Dorado Industries TrendWatch Payments Industry Review Q4 2013
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Dorado Industries TrendWatch Payments Industry Review Q4 2013

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Quarterly review of the electronic payments industry including snarky commentary, predictions, and a trivia contest.

Quarterly review of the electronic payments industry including snarky commentary, predictions, and a trivia contest.

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Dorado Industries TrendWatch Payments Industry Review Q4 2013 Dorado Industries TrendWatch Payments Industry Review Q4 2013 Presentation Transcript

  • Rats! TrendWatch 2.0 Q4 2013 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.
  • Random Thoughts WTF (II)? WTF (I)? can be found in the Q2 2010 issue of TrendWatch 2.0 when we asked “Why The Fed” regarding Senator Durbin’s decision to have that agency sort out the shards left by his amendment to the Dodd-Frank bill. The Fed didn’t want the job, was unprepared to see it through, and was/is viewed as being BFFs with big banking. See how well that worked out? Today, we pose the same question about the Fed’s poorly disguised fervor (cloaked in “whaddayathink? prose) for moving the US banking system to “near-real-time” across the entire origination-to-reconciliation value chain and its equally transparent desire for playing an operational role in that future. In its September 12, 2013 “Payments System Improvement – Public Consultation Paper,” the Fed puts forth five “Desired Outcomes” including collaborative problem identification and resolution, creation of a ubiquitous electronic solution, reduced transactional costs, greater choice in cross-border payments, and FRB-promoted payment system security (with ensuing high consumer confidence) – all desirable end states. Meanwhile, the CP suggests that, while emerging payment systems appear to meet some of the desired outcomes, because they operate outside of the mainstream, these upstart challengers to the status quo aren’t getting much traction (tell that to PayPal, Starbucks, and the dozen or so mobile money transfer guys.) The CP also harpoons legacy systems for being sedentary, difficult to modify, slow (particularly in international payments), and inconsistent with emerging global standards. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 2 All well and good we suppose but could it be that the origin of the Consultation Paper is a bit less altruistic? Perhaps having more to do with the rebuffing big Nacha banks gave to the same-day settlement initiative in 2013 or that the UK Faster Payments and Zapp programs put the Fed in a bad light? So far, most of the 130 responses to the CP have been rather benign so here’s our reply: 1. For the most part, alternative payments system routing options are designed to avoid legacy systems, the very ones supported by the Fed for millennia. 2. A goodly share of the cost of participating in Fed-backed legacy systems comes from the bloated number and nature of those that support them and the regulations they have backed. 3. The exorbitant cost of international transfers, a process that’s been electronified for decades, is a function of big user-imposed rules, not the absence of technology. 4. Wouldn’t an “improved” payments system, one likely to be run by the Fed, have the ability to ban or at least curtail new forms of currency or transactions? Thanks, but no. 5. The CP suggests creation of new systems (“. . wire transfer-like . . ”) or augmenting existing ones “ . . modifying the ACH . . ” Aren’t these businesses the Fed is already in on an almost monopolistic basis? Again, no thanks. Courtesy of the CP, the industry has yet another Mason-Dixon line venue for spitting contests between “them” and “us.” So much for collaboration. Again, WTF? (310) 544-1316 Until next time. jmacallister@doradoindustries.com www.doradoindustries.com
  • Our Thoughts on the Target Breach Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 3 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  • Table of Contents 2013 Predictions and Review 2014 Predictions TrendWatch Scorecard/Summary 2013 Payments Industry Yields Interesting Quarterly News That Got No Respect Q4 M&A/Investor Activity Useful Links for More Information Back in the Day Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 4 5 6 8 9 10 15 23 24 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  • 2013 Predictions and Review • • • • 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. Jun: Indeed, it looks like the wheels have come off the Google Wallet juggernaut. Sep: Check out what Loop, Paydiant, clearXchange have been cooking up. Dec: Hasn’t happened as yet but Google is leaning that way and the fact that O2 shut down its NFC wallet suggests we’re close. 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 it’s off the table. Someone else will cave. Jun: Perhaps “acquire” is premature. “Strategic partnering” comes closer, i.e., NCR’s new relationships. Sep: Heartland invests $20 million in Leaf, the tablet-centric startup. Not a dongle, but close enough. Dec: Missed this one too but the Heartland investment helps; Loop’s new technology may put pressure on the dongle guys. 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. Jun: Tick, tick, tick. Sep: Now that the Federal shut-down has ended, we’re likely to see the release of some pent up demand on CFPB’s part. Dec: Watch what comes out of the woodwork as Chase puts its EBT business on the block; clearly DoJ will have its say. 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. Jun: New common AID, new Durbin compliance requirements, mounting merchant pressure; someone’s going to throw in the towel. Sep: Judge Leon’s ruling may help this prediction along; the Fed’s appeal may force a carry-over to 2014. Dec: PAVD-imposed pain is growing and the EMV stand-off with V/MA is going to force someone to blink. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 5 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  • 2013 Predictions • • • 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. Jun: Supreme Court sides with AMEX and against merchants in AMEX v. Italian Colors Restaurant. Not directly related but tangential at least. Sep: Nothing new this quarter; hang tight, AMEX. Dec: Soon, very soon. 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. Jun: Oops. Back to Saturday delivery, so maybe dumping gift cards is the next money saver? Sep: Holiday season is upon us – time will tell. Dec: USPS weathered another winter storm and it will only cost consumers another 3¢. Lovely. 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. Jun: Could MCX be thinking that a shift to real-time is a good way to avoid V/MC rails and fees? Sep: Take a gander at what Zipmark is doing for B2B transactions. And clearXchange just got its first non-founder bank. “There’s something happening here,” to quote Buffalo Springfield. Dec: Fed’s faster payments solicitation of public comment will likely embolden a number of new players to step up if only, for no other reason, to keep the Fed from claiming the market by fiat. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 6 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  • 2014 Predictions • Beacons of all variety will gain considerable traction and ink. Department, mid-to-high end clothing stores, and the hardware trade will lead the way. • HCE will be anointed as an equal amongst the other mobile payments options – NFC, 2D barcodes, etc. • The Target and Neiman Marcus hacks will light a fire under the US EMV rollout (for all the wrong reasons) and one of the combatants will blink. • MCX will announce a roll-out plan and schedule that will leave more than a few pundits confused. • Regulation II will remain virtually unchanged. • Regulators will take a serious look at Visa Authorized PIN Debit. • FRB will announce plans for a pan-industry working group to sort out “US Payments System Improvement.” Won’t happen until late in the year. 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. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 7 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  • TrendWatch Scorecard/Summary – Q4 2013 Industry Players To Watch Positive Mixed Negative Loop: Having a viable alternative to new terminals can’t be bad for merchants. P2P Space: Everyone’s heading that way and there must be a good reason. After all, how many bar tabs need to be settled every day? DNA: New letterhead and website; now, how do we fix EMV? VC and PE: After a lack-luster Q4, and swimming in funds, maybe a bit more risk-taking? Core Processors: Time to leverage deposit account access to speed up payments flow? We think so. Bitcoin: Yo-Yo like Q4 and Sacramento Kings acceptance; which could be worse? Med 1. New Payment Forms Med 2. ATM Restructuring Med 3. POS Volume Trend Med 4. Legal/Regulatory Issues High 5. New Venture Growth Med 6. Earnings Announcements Market & Industry Situation High 7. Industry Investments High 8. Payments Industry Security 2 – Bitcoin ATMs? Growing pretty quick for a near-Ponzi scheme. 3 – Good POS volume during the holiday season. 4 – Prepaid just can’t cut a break. Chase EBT deal will bring the regulators, big time. 5 – Not a great VC quarter but a couple of interesting deals got done. 6 – 2014 was a banner earnings year. Hope it continues (but it won’t). 7 – The equipment guys are still drawing attention; payments not so much. 8 – Target and Neiman Marcus have a lot to explain. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 1 – Money2020 showed lots of new options, even from the old guys. 8 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  • 2013 Payments Industry YTD Yields Banner year for the investment community in general and our payments equity basket did better than the Dow and S&P. Clearly, the market doesn’t yet understand Blackhawk. 2014 has started out in the doldrums and March will likely bring on a rash of tax sales to pay for the 2013 gains. Still, the new year shouldn’t crater or give back too much of our gains. Holders of this basket of assets would have seen a 53.5 percent appreciation in 2013. Something to crow about, we think. Industry Player Alliance Data Systems American Express Blackhawk Network Holdings Cardtronics Discover Financial Services Euronet Worldwide Fidelity National Information Services First Data (Future Use) Fiserv Inc. (stock split adjusted) Global Cash Access Holdings Heartland Payment Systems Jack Henry & Associates MasterCard Worldwide MoneyGram International Total System Services Western Union Vantiv Visa 12/31/2012 Price r 12/31/2013 Cap Value r YTD 2013 Yield $ $ $ $ $ $ $ 144.76 57.48 25.10 23.74 38.55 23.60 34.81 $ $ $ $ $ $ $ 262.93 90.73 25.26 43.45 55.12 47.85 53.68 $ $ $ $ $ $ $ 118.17 33.25 0.16 19.71 16.57 24.25 18.87 $ $ $ $ $ $ $ 7,031.1 35,910.0 8.4 802.2 7,968.5 1,222.2 3,600.4 81.6% 57.8% 0.6% 83.0% 43.0% 102.8% 54.2% $ $ $ $ $ $ $ $ $ $ 79.03 7.84 30.23 39.26 491.28 13.29 21.42 13.61 20.42 151.58 $ $ $ $ $ $ $ $ $ $ 118.10 9.99 49.84 59.21 843.60 20.78 33.28 17.25 27.94 222.68 $ $ $ $ $ $ $ $ $ $ 39.07 2.15 19.61 19.95 352.32 7.49 11.86 3.64 7.52 71.10 $ $ $ $ $ $ $ $ $ $ 6,091.0 165.8 733.4 1,673.8 45,590.2 433.4 2,341.2 2,070.3 1,864.8 60,143.5 49.4% 27.4% 64.9% 50.8% 71.7% 56.4% 55.4% 26.7% 36.8% 46.9% Sources: Company releases, Morningstar.com, Bloomberg.com 2013 YTD yield excludes dividends; based on 12/31/12 and 12/31/13 closing prices. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 9 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  • Interesting News This Quarter Subject Blackhawk/PayPal College Affinity Cards Visa, MasterCard, American Express JPMorgan Chase Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 Source/Date Pressers October Consumerist December Payments Journal January Bank Innovation December Substance Darling of the J-hook and now publicly traded Blackhawk Network has teamed up with PayPal to insure that, once consumers have a decent choice for mobile wallets, gifts cards will soon follow. Consumers will be able purchase e-gift cards via their PayPal accounts and use them across Blackhawk’s sizable network of physical merchants. Trading on the persistent “folks don’t leave their phones at home” mantra, both parties believe the new relationship will deliver the highest in consumer convenience and gift card redemption. This, despite the fact that gift card secondary exchanges are doing a land office business. Who knew? Better question “who remembered?” College affinity cards have been around for decades but haven’t received notable ink in a long while. A recent CFPB report now indicates that in 2012 the dozen or so affinity program issuers wrote $50 million in checks to college and university sponsors and that BofA’s FIA subsidiary cut 70 percent of the gilt. Top five schools and their paydays include: Penn State ($2.7 million), University of Michigan ($1.8 million), USC ($1.5 million), Tennessee ($1.4 million) and Cal Berkeley ($1.3 million). The report could have provided better fodder for analysis and comment by citing the number of cards and transactions but then again, it’s a CFPB report. What does one do when caught between Federal and state laws? That’s the conundrum facing the card issuing organizations in Colorado and Washington state where recreational marijuana is now legal despite Federal regulations to the contrary. MasterCard and American Express have sided firmly with Federal law while Visa has tried a double sashay by stating “ . . . given the federal government’s position and recognizing this is an evolving legal matter with different standards applicable in different states, our local merchant acquirers are best suited to make any determination about potential illegality.” In other words, if you’re a local merchant services processor and you get busted, don’t waste your dime calling us. Again, “who knew?” JPMorgan Chase has renewed its 1999 patent application for payment technology named Internet Pay Anyone (IPA) covering a program of anonymous payments involving funds stored in a virtual lockbox. Sound like a Bitcoin to you as well? Perhaps an infringement suit against Satoshi Nakamoto will be forthcoming. 10 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  • Interesting News This Quarter – Continued Subject Coin Qualcomm Zapp Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 Source/Date Substance NY Times December Seems like some ideas are just too stubborn to die. Coin is the latest iteration of the “one-card” approach to payment cards. Dating back to the late 1980s, the one-card approach hopes to reduce wallet clutter by combining a consumer’s payment vehicles – debit, credit, charge, rewards, etc. – on a single card. The early efforts were klugy at best and not easy to support given the technology available at the time. Cards with keyboards and small screens emerged early in this millennium with MasterCard launching its own late-to-the-party version in 2012. San Francisco startup Coin is offering its card for sale for $105 ($55 if you pre-order) and promises that it will hold all your payment options and process via existing swipe terminals but there’s a few gotcha issues. If the transaction fails, don’t bother calling Coin; the problem’s on you. And the on-board battery? It’s good for only two years and not rechargeable or replaceable. Perhaps the one-card pipedream will fade away after this round. PYMNTS.com December Communications giant Qualcomm has entered the Beacon device footrace along side PayPal and Apple with its Gimbal product. Like the others, Gimbal works under Bluetooth Low Energy technology to create a one-on-one relationship between a sponsoring merchant and a consumer’s Bluetooth-enabled smartphone. Qualcomm claims locational accuracy down to one foot both inside and outside the store. Promoted as a “lower-cost” alternative to Apple’s iBeacon, we wonder if a race to the bottom has already begun. Finextra January The UK banking system got the industry to sit up and take notice several ago when it launched Faster Payments, a near-real-time solution for money movement. The US took a stab at emulating Faster Payments when Nacha promoted an opt-in same day settlement feature for its forty-year old ACH network. Unfortunately, the votes of the Nacha governing body went the wrong way and killed the deal. UK banking is about to change again after VocaLink invests £33 million in a new mobile payments technology dubbed Zapp. So far, five UK banks including HSBC, first direct, Nationwide, Santander, and Metro have signed up. Zapp is the second player attempting to create a third payments network in the UK. Barclays’ Pingit was launched in 2012 for the same purpose. And, not to be outdone by US payments system intrigue, Pingit has its own entanglements; first, it uses the Faster Payments rails for fulfillment and second, it lost it’s chief technology leader to Zapp in 2013. Let the games begin. 11 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  • Interesting News This Quarter – Continued Subject Thinaire Spaces Source/Date Substance PaymentEye January Speaking of Mason-Dixon lines, not 24 hours after Bluetooth Low Energy beacons from PayPal and Apple were announced, the new technology was hailed as an NFC-killer and the battle line was drawn. Fortunately, there’s a middle ground solution named Thinaire Spaces that bundles BLE and NFC technology in the same package. Adidas, Unilever, Sony and Bon Ton are early adopters of the mixed-channel (we abhor the “omnichannel” misnomer currently in vogue) messaging and product promotion. Vantiv PayBefore And PR Newswire January Merchant and card processor, Vantiv, is kicking the tires on a number of new opportunities early in 2014. In the first deal of the year, the company and Microsoft have entered into a joint-solutions agreement to bring “omnichannel” services to businesses in the areas of mobile POS and cloud-connected payments. This pact enables Vantiv to move down-market to smaller merchants using hand-held devices for POS transactions and up-market to merchants seeking tablet-based checkout services. To complement the lash-up with MSFT, there’s another agreement with AT&T for remote and cloud access under the banners of “Vantiv Mobile Accept” and “Vantiv Mobile Checkout.” The former offering targets field service providers while the latter keeps the restaurant industry simmering. RBC and Bell Canada PayBefore January Americans aren’t the only ones with a thirst for mobile wallets (sadly, only partially quenched so far) and Canadians now have the opportunity to take up the service from RBC and Canadian Bell. The service was tested last summer and is up and running on Blackberry (naturally) and Android devices including the Samsung S3 and S4. The technology is NFC (naturally) and functions at stores with Visa’s payWave and Interac’s Flash protocols. A companion loyalty scheme is designed to keep consumers committed to both the wallet and the store brands supporting it. Three other Canadian banks (are there really that many?) either have wallets in flight or under development while MasterCard launched its MasterPass solution in Canada before bringing it to the US. Not to be left out, Rogers Communications has announced Canada’s first and only mobile wallet provided solely by a telecommunications company. “Suretap” comes with a prepaid MasterCard and a flock of gift cards available for download. Debit Network Alliance Presser December Ten debit networks continue to press their charge for creation and oversight of an EMV debit standard. To that end, Debit Network Alliance (DNA) has been created based on the foundations laid in 2012 by the Secure Remote Payments Council and Chip and PIN Work Group. The group correctly argues that the onesize-fits-all approach to EMV implementation in other parts of the world won’t work in the United States, particularly in light of Regulation II routing constraints and recent judicial rulings. Reader organizations not affiliated with these networks may find themselves twisting in the wind: AFFN, ATH, CO-OP, NETS, NYCE, Presto!, PULSE, SHAZAM, and STAR. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 12 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  • Interesting News This Quarter – Continued Subject Source/Date Substance Chicago Transit Authority PYMNTS.com January NFC technology may have found its de facto niche – the Isis Jamba Juice promotion notwithstanding. The Chicago Transit Authority plans to introduce NFC in its newest update to the Ventra fare-payment network. Meanwhile, the New York Metropolitan Transit Authority has announced plans to investigate similar technology as it moves forward with its earlier announced plan to phase out the MetroCard. As usual in the transportation space, you can find Cubic technology in the background. Reserve Bank of Australia Finextra October The Australian banking system (and RBA, its strong-willed and heavily armed regulatory body) has been cited on numerous occasions for its progressive approach to payments handling and pricing. This Petri dish site has led us to lower interchange rates, harpooning of “honor all cards” rules, new routing requirements, and the notion that surcharging consumers isn’t all that bad. US academics and industry practitioners frequently draw on RBA actions as examples of how things ought to be done in payments. We in the United States may be in for more trouble as the RBA plans to launch a new regulatory body, the Australian Payments Council, for the purpose of stimulating innovation in payments. Oz sure swings a lot of power for a country with less that 25 million people and a handful of banks. Netclearance Systems PayBefore January Just when you thought the last reference to beacons was behind you . . . cloud tech player Netclearance makes your day by announcing m2BeaconPay. Despite its clunky name, the next entrant in the beacon wars brings a lot to the table. It is network and device agnostic while not requiring NFC technology to both communicate with in-store consumers and handle payment transactions. The added feature with m2BeaconPay is that it also supports Wi-Fi, opening up the game quite a bit beyond Bluetooth enabled phones. Isis PayBefore October We suspect that it’s not too late to get your free Jamba Juice smoothie when you use your Isis wallet app to make a purchase the first time. After all, the offer extends to the first one million customers and the promotion was announced in October so what’s the rush? The Jamba Juice/Isis lash-up is part of the mobile payments network’s national roll-out. Not a Jamba Juice fan? How about the first three drinks from a Coca Cola vending machine being free? Katie, bar the door. Is that a deal or what? Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 13 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  • Interesting News This Quarter – Continued Subject Isis Federal Reserve Bank Source/Date Substance PaymentsNews November Wells Fargo becomes the third major credit card issuer to certify its cards for inclusion in the Isis mobile wallet app, joining early supporters American Express and JPMorgan Chase. NFC technology being what it is, First Data has been selected to provide Trusted Service Manager duties. WFC plans to phase in the new accessibility via an early stage pilot across the fifty or so Isis-ready smartphones and consumers will be in business once they receive an NFC SIM card from their wireless carrier. Sprint customers need not apply. Various Blogs December “Random Thoughts” poses the “WTF?” question and points to an imagined Mason-Dixon line regarding the Federal Reserve Bank’s Consultation Paper on accelerated near-real-time payments in the US. A brief review of the 130 responses has determined that they break down into four generic buckets and can be paraphrased as: Financial Institutions: “This is going to cost us a fortune, the business case had better be good.” Retailers: “The payments system has been controlled by financial institutions since the days of money changers in the temple; this time, merchants should have a say.” Payments System Processors: “Hey, we’re already doing what you want.” Trade Associations: “Whatever.” Ripple Credit Union Times October Been following what’s going on with Ripple? Ripple is an in-flight distributed payments protocol that recently held its first developers’ conference in Las Vegas. Ripple is currency agnostic, designed to move money instantly, reportedly prohibits chargebacks, and plans to be “virtually” free to use. Ripple uses its own virtual currency (“XRP”) that operates similar to Bitcoin yet enables currency exchange on the fly. The system works on the basis of a series of “market makers” that are sort of like Bitcoin miners but not quite. Ripple market makers match up two or more parties to a foreign currency exchange and carve out the deal. Stay tuned; venture capital guys are all over Ripple and will likely keep it healthy of at least a couple of years. Bitcoin Various Blogs December Speaking of virtual currencies, December was not particularly kind to Bitcoin: China’s largest search company stopped taking the currency and Bitcoin value dropped 13 percent. The following day, Bitcoin value dropped by another 50 percent. Apple removed the Coinbase app from its store. South Korea said thanks, but no thanks, and banned it. Research indicated that half of all Bitcoins are held by less than 1,000 people, throwing everyone into a concentration risk tailspin. In the meantime, Bitcoin value has recovered to about $850 after hitting over $1,000 near the end of the year. Quite a horse race, right? Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 14 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  • M&A/Alliance Activity Buyer/Investor Target Payments Emphasis Possible Strategy Blackhawk Network InteliSpend Corporate Incentive Cards Now public (HAWK) Blackhawk Networks peels off $70 to $100 million of cash to acquire InteliSpend from Maritz. The rapidly transforming incentive industry is rushing head-long into open loop prepaid solutions to keep corporate employees’ noses to the grindstone, making the fit with Blackhawk, itself, quite different than its original J-hook deployer persona, a natural. Origin Ventures, Illinois Ventures, Hyde Park Venture Partners, OCA Ventures Iris Mobile Mobile Text Marketing Iris Mobile (not to be confused with Isis) receives Series A funding of $3.0 million to expand its Rich Media Messaging services for clients including IKEA, Cartier, Pink, and others. Iris supports interactive messaging for consumer promotions including pictures, videos, coupons, and links coupled with back-end analytics for campaign success measurement. Like they say, mobile isn’t about payments, its about marketing. Digicel, SVG ventures, True Ventures, Storm Ventures Flint Mobile Mobile Payments/Marketing Right on the heels of launching its Android payments app, Flint lands $6.0 million in Series B funding. The Flint app uses the mobile phone camera to record card numbers, removing the need for add-on dongles and other equipment. Focused on the “non-countertop” merchant segment, Flint has been posting 10X growth since launching in 2011. Like others focused on the segment, pricing is relatively non-toxic at 1.95 percent for debit and 2.95 for credit. Another Kodak moment for your 16-digit PAN. Verizon Investments Flint Mobile Mobile Payments/Marketing Not to be left out, Verizon Investments added $2.0 million to Flint’s Series B round, raising the ante to $8.0 million. Nice work if you can get it. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 15 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  • M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy New Player or Dead Pool JPMorgan Chase EBT and Prepaid Compared to the hacking Target suffered over two weeks in 2013, the hit taken by Chase in December is peanuts. The bank has admitted to the exposure of around 465,000 cardholders via a server intrusion and has announced plans to exit the EBT, HSA, and public sector cards businesses, pronto. Street talk indicates that Chase has been having severe service problems with its EBT offering for awhile (“first to worst” is the common catchphrase), so the hack is probably the final straw. Problem is that DOJ won’t likely allow Chase to sell its business to one of the other two players in EBT so it’s likely that we’ll see another entrant by and by. Dead Pool O2 Mobile Wallet Mobile Wallet O2, a prominent Euro and LATAM mobile payments player, has announced plans to ditch its mobile wallet and has given wallet owners until March 31st to find the door. “Things change” is the reason given. O2 has been an early and loquacious supporter of NFC technology causing its fraternity brothers more than a bit of grief. Valar Ventures, Klass Capital, Others Granify E-commerce Analytics Granify provides SaaS processing for e-tailers in a manner designed to reduce shopping cart abandonment through manipulation of its 5.3 billion items database. The Granify system predicts when a shopper is about to abort and intercedes to offer a transaction kicker (e.g., free shipping) to encourage transaction completion. Investors provided $1.5 million in seed funding to keep things moving along. Brentwood Investments, TomorrowVentures, Atlanticus Corp., Bob Turner Mozido White Label Mobile Wallet Mozido funding grows to over $100 million with commits from investors and receipt of the first $30 million tranche of a $70 million round. Mozido is on tear now with service delivery in the US, Mexico, Central America, the Middle East and Southeast Asia. Near term plans call for expansion into India and Africa. Ric Duques, former CEO of First Data, has become the Mozido Board Chair. Duques plans to continue the company’s run of delivering “ . . . disruptively priced . . . .services. . .” Interesting. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 16 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  • M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy Private Placement Zwipe Biometrics Nice to know that someone is looking out for us when hackers abound. The Zwipe Access card relies on biometrics (i.e., fingerprints and other data) maintained on the card itself instead of on servers. $2.5 million in new funds were raised by the private offering and another $1.0 million came from a grant by the government of Norway. Clever name; a company to keep an eye on. Didn’t someone else launch on-board biometrics gizmo recently? Oh, right, Apple. Unnamed Investors Loop Wireless Payments 90 days after moving into boot-strap mode with Kickstarter for its unique approach to avoiding having to reterminalize the entire merchant market, Loop receives $10 million in Series A funding and begins shipping its fobs to earlier investors. The Loop app mimics a card present transaction using sonics, thereby avoiding the need for retailers to gear up for on-coming rush (dribble?) of NFC-equipped smartphones. QED, Trilogy Equity Partners, Founders Co-Op, TomorrowVentures, Bezos Expeditions Remitly Money Transfer Service Watch out, Western Union and Xoom, Jeff Bezos-backed Remitly has you in its sights. VC funding grows to $10 million with a $5.5 million Series A round at the start of the new year. Once known as BeamIt Mobile, Remitly claims to have created a cheaper and faster way to handle trans-border payments. The Philippines is the first target for outbound remittances. Three day transactions (account based) are free while express transfers (Visa/MC) take minutes and are priced between $4 and $5. Not yet WU/Xoom-like in scale but, with Bezos in the background, who knows? Square Evenly P2P Payments Everyone needs plumbing and a plumber so that’s why Square and company has acquired a P2P outfit, Evenly. The start-up runs an anyone, anywhere app that fits nicely with Square’s Wallet and Stand services. Originally designed to enable parties to settle up bills and other expenses, experience has shown that P2P apps can easily be morphed into full blown remittance engines. As they say, it’s easier to buy one than make one. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 17 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  • M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy Innovation Endeavors, Bessamer Venture Partners, Betawords Estimote Beacon Player There’s yet another Beacon player in town. US and Poland based Estimote gets $3.1 million in VC funding from industry stalwarts as it tries to crack a new field of customer communications and merchant promotions. Estimote enters the market along with Qualcomm (clearly, a formidable communications player) to compete with PayPal and Apple. Pretty soon we’ll need a scorecard to keep up with the players. A great opportunity for retailers, we continue to believe. Andreesssen Horowitz, Union Square Ventures, Ribbit Capital Coinbase Bitcoin Wallet Coinbase raises $25 million in additional VC funding on top of its earlier round of $7 million. Now we’re talking serious money – remember last year when Starbucks invested the same amount in Square? According to the Coinbase presser, it has enticed 600,000 to register for its wallet and expects more as Bitcoin hovers around the $850-$1,000 range. More importantly, Coinbase claims 16,000 merchants including Khan Academy and Reddit. Bitcoin as an investment is one thing (and maybe not all that bright) but serious payments? That’s another deal altogether. LifeLock Lemon Wallet Mobile Payments Identify protection disrupter, LifeLock, pays $42.6 million for Lemon Wallet and immediately rebrands it as LifeLock Wallet. Lemon had been gaining traction on the other wallet slingers lately, posting 3.6 million in downloads (remember the download/usage rule of 80/20). LifeLock now couples some of its protection tools – lost wallet service, enhanced alerts, and account monitoring with the wallet. An interesting twist on a segment that heretofore looked to be heading down the commodity route. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 18 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  • M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy Fontinalis Partners, Ecomobilite Ventures, Total, Orange, IncWell QuickPay Parking and Payment Application Founded in 2010, QuickPay focuses on providing automobile drivers with access to, and paying for, parking locations. Deals with major parking lot operators such as ABM Parking Services and others has moved QuickPay to near the top of the heap. The investors, consisting of current and former automobile industry executives, pooled $5.5 million in new funding to expand product development and to build scale. Just wondering, if QuickPay can be used to park a car, why couldn’t it be used to get it serviced and buy new tires? Just a thought about where QuickPay might be heading. Amazon DoubleBeam GoPago Mobile Payments “A company’s two biggest assets are its treasure and talent,” they say. In this case, Amazon and DoubleBeam paired up to snap up GoPago with Amazon taking the talent (technology, too) and DoubleBeam purchasing the POS business. Clearly, Amazon wants to get into the mobile payments business in a big way; perhaps to support its drone delivery service? DoubleBeam is a heads-down outfit led by former PayPal, Green Dot, and Digital Insight executives that competes with Mozido in white label mobile payments technology and related services. MasterCard eServGlobal, BICS International Mobile Money Transfer MasterCard seeks to leverage its worldwide base of 24,000 FIs through a joint venture with eServGlobal and BICS. Named HomeSend JV, the cartel hopes to deliver low-cost money transfer services to consumers anywhere on the globe and independent of the type of phone equipment used. eServGlobal builds mobile wallet applications for 65 countries while BICS is an international communication services provider. Looks like all the right pieces are in place for a serious swat at some of the smaller international remittance upstarts. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 19 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  • M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy Unemployment Line Clinkle Merchant Processing Six months after banking $25 million in VC money, stealth mode Clinkle sacks 25 percent of its staff (16) on the heels of another 30 part-timers and contractors let go earlier. Meanwhile, the highfrequency based merchant services processor has loaded up on former Netflix executives to handle finances, operations and “talent.” Sounds strange; wonder what key investor Richard Branson might be thinking? TransCard PayPartners Payroll Card Processor TransCard went on a shopping spree in 2013 and purchased PayPartners, a payroll and corporate card processor; HQ, a provider of shopping mall prepaid cards, and Reloadable.com, a digital prepaid provider. Having plans to continue the streak, TransCard also created TransCard Ventures, a unit focused on acquiring other prepaid managers, portfolios, talent and technology. Now, if the regulators cooperate, there could be a nice payoff down the road; or an implosion. Alliance Data Systems BrandLoyalty Customer Loyalty Systems Major transaction processor and loyalty scheme operator (e.g., Air Canada and Virgin America), ADS, continues its global conquest in loyalty by acquiring a majority interest in BrandLoyalty resulting in an 8 and 10 percent uplift in revenue and EBITDA, respectively. BrandLoyalty operates in Europe and Asia and fits well with ADS interests in the US and LATAM. NCR Digital Insight Home Banking Platform NCR stuns the market but acquiring Digital Insight from PE firm Thoma Brava for $1.65 billion four short months after DI was acquired from Intuit for about $1.0 billion. Observers on both sides of the good deal/bad deal debate will have to wait until they see what NCR plans to do with the asset. History might suggest that, well, never mind. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 20 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  • M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy ff Venture Capital CardFlight Card Acceptance SDK CardFlight raises $1.6 million in VC funds to expand its developers kit for brick-and-mortar retailers desiring a fully customized card acceptance app for in-person payments. POS-in-a-box, perhaps. Flexpoint Ford JetPay B2B Payments Relatively quiet for a decade, payments industry guru Bipin Shah arranges for up to $40 million in funding from Flexpoint to expand his JetPay organization. JetPay provides card acceptance processing, payroll services and tax filing tools along with the usual debit and credit, ACH ODFI systems, and other B2B processing. Hard to keep a good man down, they say. KCPB Level Mobile Payments KCPB (Kleiner Perkins) invests $5.0 million in Level on the heels of its new Level Money offering. Level Money, an Apple App Store app, targets millennials in search of mobile-based budgeting for both income and expense using embedded analysis tools instead of traditional spreadsheets. Guggenheim Partners CardCash Gift Card Secondary Exchange Did you get a few gift cards over the holidays that you’re not likely to use? CardCash operates a secondary exchange for buyers and sellers of unwanted gift cards much like that operated by Plastic Jungle. Guggenheim invests $6.0 million to expand the number of accommodated cards beyond today’s 300 retailer base. Buyers can acquire their preferred gift cards through CardCash at discounts ranging from 10-15 percent. Sellers take a similar haircut. Try doing that with the ugly sweater you got this year from aunt Mildred. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 21 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  • M&A/Alliance Activity - Continued Buyer/Investor Lightspeed Venture Partners Target SimplyTapp Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 Payments Emphasis HCE Innovator Possible Strategy SimplyTapp claims to have created Host Card Emulation (HCE), a platform designed to bypass the SIM-based secure element in NFC transactions. Lightspeed invested in the company through an undisclosed amount of Series A money. Those following the NFC/2D barcode/BLE battles will hear more about HCE as the skirmishes unfold. SimplyTapp may come out a winner in the end. Just ask merchants being asked to foot the bill for new NFC-ready terminals. 22 (310) 544-1316 jmacallister@doradoindustries.com 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 Zapp UK mobile payments www.zapp.co.uk Ripple Virtual currency protocol www.ripple.com Thinaire Beacon technology www.thinaire.com Netclearance Beacon technology www.netclearancesystems.com DoubleBeam Mobile payments www.doublebeam.com Alliance Data Systems Merchant and loyalty services www.alliancedata.com Estimote Beacon technology www.estimote.com Blackhawk Network Prepaid card distribution www.blackhawknetwork.com Clinkle Sound based authorization systems www.clinkle.com Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 23 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  • Back in the day! This quarter’s contest ought to tax a few brain cells and should really test the younger crowd. This image is the subject in question. 1. What is it? 2. Who manufactured it? 3. When was the product launched? 4. What is the model number? 5. What was its original cost? 6. What can you buy it for today? 7. If you were a merchant would you use it in your store today? Why or why not? Registered ISOs need not respond. Same rules as before. First email with the correct answers gets wearing apparel from Dorado Industries. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 24 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com