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Dorado Industries TrendWatch 2.0 Q1 2014

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Tongue in cheek review of the U.S. electronic payments industry for Q1 2014.

Tongue in cheek review of the U.S. electronic payments industry for Q1 2014.

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  • 1. TrendWatch 2.0 Q1 2014 Payments System Industry Synopsis Notice: Materials contained in this document are drawn from several media sources, and Dorado Industries is not responsible for their accuracy. Opinions expressed herein are presented without warranty. Brand names are the trademarks of their respective service offerors.
  • 2. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com Random Thoughts Super Saturated Liquids Welcome to Spring! Every school kid knows that supersaturated liquids experience solution breakdown when a foreign element is introduced. Well, the payments industry seems to have become supersaturated by a number of factors in recent years – EMV, commonly-agreed mobile technology, transaction pricing, and consumer data ownership supremacy, to name a few. So long as our payments industry “solution” continues to swirl through propulsion provided by advocates on both sides of these critical issues, nothing crystallizes and no progress is made. Fortunately, a number of critical events (foreign elements, if you will) have occurred recently that may actually lead to progress. The unfortunate Target experience will likely result in the EMV logjam being busted. EMV Common AID agreements between the debit networks, processors, and card brands will help clear the way for merchant- directed routing specified in Regulation II and give EMV another bump forward. Blessing of the Host Card Emulation gambit by Visa and MasterCard may carve an acceptable path around excessive rents demanded by NFC Secure Element landlords. We have yet to resolve the question of what amount of interchange, if any, a debit transaction is worth or what level of data sharing, if any, brings about a better customer shopping or banking experience. Unfortunately, these portions of our supersaturated industry continue to be addressed with the cynicism and skepticism reflected in the facial expression of this quarter’s TrendWatch cover page mascot. A pity. Yet, all in all, despite a dearth of new product announcements and VC houses sitting on their wallets, Q1 2014 turned out to be just fine and may have set the stage for some serious progress throughout the remainder of the year. Unless, of course, you’re a big Bitcoin investor, then you can write off the rest of the year. Elementary school is part of the dim, dark past for most of us so here’s an illustration of the supersaturated liquid experiment Mrs. Magillicuddy led at PS 24. Until next time. 2
  • 3. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com 3 Table of Contents 2014 Predictions 4 TrendWatch Scorecard/Summary 6 2013 Payments Industry Yields 7 Interesting Quarterly News That Got No Respect 8 Q4 M&A/Investor Activity 13 Useful Links for More Information 21 Back in the Day 22
  • 4. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com 2014 Predictions • Beacons of all variety and stripe will gain considerable traction and ink. Department, mid-to-high end clothing stores, and the hardware trade will lead the way. Mar: Lots of new and old players joining the fray; so far, no privacy complaints. • HCE will be anointed as an equal amongst the other mobile payments options – NFC, 2D barcodes, etc. Mar: V/MA have fallen into line. Waiting to see what the real NFC bigots have to say. Isis? Not sure yet. • The Target and Neiman Marcus hacks will light a fire under the U.S. EMV rollout (albeit for all the wrong reasons) and one of the combatants will blink. Mar: Was it the breaches or the unified front put up by DNA? Anyway, things are moving haltingly ahead. • MCX will announce a roll-out plan and schedule that will leave more than a few pundits confused. Mar: [Sound of crickets] Come on, guys. • Regulation II will remain virtually unchanged. Mar: Nothing wrong with a favorable Appellate Court ruling every now and then. Merchants were probably hosed but time will tell on the routing rule front. • Regulators will take a serious look at Visa Authorized PIN Debit. Mar: This one’s a stretch but someone ought to take a look-see at its effects on PIN debit networks. 4
  • 5. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com 2014 Predictions • FRB will announce plans for a pan-industry working group to sort out the “US Payments System Improvement” initiative. Won’t happen until late in the year. Mar: May not happen at all based on the highly PC-packed responses filed by 200 respondents – “yes, but have you thought about . . . .” • Apple will enter the payments industry in a big way. Mar: January patent for NFC-compliant WiFi/Bluetooth in-store payments suggests a move is underway. 2013 Holdovers: • One of the remaining EFT networks will change ownership. • One or more of the non-traditional dongle-centric merchant services providers will be acquired by a mainstream POS terminal industry leader. 5
  • 6. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com 6 TrendWatch Scorecard/Summary – Q4 2013 Market & Industry Situation 1 – Very quiet Q1 again this year. 2 – EMV compliance date has come and gone. Now what? 3 – Usually a slow Q1, this year things are picking up faster than in the past. 4 – No big show stoppers but it’s early yet. 5 – We only hear crickets in the payments start-up sector. Game over? 6 – Time for the big guys to pay the tab for 2008. 7 – Lots of Beacons being cranked out; not much else. 8 – Heartbleed gaff couldn’t have come at a worse time. Industry Players To Watch WU and MoneyGram: Walmart is now providing low-cost money transfer services. Lots at stake so a response is certain. Parking Sector: Does it follow that several dozen vendors of mobile parking payment services are merely going to play a pat hand as they tap out their respective markets? We think M&A is just around the corner. DNA: New linkages between debit networks and Visa/MC mean what, exactly? VC and PE: After a lackluster Q4 and a dormant Q1, the dam has to burst soon. The Fed: Responses to the “Faster Payments” survey didn’t result in a mandate to proceed; so now what? Bitcoin wannabes: This quarter’s price crash isn’t sustainable so lots of folks are running to fill the void created by a (mortally?) wounded player.5. New Venture Growth 4. Legal/Regulatory Issues 1. New Payment Forms 2. ATM Restructuring 3. POS Volume Trend Low Med Med Med Low Med Low Positive Mixed Negative 6. Earnings Announcements 7. Industry Investments 8. Payments Industry SecurityHigh
  • 7. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com 7 2014 Payments Industry YTD Yields Sources: Company releases, Morningstar.com, Bloomberg.com, Coinbase. 2014 YTD yield excludes dividends; based on 12/31/13 and 3/31/14 closing prices. Nothing lasts for ever (Governor Jerry Brown’s campaign for a California bullet train, aside), so this quarter’s claw-back of Q4 2013 gains was pretty much assured from the get-go. Still, with the Dow and S&P giving up or gaining teensy single digits, our minor aggregate drop of 6.6 percent isn’t disturbing. Indeed, the gains posted in the first few days of April brought quite a lot of our equities back to year-end levels. Astute readers will note the addition of Bitcoin closing prices; we feel your pain. Industry Player 12/31/2013 3/31/2014 Price r Cap Value r YTD 2014 Yield Alliance Data Systems 262.93$ 272.45$ 9.52$ 566.4$ 3.6% American Express 90.73$ 90.03$ (0.70)$ (756.0)$ -0.8% Blackhawk Network Holdings 25.26$ 24.39$ (0.87)$ (45.5)$ -3.4% Cardtronics 43.45$ 38.85$ (4.60)$ (187.2)$ -10.6% Discover Financial Services 55.12$ 58.19$ 3.07$ 1,476.4$ 5.6% Euronet Worldwide 47.85$ 41.59$ (6.26)$ (315.5)$ -13.1% Fidelity National Information Services 53.68$ 53.45$ (0.23)$ (43.9)$ -0.4% First Data (Future Use) Fiserv Inc. (stock split adjusted) 59.05$ 56.69$ (2.36)$ (600.6)$ -4.0% Global Cash Access Holdings 9.99$ 6.86$ (3.13)$ (241.3)$ -31.3% Heartland Payment Systems 49.84$ 41.45$ (8.39)$ (313.8)$ -16.8% Jack Henry & Associates 59.21$ 55.76$ (3.45)$ (289.5)$ -5.8% MasterCard Worldwide 84.36$ 74.70$ (9.66)$ (15,552.6)$ -11.5% MoneyGram International 20.78$ 17.65$ (3.13)$ (181.1)$ -15.1% Total System Services 33.28$ 30.41$ (2.87)$ (566.5)$ -8.6% Western Union 17.25$ 16.36$ (0.89)$ (506.2)$ -5.2% Vantiv 27.94$ 30.22$ 2.28$ 565.4$ 8.2% Visa 222.68$ 215.86$ (6.82)$ (5,769.0)$ -3.1% Bitcoin Closing Price 747.6$ 459.5$ (288.07)$ -38.5%
  • 8. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com 8 Interesting News This Quarter Subject Source/Date Substance Louisiana House of Representatives PayBefore April “One small step for cost-cutting, one giant leap (backwards) for customer convenience.” The Louisiana House votes 90-0 to abandon the current practice of automatically dispensing tax refunds via prepaid cards. Believing that mailing a check is safer and avoids the risk of a security breach, the House opted to have recipients wait for their checks, deposit them or use a check cashing service, and incur related service charges. Worse yet, authoritative sources indicate that two other states are considering following Louisiana’s lead. Talk about lemmings. Crytpex Card Inc. PayBefore April Crytpex Card is designed to enable conversion of Bitcoins to greenbacks (or their equivalent in 80 countries) via ATMs or over the Discover and UnionPay rails. Note the order of things: Bitcoin-to-cash. An afterthought in the press release addresses the rare bird wishing to go the other way, a function that will be supported this summer when the full roll-out occurs. Mpay Pymnts.com April The Oakland Athletics and San Francisco Giants have almost nothing in common save for the way they have embraced in-stadiumordering and payments through Mpay and the MLB app. Fans will be greeted upon arrival via Beacon technology, can upgrade seats when better ones are available, and can order and pay for the occasional beer and hot dog. All this convenience in exchange for allowing promotions to be pushed to patrons’ smartphones. Something to take the tedium out of a pitchers’ duel ballgame, perhaps. Google PayBefore March Google Wallet takes another zig in its evolutionary path and announces its endorsement of Host Card Emulation. This, from the once most stalwart supporters of NFC, or was it prepaid cards, or was it . . . , well whatever. Suffice to say that yet another mid-course correction has been executed (bad choice of words, we know). At this rate, fears expressed by the merchant community about Google purloiningconsumer transaction and purchasing data via Google Wallet seems a bit overblown. By the way, if your Android phone is not runningKit Kat, you’re out of luck anyway. Best Buy 7-Eleven Computerworld March Mega merchants Best Buy and 7-Eleven are reportedly switching off NFC at their registers due to lack of use. Or so the story goes. An alternative theory floated by industry observers is that Best Buy and 7-Eleven are readying themselves for the MCX mobile offering. If true, a bowl of popcorn and a beverage might be in order as the anticipated battle royal between MCX and Isis mightbe entering its Beta phase. Stay tuned.
  • 9. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com 9 Interesting News This Quarter – Continued Subject Source/Date Substance Wocket PYMNTS.com April For those looking for a smart device that isn’t a phone but can execute electronic payments, NXT-ID, a biometrics company, offers Wocket. This 3.5” by 3” device looks like it was designed by the engineers at Porsche and contains all the data necessary to make purchases, redeem rewards, and gain access to venues. Wocket supports all the whiz-bang technologies including Bluetooth and claims to be bulletproof from all forms of intrusion. Swipe transactions are handled via a single companion programmable card that is used in lieu of the myriad mag stripe cards found in most wallets and purses. Pricing hasn’t been set as yet but the dazzle factor alone makes Wocket worth a look-see. Swedbank Finextra January Not all failed mobile payments programs can be laid on the NFC doorstep. Swedbank, the Nordic quasi-private bank, has shut down its “Bart” mobile payments app for lack of interest. The QR code- based system garnered a mere 20,000 users and only a handful of merchants willing to accept the scheme. Instead, Swedbank will concentrate its efforts on promoting Swish, a bank-teaming effort being rolled-out in the region. Harkens to the old days of Citibank’s Magic Middle versus mag stripe cards. Going it alone can be pricey. Royal Canadian Mint Finextra April Speaking of aborted take-offs, Royal Canadian Mint has pulled the plug on MintChip, its failed effort to concoct a cloud-based digital currency. Despite engaging some pretty seriously smart players in the effort – SecureKey and Ingenico – an RCM spokeswoman told reporters that the plans behind the effort have “matured” and that it was time to hand the project off to the private sector. It seems that there wee a bundle of assets assembled during the effort that go along with MintChip’s “mature” plans. We don’t expect a land office rush occurring when the auction opens for bidding. Talk about your Brooklyn Bridge gambit. PCI ATMMarketPlace.com February It’s been reported in other places before, but bears repeating. According to Verizon, only 56 percent of card accepting businesses in the U.S. are PCI compliant. So much for the stick approach to incenting organizations to toe the line. Penalties and fines just don’t seem to work in the payments world so what chance does EMV have? Just as damningis the study result indicating that the most arduous task for merchants is that of protecting stored sensitive data (55.6 percent of survey respondents said they weren’t quite there.) Excuse us? If retailers get all the rest of PCI right but can’t protect stored data (which they really shouldn’t have in storage anyway,) what’s the point?
  • 10. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com 10 Interesting News This Quarter – Continued Subject Source/Date Substance Amazon and Apple Various A number of industry observers published articles and blogs within three days in late January about the prospects of Amazon and Apple jumping into physical site payments for tangible (non-digital)goods. Some view recently placed employment ads for payments technologists as a sign that Amazon plans to enter the merchantservices/in-store payments realm. When asked, the company confirmed its plans to leverage its e- commerce expertise in the general commerce world. A new Amazon checkout system utilizinga Kindle and card reader, coupled with recently acquired GoPago assets, seems to strengthen the assertion that the uber retailer plans to take on PayPal et al. in the space. The jungle drums on Apple are a bit more theory-based and rely upon the company’s recent application for a patent on technology covering payments for goods through a signal sent from a phone to a wireless receiver. These smoke signals also suggest that the recent move by Jenifer Bailey from her position runningApple’s online stores to a new payments-building role means, for sure, that we’ll see an Apple payments option in, say, Best Buy, soon. Time will tell. Card for Coin PayBefore January Readers who have given up caffeine now have a way to cash in the balance on their Starbucks cards. Card for Coin is a new website launched by a 25-year-old tea drinker that enables cardholders to enter their card information and receive an offer in Bitcoin. Be prepared to take a pretty stiff haircut since Card for Coin offers fall in the 60 to 70 percent of remainingbalance range. You might get a better deal at PlasticJungle. Balanced Payments NetBanker January “There’s one born every minute,” or pretty shrewd? We first wrote about Balanced Payments one year ago when it raised $2.0 million in VC funds to finance the launch of its online payments processing service. Nothing special about the rates charged or the supported payment types. What was unique was its use of an escrow account to ensure safe delivery of funds. Apparently Balanced has received a lot of interest but could use a few extra bucks. The company crowdfunded through Crowdhoster looking for $50,000. Subscribers were offered significantly reduced transaction rates that get better as the amount of money pledged increases. Result? Balanced Payments raised over $50,000 in one day. Naïve or shrewd merchants? You be the judge. DeviceFidelity Finextra January Really want to use Isis but you’ve got an iPhone without an NFC chip? No problem, now. DeviceFidelity has built a range of NFC-ready sleeves for your iPhone and they’re available through AT&T now. Pricing starts at $65 for the basic model and scales to $129 for the tough-as-a-truck version. Boy, you really, really need to want to use the Isis network to pay that kind of money.
  • 11. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com Interesting News This Quarter – Continued 11 Subject Source/Date Substance T-Mobile Finextra January T-Mobile received advice from a host of very smart people before launchingits pre-paid Visa card and app. The business case probably looks very appealing – a great distribution system of stores and agents, a huge number of users of its mobile phone network, and an even bigger market potential based on the number of underserved Americans. But really, does the Venn diagram of mobile network operators and financial services truly overlap? Moreover, given the recent round of scrutiny being applied to the prepaid card industryin general, does leaping in now justify an almost certain Congressional request for testimony in a couple of years? No matter, the Mobile Money card by T-Mobile is now available through the company’s store network. Doubt that AT&T is worried much about losing share. Wells Fargo Bank Various February Isis steps up its enrollment and usage campaign through a new relationshipwith Wells Fargo Bank. WF customers receive a 20 percent discount on all purchases and a $20 statement credit the first time they buy through the Isis network. The campaign runs through April, 2014 so time is of the essence. Oh, that 20 percent discount on purchases? It’s limited to $100 per month. Major buzz kill. On the other hand, this offer beats the free Jamba Juice smoothie promotion offered last quarter by a mile. Clutch Business Wire February Clutch made it into TrendWatch six months ago when the online gift card system and wallet operator raised $5.3 million in VC money to enter the offline acceptance game. Now we learn that Clutch has teamed up with Mobeam to provide barcode beaming capability to users’ smartphones. Samsung Galaxy S4 and Note 3 users avoid the need to have multiple store apps to redeem rewards, coupons, and gift cards because they all integrate within the Clutch app. The Mobeam technology beams the benefit to store scanners while the Clutch benefit tracking system adjusts for additions and subtractions. Weve Finextra February Weve, a joint venture of UK telephone networks, takes heed of the time-tested lesson that new payments schemes take twice as long and cost twice as much than planned to reach critical mass. To combat the problem, Weve has partnered with MasterCard to gain access to the 300,000 contactless readers deployed in the market. Weve intends to compete with Zapp, the VocaLink-owned m-payments system that rides on the Faster Payments rails and bypasses MasterCard. Should be interestingevent to watch – the Weve partners represent 80 percent of the mobile phone users in the market. Yet another bankers v. MNOs battlefield.
  • 12. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com Interesting News This Quarter – Continued 12 Subject Source/Date Substance Ribbon TechCrunch January Got lemons? Make lemonade. For the better part of 2013, Ribbon was primarilyknown for having Twitter shut down its in-stream commerce capability (i.e., Tweets for payments). From the outset, Ribbon has been a merchant-facingservice with enrollment in the 10,000 range. Nothing special, really. However, early 2014 sees the company reviving itself with a “free” P2P service. Well, its free if you use funds from your Ribbon account or a debit card. Credit card remitters pay 3 percent. Another fine example of corporate reinvention. Walmart Finextra Based on its earlier efforts to support financial services via its Money Center locations, it should come as no surprise that Walmart has entered the money transfer services business in a big way. Walmart shoppers may transfer funds between the retailer’s 4,000 U.S. store sites on the cheap. Up to $50 costs $4.50 while up to $900 rolls out at $9.50. No word yet on internationalservices or how Ria, the MTS backbone provider and Euronet subsidiary), will accommodate transactions other than Walmart-on-Walmart. We doubt this is going to be a one act play; best to stay in your seat through the intermission. Visa PYMNTS.com February Never one to throw away a good idea, Visa re-tools the old Card Alert Services model and is offering a centralized database service to track fraudulent prepaid debit card transactions. Prepaid Clearinghouse Service (PSC) seeks input from FIs, processors and program managers for sharingof information about fraudulent transactions, enrollments, and squirrely load funding. Ever present is the age-old approach to enrollment: Visa FIs must begin reporting by June, 2015. Massachusetts Office of Consumer Affairs & Business Regulation Bizjournals March Early and long-lastingpundits having a problem with the pricing structure of prepaid debit cards now have a friend in Boston. The MOCABR has published the results of its survey concluding that most consumers would be better off by opening a checking account with a bank or credit union than opting for prepaid card usage. As in previous such reports, the authors point to extreme instances of price gouging while discounting to zero consumers’ ability to think for themselves. Still, putting a spotlight on the most egregious fee chart offenders from time to time has served to help rationalize pricing. Are you listeningKardashians? Merchant and Financial Services Cybersecurity Partnership Pressers February March Financial Services Roundtable, a host of other financial services trade and advocacy groups, and an alphabet soup of similar organizations on the merchant side of the aisle have formed the Merchant and Financial Services Cybersecurity Partnership. This collaborative effort is designed to promote data sharing, plans for stemmingcard present and CNP fraud, and better handling of breach notifications. All well and good and decent first step. So why have the two credit union trades – CUNA and NAFCU – opted out? There may be more here than the press releases are telling us.
  • 13. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com 13 M&A/Alliance Activity Buyer/Investor Target Payments Emphasis Possible Strategy Ceyuan, Madra Capital, VentureLabs, Others OKCoin Bitcoin exchange OKCoin is China’s largest Bitcoin exchange. Multiple investors toss $10 million on the table to support team growth and R&D. Pretty odd investment in a country that has outlawed Bitcoins, we think. Seedcoin Fund BTC.sx Bitcoin exchange Just in case readers have become complacent about the level of risk associated with investing in Bitcoins, along comes a real crap shoot. BTC.sx claims to be the first exchange prepared to deal in Bitcoin derivatives. It seems the number of risk-averse investors is relatively small since BTC.sx has only handled $44 million in trades since its founding in April 2013. The $8.5 million invested in BTC.sx represents Seedcoin’s sixth plunge into cryptocurrency. Others include : Cryptopay, CoinSimple, MexBT, Hive and zSIM. Diversification? Not so much. Cervin Ventures, Serra Ventures, Central Coast Angels, TiE LaunchPad PayStand Online merchant services PayStand receives $1.0 million in seed funding to promote its “new way to pay.” Turns out this payments-as-a-service approach comes with zero cost to the online merchant for credit and debit card acceptance, eChecks, and Bitcoin. Instead, the PayStand app charges the consumer 2.99 percent. Seems easy; waiting to see the hordes of buyers lining up for that model. Global Payments Payment Processing, Inc. (PayPros) Merchant services Twenty-year old merchant services processor, PayPros attracts $420 million in acquisition funds from Global. PayPros serves 58,000 small-to-medium business through vertical emphases (legal and veterinary medicine) and general merchandisers. The deal brought along “tax assets” so you can guess what earnings look like.
  • 14. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com 14 M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy Sequoia Capital, Founders Fund, Allen & Co., Khosla Ventures Stripe Credit card API Behind-the-scenes payments API developer Stripe raises another $80 million in expansion funds bringing its total haul to $130 million and creating an imputed valuation of $1.75 billion. Stripe powers FourSquare, dribble, Rockspace and other high-powered consumer interaction players. The company claims that 130 separate currencies are supported through its systems. Worth a look-see if you’re selling online or thinking of supporting new P2P or P2Anyone applications. At this rate, Stripe is moving in on Square, currently valued at $5.0 billion. GSV Capital, August Capital, Khosla Ventures, Maveron and True Ventures PayNearMe Online purchases Not all Americans can both shop and purchase goods online. Those living off the credit/debit/charge card grid rely on companies like PayNearMe to handle cash-settled online transactions. GSV and other VC houses have invested another $20 million in PNM to expand both sides of the shop/settle equation. Family Dollar now accepts PayNearMe cash deposits, bringing the total number of cash-in sites to over 17,000. New York Angels, Caerus Ventures Dash Restaurant payments Similar to Tabbedout, MyCheck, and others, Dash specializes in app-based restaurant checkout services. Also like the others, Dash has started small with 15 locations in New York City but has growth plans in place. A recent injection of $1.2 million will enable expansion into the Chicago market. The Dash cool factor for hospitality barons is the app’s full integration of iBeacon code embedded in iOS7. The Bluetooth Low Energy feature enables automatic check-in upon arrival at the eatery. Slow and steady wins the race, they say.
  • 15. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com 15 M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy Xoom BlueKite Cross-border payments If you became frothy when reading about BlueKite in TrendWatch in 2012, you can back off. Xoom, the mega-money transfer service paid $15 million to acquire the Guatemalan technology firm to expand its 31 country footprint into Central America. BlueKite is unique in its approach to allowing residents in the U.S. to pay family bills back in their hometown or to top up family member cell phone accounts remotely. Cool. BBVA Simple Online bank Back in February, the industry swooned when BBVA, Spain’s second- largest bank acquired Simple, the online-only bank and transaction processor for $117 million. So, good or so-so deal? Clearly, a good deal for the three VC guys that put up $15 million to get things moving, but what about on the grander scale? True, 100,000 “customers” is nothing to sneeze at but we’d feel better if “depositors” was the descriptor used instead. And, when was the last time you saw a bank sized by the value of the transactions it processed? Could it be that Simple ran into the proverbial growth “wall” most Internet banks hit and just cashed out? Perhaps. Bearing Capital Pango Mobile parking payments Bearing Capital invests $6.5 million in Pango Mobile Parking to fund market expansion as the parking industry modernizes through smartphone technology. Pango operates municipal cellular parking services in VA and PA plus in-garage services in NYC. The trouble Pango and others in the business faces is, once you’ve tapped all the meters, you’re done. Hence, the need to expand service territories. Bidding war coming? Count on it. Susquehanna Growth Equity, Carmel Ventures, Greylock, Vintage Venture Payoneer Cross-border payments Cross-border veteran Payoneer raises $25 million in Series D equity financing. Payoneer is the poster child for B2C payments enablement and is used by companies reliant upon globally-distributed contract labor. Payoneer was impressive eight years ago and continues to thrive in a very competitive market. Nice work.
  • 16. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com M&A/Alliance Activity - Continued 16 Buyer/Investor Target Payments Emphasis Possible Strategy Benchmark, Fortress Investment Group, Ribbit Capital Xapo Bitcoin wallet/vault Xapo arrives in the nick of time to prevent future thefts of Bitcoins. Insured by Meridien, the Xapo wallet and cold storage vault promises to keep your completely theoretical investments, well, real. Investors put up $20 million to back Wences Casares’ new “safe deposit box” approach to keeping Bitcoins in a safe place. Readers may recall that Mt. Gox, the bankrupt Bitcoin exchange, mislaid 500 of the digital darlings and caused an instant 30 percent drop in its value. Casares is the founder of the Lemon wallet, now owned by LifeLock and so named. Vault storage isn’t cheap – 12 bps annually for each deposit made. Not quite bank safe deposit box pricing, right? Bitcoin Shop, Crypto Currency Partners GoCoin Digital currency merchant services While we’re on the subject, GoCoin offers up a currency-agnostic approach for merchants wishing to accept various forms of virtual currency – Dogecoin, Litecoin, BTC, etc. $1.5 million in the form of C-notes (naturally) ought to get things moving and enable GoCoin to hire some engineers and a sales staff. The VentureBeat headline tells it all; “Oh god, not another Bitcoin-related funding story.” Cachet Financial DeviceFidelity’s Moneto unit Prepaid mobile payments Cachet, one of the major remote deposit capture players, acquires the DeviceFidelity Moneto platform bringing with it relationships with Visa, MasterCard, MoneyGram and Navy Federal Credit Union. Terms were undisclosed although it’s pretty clear that Cachet is vying to avoid the one-trick-pony syndrome and now addresses both inbound and outbound payments for consumers and financial organizations.
  • 17. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com M&A/Alliance Activity - Continued 17 Buyer/Investor Target Payments Emphasis Possible Strategy Investors like us Q2 Holdings Banking services Q2 pulls off a $101 million IPO with shares priced at $13 and closing at $15.17. The cloud-based banking services processor supports 300 community banks and credit unions. Q2 faces some interesting headwinds stemming from IP infringement allegations which the company is vigorously defending. The market remains cautious – shares are trading 10 percent off the opening day close. Foundation Capital, JBM Ventures Partner, Greenback Ventures, Texas Pacific Group, others Ziploop Shopping platform Ziploop (not to be confused with Loop Pay) promotes itself as “built for women, by a woman” although it’s CEO’s name is Peter. Ziploop is a receipt and coupon organizing app designed to remove paper clutter from the purchasing/returning cycle. Investors put up $2.2 million in seed money to carry the company beyond the major stores now supporting the bar code- based service. Now, if Home Depot or Lowe’s would play, what a wonderful world it would be. Discover Financial Services, others Buzz Points Debit loyalty scheme operator DFS participates in a $19 million funding round for Buzz Points, long-term partner with Pulse Network, one of Discover’s sizable payments assets. Buzz Points operates a merchant-funded debit loyalty reward platform designed to encourage repeat shopping with participating merchants and to stimulate debit card usage. While transaction volume on Buzz Points remains in the ~$2.0 billion range, the recent uptake by both FIs and retailers connotes what can happen when the two often-feisty groups (retailers and banks) collaborate directly or through third parties.
  • 18. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com M&A/Alliance Activity - Continued 18 Buyer/Investor Target Payments Emphasis Possible Strategy Valar Ventures (Peter Thiel), Square Peg Capital Vend Online merchant services Looking for a new online merchant services processor with a 100- country footprint? You might consider Vend, a cloud-based POS software developer currently supporting 10,000 e-tailers globally. PayPal co-founder Peter Thiel and others have invested another $20 million in Series B funding for market share expansion and increasing its industry partner base which currently includes Xero, Stitchlabs, Swarm, and SelfPay, all behind-the-scenes payments stream engines. PayPal handles secure in-store payments in concert with Vend. Merchant Warehouse Opticard Prepaid gift and loyalty program operator Merchant Warehouse, a merchant services and related technologies provider, acquires Opticard, a twenty-year old provider of reward and loyalty card operations for small to Fortune 500 companies. MW, an ISO operation dating back to 1998, will utilize Opticard resources to build deeper and stronger relationships with its base of retailers. As seen the past, these business combinations run in packs so there’s likely to be a few more later this year. Accel Partners WorldRemit Money transfer service All too often we forget that about the movement of cash between two points. As a reminder, two-year old player WorldRemit lands $40 million in expansion funds to accelerate growth from its current base of 35 sending and 100 receiving countries. Meanwhile, another UK-based remittance house, Azimo, closed a $10 million round led by Greycroft Partners. The World Bank estimates the remittance market to be worth $519 billion, sufficient incentive to attract competitors for the two most dominant players – Western Union and MoneyGram. Fortunately, both market leaders see the challengers coming and are rapidly moving to transform their respective businesses.
  • 19. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com M&A/Alliance Activity - Continued 19 Buyer/Investor Target Payments Emphasis Possible Strategy Leonard Schrank and host of others Circle Internet Financial We’re not really sure Circle attracts a gaggle of investors in a $17 million funding round on top of the $9 million raised in October of last year. While details are tightly controlled, the company claims its plans include “democratization of the Bitcoin movement by making it easier for the general public and businesses to switch in and out of fiat currencies.” Sounds like Ripple or BitMint, doesn’t? An interesting side note is that one of Circle’s board members is Raj Date, the former first deputy director of the CFPB. Go figure. Cardtronics Automated Financial ATM ISO Cardtronics strengthens its presence in Arizona by acquiring Automated Financial and its 2,100 merchant ATM contracts. Looks like EMV is working for a select portion of the payments industry. Terms were not disclosed. MasterCard C-SAM, Inc. Digital wallet technology MasterCard steps up big time in the wallet wars through its acquisition of C-SAM, developer/operator of more than two dozen digital wallet systems around the world. What’s interesting about this transaction is that C-SAM is not wedded to one technology and supports HCE, NFC, bar code, and the rest of the alphabet soup that wireless payments has become. Your move, Visa. NBS Payment Solutions Equinox Payments Merchant services technology Canada-based NBS acquires the assets of Equinox Payments, formerly the U.S. terminal operations for Hypercom (international operations were acquired by VeriFone in 2011). The Equinox acquisition gives NBS entry into the U.S. market and access to mainstream terminal design and sales capabilities.
  • 20. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com M&A/Alliance Activity - Continued 20 Buyer/Investor Target Payments Emphasis Possible Strategy Undisclosed Mogl Merchant funded rewards In the “kinda cool” category, we have Mogl receiving $5.9 million in VC funding. Mogl is the ultimate in merchant funded rewards. When enrolled debit and credit cards are used at participating restaurants, the user’s Mogl account is credited with 10 percent of the tab. Users have the option of keeping the rewards or donating them to local food banks for use in suppressing hunger. Presently a California and Phoenix operation, the VC money has been earmarked for expansion to other markets. AccountNow Prepaidwireless.com Prepaid phone plans Prepaid card giant AccountNow branches out to enter the prepaid wireless phone arena in the belief that both synergistic and symbiotic benefits can be gained. Both companies target the underserved market and believe that marrying the branded prepaid debit card segment to that prepaying for phone time will help both distribution systems. We’re thinking they’re right. AccountNow’s CEO, Jim Jones, is one smart businessman. Kroger You Technology Brand Services Digital coupons Kroger acquires the vendor of its digital coupons, You Technology. You has thousands of stores and brands using its couponing platform to entice and reward shoppers throughout the U.S. Time will tell if the new ownership status will curb Kroger competitor appetites for continuing to use the once-independent supplier. Interesting strategy. Unemployment line Clinkle Sonics-based acceptance It’s getting tougher to remain inspired by what Clinkle plans to do with its sonics-based approach to electronic payments acceptance. Former Netflix exec Barry McCarthy has bolted from his COO position after just six months on the job. Meanwhile, the new VP of engineering lasted just one day. Seems the Clinkle CEO might have a loose wire somewhere? A pity.
  • 21. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com 21 Useful Links for More Information We threw a lot of new names out again this quarter. Here’s a list of links for you to learn more. Company Role Link Wocket Standalone digital wallet www.thewocket.com Card for Coin Starbucks card conversion www.cardforcoin.com Balanced Payments Online payments acceptance www.balancedpayments Weve UK mobile payments consortium www.weve.com Ribbon Merchant acceptance www.ribbon.co PayStand Merchant acceptance www.paystand.com PayNearMe Cash settled online transactions www.paynearme.com Dash Restaurant payments/reservations www.dashwith.me Payoneer B2C international payments www.payoneer.com
  • 22. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com Back in the day! Congratulations to Paul Reimer at Clearkey Consulting and Jason Darlington at UBS for correctly identifying last quarter’s photo as a Zon Jr. XL POS terminal. Still available on eBay for $20; still working, sorta. No contest this quarter, just proof that even blind squirrels can find acorns when they’re really hungry. Three old (one really old) payments guys strike it big at Magdalena Bay, Baja Mexico. 22