Transaction Trends by Content Communicators, LLC

Transaction trends The Official Publication of the Electronic Transactions Association

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| October 2011

Whoâ&#x20AC;&#x2122;s Who

in Mobile Payments Learn how companies stack up in our firstever mobile commerce providers guide

ALSO INSIDE: The Latest on EMV in the U.S. Startup Focuses on Community Banks

Transaction trends The Official Publication of the Electronic Transactions Association

Vol. 16 | No. 10

cov e r s to ry

8 SPECIAL: Who’s Who in Mobile Payments

By Bryan Ochalla The mobile payments market is ripe with opportunity, but does your company have a strategy for cashing in? Our first-ever Mobile Commerce Providers Guide takes the guess work out of finding key players to partner with in this growing market.

FEATURES

18 Steady Race to EMV Adoption 23 S P EC I A L SER I ES By Julie Ritzer Ross From Visa’s moves to accelerate EMV technology to two top-10 banks issuing chip cards, EMV adoption in the United States is happening, but industry consensus and investment for migration remain unsettled.

Startup Stories: Art of the Deal By John Manasso A former artist and founder of Acuity Payment Services applied lessons he learned in his past occupation—fulfilling promises, leveraging niches, and hiring an experienced staff—and watched his business thrive.

d e partm e ntS

4 6 26

President’s Message Insights from ETA’s elected leader

Industry News

Trends, strategies, and news in the payments business

27 Ad Index 28 Industry Insider

ControlScan helps small- and mid-sized merchants get compliant.

NEW! ETA New Member Listing

Transaction trends | October 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 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, Brian 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 October 2011 | Transaction trends

Volunteers: ETA’s Lifeblood

ext month, many of you will receive a letter from ETA confirming your place on one of the dozen or so ETA standing committees and task forces for 2012. As I said when I began my term as president of ETA, volunteers are the backbone of the association.Those who serve on the committees are the core of ETA’s volunteers.They provide their time and their expertise to ETA and expect nothing in the way of what we normally think of as compensation.That doesn’t mean they’re not rewarded; the benefits of giving, however intangible, often exceed the cost. Committee members are a window on the industry for ETA’s staff.They generate new ideas, provide valuable services to ETA’s membership, and much more.They contribute much of the content and structure at ETA’s meetings.They provide the analysis and insight that is the foundation for our advocacy efforts, and they keep the entire membership of ETA informed about the trends afoot in areas like technology and risk management. Those who will take up new committee assignments in 2012 have the gratitude and admiration of ETA’s board, officers, and staff.They will be the core of ETA’s community for the next year and be a big part of ETA’s success in 2012.They have a task before them:To keep the momentum from this year alive and take it to a new level, at a time when the payments industry faces many challenges in adapting to new technology, new government regulation, and a changing competitive landscape. In return for engaging as a volunteer, ETA’s committee members will have the opportunity to forge new and lasting friendships and professional relationships, to grow personally and professionally, and to earn the respect and admiration of everyone in the ETA community. So if you answered the call to be part of an ETA committee this time around, thank you.And if you haven’t considered doing so, please make a commitment to do so next year. It’s critical that ETA has a continual influx of new ideas and new energy so it can evolve and serve today’s members as well as tomorrow’s.The world of payments is constantly challenging us to keep up.We can’t do it without you. This issue of Transaction Trends will be distributed at ETA’s Strategic Leadership Forum and the associated Mobile Commerce Summit, so if you’re reading this in Chicago, welcome. Be sure to make the most of what the SLF has to offer. It’s a great opportunity to look down the road a bit further than we normally do and as quickly as our business is changing, that can be a tremendous advantage. I look forward to seeing you in Chicago.

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

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INDuSTRYnews Compliance Now Drives Encryption

Meeting the requirements of PCI Data Security Standard and data security regulations in many states is now the number one reason that organizations of all sizes are investing heavily in encryption technology, according to the Ponemon Institute’s annual “U.S. Enterprise Encryption Trends Report.” Compliance concerns were cited by 69 percent of the 964 IT executives who responded to the Ponemon survey, up 5 percent from one year ago. The survey also found that 84 percent of respondents have either fully executed or are in the process of implementing encryption, a two-point increase from 2009 and a five-point increase from 2008. The study points out that the threat of stiff penalties for breaches where an organization is not in compliance has caught the attention of a large number of IT professionals working where sensitive data is handled.

AROUND THE HORN

ROAM Data has named Ken Paull executive vice president, a new position at the company. ControlScan, a provider of PCI compliance and security solutions for small merchants and acquirers, has entered into a referral partner agreement with Convey Compliance Systems, a provider of tax information reporting services and software. CHARGE Anywhere, provider of secure mobile payment and payment gateway solutions, has won PA-DSS certification for version 2.0.0.17 of the CHARGE Anywhere Payment Application for Windows Mobile. First American Payment Systems, a merchant services acquirer, has expanded its recruiting team with the hire of Greg Carr as manager of strategic partnerships. Payment Alliance International has been named a 2011 Hot Dozen company by Greater Louisville Inc.’s EnterpriseCorp. Rick Pylant, chairman and president, and Jon Stevens, vice president, resigned their positions and separated from CoCard Marketing Group to start Strategic Payment Systems Inc., a new ISO. SunTrust Merchant Services has announced that it has selected SecurityMetrics’ new TIN Matching Service to streamline the matching process for a majority of its merchants. 6 October 2011 | Transaction trends

New Chip Could Speed Adoption of NFC Smartphones The first generation of NFC-enabled smartphones start hitting the market later this year, but the radio-chip maker Broadcom has announced that it’s ready to start production of a new chip that’s smaller, faster, more powerful, and uses less power than those now available. The development is significant not for its direct impact on payments, but for its potential to spur adoption of NFC-enabled smartphones and other devices by offering consumers new ways to use them for nonpayment functions. For example, NFC can be used to authenticate a device more easily and more securely than a Bluetooth pairing, making smartphones better for authentication purposes. It also could make phoneto-phone transfers of large files more feasible.And making it easier to connect the phone to other networks securely and easily could enable a host of new applications, some of which are still on the drawing boards. Of course, once consumers buy smartphones—for whatever reason—converting them to mobile payments users will be much easier. Craig Ochikubo, vice president of the business unit that oversees NFC at Broadcom, says the company is excited about these new potential applications for NFC, but adds that Broadcom “can’t ignore mobile payments,” given that carriers, banks, and credit card companies all are going after the revenue stream involved.

info graph Merchant Acquirers Assess Impact of Durbin Amendment (Multiple responses per respondent) 61%

Attrition risk Portfolio-repricing efforts

56% 33%

Pricing transparency Systems development

28% 22%

New product offering opportunities Resource consumption

11%

No/minimal impact

11%

New customer acquisitions

Source: Aite Group

[ Mobile Commerce Providers Guide ]

Who’s Who in Mobile Payments

From mobile acceptance to mobile wallets, our first-ever Mobile Commerce Providers Guide makes sense of who is providing technologies and services By Bryan Ochalla

he mobile commerce market—electronic payments initiated or accepted via mobile phone—is red hot. And by most expert accounts, this trend will only continue, considering that more consumers around the world own and use smartphones than ever before. In the second quarter of this year, global sales of smartphones rose 74 percent year-over-year and accounted for 25 percent of overall sales (up from 17 percent in the same quarter of 2010), according to recent information from Stamford, Connecticutbased research firm Gartner Inc. Even the current decline in credit card usage and ownership hasn’t stopped all of the major payments players from implementing a mobile strategy, and retailers continue to invest in mobile apps and other solutions. Should smaller players continue to follow suit? “I think every company involved in payments should have a mobile strategy at this point,” says Todd Ablowitz, president of Denver-based consultancy Double Diamond Group LLC.Those who don’t, he adds,“do so at their own peril. “There will be winners and losers and consolidation as we continue to see market uptake, just as there are with any other technol-

8 October 2011 | Transaction trends

ogy rollout,” Ablowitz says, adding, “There’s going to be lots of chaos that will eventually turn into order.” To that end, the staff at Transaction Trends compiled this first-ever Mobile Commerce Providers Guide to offer readers a better understanding of the players in this space who provide opportunities for business partnerships. For quick reference, we’ve classified each company’s products and services in up to six categories: mobile payments, mobile acceptance, mobile wallets, handsets, prepaid and promotion (includes loyalty offerings), and person-to-person payments.These categories are designated by icons in each listing. We’ve also included basic contact information and details on how each company plans to get its mobile commerce solution to market—via ISOs, directly to merchants, etc. Aside from conducting internal research, we also reached out to the payments community, asking mobile commerce providers to supply more information on their mobile products and services. But despite our best efforts, it is possible that our information is incomplete.We expect this resource, much like the mobile market itself, will evolve over time. In the meantime, we hope this guide will help you capitalize on this burgeoning market now. TT

[ Mobile Commerce Providers Guide ] BUSINESS NAME

BUSINESS DESCRIPTION

Alpha Card Services

Alpha Card Services offers businesses the mobility, security, and convenience of accepting credit cards through popular smartphones, such as the iPhone, Android, and BlackBerry. The company’s QwickPAY product can turn a merchant’s smartphone into a mobile processing terminal in a matter of minutes thanks to a free placement reader and downloadable software app.

Headquarters: Huntingdon Valley, Pennsylvania Website: alphacardservices.com Year founded: 2000

American Express Headquarters: New York, New York Website: americanexpress.com Year founded: 1850

QwickPAY is sold to merchants through an ISO sales force and various financial institution partnerships. In late March, American Express unveiled Serve, a digital payment and commerce platform that the company says will provide consumers “a new way to spend, send, and receive money, with services that go beyond the existing global payment networks.” Serve allows people to make purchases and personto-person payments using their mobile phones. Serve accounts can be funded from a bank account, debit, credit, or charge card, or by receiving money from another Serve account, and can be accessed using Serve Apple iOS and Android applications. Serve is offered directly to consumers and merchants.

AnywhereCommerce Headquarters: Montreal, Canada Website: anywherecommerce.com Year founded: 2006

AnywhereCommerce is a global e-commerce and m-commerce payments technology engineering and solutions provider with patented and proprietary suites of hardware and software services for secure online and mobile cardpresent credit card, PIN debit, NFC, and EMV transactions. The company’s universal “aCommerce” platform can be used for e-commerce, m-commerce, P2P, and retail line-busting as well as traditional field services such as home repairs, delivery, or taxi services. The aCommerce platform is sold via distributors, ISOs, OEMs, and VARs.

AppNinjas Headquarters: Dublin, Ohio Website: appninjas.com Year founded: 2009

Apriva Headquarters: Scottsdale, Arizona Website: apriva.com Year founded: 1999

With the Swipe mobile payment application from AppNinjas, anyone who conducts business outside a traditional office or retail setting can accept credit card payments on their iPhone, iPad, or iPod touch. The simple-to-use app makes it possible for businesses and nonprofits to accept credit cards anywhere. AppNinjas’ Swipe app is available to the public for download through Apple’s App Store for $0.99. AprivaPay is a full-featured payment application designed for both smartphones (Windows Mobile, iPhone, BlackBerry, and Android) and browser-capable mobile phones, and it offers integration with optional printers/readers as well as other functionalities that enable merchants to better serve customers. Apriva’s Payment Gateway connects merchants (from single-person entities to enterprises), processors, and card brands to ensure the integrity of the transaction ecosystem. Apriva’s mobile solutions are available through merchant acquirers and processors.

Charge Anywhere Headquarters: South Plainfield, New Jersey Website: chargeanywhere.com Year founded: 2004

Charge Anywhere’s Mobile Payment Solution enables merchants to accept payment from any mobile device. The solution, which is compatible with all major payment processors, also allows them to securely complete transactions in seconds by swiping credit cards and printing receipts with optional peripherals, such as a Bluetooth card reader/receipt printer or audio jack card reader. Charge Anywhere’s Mobile Payment Solution is provided to merchants through acquiring banks, ISOs, MSPs, and processors.

mobile payments

mobile wallets

prepaid and promotion

mobile acceptance

handsets

person-to-person payments

10 October 2011 | Transaction trends

The only mobile wallet that works with your existing terminals and extends your gift and loyalty programs to more than 50 million smartphone users. Don’t wait for NFC. Paycloud will be available nationwide beginning Q4 2011. View a demo at sparkbase.com/paycloud or call 877-797-7275 to learn more.

Simple. Secure. Integrated.

2011 Winner Technology Innovation Award electran.org

2011 Winner Shark Tank Innovation Award midwestacquirers.com

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.

[ Mobile Commerce Providers Guide ] Datalink Bankcard Services

Headquarters: Richardson, Texas Website: datalinkonline.net Year founded: 1989

eProcessingNetwork LLC Headquarters: Houston, Texas Website: eprocessingnetwork.com Year founded: 1996

First Data

Headquarters: Atlanta, Georgia Website: firstdata.com Year founded: 1964

Google Headquarters: Mountain View, California Website: google.com Year founded: 1998

Datalink Bankcard Services provides a full range of mobile commerce solutions for its customers. The company’s mobile payment applications transform merchants’ mobile phones into complete wireless credit card terminals and reporting devices. It also offers mobile payment peripherals such as audio jack and serial port card readers, receipt printers, and mobile sleeves. Datalink Bankcard Services’ products are sold directly to merchants and through affiliates, ISOs, and other partners and resellers. eProcessingNetwork’s ePNMobile is compatible with a large number of mobile phones, including iPhones, Androids, BlackBerrys, and more. It supports keyed and swiped cards, check processing, and gift cards. AVS and CVV2 fields are available for fraud prevention and email services can be used for receipts and marketing. ePNMobile is offered to merchants through a direct reseller channel of ISOs, MSPs, and processors. First Data Mobile Commerce solutions help businesses meet the growing demand of the mobile and social media revolution. The company offers a loyalty solution using the Facebook social media network and mobile payments opportunities using its Trusted Service Manager (TSM), which powers part of Google Wallet. First Data delivers its mobile commerce solutions directly to merchants and financial institutions as well as through ISOs and agents. Google will soon be entering the payments space with Google Wallet, an application that promises to turn consumers’ smartphones into mobile wallets so they can “tap, pay, and save money and time while [they] shop.” Specifically, it stores virtual versions of existing plastic cards on a person’s phone and then allows them to pay for products and services (or redeem offers and promotions) by using NFC technology. Although the app will only be compatible with Nexus S 4G phones at launch, Google—which partnered with First Data, MasterCard, and Sprint to make Google Wallet a reality—assures that additional phones will be supported in the future. Google Wallet will be offered directly to consumers.

Isis

Headquarters: New York, New York Website: paywithisis.com Year founded: 2010

ISTS Worldwide Inc.

Headquarters: Fremont, California Website: istsinc.com Year founded: 2002

Isis, a joint venture between AT&T Mobility, T-Mobile USA, and Verizon Wireless, is a mobile commerce initiative that its founders hope will “fundamentally transform how people shop, pay and save” when it’s rolled out—starting in Austin and Salt Lake City—in early 2012. Isis allows consumers to use their mobile phones to make POS purchases as well as redeem coupons and store merchant loyalty cards, through the use of NFC technology. The Isis mobile commerce network will be made available to all merchants, banks, payment networks, and mobile carriers. ISTS is a global technology development and consulting company specializing in the payments ecosystem. The company develops solutions on iPhone, Android, and BlackBerry. Special features include integration to external devices and back-end merchant systems. E to E, rich GUI interfaces, and applications are native and cross platform. Applications developed for ISTS’ clients are owned by the client.

mobile payments

mobile wallets

prepaid and promotion

mobile acceptance

handsets

person-to-person payments

12 October 2011 | Transaction trends

From St. Louis to St. Lucia. Around the corner and around the world, more cardmembers are making their card purchases on the DiscoverÂŽ network. With an expanding global reach and more acceptance partners than any other network, see how Discover can be your gateway to new business.

ÂŠ 2011 DFS Services LLC.

DiscoverNetwork.com

[ Mobile Commerce Providers Guide ] Mocapay

Mocapay is a mobile consumer engagement platform that offers merchants a secure, patented, mobile marketing, mobile loyalty, and mobile payments solution. The platform addresses merchants’ need for a new channel that broadens their reach to customers at anytime, not just at the POS, encourages purchases, and builds a stronger brand affinity.

Headquarters: Denver, Colorado Website: mocapay.com Year founded: 2006

Mocapay is sold directly to merchants as well as through financial institutions and acquirers.

Nokia

In 2009, Nokia introduced a mobile financial service called Nokia Money that was “designed to be as simple and convenient as making a voice call or sending an SMS.” The service, which has only been rolled out in a few select markets (such as India), enables consumers to “send money to another person just by using the person’s mobile phone number, as well as to pay merchants for goods and services, pay their utility bills, or recharge their prepaid SIM cards,” according to a press release that accompanied its initial unveiling.

Headquarters: Espoo, Finland Website: nokia.com Year founded: 1871

Payment Alliance International (PAI)

Headquarters: Louisville, Kentucky Website: GoPAI.com Year founded: 2005

PayPal Headquarters: San Jose, California Website: paypal.com Year founded: 1998

ProPay Inc.

ProPay’s secure mobile commerce options fit the many settings where merchants may need to process card payments. These options include processing over a touchtone phone, browser-optimized web interface, encrypting card and audio jack readers, and social m-payments in which customers can interact with and purchase from merchants on their smartphones.

Headquarters: Lehi, Utah Website: propay.com Year founded: 1997

ProPay’s solutions are sold directly to merchants and through various partnerships.

Radiant Systems

Headquarters: Alpharetta, Georgia Website: radiantsystems.com Year founded: 1985

Research in Motion

PAI offers its solutions to merchants through its association, bank, and market partners (downstream ISOs), and through direct sales and telesales. Last summer, PayPal unveiled its Mobile Express Checkout solution, a mobile version of the company’s Express Checkout service that allows merchants to accept payments online. The service opens the doors to millions of mobile shoppers and also offers three benefits to mobile-minded merchants: quick deployment and integration; a seamless customer experience (no cumbersome data entry, just a few clicks and customers are done); and strong fraud detection.

PAI offers a full suite of mobile solutions. It has a comprehensive, multipledevice, mobile acceptance solution for all ranges of service providers, including P2P. It also offers mobile payment applications for the acceptance of checks, prepaid, debit, and credit, as well as mobile banking applications and mobile wallet capabilities, including mobile texting, loyalty, and couponing.

Headquarters: Waterloo, Ontario, Canada Website: rim.com Year founded: 1984

14 October 2011 | Transaction trends

Radiant Systems’ strategy is focused on extending its customers’ point-of-sale, back office, and data warehouse through mobility to drive richer consumer interaction, improved operational efficiencies, and easier access to real-time data, resulting in a more profitable business for its merchant customers. Radiant Systems’ gets its solution to merchants through direct sales and through reseller channels. Research in Motion made headlines earlier this year for adding to its BlackBerry Bold and BlackBerry Curve series of smartphones a number of models that include built-in NFC support. Although the official word from RIM is that the technology will “[enable] many exciting capabilities, including the ability to pair accessories or read SmartPoster tags with a simple tap of the smartphone,” many believe it will eventually support payment applications of some sort.

SparkBase

Headquarters: Cleveland, Ohio Website: sparkbase.com Year founded: 2004

Square

SparkBase works with its ISO partners to promote Paycloud and to train their merchants to use and promote the Paycloud network. The Square card reader allows anyone to accept credit cards anywhere on their mobile device, while the Square card case enables individuals to discover local businesses, browse menus, open a tab, and pay with their name.

Headquarters: San Francisco, California Website: squareup.com Year founded: 2009

Street Savings

SparkBase’s Paycloud transforms merchants’ iPhones or Android smartphones into mobile wallets that enable loyalty rewards, deliver merchant coupons, and process payments. Paycloud is built on the SparkBase technology platform that supports thousands of merchant loyalty programs in eight countries.

Headquarters: Orange, California Website: streetsavings.com Year founded: 2006

TF Payments Inc. Headquarters: Irvine, California Website: focuspay.com Year founded: 2009

TrustCommerce Headquarters: Irvine, California Website: trustcommerce.com Year founded: 2000

TSYS Headquarters: Columbus, Georgia Website: tsys.com/acquiring Year founded: 1983

USA ePay Headquarters: Los Angeles, California Website: usaepay.com Year founded: 1998

Square’s solutions are offered directly to merchants.

Street Savings provides mobile marketing solutions for merchants, acquiring banks, and ISOs by mobilizing their gift and loyalty programs. The company’s Mobile Rewards and Mobile Coupons products utilize mobile text messaging in coordination with existing payment networks, credit card terminals, and POS systems to enable merchants to market directly to customers’ mobile devices via text marketing campaigns. Street Savings’ products are made available to small- to medium-sized merchants and businesses through agents and resellers. TF Payments offers FocusPay, which helps large and small businesses get paid for goods and services using their Apple, Android, and BlackBerry smartphones and tablets instead of cash registers and other traditional credit and debit card readers. Businesses that accept payments remotely are the primary target of FocusPay, which is made available through authorized resellers/retailers and dealers. TrustCommerce Mobile Payment Solution is a proprietary mobile solution for merchants to accept credit cards, PIN-less debit, and ACH in the field. Available through popular mobile devices, merchants can securely capture payments in card-present or card-not-present environments. TrustCommerce Mobile Payment Solution is sold directly to merchants. TSYS’ Mobile Payment Acceptance is a smartphone-based payments application that allows on-the-move merchants to accept and process card payments anywhere they have mobile service. Mobile Payment Acceptance is supported on iPhone and BlackBerry phones and can be paired with a portable card reader/ receipt printer to qualify for card-present interchange rates. Mobile Payment Acceptance is brought to market (i.e., merchants) through merchant acquirers and ISOs. USA ePay’s Wireless ePay solution allows retail and swipe merchants to accept credit card payments through their existing mobile device on any cellular service provider. Merchants are able to view detailed reports, as well as graphs and charts, of all transactions for the life of the account. Merchants also can email, download, and export their transaction reports. All transactions processed through the Wireless ePay software pass through a secure socket layer (SSL) for data encryption. USA ePay’s Wireless ePay is offered to merchants through a number of resellers.

mobile payments

mobile wallets

prepaid and promotion

mobile acceptance

handsets

person-to-person payments Transaction trends | October 2011 15

[ Mobile Commerce Providers Guide ] VeriFone Systems Inc.

Headquarters: San Jose, California Website: verifone.com Year founded: 1981

VeriFone’s NFC payment solutions build loyalty, deliver precisely targeted coupons, and provide product information or sign up subscribers. VeriFone’s PAYMEDIA Solutions, launched earlier this year, is a subscription-based offering that provides merchants with payment-enabled media at checkout, including digital couponing, loyalty, location-based social media, and value-added services. PAYMEDIA builds on VeriFone’s PAYware Connect gateway services to integrate traditional payment authorization with nontraditional paymentenabled media and services that accommodate consumer mobile phones. Acquirers and ISOs help bring VeriFone’s mobile commerce solutions to market.

Visa Headquarters: San Francisco, California Website: visa.com Year founded: 1970

Visa is busy prepping what it is calling a “digital wallet and services platform” it expects to launch in Canada and in the United States later this year. The digital wallet—which is being readied with the help of leading payments card issuers, community banks, credit unions, acquirers, payments processors, and merchants—will store Visa and nonVisa payments accounts, support NFC payments through the Visa payWave application, and deliver a wide range of transaction services to accommodate multiple commerce scenarios—including e-commerce, mobile commerce, micropayments, social networks, and personto-person payments. Visa’s digital wallet service will be offered directly to consumers/merchants.

ViVOtech Inc.

Headquarters: Santa Clara, California Website: vivotech.com Year founded: 2001

ViVOtech is a NFC software and systems company, enabling rich mobile commerce solutions for in-store payment, loyalty, marketing, and merchandising. ViVOtech’s end-to-end solutions enable over-the-air (OTA) card issuance, card management, and contactless POS card acceptance at merchant locations. Consumers can download their credit, debit, prepaid, or loyalty cards securely to their mobile phones and use them to shop, receive and redeem offers, earn loyalty points, and make payments. ViVOtech’s solutions are available to vendors directly and through ISOs.

16 October 2011 | Transaction trends

[ feature ]

Steady Race to EMV Adoption As Visa, Walmart, and others speed toward EMV adoption, U.S. players’ support for the global Europay/ MasterCard/Visa standard surges By Julie Ritzer Ross

KEY NOTES 8

Visa’s moves to accelerate adoption of contact and contactless chip technology via three major initiatives—including PCI DSS deferments—could spur further development in the EMV realm.

Some believe a single EMV implementation “road map” that reflects a consensus of industry groups is needed in order for widespread migration to occur.

Some experts predict merchants will balk at the significant investment in hardware, integration, and testing needed to execute a conversion to EMV-enabled card readers and POS kiosks. Some estimates put the tab at $35 billion.

Even with the best road map in hand and major obstacles overcome, U.S. deployment could take up to 10 years.

ew issues in the electronic payments industry have been more widely debated than when the United States will see mainstream adoption of the EMV (Europay/MasterCard/ Visa) global standard for interoperation of integrated circuit cards (IC cards or “chip” cards) and IC-enabled POS terminals. Overseen by EMVCo LLC—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 even in North America, with the exception of the U.S. That is, until now. “Comments from many U.S.-based organizations over the past few years have been along the lines of, ‘We will bypass EMV; we don’t need it,’ ‘It will come, but when we are ready,’ and, ‘It’s too expensive to do now,’” comments Kishalay Kumar Anal of ISTS Worldwide, a retail and payment technology provider with U.S. headquarters in Fremont, California. EMV will “come to the U.S. now sooner, rather than later,” he says, for several reasons. One is the increased incidence of credit card fraud, which EMV effectively quashes because it relies on two factors (a chip and a PIN or, less commonly, a chip and a signature), rather than a single factor, for cardholder authentication. A growing desire for worldwide payment technology interoperability also is pushing the envelope, as is consumer backlash resulting from the refusal of fraud-wary merchants abroad to accept magnetic stripe cards.

Ignition Point On August 9, Visa revealed plans to accelerate adoption of contact and contactless chip technology via three initiatives: • For starters, the issuer is expanding its Technology

18 October 2011 | Transaction trends

Innovation Program (TIP) to U.S. merchants. Made available to international merchants effective March 31, TIP recognizes the security benefits of dynamic authentication enabled by EMV chip and offers tangible benefits to merchants that update their POS technology to accept chip cards. Effective Oct. 1, 2012, Visa will expand TIP by eliminating the requirement for eligible U.S. merchants to annually validate their compliance with PCI DSS for any year in which at least 75 percent of their Visa transactions originate from chip-enabled terminals.The latter must support both contact and contactless

chip acceptance, including mobile contactless payments that leverage NFC technology. • Visa has instituted a mandate that by April 1, 2013, U.S. acquirer processors and sub processors must be able to support merchant acceptance of chip transactions. This will require service providers to carry and process additional data encompassed in such transactions, including the cryptographic message that renders each transaction unique. • Visa will implement what it deems a “U.S. liability shift” for domestic and crossborder counterfeit card-present POS transactions, effective Oct. 1, 2015 (or, for merchants that sell fuel through automated fuel dispensers, Oct. 1, 2017). Counterfeit cardpresent fraud is presently absorbed by card issuers. However, under the umbrella of the liability shift, if a contact chip card is presented to a merchant that has not adopted, at minimum, contact chip terminals, liability for counterfeit fraud may shift to the merchant’s acquirer. “Other developments are going to play a part in getting EMV to where it really should be here, but the Visa initiatives really represent the necessary ‘ignition point’ to spark a migration to the technology,” says Randy Vanderhoof, executive director of the Smart Card Alliance.“I think some of the delay on merchants’ part stems from the fact that they were waiting for a road map from card companies as to what technologies to invest in. Now that Visa has signaled that the future will include contact chips and mobile contactless payments, they know what the next generation of payments will look like.” The initiatives will truly fuel issuers’ EMV fire and accelerate the migration trajectory, agrees Chris Cox, vice president, product development, in the mobile solutions group at First Data. “This is

truly a watershed event; the incentives are very compelling for stakeholders across the board,” he says.“The prospect of bypassing PCI compliance validation is attractive,” and the liability shift should be a major boon to chip adoption because any “chip-on-chip” transaction or chip card read by a chip terminal provides the dynamic authentication data that helps to better protect all parties. The U.S. is the only country in the world that has not committed to either a domestic or cross-border liability shift associated with chip payments, Cox points out.

Banks and Merchants Join the Race But EMV’s progress in the U.S. isn’t limited to issuer initiatives. In mid-April, two top-10 U.S. banks—spurred by a push to accommodate frequent travelers who had made clear their displeasure at experiencing difficulty in executing transactions abroad with magnetic stripe cards—announced plans to issue smart cards based on the EMV chip card standard. The first such issuer, JPMorgan Chase & Co., shortly thereafter introduced a chip-and-signature technology to holders of its high-end Palladium credit card. Chip-and-signature cards were made available to individuals holding the J.P. Morgan Select Visa Signature card. Both cards also have magnetic stripes, enabling them to be used wherever magnetic strip cards are accepted. Wells Fargo & Co., the second issuer, began in mid-summer to issue chip cards to 15,000 credit card customers who frequently travel abroad. The moves by JPMorgan Chase and Wells Fargo follow on the heels of forays into EMV by North Carolina’s State Employees Credit Union, the nation’s second-largest credit union, and the 88,000-member, $3.1 billion United Nations Federal Credit Union (UNFCU) in Long Island City, New York. State Employees Credit Union is currently replacing its one million traditional magnetic stripe cards with EMV cards; the project is slated to wrap up by year-end. UNFCU has already completed the transition, which it reportedly made in part as a response to negative feedback from customers whose magnetic stripe cards had been rejected Transaction trends | October 2011 19

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abroad, especially for offline transactions executed at unattended kiosks and in taxis. Fierce competition will likely spur many more initiatives.“For cardholders, it’s embarrassing to be at the head of a queue in a store, only to be told that that store doesn’t accept cards without chips and asked to pay cash or in some other way,” Anal says. “Who will get the blame? The bank that issued the card—and cardholders not only won’t use it in the future; they will be more likely to move to an issuer that provides chip-based EMV cards. We expect to see—and it’s already started—U.S. issuers go to EMV technology before they lose too many customers they will potentially never recover.” Initiatives are brewing in the merchant sector as well.A handful of players were already charting EMV waters before Visa revealed its plans for the expansion of TIP to the U.S. On the “pure” retail side,Walmart Stores Inc. has equipped its more than 4,000 U.S. stores with chip-and-PIN EMV-enabled POS terminals, Jamie Henry, the chain’s senior director of payments services, reported at the Smart Card Alliance’s 2011 conference in April 2011. In part, Walmart made the move to chip-and-PIN to offer customers the “most secure environment” through which to pay for merchandise; patrons like the assurance that by inputting a PIN number for each transaction, they eliminate the transmission of unsecured data and, in turn, the risks of sharing personal information with merchants, banks, and e-commerce sites, Henry told Smart Card Alliance attendees. Additionally, the retailer likes the fact that the heightened fraud protection afforded by EMV reduces or wipes out unnecessary fraud-related expenditures, for instance, PCI compliance costs. Walmart would prefer magnetic stripe cards go the way of the dinosaur, with chip-and-PIN cards taking their place.“We want to eliminate the fraud-prone mag stripe,” Henry says.“It has served its purpose.”The chain is “encouraged” by banks’ recent initiatives to issue EMV cards to U.S. customers, but prefers the industry move beyond such limited issuance.Walmart in May became one of several technical associates—and the sole retailer—to take a seat on EMVCo’s Board of Advisors. Target and Nordstrom are among other retailers that have demonstrated support of EMV.“Visa’s plan to encourage this adoption and lay the groundwork (for EMV) and mobile payments is a positive development,” says Kevin Knight, executive vice president of Nordstrom Inc. EMV activity is heating up in the hospitality subsector, too. McDonald’s Corp., which has already rolled out contactless chip terminals in its U.S. restaurants, intends to go a step further to take advantage of “the security benefits of EMV chip and dynamic authentication,” says Dave Weick, McDonald’s chief information officer and senior vice president, shared services. These examples are only the tip of the iceberg. “Although nothing will happen at lightning speed or anything approaching it, merchants will, in an effort to prevent themselves from becoming easy targets of fraud as their (competitors) shore up with EMV, get on board,” suggests Scott Goldthwaite, senior vice president, product management and marketing, of processor Planet Payment in Long Beach, New York.

In the hotel subsector, Goldthwaite notes, EMV deployment will begin with operators that cater to chip card-bearing travelers from abroad. However, as hoteliers refresh their POS and property management systems and deal with PCI compliance, the number of operators making a switch to EMV will expand by leaps and bounds, he says. “It’s not just the rising volume of fraud, and the fact that the U.S. has become lowhanging fruit for fraudsters because other parts of the world have moved to EMV, that will drive merchants forward,” adds Vanderhoof. “Merchants’ increased unhappiness with the high cost of meeting strict PCI compliance standards is also a factor.”

Detours Ahead While recent developments indicate that EMV is moving closer to the mainstream, both short- and long-term uncertainties and obstacles remain. Logistics pose significant questions and challenges. Notably, MasterCard, American Express, and Discover remain noncommittal about their plans to follow Visa down the EMV path. For MasterCard, neither consumer demand nor market economics have justified boarding the EMV bandwagon yet, says Seth Eisen, a spokesperson for the association. MasterCard is currently assisting its customers in understanding “what the implications of EMV and other technologies in the U.S. would be,” Eisen continues. “Any migration must take into account all customer and consumer interests if a collective effort is to be successful. Obviously, Visa’s decision will impact market direction, and we will continue to consider our actions accordingly.” For its part, American Express reveals only that it does issue chip cards in some markets, like the United Kingdom, but has not received a large number of requests for EMV-enabled cards from cardmembers in the U.S. “While we cannot comment on any future plans, we are always looking to best serve our cardmembers and anticipate their needs,” says spokesperson Elizabeth Crosta. Unless MasterCard,American Express, and Discover introduce EMV adoption programs similar to Visa’s, merchants will be forced to validate PCI compliance to these other card brands each year, warned Avivah Litan, a vice president and distinguished analyst for Gartner Research, in an August 9 blog entry.

EMV + NFC = A Happy Marriage As widespread EMV technology adoption moves ever closer to becoming a reality in the U.S., many have questioned whether EMV and NFC technology can co-exist. The answer seems to be a resounding “yes.” EMV and NFC are complementary technologies that round out and enhance each other, sources say. “EMV can authenticate a card, verify the identity of a cardholder, and protect cardholder data through the life of a transaction, while NFC is a fast, secure means of transmitting data between adjacent devices,” says Dale Laszig of Castles Technology Co. In fact, Visa considers EMV deployment a step in preparing the U.S. payments infrastructure for the arrival of NFC-based mobile payments by creating the building blocks needed to accept and process chip transactions that support either a signature or PIN at the point of sale. “NFC is an extension of EMV,” concurs Kishalay Kumar Anal of ISTS Worldwide. He notes that steps are being taken by vendors to bolster the co-existence of EMV and NFC. In August, he says, NFC software and systems vendor ViVOtech of Santa Clara, California, rolled out the ViVOpay 8100 terminal. The hardware can handle transactions executed via magnetic stripe, contact and contactless chip cards, and NFC-enabled mobile devices.

Most Level 1 and the majority of Level 2 and 3 merchants are already PCI compliant, Litan asserts.Accordingly, while they may eventually save about $30,000 to $55,000 on the annual cost of PCI audits and assessments if MasterCard and American Express adopt EMV, they will incur expenditures of $30 per payment terminal upgrade to enable chip payments, plus unpublished activation, installation, and maintenance fees. For a majority of large merchants, Litan contends, the price of upgrades alone “will almost surely” surpass yearly PCI audit fees. Litan adds that because at least 75 percent of their Visa transactions must originate from chip-enabled terminals if they are to skip PCI compliance validation as permitted under terms of the incentive,“merchants won’t stand a chance of gaining the benefit of not having to validate PCI compliance annually until at least 2016 or later.”This, she emphasizes, is “well after most will have spent all the money on terminal upgrades and years of annual PCI audits.” Moreover, some observers believe a single EMV implementation “road map” that reflects a consensus of industry groups is

needed in order for widespread migration to occur. The road map must address several key questions, including whether cards will be chip-and-PIN, chip-and-signature, or a combination thereof and whether all EMVenabled systems will incorporate mobile capabilities, suggests David Hogan, executive technology advisor for the National Retail Federation.A timeline for banks to begin issuing EMV-enabled cards constitutes another key component of the road map, Hogan says, as do methodologies for authenticating cards (i.e., online, off-line, or both), and a “go-forward” strategy for card-not-present transactions. Visa and MasterCard have released standards for using EMV cards to support the latter; these encompass the Visa Dynamic Authentication Password (DPA) scheme and the MasterCard Chip Authentication Program (CAP)/EMV-CAP. However, other card brands have not yet followed suit, a factor some industry pundits consider a fairly significant roadblock to EMV adoption. On the technology front, experts predict many merchants will balk at the significant investment in hardware, integration, and Transaction trends | October 2011 21

testing needed to execute a conversion to EMV-enabled card readers and POS kiosks. By most estimates, the tab for U.S. merchants to get the job done will exceed $35 billion. Walmart, whose net income reportedly totaled $17 billion for the fiscal year ending Jan. 31, 2011,“may, along with other large retailers, have the financial resources to go forward with EMV now,” says the director of information technology for one Tier 3 merchant.“But not all of us can say the same, and that is going to create some sort of bottleneck on the road to implementation.” Beyond technology investments at the retail level, processing hosts will require updating in order to support EMV messaging formats. Acquirers and ISOs will need to update Tier 1 and Tier 2 support teams to manage the added complexity of EMV and the customized host interfaces maintained by card brand and payment networks as well as hardware manufacturers, cautions Dale Laszig, senior vice president, sales, Castles Technology Co. Ltd. in Honesdale, Pennsylvania. Although updating legacy infrastructure constitutes no small task, Laszig adds, the endeavor may not be as difficult as it could conceivably be because there’s the opportunity to learn from and

“Although dealing with a large base of non-compliant POS products may seem like an obstacle, it is also a huge opportunity for terminal manufacturers.” —Dale Laszig, Castles Technology Co. emulate the steps taken by players in nations that have already implemented EMV, among them Canada and the United Kingdom.“We also have a latecomer’s advantage of stepping into a mature, highly developed environment that includes EMV-certified equipment and host interfaces that are tested, proven, and ready to deploy,” Laszig says.“And although dealing with a large base of non-compliant POS products may seem like an obstacle, it is also a huge opportunity for terminal manufacturers” and, by extension, ISOs, to improve their product arsenals by refreshing product options and replacing outdated equipment. Then, there’s the matter of time. Deployment of EMV in Canada took seven years. Even with the best road map in hand and major obstacles overcome, the U.S. presents a larger, more complex scenario by virtue of the higher number of merchants, financial institutions, and other players involved. Deployment in the U.S. could take 10 years, say Hogan and others. Still, the challenges associated with embracing EMV will serve as a “refreshing” change after so much time and energy has been devoted to “patching” legacy host systems, says Laszig.“We’re going to see a lot of new activity and excitement here in the U.S. payments industry” as EMV makes its mark, she concludes. TT Julie Ritzer Ross is a contributing writer to Transaction Trends. Reach her at jritzerross@gmail.com. 22 October 2011 | Transaction trends

Startup Stories:

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Acuity Payment Services

Art of the Deal Former artist paints a bright future for Acuity Payment By John Manasso

merchant you sign, there’s a definite process and ustin Center’s path to along the way, you have to make sure that each step running an ISO was Acuity Payment in the process is taken care of to make sure that that hardly orthodox. The Services account is processed, and that task is complete.” son of a successful Chattanooga, TN Acuity Senior Vice President Cheryl Cockrell is a Chattanooga, Tenneslong-time veteran of the industry who worked at both see, businessman, Center majored in Founded: 2006 Payment Alliance International and Payment Transacart at the College of Charleston.Then tion Solutions. She brings the practical knowledge to he moved to New York City where he Portfolio size: 500 merchants what Center might lack, but she’s impressed by his both taught art and practiced as an Transaction volume: $60 business acumen. artist. million annually “When he was talking about being self-taught in After relocating back down South, business, it was born into him,” she says. Center began working for a merchant services company that his father and a partner had founded, helping to process health-care claims, so Leveraging a Niche that he would have, in his words,“something else in my toolbox” in Acuity’s strategy is mainly to work with small community banks to terms of job skills. About four years ago, Center went from one of sign up accounts.Austin Center’s father Morton and Nelson Bowers, four people running the ISO to doing it all himself. Now, he is the an owner of automobile dealerships in the Chattanooga area, are president of Acuity Payment Services. two of the company’s owners. Both had extensive contacts in the “I was basically thrown to the wolves,” he says. “Basically, not community banking business. Cockrell got her start almost 20 years knowing much about it, I started from scratch.” ago working at Mississippi’s People Bank, which happened to have an in-house merchant program. In working with community banks, Acuity not only has a strategy but also a business ethos. Drawing on Experience “From my father’s industry and Nelson Bowers’ industries, the Center fell back on an art management minor, as well as the practical education earned while working at his father’s company, Cenco Inc., main thing they told me is,‘It’s customer first,’ and,‘Take care of the a manufacturer of chemical products and an industrial maintenance customer,’”Austin Center says.“And that’s the main thing, especially company. He accompanied his dad on business trips when he was as for the merchant service industry.You’re going to have things hapyoung as 8-years-old, and later, at 12, started helping out with filing pen, but as long as you’re on top of it and you build the relationship and other simple tasks.As he got older, Center worked in the back with the customer and you build the relationship with the bank, of the warehouse, stacking boxes, helping out with shipping, and that’s what they want to see.” Cockrell works a time zone and a six-hour car ride away in Missislabeling bottles using a silk screen. Perhaps, surprisingly, he also applied what he had learned as an sippi, rather than in Acuity’s Chattanooga headquarters. Operating artist. Ceramics, in particular, taught him about process, which he out of a small town there, she helps to stay in touch with the needs then applied to business. He said it took him about a year and a half of small-town and rural merchants. “There is not a lot of support out there,” she says.“It doesn’t seem to wrap his arms around the payments business. “For any project that I did with art, there was a definite beginning, that the companies actually support community banks. They will middle, and end,” Center explains.“I’ve brought that into anything I give them an 800 number, and you will call and fill out an applicado, but the main part, if you think about it with this industry, there’s tion over the phone or online, and then you get a terminal in the a process—whether it’s signing a merchant, whether its courting mail and you plug it up. There’s not a lot of those companies out a bank, whether it’s dealing with sales agents and associates. Any there today that still have those personal relationships and in these Transaction trends | October 2011 23

Startup Stories:

Acuity Payment Services

small towns in the South—in Georgia, Mississippi, and Tennessee—that really gives you an edge above the competitor.”

Building a Masterpiece Part of the reason that Acuity has gone through fits and starts is a change in the company’s executive management. Earlier this year, Acuity joined ETA as a member. Steve Demaree also was a veteran of Payment Alliance International who had served in the past as a director of ETA. He was a part owner with Morton Center and Bowers and also served as CEO, but departed the company earlier this year. “The idea is you need to be knowledgeable about the industry,” Center says.“With all the regulations and all that’s going on, you need to get your hands around what’s going on in the industry and build relationships. There’s so much going on in this industry, there’s always change.” Center’s goal with Acuity is to achieve manageable growth. Right now, Acuity is processing between 30 and 40 accounts per month. Center says that while the company has the capability to sign up many more new accounts, it is trying not

WORDSTOTHEWISE Be in it for the long haul and act ethically. “There are so many ISOs, so many companies out there, and we went through a segment of time where people made their money through equipment and they would sell a $200 piece of equipment for $1,200,” says Acuity Senior Vice President Cheryl Cockrell. Not all companies are ethical, she says.“Some are there to make a buck today and this is not how this business works. It’s not a get-rich-quick business. It’s about building relationships with these community banks and partnering with them.” Follow through on what you tell your customers. “If you say you’re going to do something, then do it,” says Acuity President Austin Center.“That’s my main thing that I harp on with sales agents.” Surround yourself with experienced people. “Ask people who have done it before,” Center says.“A lot of people want to tell you ‘the right way’ and ‘this way,’ but the fact is that you’ve got to find the people who have done it before.” to bite off more than it can chew. The idea is to deliver on all of its promises to customers. “The key is having good people—people that I know are genuine—and when we build a relationship with a community bank they know the people they’re dealing with,” he says.“With community banks, there is such a loyalty and we try to cater our ser-

vices. Being small, we’re able to do what the community banks and financial institutions need.That enables us to give them the best support and services, and support their customers how they want them supported.” TT John Manasso is a contributing writer to Transaction Trends. Reach him at john_manasso@yahoo.com.

Electronic Transactions Association

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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 Robinson, director of membership and marketing, at dbaker@electran.org. 1 Card At A Time LLC New York, NY 10018 212/981.2541 Contact: Luigi Ceneri

Adaptive Payments Inc. Fort Lauderdale, FL 33301 954/756.1603 Contact: Shashi Kapur

A-AAccess OnLine Payment Systems Inc. Decatur, GA 30033 404/499.9944 Contact: Nelda Mays

AlertPay.com Montreal, Quebec Canada 514/748.1441 x703 Contact: Mohammad Hashemi

ACT Canada Ajax, Ontario Canada Contact: Diane Eskesen-Power Activant Solutions Livermore, CA 94526 925/518.1444 Contact: Matt Mullen Acuity Payment Services LLC Germantown, TN 38139 901/218.6414 Contact: Steve Demaree

Alpha Card Services Huntingdon Valley, PA 19006 215/494.0200 x13 Contact: Lazaros Kalemis Altcharge Las Vegas, NV 89119 866/967.8306 Contact: David Long

B2 Processing Solutions Inc. Toronto, Ontario Canada 416/730.9827 x1 Contact: Bruce Murray Bank of America Merchant Services Contact: Scott Calliham BankCard USA Westlake Village, CA 91362 818/540.3500 Contact: Shawn Skelton Beacon Processing Solutions Orlando, FL 32803 866/430-2322 x108 Contact: Sean Reed

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Jan Estep President & CEO NACHA

Debra Rossi Executive Vice President Merchant Payment Solutions Wells Fargo Bank Kurt Strawhecker Managing Director The Strawhecker Group ADVISORY COUNCIL Tom Bell CEO Bank of America Merchant Services

Sameer Govil Head of Acceptance Solutions Global Aceptance Visa Inc. Steve Carnevale Group Head—U.S. Market Development, Emerging Verticals and Acceptance Development MasterCard Worldwide Ron Shultz Vice President American Express

Donald Boeding President—Merchant Services Vantiv LLC

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Chuck Harris President NetSpend

Robert Baldwin President & CFO Heartland Payment Systems Inc.

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Industry Insider

On the Straight and Narrow ControlScan leads small- and mid-sized merchants down the path to compliance By Bryan Ochalla

“W

e know that most small- and mid-sized merchants wake up thinking about how they can bring in the next dollar, not about how they can secure their environment,” says Joan Herbig, CEO of Atlanta-based ControlScan. This piece of wisdom comes from six years of helping merchants safeguard their data. Founded in 2005 by Richard Stanton, ControlScan originally got into business by helping scan e-commerce websites to uncover vulnerabilities. In 2007, however, the company changed tactics “while remaining focused on our core competency of servicing small merchants,” Herbig says, after Stanton, a former e-commerce merchant, and his team raised their first round of funding and hired the company’s current management team.

“It’s rare for a small merchant to complete the PCI compliance process without any questions popping up.”

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ControlScan’s move into the PCI compliance space was prompted by the gradual trickle-down of the PCI Data Security Standard (DSS) enforcement, says Herbig. “The first area of focus was, unsurprisingly, among larger merchants, but —Joan Herbig, CEO in late 2007 and early 2008 the card brands began to push down the requirement for PCI to smaller merchants. That created an opportunity for solutions to enter the marketplace.” Making the switch required ControlScan to change its target audience.The company originally focused directly on merchants as its core customer base. Now, it concentrates on “acquirers, banks, and ISOs who have portfolios of smalland mid-sized merchants and are looking for ways to guide them through the PCI compliance process,”Herbig explains. These organizations approach ControlScan primarily for its flagship pair of product offerings: PCI 1-2-3 and PCI Dashboard. (The company also offers breach protection, SSL certificates, and, as of May, security consulting services.) PCI 1-2-3 is based around an online merchant-facing portal called myControlScan.com that walks merchants through the complicated PCI compliance process. “It provides education [in the form of a ‘policy builder’ that automatically generates policy templates based on the way a merchant processes payment cards], and it provides security-awareness training” that satisfies the PCI DSS requirement, Herbig says.“It also provides the Self-Assessment 28 October 2011 | Transaction trends

Questionnaire in a form and fashion that we believe is easier for small merchants to complete than other options that exist in the marketplace.” ControlScan also offers quarterly scanning to merchants who interact and conduct scans through the myControlScan.com portal. The company’s PCI Dashboard product, on the other hand, is a portal that’s aimed at acquirers, banks, and ISOs. It “provides them with a great level of detail about the state of compliance of their small- and mid-sized merchant portfolios,” according to Herbig. Through this portal, which can be exported for use within any risk-management system an ISO or acquirer may employ,“they can assess the overall compliance rate, they can determine where a particular merchant is within the compliance process...they can even drill down and see exactly what kind of communication we’ve had with the merchant over time,” she adds.

High-Touch Service ControlScan also strives to carve out individual relationships with its clients and their customers. “We have a team of representatives who reach out to merchants to educate them and engage them in the process to begin with and then continue to interact with them as they’re working through it,” Herbig says.“We’ve found that it’s rare for a small merchant to complete the PCI compliance process without any questions popping up.” The company’s unwavering focus on and support of small- and mid-sized merchants is just one thing that Herbig says sets ControlScan apart from its competitors in the payments space. Another is its ability to create and tailor programs to the specific needs of each acquirer, bank, or ISO. “We customize programs to help them deliver PCI solutions that are based on the way that they do business with their merchants,”she explains.“We work with some acquirers who have very hands-on relationships with their merchants.” Other companies, however, prefer that ControlScan be the main interface with their merchants regarding compliance. “The idea,” she adds,“is that we try to understand what an acquirer, bank, or ISO is trying to accomplish with the program and then develop something for them that is specific to their needs, as opposed to the kind of cookie-cutter program they might get elsewhere.” TT Bryan Ochalla is a contributing writer to Transaction Trends. Reach him at bochalla@yahoo.com.

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Give us a call or visit our website for more details. (888) 848.6825 x9411 upfrontandresiduals.com