have on your smartphone, you’re going to have Google and you’re probably going to have Facebook, too,” he says. “Another application that’s going to be right up there [in terms of importance], though, is your primary bank’s application. If the bank’s application is already on your phone, then there’s an opportunity for that bank to do push notifications—and essentially usurp the role that Google is trying to establish.” It’s pretty obvious why Google wants to establish that role for itself, Strothkamp says. By injecting itself into the mobile commerce space, “they’re going to know how much money you’re spending and where you’re spending it—and then they can push promotions based on that information.That’s a powerful position to be in.” Of course,“there’s nothing in that equation that says Google has to play that role for banks, though,” he adds.“Banks could do it themselves”—especially if they called on the services of or combined forces with companies that are pushing the envelope when it comes to merchant-funded offers. Another reason financial institutions may want to toss their hats into the mobile wallet ring: “From a pure dollars-and-sense perspective, they could see a real cost-savings if they don’t have to send out plastic—if, rather than reissuing cards, they do it all through your phone,” says Strothkamp. He holds firm to his belief that financial institutions will be key players when it comes to the widespread acceptance of mobile wallets.“It’s all going to somehow be tied in with the mobile banking application or the mobile credit card application that’s already on your phone,”he says, especially because it shouldn’t be too difficult for financial institutions to add to or update those applications to allow for mobile payments. “They already know the information that’s needed to make that happen, so I won’t have to tell the application my credit card number and my security code like I will with pretty much every other [offering]. From my perspective, that alone takes them a couple of steps toward what ultimately has to happen for mobile wallets to succeed.” TT Bryan Ochalla is a contributing writer to Transaction Trends. Reach him at bochalla@yahoo.com. Transaction trends | November 2011 15

Startup Stories:

International Bancard

Investing in Solutions International Bancard puts resources into new ventures, new people, even a new building By John Manasso

en years into its existence, International Bancard is doing its part to help transform Michigan from a Rust Belt economy to a high-tech

Recruiting Quality

In trying to build International Bancard into a powerhouse, CEO David Iafrate recruits in growing Sunbelt states like Texas, Florida, and Georgia, where the payments industry is flourClawson, MI economy. ishing. Luring staff is not always an easy feat, In December 2009, the company quaconsidering Michigan’s colder climate.To help Founded: 2001 drupled its office space with a new headrecruit and to grow the company in general, quarters building in Clawson, Michigan, just Iafrate says International Bancard is investing 20 miles north of Detroit, with the stated “very heavily” in itself. goal of adding 150 jobs. Not long after the “Not only have we invested in facilities, inmove, International Bancard won a request frastructure, and technology, but in training for for proposal to run the merchant sales program of Citizens Republic our staff,” Iafrate says.“It’s a very, very big investment. It’s paid off Bancorp Inc., the oldest bank based in Michigan, with more than because what that’s done for us is it’s really given our organization a 218 offices throughout the Midwest. lift, as far as people interested in coming to work here.We’re getting In the short time since, International Bancard’s top-line growth tremendous hits on our corporate website and on LinkedIn.We’re has improved by 27 percent, according to one high-level company starting to get noticed. executive. “It’s a long-term deal with us,” he continues.“In this business, there Along the way, International Bancard earned a worker training is a lot of churn-and-burn with merchants and salespeople, but we tax credit worth $1.1 million over seven years in July 2010 from retain very well here. I think it all comes down to putting the time the Michigan Economic Development Corp.The company’s news in with an individual and giving people the tools to be successful.” release at the time said it would “develop a 40-hour program that In 2010, International Bancard set a goal to grow by a factor of will teach the history of the bankcard industry as well as the math four over the five ensuing years.The new headquarters building, in behind interchange rates charged by the card-issuing associations which the company invested more than $2 million after moving and other aspects of what has become a booming financial services from nearby Royal Oak, is part of an approach that is both inward business.”T he program is administered with the help of a local com- and outward. munity college. “When I built this facility out, I had to say,‘Hey, the kids are gradu-

16 November 2011 | Transaction trends

International Bancard

ating from University of Michigan, Michigan State,Wayne State, and I want them to come here and check this out,’ ” Iafrate says about the cosmetic approach to the building.“So I built something that has polished concrete floors, to give you a visual—very lofty, brick, woodbeams shooting through glass, lounges, just really cool—so that I cater to the ‘X,’ the ‘Y,’ and the baby boomers. I can’t be too off the charts here because I have CEOs of banks coming here, so it kind of caters to everybody. When people come through from the state or out-of-state banks or wherever, they’re like,‘Wow, this is beautiful.’”

Luring Major Players International Bancard is also focused on reeling in the big fish. Company executives talk about not only leveraging relationships with high-level corporate executives but also putting forth value propositions that make it impossible for the executives to say no. Iafrate cites a three-pronged approach that helped the company win the account for Citizens Bank, which has branches outside the state in Ohio,Wisconsin, and Indiana. The first part of International Bancard’s plan to win the RFP was to put people where the Citizens branches are.“We have an approach where we have district managers in the field that work for us, and, obviously, we have relationship managers on the inside in the call center,” Iafrate says.“That was one of the things—and also our service level.” The ISO instituted a policy where merchants are guaranteed a call back in 60 seconds. International Bancard also invested in software as the final part of its winning strategy. “I think one of the very big determining factors was the real-time visibility of our [customer relationship management] portal system that we built that the bank has access to,” Iafrate says.“Sometimes [the ISO’s software] may not be as visible, so we custom-built a solution off of our main platform to give the banks real-time visibility at a very granular level so they could determine who was contributing to the program.” Iafrate adds that International Bancard is a “very highly technologically advanced company, but we’re kind of under the radar. Companies 10 times our size don’t have systems like this.”

LET US PROFILE YOUR ISO Is your company a successful ISO? Let us tell your story. Email jrossi@strattonpublishing.com for more information.

lafrate describes the technology as a “ticketing-based system that lets us track the prospecting and on-boarding functions of a client.” T he system then shares the data with the company’s sales partners (agents) and referral partners, and, in some cases, also shares the transaction data with the company’s customers.“It’s really a slick program. And it shows the status as to where the deal is inside of our system at all times, so it’s visible to the entire organization.”

Customizing Solutions While Citizens Bank has been one of the big targets International Bancard has landed, there’s another. In terms of big-box retailers, International Bancard’s biggest client is Staples. International Bancard designed a “Business Express” program for Staples that made it easier and more af-

fordable for merchants to sign up.That was where the 60-second guaranteed callback came in. Another component was to create video tutorials to walk new merchants through the process of starting up. “What we’re trying to do is to package a merchant services program up at a point of sale where it normally isn’t available,” explains an International Bancard executive who helped design Business Express. “For example, most people go to their bank when they want to set up a merchant account or they go online. We’re saying,‘Why wouldn’t you go to Staples?’ When you’re there getting your office supplies and it triggers the thought of,‘Hey, I’m buying a cash register, I need to be able to accept credit card payments as well. There’s a terminal here. Gee, it’s a great value, and I can go online and activate the account.’ So it’s just really meeting the consumer where they are with the solution that they need.” It’s an approach that seems to work. TT John Manasso is a contributing writer to Transaction Trends. Reach him at john_manasso@yahoo.com.

WORDSTOTHEWISE Pick a strength. “Be true to yourself, who you are, and what you’re good at,” says one high-level International Bancard executive with extensive experience in marketing. “Stay focused on that.Too many ISOs try to do too many things, and they fall outside their skill sets.” Don’t get consumed by fads. “Make a plan and work your plan,” says CEO David Iafrate. “I can’t tell you how many times I’ve seen merchant-level salespeople and smaller ISOs get derailed by reading something and thinking,‘This is the next big wave.’ Focus on and make a plan and execute a plan.” As an example, Iafrate says that if an ISO plans on going after veterinarians, focus on veterinarians.“Be the best you can be,” he says.“Too many people are too scattered and have too many programs and too many ideas, and they don’t have capital to execute on that. I have that conversation with my sales managers every day. I think you’ve really got to come up with your niche. It couldn’t be more true.” Be innovative. “One thing I think is very important is to think outside of the box,” Iafrate says.“[We] try to make things easy for a merchant to sign up with us. A lot of people are outward facing and don’t look at what the client is facing:‘Look at me, look at my website.’ T hink about the client and client’s needs. What does the client going into the bank want to see?”

Transaction trends | November 2011 17

WASHINGTON WATCH

Race for Compliance

TIN matching gives ISOs a run for their merchants’ money By John Manasso

SOs now have a one-year extension before a three-year-old federal law has drastic consequences for their merchants and jeopardize their relationships. Under The Housing and Economic Recovery Act of 2008, Congress charged the Internal Revenue Service with ensuring that payment processors match the name, address, and tax identification number (TIN) of “each participating payee (or merchant) to whom one or more payments in settlement of reportable payment transactions are made.” (Payment processors also must report the gross amount of the transactions for each merchant.) The deadline for ISOs to report this data on the new Form 1099-K to the IRS is Jan. 1, 2012. “By now, everyone should be well along in their TIN matching, if not completely done,” says Mary Weaver Bennett, director of government and industry relations for the Electronic Transactions Association. If the TIN matching is not 100 percent correct, the IRS will reject the 1099-K and send ISOs what is a called a “B-notice,” or back-up withholding notice. ISOs then will have 30 days to correct the information. Should ISOs fail to make a “good faith effort” to comply with the law, their merchants could have 28 percent of their gross payments withheld—“a death knell for most small- and medium-sized businesses, especially in this economy,” says Bennett. “I cannot stress strongly enough to get your merchant TINs matched 100 percent—no question—and that will serve to preserve the relationships that ISOs have with their merchant clients,” she says.

Fed-Level Worries Part of the reason why the government will not send out B-notices for nine months is the sheer amount of documents with which the IRS must deal. On July 26, the Treasury Department’s Inspector General (IG) for Tax Administration issued a report entitled, “Plans for the Implementation of Merchant Card Reporting Could 18 November 2011 | Transaction trends

Result in Burden for Taxpayers and Problems for the Internal Revenue Service.” Initially, the report estimated the IRS would generate 125 million 1099-K forms, but the IG later reduced that number to 54 million. Another troubling statistic from that report came when the IRS computed the prefiling rate of mismatched TINs for four fiscal years. In 2006, the rate was 10.4 percent and increased slightly to 13.7 in 2007. Then, it nearly doubled to 26.3 in 2008 and reached as high as 29.5 percent the next year. The report does state, however, that for those four years “an average of only 1.78 percent of information documents received and processed through TIN vali-

dation had name and TIN mismatches.” Bennett advises ISOs not to allow the situation to escalate to that point. In its report, the IG also acknowledged this tight time frame and, because of the increase in 1099-K forms, the possibility that “mismatches might not be resolved before backup withholding becomes mandatory.” More worrisome, it also found that the IRS’s “risk assessment and implementation plan did not contain adequate details regarding these risks as well as appropriate contingencies” and recommended the IRS “monitor amounts reported for merchant card and third-party payments to ensure there is no confusion about where to enter the amounts” to avoid TIN mismatches.

Breaking News: IRS to Waive Penalties for One Year IRS Commissioner Doug Shulman announced that a notice soon would be released providing relief for those subject to filing under IRC section 6050W, the credit card and third-party network reporting rules that went into effect this year. Shulman stated that: n I RS would provide penalty relief for 2011 for those who made a “good faith effort”

to comply. Not filing at all would still trigger the penalties. n The backup withholding effective date would be postponed until 2013.

Shulman did not specifically address the controversy over the proposed addition of Merchant Category Codes on the Form 1099-K. However, the penalty relief is across the board, so failures to include the codes—should IRS still require it—would not be penalized if a good faith effort to include them is made.

Other Concerns The IG’s report also highlighted two other areas of concern for ISOs. First is the reporting of customer cash option. Cash back, obviously, is not revenue generated by the merchant. But on the original IRS form, it would have been reported as such.“Misreporting cash back may result in a mismatch when the IRS compares gross receipts from merchant card payments as reported on the tax return with the amounts on Form 1099-K,” says the IG. After the audit, the IG report stated that the IRS began the process of redesigning Tax Year 2011 income forms and the corresponding instructions to make reporting easier for ISOs. The second troublesome finding was the IG’s conclusion that “sensitive taxpayer data could be at risk of disclosure.”This would be of special interest to small ISOs, whose owners use their Social Security numbers as their TINs. The IG found “no mention of security reviews in the risk assessment.” The report cited a March 2009 report by the Government Accountability Office that “security weaknesses continue to affect IRS’s modernization

environment” and that “IRS continues to have weaknesses in its information security controls.” In response, the IRS “plans an education program for the payers after the regulations are finalized” but the IG’s office found no such plan in its audit. Regardless, the report stated that “payment settlement entities and merchants will require significant education.” “Given that we didn’t see the final regulations—‘we’ being the entire industry—until late 2010, that was late in the ballgame,” says Joe Samuel, senior vice president, global public affairs and government relations, at First Data.“So we have a lot of work to do. We’ve got over 5 million merchant customers, but at the end of the day, for us, the most important thing is ensuring that our merchants are in compliance, and, I’ll be honest with you, our biggest concern is, given the state [of the] economy, the potential impact this could have on small businesses that drive economic growth in this country.” With so many customers and because of the scale of its operations, First Data literally has people whose job it is to work on TIN matching every day and who hold daily meetings to make sure everything is

in compliance. Much of its process is automated so that every time a mismatch is found, the IRS is alerted. But the company also has sent out email alerts, performed letter campaigns, and involved relationship managers in urging compliance with the company’s business partners. “This topic has been very well publicized,” says Tom Chen, director of tax planning at First Data. He offers this example of how withholding would work and its potentially devastating consequences: “You have to keep in mind that this is a particularly hard-hitting withholding rule because it applies to 28 percent of the gross transaction value, which doesn’t necessarily equate to the funded amount,” he says. “So if a merchant has $1,000 of sales in a day, withholding is $280 for federal, but the funding might only come through at $300 because of refunds or chargebacks, things like that. So they’re only going to get $20 in that scenario. “It’s a pretty hard cash flow impact.” TT John Manasso is a contributing writer to Transaction Trends. Reach him at john_manasso@yahoo.com.

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Transaction trends | November 2011 19

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ETA’s Certified Payments Professional (CPP) program sets the standard for professional performance in the payments industry. By earning your CPP, you demonstrate your commitment to a higher standard of excellence. The CPP signifies that you have the knowledge and skills to perform competently in today’s complex electronic payments environment.

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[ NEW MEMBERS ] The Electronic Transactions Association 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. For a complete list of ETA member companies, go to www.electran.org/members. Benchmark Payment Networks Cold Spring Harbor, NY 11724 631/659.3578 Contact: Ron Reiter

Card Payment Solutions Florence, SC 29505 843/661.1003 Contact: Jaye Watson

Connex Info Systems Irvine, CA 92614 949/274.1182 Contact: Gus Calderon

Bill 1st Boca Raton, FL 33432 561/702.5792 Contact: Dan Ahearn

Caribbean Electronic Payments Ltd. Milton Keynes United Kingdom +1 972/429.5737 Contact: Steven Hodge

CUSTOS MOBILE S.L. Alcala de Henares Spain +34 65.892.9405 Contact: Jose Gonzalez

BillingTree Phoenix, AZ 85008 602/443.5942 Contact: Shannon Olson

Chargeback Guardian American Fork, UT 84003

Bixolon America Inc. Torrance, CA 90505

Checkredi Huntsville, AL 35810 256/890.3440 Contact: Bill Rock

CyrusOne Lewisville, TX 75067 972/350.0041 Contact: Jamie Honsaker

Calpian Dallas, TX 75201 214/758.8600 Contact: Craig Jessen

CLK CLK INC. Milwaukee, WI 53203

Data One Payment Solutions Quincy, MA 02169 888/813.2821 Contact: Marc Thomas

Community Merchant Solutions Irvine, CA 92618 877/956.9258, x1 Contact: Wain Swapp

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Back To Vegas!

aPRIL 17-19, 2012 MaNDaLaY BaY ResoRT & casINo Las Vegas, NV

ETA 2011 BOARD OF DIRECTORS OFFICERS PRESIDENT Rick Pylant Chairman & CEO Strategic Payment Systems Inc. PRESIDENT-ELECT Eddie Myers President & COO Payment Processing Inc. TREASURER Roy Banks CEO ACCELERATED Payment Technologies Inc. SECRETARY Kim Fitzsimmons Senior Vice President—First Data Services First Data Corporation IMMEDIATE PAST-PRESIDENT Holli Targan Partner Jaffe, Raitt, Heuer & Weiss P.C.

Robert McCullen CEO Trustwave

Jeffrey Sloan President Global Payments Inc.

Diana Mehochko President TSYS Merchant Solutions

EX-OFFICIO Carla Balakgie CEO Electronic Transactions Association

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

Jan Estep President & CEO NACHA Steve Carnevale Group Head—U.S. Market Development, Emerging Verticals and Acceptance Development MasterCard Worldwide Sameer Govil Head of Acceptance Solutions Global Aceptance Visa Inc.

ADVISORY COUNCIL Tom Bell CEO Bank of America Merchant Services

Ron Shultz Vice President American Express

Donald Boeding President—Merchant Services Vantiv LLC

DIRECTORS Todd Ablowitz President Double Diamond Group

Gerry Wagner Vice President Discover Financial Services

Chuck Harris President NetSpend

Robert Baldwin President & CFO Heartland Payment Systems Inc.

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

Chris Hylen General Manager & Vice President Intuit

Gregory Cohen President Moneris Solutions

Mike Passilla President & CEO Elavon

Gary Goodrich CEO ProPay Inc.

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Transaction trends | November 2011 23

Industry Insider

Have It Their Way Choice—of platform and peripheral—is paramount to Apriva’s products and services By Bryan Ochalla

o understand and even appreciate Apriva and its suite of wireless payment-processing products, it helps to understand how the Scottsdale, Arizonabased company came to be. Apriva’s founders weren’t always “payments people,” says Bill Ramsey, the company’s vice president of business development. Rather, they were “serial entrepreneurs” who had worked in security and who used that experience to create a variety of software products. One such software product was produced for Research In Motion (RIM) devices. Although it was eventually sold (to Aether Systems), the technology piqued the founders’ curiosity and pointed them in the direction of the payments industry. “They thought it was a great place to take the product,” Ramsey shares, because “at that time, nothing like that existed” in the space. “There wasn’t even a mag-stripe reader for RIM devices at the time,” Ramsey continues. “So we built a client-side software product for the hardware, and we built a mag-stripe —Bill Ramsey reader for it, too.We also built a payment gateway for those devices to connect to, and then we started building links out to various payment-processing platforms.” Unfortunately, the result of all of that hard work didn’t sell as well as the company’s founders had hoped.“At the end of the day, we were asking people to carry a very expensive device that only did data—because, remember, RIM devices back then weren’t phones.”

“Merchants don’t want to feel like they’re being force-fed a particular solution. They want something that feels like it was made for them.”

Strong Backbone Around that time, “traditional, purpose-built terminal manufacturers” began rolling out wireless products, Ramsey says. Seizing the opportunity, the company took its AprivaTalk framework and translated it to support purpose-built terminals from a variety of manufacturers. It later ported the technology to other devices—such as vending machines (in 2009, with its Apriva Vend product) and mobile phones (in 2010, with its AprivaPay product). 24 November 2011 | Transaction trends

“Both of those payment points suffer from the same security and reliability shortcomings on the wireless networks” that purpose-built terminals have long suffered from, says Ramsey. “What we originally intended to do had an unintended consequence,” he adds.“We built an architecture that very efficiently handled those security and reliability constraints and mitigated those network shortcomings and now can apply them to a variety of devices, whether they’re purposebuilt terminals, vending machines, or smartphones.” The company now offers a variety of products—including AprivaPay, Apriva Vend, Apriva POS, and Apriva Online Terminal—that allow merchants of all sizes to securely accept card payments on mobile phones, vending machines, wireless terminals, and from any Web-connected computer.

Many Applications The increasing cultural acceptance of mobile payments has helped pave the way for Apriva’s smartphone-based product, AprivaPay. “There’s a comfort level with completing financial transactions on smartphones that made it ideal for us to expand that market,” Ramsey says. The company, which also supplies core technology for secret and top-secret communication within several “security conscious” components of the federal government, is working to expand its smartphone market in a variety of ways. For starters, it targets everyone from the smallest to the largest merchants with AprivaPay. Also, it sells the product to those merchants through a diverse network of reseller partners. “We have partners that go after those flea-market—or what we call ‘Level 5’—merchants, and we have partners that go after higher tiers of merchants,” says Ramsey. All partners have a choice of platforms and peripherals so they can target any merchant. “We don’t tell resellers, ‘I hope you like this particular piece of equipment because that’s all you’re getting,’” Ramsey says.“All that does is put them in a difficult position because merchants don’t want to feel like they’re being force-fed a particular solution. They want something that feels like it was made for them. And that’s what we try to give them.” TT Bryan Ochalla is a contributing writer to Transaction Trends. Reach him at bochalla@yahoo.com.

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