TrendWatch 2.0 Q1 2013 Payments System Industry SynopsisNotice: Materials contained in this document are drawn from several media sources and Dorado Industries is not responsible for their accuracy. Opinions expressedherein are presented without warranty. Brand names are the trademarks of their respective service offerors.
Random Thoughts 2013: A Return to On-Us Transactions? Hope Not. Some industry observers consider the recently announced Then again, what are the odds that this is a “one and done” relationship between Visa and Chase as either benign or deal? If it works for Chase and Visa, what about Bank of innovative. A few might consider what amounts to white- America and Visa? Or Citibank and MasterCard? Sure, labeling VisaNet to Chase a serious step backwards. Still special pricing arrangements between retailers and acquirers others might recall that First Data proposed a similar “on-us” have been permitted and in place for decades but when large arrangement dubbed “FirstDataNet.” Because FDN was chunks of transactions become virtually “interchange-free” missing approval from a moving part – VisaNet – litigation through this form of on-us relationship, aren’t we creating was threatened by our friends in Foster City and FirstDataNet what economists call market inefficiencies? And what the hell entered the deadpool – good idea, bad timing. happens to CFPB’s favorite term of art, “transparency?” By most accounts, Chase represents 16 percent of Visa traffic As consumers, can we expect to be barraged with merchant at all merchants. That figure is likely to increase if Chase signage and slogans promoting Chase cards over others? migrates a significant portion of its 30 million MasterCard What would Senator Durbin say if so? Lord knows we like payment cards to Visa as has been announced. Meanwhile, innovative efforts to get ahead of the game but returning to the the bank’s Chase Paymentech acquirer business is ranked dim dark days of “my bank’s bigger than yours” and other on- fourth in size in the U.S., posting 9.1 billion in POS us promotional follies seems out of place today. transactions in 2012 valued at one-half trillion dollars. On a more forward-looking note, congratulations to the Secure A supercomputer isn’t required to figure out that linking Remote Payments Council and EMV Migration Forum Chase cards and its newly empowered acquiring business members for having the guts to buck stiff headwinds while through a licensed version of VisaNet (operated by Visa for unanimously selecting Discover’s D-PAS as their EMV Chase, no less) will create considerable pricing advantages for common AID. Now that that logjam has been broken, let’s the bank and cause a substantial bump in Visa transactions. see if we can get issuers and merchants to come along for the One wonders what unaffiliated merchant acquirers like Vantiv, ride. EMV may not be the panacea it claims, but all the Heartland, and Global Payments, those absent the ability to spitting from the sidelines doesn’t cure anything either. create closed-loop networks out of open-loops, think about this change in market power? Until next time.Dorado Industries (310) 544-1316655 Deep Valley Drive, Suite 125-P firstname.lastname@example.org 2Rolling Hills Estates, CA 90274 www.doradoindustries.com
Table of Contents 2013 Predictions 4 TrendWatch Scorecard/Summary 5 2013 Payments Industry Yields 6 Interesting Quarterly News That Got No Respect 7 Q1 M&A/Investor Activity 12 Useful Links for More Information 20 Back in the Day 21Dorado Industries (310) 544-1316655 Deep Valley Drive, Suite 125-P email@example.com 3Rolling Hills Estates, CA 90274 www.doradoindustries.com
2013 Predictions • One cloud-centric mobile payments player other than PayPal will have a break-out year; the payments industry will declare NFC DOA and move on. Mar: Since Google is re-gearing mobile yet again, it’s not likely to be the one. • One or more of the non-traditional dongle-centric merchant services providers will be acquired by a mainstream POS terminal industry leader. Mar: Verifone’s Sail is gone so its off the table. Someone else will cave. • Despite the fact that there are already laws preventing abusive use of electronic benefits transfer cards, the CFPB or Congress will intervene to provide more protection. Mar: Still waiting to see if CFPB wants to double down on casinos, strip clubs, and liquor stores. • One of the remaining EFT networks will change ownership. Mar: The search for a common AID for mobile (more accurately, reaction by V/MA) will likely propel things. • American Express will prevail in its Department of Justice litigation. Mar: Time remains an ally for American Express. DOJ litigation didn’t impair its efforts to gain FDIC access for its prepaid product – Bluebird. • The US Postal Service will declare its pilot in gift card sales a failure and shut the program down. Mar: After all, who buys gift cards on Saturday when USPS is delivering mail. Oh, right. • Emboldened by the success of PayNet (FIS) and clearXchange (BofA, Chase, Wells), two new real-time payments networks will emerge. Mar: Nothing yet but the Italian banks are pushing their own version in-country and pan-Europe. Time will tell.Dorado Industries (310) 544-1316655 Deep Valley Drive, Suite 125-P firstname.lastname@example.org 4Rolling Hills Estates, CA 90274 www.doradoindustries.com
TrendWatch Scorecard/Summary – Q1 2013 Industry Players To Watch Positive V/MA: EFT networks snub both and select Discover common AID. Next move? Mixed MasterCard and its SDWOANAF pricing: Google and PayPal must be Negative thrilled. Courthouse steps or circumvention? Either way, great payments industry theater.Low 1. New Payment Forms Target: Sold its consumer credit card portfolio – now what? Green Dot: With NetSpend in the TSYS camp, does GDOT need to serveMed 2. ATM Restructuring up something new? Isis: There must be something there if Coca Cola is willing to play.Med 3. POS Volume Trend Facebook: Planning to launch a FB phone device this Thursday? Maybe.Low 4. Legal/Regulatory Issues Market & Industry SituationHigh 5. New Venture Growth 1 – Pretty slow in Q1; lots of me-too plays. 2 – New fangled devices and All Point gains another 5,000 units in itsMed 6. Earnings Announcements network. 3 – Still looking to see where the volume is; Chase/Visa lash-up may changeHigh 7. Industry Investments things. 4 – A quiet Congress is a good thing but the Fed and CFPB are sniffing around. 5 – There’s still a trillion or so on the sidelines; it’s likely to start moving again. 6 – Banks are making money ($32 billion in OD fees helps), so are payments networks. Others, not so much. 7 – See #5.Dorado Industries (310) 544-1316655 Deep Valley Drive, Suite 125-P email@example.com 5Rolling Hills Estates, CA 90274 www.doradoindustries.com
2013 Payments Industry YTD Yields We lost TNS and ORCC to M&A activity during the quarter and NetSpend will soon become part of Total Systems. Western Union and MoneyGram International have been added to round out the basket of equities and to add more of a money transfer segment weighting. Q1 indices did well; the Dow was up 11.3 percent and the S&P 500 came in at 10 percent to the good. Our basket beat them both by delivering 15.8 percent in average yield. A lot better than last quarter. Industry Player 12/31/2012 3/28/2013 Price Cap Value YTD 2012 Yield Alliance Data Systems $ 144.76 $ 161.89 $ 17.13 $ 1,019.2 11.8% Cardtronics $ 23.74 $ 27.46 $ 3.72 $ 151.4 15.7% Discover Financial Services $ 38.55 $ 44.84 $ 6.29 $ 3,024.9 16.3% Euronet Worldwide $ 23.60 $ 26.34 $ 2.74 $ 138.1 11.6% Fidelity National Information Services $ 34.81 $ 39.62 $ 4.81 $ 917.7 13.8% First Data (Future Use) Fiserv Inc. $ 79.03 $ 87.66 $ 8.63 $ 1,345.4 10.9% Global Cash Access Holdings $ 7.84 $ 7.05 $ (0.79) $ (60.9) -10.1% Green Dot $ 12.20 $ 16.71 $ 4.51 $ 183.8 37.0% Heartland Payment Systems $ 30.23 $ 32.97 $ 2.74 $ 102.5 9.1% Jack Henry & Associates $ 39.26 $ 46.21 $ 6.95 $ 583.1 17.7% MasterCard Worldwide $ 491.28 $ 541.13 $ 49.85 $ 6,450.6 10.1% MoneyGram International $ 13.29 $ 18.10 $ 4.81 $ 278.3 36.2% NetSpend (M&A Pending) $ 11.82 $ 15.89 $ 4.07 $ 357.3 34.4% Total System Services $ 21.42 $ 24.78 $ 3.36 $ 663.3 15.7% Western Union $ 13.61 $ 15.04 $ 1.43 $ 813.3 10.5% Visa $ 151.58 $ 169.84 $ 18.26 $ 15,446.1 12.0% Sources: Company releases, Morningstar.com, Bloomberg.com 2013 YTD yield excludes dividends; based on 12/30/12 and 3/28/13 closing pricesDorado Industries (310) 544-1316655 Deep Valley Drive, Suite 125-P firstname.lastname@example.org 6Rolling Hills Estates, CA 90274 www.doradoindustries.com
Interesting News This Quarter Subject Source/Date Substance Intuit Finextra Dongle wars take on an international flavor as Intuit launches a chip and PIN version of its March “Intuit Here” merchant services scheme in the already crowded UK market. Other market interlopers including Sweden’s iZettle, Germany’s Payleven, mPowa out of London all are shooting for the small and micro business sector in the UK where less than 20 percent of these under-10 employee firms presently accept card payments. TD Bank ATM Marketplace The venerable ATM has been undergoing considerable changes lately – devices that dispense gift March cards, units without keypads that are accessed through cell phone applications, and scrip dispensers. Now we hear that TD Bank plans to roll out a “Green Machine” ATM solution powered 100 percent by wind. TD intends to update its fleet of 1,900 ATMs using renewable energy. Strangely, TD’s footprint runs from Maine to Florida, excluding the nation’s capital where there’s an overabundance of wind to harness. China UnionPay China Daily China UnionPay and Visa have been at odds since 2010 when the card company advised its March banks that adopting CUP routing for international transactions would not be a good idea. Half of the credit cards issued by CUP are co-branded and the company plans a global push to issue double the number of single branded cards within the next three years, diluting Visa’s impact on its issuing and branding strategies. This bit of trans-border spitting is far from over, we fear. Xoom PaymentsSource Global money transfer player, Xoom, takes a novel approach to money movement while March launching its Pay Only When Received (POWR) service. Unlike other transmittal services that withdraw sender funds immediately upon initiating a domestic or international transfer, POWR debits the originating account when the funds notification is received by the recipient. Xoom moved over $3.0 billion last year on behalf of 750,000 customers. High street banks like Citi, HSBC and CIBC participate in the Xoom MTS programs.Dorado Industries (310) 544-1316655 Deep Valley Drive, Suite 125-P email@example.com 7Rolling Hills Estates, CA 90274 www.doradoindustries.com
Interesting News This Quarter – Continued Subject Source/Date SubstanceAmazon Payments Source Amazon plans to launch its own brand of virtual currency – Amazon Coins – in May. The company February rationalizes the endeavor as a means to monetize in-app purchases on its Kindle Fire tablet using an exchange rate of 1:100 so a $3.00 Kindle app will cost 300 Amazon Coins. Developers receive the same “generous” payout of 70 percent offered by Facebook and other online purchasing service providers. The May launch of Amazon Coins will include a give-away of “tens of millions of dollars worth” of the coins. Speaking of Facebook, didn’t Mark & Co. announce plans to sunset Credits sometime in 2013? This may prove to be interesting theater.EMV Migration Forum Paybeforenews Is your hometown available for a pilot? EMV Migration Forum and Smart Card Alliance is looking February for a test bed site to experiment with EMV deployment. 100-300 thousand brave and hardy souls would be exposed to the miracles of chip and PIN payments in a quasi-laboratory setting. If successful, we might see full roll-out of EMV by, say, 2025 since its not likely that issuers, merchants, and networks will agree on a common AID by then. We’re guessing that prime fishing locations like La Paz and Puerto Vallarta, Mexico aren’t in contention; a pity. How about Santa Monica? Lots of experimental folks live there.Muscat Bank Paybeforenews Makes you wonder how something like this can happen. Oman’s largest bank sprung a leak earlier this February year when it discovered that twelve of its prepaid travel cards had been compromised and used outside of the country. As a result, Muscat Bank will take a $39 million impairment charge equal to ten percent of its annual earnings. True, the bank had yet to implement chip and PIN but, really? A dozen cards run up nearly $40 million in losses before they’re shut off? Makes most other data breaches pale by comparison.Facebook TechCrunch Facebook meanders into the grim world of plastics by offering a multi-merchant prepaid card ordered January online and fulfilled by mail. The product is closed loop but reusable with multiple participating retailers. So, it’s something like a wallet but resident on a card. Merchants participating in this gradually rolling out program include Target (naturally), Jamba Juice, Olive Garden and so on. We can’t tell for sure where this scheme is going but it’s worth keeping an eye on.Dorado Industries (310) 544-1316655 Deep Valley Drive, Suite 125-P firstname.lastname@example.org 8Rolling Hills Estates, CA 90274 www.doradoindustries.com
Interesting News This Quarter – Continued Subject Source/Date Substance Akimbo Presser The new Akimbo Visa Prepaid Debit Card program looks pretty cool on its surface – P2P transfers, photo March storage and distribution, social media interaction – rife with stuff that might attract the younger set. Until you read the fee schedule. PIN POS transactions are 99¢, ATM balance inquiries cost 33¢, and ATM withdrawals are $1.98. Want your funds back by check? $5.00! Signature POS transactions are free. Well, of course, it’s a Visa branded product. Venmo Mobile Payments What do you do when consumers are reluctant to use their mobile phones for purchases and you’re a provider Today of merchant acceptance terminals for mobile payments? The folks at Braintree have chosen to convert the March Venmo app into a B2B system enabling SMBs to pay their contractors and vendors through email addresses or mobile phone numbers. Vendors pay a modest 25¢ to cash out their receipts unless they are with Venmo clients who pay no fees. Braintree has 4,000 eligible SMBs in tow and is offering the first 1,000 transactions for free. Sort of a lemonade-for-lemons exchange. Subway Finextra Two former Subway franchisees, tired of the meager returns generated by $5 foot-long sandwiches have March taken a different tact. They formed POS Doctor, a California-based (naturally) company which sold POS systems to other Subway franchisees. They neglected to mention the system backdoor which enabled the two entrepreneurs to hack the POS Doctor systems and add as much as $40,000 to Subway gift cards. The pair then either used the fraudulent cards at Subway or sold them on Craigslist and eBay (after all, how many foot- long sandwiches can a couple of guys eat?) Our hacking gourmands have been indicted and are awaiting trial. ShopSavvy NetBanker ShopSavvy was founded in 2008 as a comparison shopping and deals app for mobile phones. Like most in March the genre, the company can boast of 25 million downloads and 10 million active users (which means that 60 percent that downloaded the app said no thanks.) Over time, the app has morphed into a wallet application including payments and just recently Capital One has launched a top-of-wallet campaign that pays CapOne cardholders $20 for linking ShopSavvy to its card and using the app for making purchases. ShopSavvy has already wooed lots of the big box stores – WalMart, Best Buy, Target, etc. – and is now creeping up on the issuer side in an approach not dissimilar to the recent Chase/Visa lash-up (see Random Thoughts).Dorado Industries (310) 544-1316655 Deep Valley Drive, Suite 125-P email@example.com 9Rolling Hills Estates, CA 90274 www.doradoindustries.com
Interesting News This Quarter – Continued Subject Source/Date Substance PayPal Payments Source PayPal is attempting to break the gas station logjam that has stymied mobile wallet developers thus far. Gas February stations have been cut some slack in hardware upgrades for decades (e.g., EMV compliance deadlines) because of the knotty problems associated with weatherizing and fuel pump technology. PayPal has cut a deal with Gilbarco Veeder-Root, one of the pump guys, to launch a QR-based wallet solution, one which avoids the high cost of retrofitting island pumps. Another arrow in the PayPal digital wallet quiver. Discover American Banker Faced with a need to lower its funding costs and the challenge of being a regulated FI under Durbin, Discover March has launched its new checking account scheme which comes with the same benefit offered on its iconic credit card – cash rewards. “Cashback Checking,” pays depositors 10¢ for each debit card purchase, bill payment and check written. No fees or required minimum balance, free checks and free withdrawals through 425,000 ATMs. What’s not to like? Sorry, but Cashback Checking is only available by limited invitation for now. LevelUp Payments Source Twenty small merchants in Boston and Washington D.C. held a small protest and refused to accept credit February cards for one day. Each of the merchants participates in the LevelUp zero interchange payments scheme. Instead of interchange, retailers pay based on the number of new enrolled customers. Obviously, adoption has been gradual and modest but LevelUp now claims to have 500,000 users; still small but weren’t the seeds of Durbin sown in a small photography shop in Orange County, California? Tea (party) anyone? American Express The Guardian Payments disrupter American Express (never thought we’d say that) has been signing deals with Twitter, February Facebook, Xbox Live, and others including FourSquare to enable purchases using linked American Express cards. In the Twitter case, a tweet in response special offers made through the 140 character communications portal will secure the deal and schedule shipment or download of real or virtual goods. The arrangement generates clicks for Twitter and the others plus a piece of each deal. AMEX gets a “way cool” nod from old line members and that new demographic it’s winning over with the Bluebird prepaid card. 2+2=5. FIDO PC Magazine FIDO stands for Fast Identity Online and is an association of seven companies including Lenovo, PayPal and February five others. The FIDO objective is to create a new standard for online authentication. Options range from biometrics, tokens, and existing approaches which would be unified in their use across the membership. If successful, FIDO believes it can greatly reduce consumer exposure to reuse, phishing scams, and malware. FIDO is casting a wide net to encourage all organizations that need to verify user identity to join the effort.Dorado Industries (310) 544-1316655 Deep Valley Drive, Suite 125-P firstname.lastname@example.org 10Rolling Hills Estates, CA 90274 www.doradoindustries.com
Interesting News This Quarter – Continued Subject Source/Date Substance UK Payments Industry Payments Journal In a classic example of winning the battle while losing the war, the UK Payments Industry which includes March the LINK ATM network and other three- and four-party systems has come under new regulatory control in that government’s efforts to “liberalise” the British payments system (sounds a bit like the Australian Reserve Bank rhetoric from 2007, right?) Seems the UK higher-ups got miffed when their mandate to eliminate checks by 2018 wound up in a ditch so a special commission was impaneled to correct things. Rather than use the existing Payments Council Board because it was viewed as being too closely tied to industry players, there will be a new, as yet unnamed, powerhouse capable of controlling, fining, and ultimately forcing FI divestiture of payments systems in which they hold ownership. Yikes, who leaked the CFPB blueprint? Early Warning Services Payments Journal Early Warning Services takes action to plug a potentially expensive hole in the remote deposit capture Presser phenomenon supported by roughly 65 percent of the nation’s banks and credit unions. Using its existing March Deposit Chek infrastructure and ability to match transactions across multiple EWS participants, the company can identify and notify when potentially high-risk (i.e., duplicate) deposits are made via branch locations, ATMs, RDC and the like. In the game of “whack-a-mole,” EWS provides us a bigger mallet. Acculynk Payments Source Acculynk scores big in the game of large numbers by enrolling UnionPay (CUP) in its PIN-over-the-Internet March processing system. The smaller number is that of the number of online merchants participating already – 6,000 today and 8,000 by the end of the year. The big number stands for how many UnionPay cards in circulation may take advantage of online transactions – 3.5 billion. Now, that’s a whole lot of potential for new transaction traffic at online retailers that might consider giving Acculynk a second look.Dorado Industries (310) 544-1316655 Deep Valley Drive, Suite 125-P email@example.com 11Rolling Hills Estates, CA 90274 www.doradoindustries.com
M&A/Alliance Activity Buyer/Investor Target Payments Emphasis Possible Strategy Cardtronics i-design group ATM on-screen ads Cardtronics, arguably the largest non-FI deployer of ATMs in the world, sets itself up to open a new business line by acquiring Scotland-based i-design group plc through its UK subsidiary. In business since 1991, i-design creates ad copy for use on ATMs pre- and post “please wait” screens. Notable clients include, McDonalds, Coke, Burger King, and Samsung. Let the wait wars begin! WorldPay YESpay Payments services The big get bigger. WorldPay, the behemoth (#6) international payments processor owned by Bain and Advent (and once, Royal Bank of Scotland) acquires UK, Canada, and India-based YESpay to bring multi-channel integration to its existing offering. WorldPay gets 150 employees and 3,000 customer relationships. Probably would not have happened under RBS’ watch. PayPal Duff Research Mobile app development Most pundits agree that consumer adoption is critical if mobile and digital wallets are ever going to achieve critical mass. PayPal takes a step in the right direction by acquiring Duff Research, a respected mobile application developer with four “Best of CES” awards and two Emmys for technology to its credit. Apparently PayPal believes that surgical precision will win over blunt force in the wallet wars competition. It’s been a while since PayPal missed a bet so we’re doubling down on this transaction.Dorado Industries (310) 544-1316655 Deep Valley Drive, Suite 125-P firstname.lastname@example.org 12Rolling Hills Estates, CA 90274 www.doradoindustries.com
M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy Intel Capital, 500friends Customer loyalty 500friends captures another $5.0 million in growth capital, raising its Fung Capital funding ante to $12.0 million. The company is a customer loyalty- building venture that relies on rewards, widget applications and user generated content to build retailer support. Hotels.com, L’Oreal, and American Greetings are mainstay retailers using the system. Visa Europe Monitise UK mobile payments Visa Europe already owned 7.5 percent of Monitise while Visa Inc. had cut a deal with Monitise to use its technology for mobile payments in the U.S. The Euros negotiate a warrant to purchase several million Monitise shares for chump change over the next three years. As a result, Monitise will pocket €45 million through 2016. Not bad for a company that warned in December that its path to break-even had hit a gulley. Some will recall that Monitise acquired Clairmail in February. Atlas Ventures, Plastiq Online payments Plastiq’s approach to online payments involves consumer paid fees in Flybridge Capital lieu of the traditional merchant discounts. Specifically, Plastiq works for Partners, other tuition, tax, and apartment rental payments firms and others where the returning PEs. service offeror is unwilling to receive discounted remittances. Several key payments players are operating behind the scenes: First Data, American Express, Monitise, Global Payments, MasterCard and BAMS. New and returning investors raised another $6.0 million in funds. Trial balloon for consumer acceptance of surcharging? Perhaps. Falcon Investment ecoATM Terminal manufacturer One man’s tech-trash is another’s treasure. ecoATM deploys kiosks Advisors used by consumers to recycle unwanted mobile phones, tablets, or MP3 players. Consumers can claim up $250 for their e-stuff on the spot from 300 kiosks in 20 states or 700 due by 2013. Falcon Investment has arranged $40 million in debt financing to keep the recycling value chain in motion.Dorado Industries (310) 544-1316655 Deep Valley Drive, Suite 125-P email@example.com 13Rolling Hills Estates, CA 90274 www.doradoindustries.com
M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy Investor Growth BillFloat Micro lending and payments BillFloat makes payments up to $200 on your behalf and collects Capital, what’s owed in 30 days plus 10 percent (California) in interest. Venrock, FirstRound Capital, Baseline Positioned as a lower cost alternative to paydays and pawn, the Ventures company uses the services of Online Resources to handle expedited payments. Investor Growth Capital is a new investor that anted up $21 million alongside returning players for technology expansion and growth opportunities. BillFloat is old by most tech standards, founded in 2009. TransCard HQ Gift Cards Gift card program operator TransCard is a transaction processor and program operator for prepaid payroll, gift, and GPR cards. HQ operates mall and casino gift programs in over 300 locations. The acquisition gives TransCard greater market share and reach within new verticals, another chapter in the maturation of the prepaid market. Terms were not disclosed. Meanwhile, TransCard has announced an agreement with Watch2Pay which would enable issuing banks to offer their customers the option of using a wristwatch device as a contactless form factor for making payments, conducting P2P transactions and accessing mobile apps. Tech industry pundits have been panning watches as tokens and for communicating with a device kept in our pockets or purses since they arrived a few years ago. It might take Apple to get it right and move the dial before we’re all playing the Dick Tracy role. Private Investors Salt Mobile wallet Here’s another wallet wars entrant. Salt Technologies started in Technologies Toronto three years ago and migrated south. Private investors have placed $2.0 million on the table for Salt to merchandise its cloud based solutions for NFC, QR and P2P wallets. Salt’s market emphasis is on the retailer side rather than issuers in hopes that white labeling will carry the day. Mobile payments are slated to roll out in Q3 2013.Dorado Industries (310) 544-1316655 Deep Valley Drive, Suite 125-P firstname.lastname@example.org 14Rolling Hills Estates, CA 90274 www.doradoindustries.com
M&A/Alliance Activity - Continued Buyer/Investor Target Payments Possible Strategy Emphasis ACI Worldwide Online Resources Online banking and End of an era. Online Resources, one of the first serious processors in payments platform the online banking realm, has been acquired by ACI for $263 million ($3.85/share). ORCC started out with a telephone banking system using a screen-enhanced “smartphone” (white, if memory serves) and moved from there to online banking. A stream of acquisitions led to expedited payments processing, customer care, and disbursement services. ORCC went public in 1999 at $13.375; the stock’s high water mark hit $22.00 one year later. No one said the payments business was easy; a sub-$4.00 endgame seems extreme. FIS mFoundry Mobile banking and Back in the “little bets” days of mobile commerce, Fidelity acquired payments platform 22 percent of mFoundry to expand its nascent mobile banking and payments platform. FIS paid an additional $120 million to acquire the remaining interest in mFoundry, closing the deal in early March. The acquisition brings with it a tangled web of FI and processor relationships which could begin the logical next step in mobile payments – interoperability. Time will tell. Investors like us Blackhawk Network Prepaid card As reported in 2012, Safeway is going forward with plans to spin out a programs/distribution minority interest in Blackhawk while raising $200 million through an IPO. Despite the rather poor public market performance of others in the prepaid industry, this may be yet another sign of maturity as the segment comes to grips with being over a decade old. Put less generously, Safeway may be seeking others willing to solve the end game challenge for Blackhawk that it cannot.Dorado Industries (310) 544-1316655 Deep Valley Drive, Suite 125-P email@example.com 15Rolling Hills Estates, CA 90274 www.doradoindustries.com
M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible StrategyIngenico Ogone eCommerce payments Ingenico is a global terminal manufacturer with 20 million devices deployed platform around the world. 42 percent of its revenues come from Europe and a mere 7.5 percent from the U.S. To strengthen its hold on multi-channel acquiring, Ingenico pays €360 million for Ogone, a Brussels-based ecommerce payments enabler that posted €42 million in 2012 revenues and EBITDA of €12.5 million (you do the math). Ingenico appears to be on an M&A roll, having acquired a controlling stake in Roam Data, the smartphone dongle folks. The transaction brings along Barclaycard by way of a large white label agreement with Ogone.Ecwid and Intuit Payvment eCommerce payments We don’t see deals like this very often and when they occur, they’re platform and talent interesting to watch and ponder. Facebook’s premier ecommerce platform provider, Payvment, has been split in half. The ongoing ecommerce business (aka “F-commerce”) involving nearly 200,000 Facebook merchants is being sold to Ecwid, the Russian startup and provider of the same sort of services while the Payvment team, technology, and patents are heading to Intuit. An interesting twist in this case is that TechCrunch sniffed this out when a few Payvment executives changed their LinkedIn profiles to add Intuit as their workplaces. Don’t post anything on the Internet that you don’t intend to be read is the message here.Atos Business line Transaction processing Atos, the European IT firm with €8.5 billion in revenues and a 48 country spin-off footprint, wouldn’t be the first company to spin out an under-valued asset – Deluxe’s eFunds and Safeway’s Blackhawk transactions come to mind. Yet, when Atos spins off its transactional services business later this year it will create a formidable competitor with €1.1 billion in revenues and €165 million in earnings. Given the competitive congestion the entity will face in Europe, isn’t it likely that the new venture will look westward for new growth opportunities? We think so.Dorado Industries (310) 544-1316655 Deep Valley Drive, Suite 125-P firstname.lastname@example.org 16Rolling Hills Estates, CA 90274 www.doradoindustries.com
M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy Investors like us Xoom Internet money transfer Q4 2012 follow-up: Xoom priced at $16 dollars per share in mid- service February in hopes of raising $100 million through its IPO. The shares closed over $25 on its opening day and have been hovering around $22 since then. Guess there’s more money to be had in money transfer services for the underbanked than in social networking. BCD Holdings, Parkmobile Mobile payments solutions Parkmobile, one of the key players in mobile applications for Parkmobile Group, parking meter payments, raises $6.3 million for market expansion. Fontinalis Partners, Bluefield Investors Started in 2009, Parkmobile has expanded its footprint to include Washington DC, Los Angeles, Houston, and Indianapolis; active subscribers exceed 700,000. The parking meter payments app has evolved into Parkmobile Wallet, a prepaid solution created in partnership with Citibank. The ultimate challenge here is that of finding a path to interoperability to serve the needs of travelers to cities where Parkmobile is not the parking payment provider. After all, how many parking apps do we really want? BlueKite RedCycle Networks Bill payment technology BlueKite recently raised $1.5 million for market expansion. BlueKite acquires competitor RedCycle to enhances its technology, add bill payment to its suite of services, and expand money remittance to international markets. What’s next, Green Lantern?Dorado Industries (310) 544-1316655 Deep Valley Drive, Suite 125-P email@example.com 17Rolling Hills Estates, CA 90274 www.doradoindustries.com
M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy Funding Farm BillAway Loyalty program This is a head-scratcher to us. Funding Farm invests $1.1 million in BillAway to help build out the venture’s online presence and to add services. BillAway operates a loyalty program for utility providers – rubbish haulers and heating oil companies for the most part today. Debit and credit purchases at participating retailers and online sites generate credits that consumers can use to reduce their utility service costs. Perhaps it’s too late in the day, how does the quid pro quo work? That is, how do the utilities get compensated for their discounts and what sort of behavior are they trying to avoid – non-payment? Seems like there’s a cheaper way to curtail bad behavior. Write us if you see the path to prosperity for BillAway and it utilities more clearly than we do. Intel Capital, Fortumo Mobile carrier billing Looks like the mobile carrier billing segment isn’t going away soon. Greycroft Partners Fortumo, with offices in Estonia, San Francisco, and Beijing raises another $10 million while inking deals with China Mobile and Vodafone, key players in global emerging economies. Owners of the B&N NOOK reader will soon see Fortumo in action; Fortumo is now the in-app payments solution used by the book retailer for its tablet reader. Prior to Fortumo’s latest raise it was majority owned by Mobi Solutions, the 800 pound gorilla in SMS-based services. Meanwhile, a direct competitor, Bango, raises $10.2 million to enter carrier billing markets in Brazil, India and other Asian countries. Clearly, no NFC chips or user payment card information required with either Fortumo or Bango. U.S. Bank Collective POS Canadian payment U.S. Bank expands in Canadian payments acceptance through its Elavon processing subsidiary by acquiring Collective POS, a processor for 12,000 businesses doing $1.0 billion in annual credit and debit card sales. Terms were not disclosed.Dorado Industries (310) 544-1316655 Deep Valley Drive, Suite 125-P firstname.lastname@example.org 18Rolling Hills Estates, CA 90274 www.doradoindustries.com
M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy Total Systems NetSpend Prepaid debit card program TSYS pays NetSpend shareholders $16 per share to acquire the prepaid card program manager, adding to its existing backend prepaid assets. With a market cap of $4.25 billion and the deal being financed with $1.3 billion in debt, the $1.4 billion price tag looks steep but time will tell. One thing is sure, TSYS’ direct-to- market prepaid business now dwarfs its third party processing business line suggesting that Total Systems will be a more consumer-focused company from now on. Deadpool Adaptu Mobile wallet PFM Another bit of payments industry road kill: Adaptu was positioned by its owner StanCorp Financial as a free and flexible alternative to Mint, the PFM solution owned by Intuit. Apparently the combination of its parent company’s own financial troubles and Adaptu’s inability to monetize the mobile PFM application led to the February 20, 2013 demise.Dorado Industries (310) 544-1316655 Deep Valley Drive, Suite 125-P email@example.com 19Rolling Hills Estates, CA 90274 www.doradoindustries.com
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 EMV Migration Forum Consortium for EMV sanity www.smartcardalliance.org Akimbo Prepaid card program www.akimbo.com FIDO Consortium for ID sanity www.fidoalliance.org 500Friends Customer loyalty programs www.500friends.com ecoATM Tech product recycling kiosks www.ecoATM.com BillFloat Transactional micro-lending www.billfloat.com BlueKite International remittances www.bluekite.com Parkmobile Parking meter payments for cities www.parkmobile.com BillAway Utility rewards/loyalty program www.billaway.comDorado Industries (310) 544-1316655 Deep Valley Drive, Suite 125-P firstname.lastname@example.org 20Rolling Hills Estates, CA 90274 www.doradoindustries.com
Back in the day! Congratulations to our Q4 2012 contest winners Rick Comandich for naming the five Interlink founders – BofA, Wells Fargo, and three deadpool players, First Interstate, Crocker, and Security Pacific – and Rick Lyons for being old enough to remember that gasoline retailer ARCO started its PayPoint network in 1983 and put the fear of God into California bankers. Speaking of senior citizens, there’s no contest this quarter, just a reminder that there are things that two old duffers can do during four days on a boat in Baja other than talk about electronic payments. Both anglers are available for autograph signings, pricey advice, and such.Dorado Industries (310) 544-1316655 Deep Valley Drive, Suite 125-P email@example.com 21Rolling Hills Estates, CA 90274 www.doradoindustries.com
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