Dorado Industries TrendWatch 2.0 Q3 2013 Industry Review

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EFT industry overview and comment Q3 2013

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Dorado Industries TrendWatch 2.0 Q3 2013 Industry Review

  1. 1. TrendWatch 2.0 Q3 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.
  2. 2. Random Thoughts 2013: Back to the Future Past Whether listening to very snazzy presentations or meandering through the exhibit hall at this year’s Money2020, a nagging sense of déjà vu kept cropping up. And for good reason. In fact, any circa-’60s or ’70s banker would likely experience the same cold, clammy feeling of impending misfortune. Not long ago, fifty years or so, consumers bought big-ticket items using store credit because bankers couldn’t spell “consumer.” Credit cards pretty much didn’t exist then so POS was actually “check.” Thieves being thieves, merchants began to refuse customer checks without “courtesy” or “check guarantee” cards. CGC cards became just about the only way an east or west coast consumer could cash a check or buy a bag of groceries. If you were a person of moderate means, you had multiple check guarantee cards – one for each bank – as well as “charge cards” from the likes of JC Penney’s, Sears, Macy’s and the like because there weren’t any common brands. The rise of portable credit and POS debit allowed consumers to abandon their stack of plastic (metal in some cases) so necessary in earlier years in favor of one of the national card brands. Life was much simpler for most (merchants might quibble.) Fast forward to the present (and a bit beyond). Suppose the same consumer went shopping for a cup of coffee, a greasy doughnut, a cheeseburger, some gasoline, and an airline ticket. Five purchases, each transacted with a high-tech telephone, and five mobile applications. Sure, each app produces value for the consumer in the form of loyalty rewards, discounts, or rebates. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 But five apps for five purchases? And Lord help the consumer who is out bar-hopping with friends only to learn that she can settle up with the saloon on this side of the street using Tabbedout but needs Chase’s QuickPay across the street. Technology makes life easier? We think not, when electronic payments are concerned. No, this isn’t a plea to return to the “one card fits all” days – it’s not likely the DoJ would approve anyway. But we’re concerned that all the late nights spent by serial entrepreneurs, the bundles of cash being offered by VCs, and the head-long dash to get away from those simpler days will have one casualty – the consumer. And, aren’t her needs the thing we’re all trying so desperately to meet? At this rate, all she is going to get is a smartphone littered with apps she’ll use once or twice, SMS merchant messages wondering where she’s been, and a wrinkled brow as she tries to recall which personal identifier each merchant wants her to use. Don’t be surprised if someday our consumer and her friends decide that her iPhone isn’t all that bad for making calls and turns the data function off. Then what do we do? We’re nowhere near the edge of the abyss yet, but it’s coming. Two-fer! This quarter’s issue brings with it an op-ed piece written by Jack Benton, one of the original thinkers behind our industry. We hope you enjoy his perspective on the future of payments. Back to Baja. Until next time. 2 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  3. 3. Table of Contents 2013 Predictions TrendWatch Scorecard/Summary 2013 Payments Industry Yields Interesting Quarterly News That Got No Respect Q1 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 3 4 6 7 8 16 24 25 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  4. 4. 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. 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. 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. 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. 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. 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. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 4 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  5. 5. 2013 Predictions • • 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. 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. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 5 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  6. 6. TrendWatch Scorecard/Summary – Q3 2013 Industry Players To Watch Positive Mixed Negative High 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 High 7. Industry Investments Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 Google and Apple: Could Beacon and iBeacon change the way customer relationships work? We believe so. 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? EMVCo: Now that the big six are all players, what happens? VC and PE: They were stacked like cord wood at Money2020 and a couple of other shows. Looks like “bootstrapping” is a thing of the past. Heartland: Making some interesting investments in emerging sectors and novel payment approaches. Might there be more? MCX: Okay, QR technology. When does the pilot start and where? Market & Industry Situation 1 – There are some serious attempts being made to avoid using V and MA rails. Which will succeed is anybody’s guess. Fun to watch though. 2 – Cardless ATM access is gaining traction. Cardtronics on a roll. 3 – Good thing Judge Leon stayed his own ruling. More time for volume growth to offset the Fed’s next mis-direction play. 4 – Prepaid just can’t cut a break. 5 – $800 million for Braintree? Only $109 million for Official Payments? Oy! 6 – Card issuers still making the big bucks. V & MA too. 7 – Lots of money going into payments integration with existing phone and tablet apps. 6 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  7. 7. 2013 Payments Industry YTD Yields American Express has been added to provide a full view of America’s four networks while Vantiv’s addition rounds out the payments processer perspective. Once again our basket of payments industry equities drubbed the Dow Jones Industrial and S&P. Although both indicators did well by posting 15.7 and 17.9 percent gains, respectively, our portfolio averaged 34 percent returns on a year-to-date basis. Not bad at all. 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. 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  9/30/2013 Cap Value  YTD 2013 Yield $ $ $ $ $ $ $ 144.76 57.48 25.10 23.74 38.55 23.60 34.81 $ $ $ $ $ $ $ 213.62 75.52 24.03 37.11 50.54 39.88 46.44 $ $ $ $ $ $ $ 68.86 18.04 (1.07) 13.37 11.99 16.28 11.63 $ $ $ $ $ $ $ 4,097.2 19,483.2 (56.0) 544.2 5,766.0 820.5 2,219.0 47.6% 31.4% -4.3% 56.3% 31.1% 69.0% 33.4% $ $ $ $ $ $ $ $ $ $ 79.03 7.84 30.23 39.26 491.28 13.29 21.42 13.61 20.42 151.58 $ $ $ $ $ $ $ $ $ $ 101.96 7.81 39.72 51.66 672.78 19.57 29.42 18.67 27.94 191.10 $ $ $ $ $ $ $ $ $ $ 22.93 (0.03) 9.49 12.40 181.50 6.28 8.00 5.06 7.52 39.52 $ $ $ $ $ $ $ $ $ $ 3,574.8 (2.3) 354.9 1,040.4 23,486.1 363.4 1,579.2 2,875.1 1,864.8 33,430.0 29.0% -0.4% 31.4% 31.6% 36.9% 47.3% 37.3% 37.1% 36.8% 26.1% Sources: Company releases, Morningstar.com, Bloomberg.com 2013 YTD yield excludes dividends; based on 12/31/12 and 9/30/13 closing prices Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 7 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  8. 8. Interesting News This Quarter Subject Visa/MasterCard Source/Date Finextra September Substance We start off with some cheery news from the inventors of the Maginot Line. Long embroiled in a brouhaha with French regulators, Visa and MasterCard blink and concede to a near-half reduction in interchange rates. And, for good measure, the card brands kicked in a 55¢ cap on ATM withdrawals. Nothing like a dose of government price fixing to get things going. Oh, wait. Didn’t mean to overlook you, Judge Leon. Shopify TechCrunch August Amazon PaymentsNews October The news from Amazon has nothing (or everything) to do with hard goods or books. The retailing giant is now offering its “Login and Pay with Amazon” service to retailers wishing to make the 215 million Amazon customer theirs. Not likely to resonant well with the big-box merchants but certainly appealing to the SMB crowd. Amazon investors are likely to see a goodly jump in value soon. AMZN up $10 since the announcement. Isis Paybefore.com September Two issuers in; one out. American Express and its Serve payments platform join Chase in announcing participation in the Isis national rollout. Capital One says no dice after being part of the telecom consortium’s pilots in Austin and Salt Lake City. No clear reasons for its withdrawal were offered by Capital One but in this era of emerging mobile payments networks perhaps a better deal has been put on the table? You can bet it’s not likely the big time issuer has decided that mobile is not in its wheelhouse. Maybe its that Isis NFC bias that’s at the center of the decision? The Paypers July Discover takes another step toward full utilization of its cards by joining the Allpoint Network for cash access. Allpoint continues to grow and now has nearly 45,000 devices available to issuers for use by their cardholders. Discover Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 Canada-based ecommerce store site provider, Shopify, takes another step toward full integration by launching Shopify Payments. The service supports in-app payments processing at rates ranging from 2.5 to 2.9 percent plus 30¢ per transaction with no premium pricing for American Express or international (read, UnionPay) card acceptance. Shopify processes for 35,000 US stores and becomes one of many vendors chasing the integrated payments app grail. 8 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  9. 9. Interesting News This Quarter – Continued Subject PayPal American Express CardlinX Association Discover Network Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 Source/Date Substance PYMNTS.com September Looking for a game-changer to impress your friends? Check out what PayPal is doing with its Beacon device. Based on Bluetooth Low Energy (BLE), these cheaper-by-the-dozen (and the size of a thumb drive) units can detect a Bluetooth enabled phone in their presence and can begin pushing coupons and discounts out to the consumer based on where they are shopping in the store. Looking at Beacon from other than the whiz-bang perspective, PayPal may have given merchants what they’ve been clamoring for – an intimate consumer relationship from the time they enter the store. And, perhaps, a way to put a dent in showrooming? Keep your eye on this one. Oops, forgot to mention that the Beacon app naturally works with the PayPal wallet. Presser October Not much as been said by American Express since launching Serve two years ago but that’s likely to change. Serve is designed to meet the needs of the nation’s underbanked as part of the AMEX push toward inclusiveness. Serve customers will soon be able to use direct deposit, bill pay, RDC, and a savings tool branded “Reserve.” Consumers preferring cash may begin using CVS and 7-Eleven stores to fund their Serve accounts starting in November. Just one slight glitch: starting in December, Serve customers will be assessed a $1.00 per month fee unless they are using direct deposit or load $500 each cycle. Good business but bad form? PaymentsNews October Older readers may recall frequent rants over the lack of a pan-industry network for payments industry problem-solving. Well, we now have one, sort of. CardlinX Association has been formed by Microsoft, BofA, Discover, Deem (check them out in the M&A section), Facebook, First Data, Linkable, LivingSocial, MasterCard, Affinity Solutions, CardSpring, and Cardlytics. Alas, the new group doesn’t quite get to the crux of the problem. Note this pithy quote: “ . . . . to define a set of standards ands services that will make it easier for consumers to shop and for merchants to sell their goods and service.” Emphasis added. A shame that the focus isn’t on enabling consumers to pay for goods and services without the friction imposed by bankers and merchants who don’t particularly care for one another. A good step forward, nevertheless. ATM Marketplace September Discover Network has joined EMVCo and becomes an equal partner with the others – American Express, JCB, MasterCard, UnionPay and Visa. This looks like good news for those backing the EFT network play for a common AID (Discover’s DPAS was selected by the networks earlier this year). EMVCo is the standards body overseeing international deployment of the chip card technology. 9 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  10. 10. Interesting News This Quarter – Continued Subject clearXchange Dwolla Source/Date PYMNTS.com October Finextra October Substance clearXchange founding members Bank of America, Chase, and Wells Fargo welcome their first nonfounding FI, FirstBank, to the P2P network. Customers of the Colorado-based bank will be able to send payments from their FirstBank accounts using the recipient’s mobile number or email address. Some pundits have projected that new member enrollment is the first step toward making clearXchange a serious player in the P2P space with aspirations to morph into a full-blown mobile payments player. We’re waiting to see if any merchants sign up to nudge the P2P product into becoming a serious role player in payments. Itself somewhat of a maverick in electronic payments, Dwolla has pulled the plug on currency conversion services once offered to Bitcoin holders. Dwolla has been caught up in the scrutiny and mayhem involving US regulators (Homeland Security, no less) and the MT. Gox and TradeHill Bitcoin exchange flare-ups. Dwolla is giving exchanges and holders until the end of October to find another resting place. Princeton One Card CentralJersery July Princeton, New Jersey becomes another of a handful of cities that offer a local merchant purchasing card or mobile phone app. The Princeton initiative runs on Heartland Payment Systems rails and operates like a decoupled debit card. Consumers may opt for the plastic card or app. A chip card option is available for use with city parking meters. There is a nonprofit component as well since participating merchants are required to donate one percent of each transaction to a cause of the cardholder’s choice. The offset for merchants is that they pay a mere 5¢ per transaction rather than traditional ad valorem interchange. Unlike the municipality-backed card scheme launched in Oakland, California, the Princeton One Card is the brainchild of the local merchants’ association consisting of eighty local retailers. American Express Wells Fargo Bank PaymentsNews September Wells Fargo and American Express announce a partnership wherein Wells will issue new cards accepted on the American Express network. There is to be a pilot conducted this year with a full scale launch planned for mid-2014. Talk about back-to-the-past experiences. In the early ‘70s, American Express launched its Gold Card which at that time generated credit receivables that AMEX couldn’t carry (no banking charter). So, how was the card branded? Joint with United California Bank which became First Interstate Bank which was acquired by Wells Fargo in 1996. What goes around, comes around. Finextra August PayPal and MoneyGram have formed an alliance that enables the underbanked population to fund and redeem cash from their PayPal accounts through MoneyGram outlets in Dallas, New York and San Francisco in an early phase of the program. Global expansion is planned for a later time. Yet another example of good marriages between cyber payments schemes and brick-and-mortar distribution systems. PayPal Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 10 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  11. 11. Interesting News This Quarter – Continued Subject Akimbo Source/Date Substance PaymentsSource August The number and type of “sub networks,” those taking a page from the recently announced Chase Merchant Services playbook, continue to grow. Akimbo, the direct-to-consumer prepaid card scheme with a social networking twist, plans to offer the service to small and mid-tier banks for use with their depositors. Akimbo management is suggesting that banks can use the card program and its Facebook tie-in to promote travel card sales and better budgeting. Outsiders wonder if Akimbo might be taking a mis-step. When they work, they’re great but sub networks are tough cookies to manage. Good luck, Akimbo. VeriFone Presser August Terminal giant VeriFone is putting its Zoosh acquisition through its first trial run. Way2Ride is an Android/iOS app for payment of taxi fares using sound-based communication technology. The app is designed to give passengers the ability to pay for rides via their cell phones at anytime during the trip. The app stores both payment method and tip preferences and produces digital receipts. New York City is the initial marketplace with a national rollout planned for the future. Way2Ride is positioned to re-disrupt the market tossed sideways by e-hailing interlopers Hailo, Taxi Magic and Uber. Sonic communications is getting some love from users and investors; check out what Clinkle is up to in our M&A section. Visa, American Express, MasterCard Presser October The “big 3” step up to the tokenization standards plate by agreeing on a framework for a new global standard – note the “framework” reference – for use in e- and m-commerce transactions. Issuers and merchants have been clamoring for a safer approach to transaction processing for decades and the growth of e-commerce transactions coupled with the expected explosion in m-commerce exchanges have pushed the issue to the front burner. Now, a framework and a standard aren’t quite the same thing so there’s a ton of work to be done and dozens of other constituents to be corralled (e.g., EMVCo, The Clearing House, etc.), but at least we’re making some headway. Wonder why Discover hasn’t joined the party. Business Wire August Did we really need another payments trade association? Ten processors have formed the Third Party Payment Processors Association (TPPPA). The aim of the group is to protect the processing industry from fall-out associated with regulator snooping into payments practices used by issuers and acquirers. Since its formation, the executive director has fired a salvo or two through op-ed pieces in Forbes and the American Banker while defending TPPPA members involved in processing transactions in the dreaded payday lending sector. Each member has agreed to abide by a strict code of conduct which we hope involves doing everything possible to prevent data breaches, adherence to industry encryption standards, and full support of tokenization. Time will tell. TPPPA Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 11 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  12. 12. Interesting News This Quarter – Continued Subject Source/Date Substance Target Payments Journal August For those considering decoupled debit as a mere artifact of the last decade, the numbers being posted by the Target REDcard are noteworthy. Penetration of total transactions is between 17 and 20 percent and climbing for the rewards-loaded REDcard while the split between credit and debit card funding for the closed-loop program now tilts in the favor of debit. As noted in this issue’s Random Thoughts, “back to the past” may be the catch phrase for the future. Digital River Card Not Present Report August Digital River may be the oldest surviving player in the e-commerce sector, and it’s still thriving. DR is branching out once again. Beanstream Mobile is the company’s play in the m-commerce acquiring game. Like all the other dongle guys, Beanstream comes with an encrypting card reader and downloaded app which, unlike most of the others, can process transactions in multiple currencies. Pricing meets the current bar set by Square and others – 2.75 percent, flat. For CNP transactions, Beanstream seems like a bargain at 2.9 percent plus 30¢ where others charge 3.5 percent and 15¢. This time we did the math: Beanstream CNP pricing beats the others for transactions over $25.00. Apple Mobile Payments Today September Looks like most of us got caught napping during the Apple World Wide Developers Conference earlier this year. That’s the event Apple used to kick off its iOS 7 operating system release. Seems one of the slides referenced “iBeacon support.” The recent release of the iPhone 5s brought come clarity, sort of. iBeacon is similar to PayPal’s Beacon system in that it uses Bluetooth Low Energy to detect and communicate with Bluetooth enabled smartphones. Unlike Beacon, which is AC powered, iBeacons operate on batteries with a reported two-year life (so, how long between charges on your iPhone?) iBeacon’s geo-sensing capabilities insure that you’re being bombarded with promotions for jeans when you’re in a clothing section of a store and not housewares. As good a game changer as Beacon? Not until Apple declares itself in mobile payments, we suggest. The NFC versus BLE debate took shape not 24 hours after the Apple iBeacon announcement. Far too much time on some folks’ hands. LevelUp Payments Source July Had to happen. LevelUp CEO Seth Priebatsch is all lathered up about an app the company is testing internally that supports payments with Google Glass eyewear. Really, folks. Has it come this? Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 12 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  13. 13. Interesting News This Quarter – Continued Subject Western Union/US Bank Source/Date Business Wire September Substance Not long ago, industry watchers were wondering how Western Union was going to catch up with the electronic age. Indeed, many thought WU would continue to wilt under First Data ownership and its laborintensive solution for money movement. Then along came the FDC spin-out and a flurry of e-payments acquisitions which has drawn the attention of several interested parties. US Bank is so enamored with the world wide physical network of agents and company-owned WU stores that it has launched a new mobile money transfer application with WU’s network capabilities wired in. Good for USB for not seeking ways around Western Union (like so many others have tried) but sensing the opportunity WU provides and grabbing for it. If the gambles works, the payoff could be huge; the money transfer business involves $600 billion in value exchange every year. UK Treasury Finextra October “We’re from the government; we’re here to help.” The UK Treasury has pulled the plug on self-regulation once living under the guise of the Payments Council. Readers may recall that this body had set out plans in 2011 to do away with paper checks by 2018. The PC is the same group that had launched the UK Payments Roadmap earlier this year, a venture likely destined for the dustbin. The new regulator will have the power to tweak existing UK payments systems such as BACs (ACH equivalent only better) and Faster Payments in ways that would enable smaller and innovative players to participate. No doubt there are some very honked off UK high street bankers these days. PayPal Finextra August Sometimes technology can run amuck. Richmond, London shopkeepers are dabbling with PayPal’s “pay with face” application. No, you needn’t scrunch your face (or other bits) on a scanning glass like we used to do with photocopiers, but you do perform some extra key strokes. Customers of stores using the system must first identify the store within the mobile app, and slide a pin down in the app. Doing so causes a photo of the user along with her name to appear on the store’s payment system (warning: this will not work with Zon Jr. terminals). Once the customer has finished shopping, the retail clerk selects the facial image and the deal is done. Of course, the customer’s cell phone is pinged as a reminder of the amount paid and a PayPal email receipt follows. The objective is to alleviate the need for wallets, cards, and PINs. We suggest that a walletless high street is a couple of decades away. Payments Journal October You thought the Kardashian card was bad? Try this one from the founders of the Occupy Money Cooperative. These folks plan on issuing a Visa prepaid card to raise a targeted $900,000 to fund the cooperative. The thinking is that like-minded protesters would use the cards and get a warm fuzzy feeling each time they are swiped under the notion of “A Protest with Every Purchase.” Guys, there’s got to be more thinking done here. The reload fees alone will cause another protest. Occupy Wall Street Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 13 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  14. 14. Interesting News This Quarter – Continued Subject Source/Date Paydiant PaymentsSource August Presser October Paydiant ATM Marketplace July PayPal PayBefore October Substance In a classic tale of two cities, Paydiant, one of the poster children for cloud-based mobile commerce, has struck deals with two vastly different organizations. The Pulse debit network has crafted an agreement with Paydiant to create bank-branded wallets that will operate within the network’s broad base of merchants. The wallet app gives the banks the ability to determine which payment cards will be supported and how customers will be able to use Pulse ATMs for cash withdrawals. Paydiant software has the ability to support bank, retailer, and processor sponsored wallets so it’s not a surprise that the same vendor is behind the mobile wallet effort being pursued by CU Wallet. CU Wallet is a consortium of fifteen credit unions that own a majority interest in the new CUSO. The Pulse and CU Wallet objectives are the same; keep their FIs relevant and in control of the expected expansion of mobile payments. Of course, Pulse brings vast numbers of retailers to the party while the CU Wallet offering will be starting from square one on the acceptance front. Last add on Paydiant. Those of us scrambling to experiment with a Paydiant-enabled mobile wallet will be pleased to learn that a partnership with Diebold brings along new wallet functionality – the ability to use the wallet to withdraw cash from Diebold devices rather than have our cards exposed to ATM skimming. Wouldn’t EMV solve the same problem? PayPal (referred to elsewhere as being “a bit long in the tooth”) re-jiggers its in-store strategy once again by launching “payment code,” another term for quick response codes. So here’s how it works (paraphrased from another source): 1. Select the stuff you’re going to buy. 2. Open the PayPal app (might want to open your phone beforehand). 3. Check in with the app. 4. The app prompts you with a QR code, or a four-digit short code. 5. In bar-coding merchant locations, the merchant scans your code. 6. If the merchant is not scan-enabled, use the four-digit code with the PIN pad to check out. Really slick unless your purchases include a six-pack of beer, a bag of ice, and a gallon of ice cream. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 14 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  15. 15. Interesting News This Quarter – Continued Subject OpenTable Square Simple Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 Source/Date Substance PaymentsSource August Dining reservations powerhouse OpenTable claims to be seating 12 million customers per month in 28,000 restaurant customers worldwide. Like others in the space, and indicative of a growing trend of payments integration with other applications, OpenTable is testing an in-app payments solution provided by mobile payment startup JustChalo, a company it acquired in June. Customers in 20 San Francisco restaurants will be included in the test round. In an interesting twist, the restaurant owners will continue to be stuck with the payment interchange. Wonder how that works. Netbanker October Non-fans (us included) of P2P payments ought to take notice of the fact that Square and Simple launched their own P2P solutions within the same week. Square Cash uses email and debit cards from anyone to anyone with no login, third-party account or any of the other burdensome stuff. Just send an email to Sally with a cc: to Square and you’re done. Simple has gone in another direction with its MoneyDrop service that uses Bluetooth for close-proximity P2P. Presently an iOS service for now, expansion plans are in the works. 15 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  16. 16. M&A/Alliance Activity Buyer/Investor Target Payments Emphasis Possible Strategy Heartland Payments, Morgan Creek Capital, NEA TabbedOut Mobile Payments TabbedOut, the darling of the bar, restaurant ,and hospitality niche for customer ordering and payments, raises another $7.75 million in expansion funds to move into more geographies. The TabbedOut approach helps rid its users of several hurdles in hospitality payments including that of schlepping the customer’s payment card to and from the POS terminal. Safeguard Scientifics, Ben Franklin Technology Partners Clutch Gift Card Wallet Clutch enables users to store and track their gift cards (Christmas is coming, after all) in a phone wallet while earning additional benefits through card usage. Two investors pony up Series B monies totaling $5.3 million to aid company expansion into offline uses and merchant white label options. Meanwhile, Clutch is acquiring ProfitPoint as a way to bring 3,000 merchant clients to the game. A global payment widget to cover up-spend when the gift card balance is exceeded is likely in the works we think. Cardtronics Cardpoint ATM fleet Titanic US ATM deployer Cardtronics continues its roll-up strategy across Europe by announcing its plan to combine Cardpoint with Cashzone and Bank Machine estates to form Cardtronics Europe. The Cardpoint acquisition brings 7,100 UK devices and another 800 German sites under the new banner. All this for a mere £100 million in cash. Decent purchase price – Cardpoint ginned up $101 million in the twelve months ended June 2013. You do the math. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 16 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  17. 17. M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy Dead Pool PerkStreet Financial Debit Card Scheme Started five years ago, PerkStreet, attracted deposits and card usage by offering rebates for activity. Acting as agent for Provident Bank and using Bancorp Bank, the company paid out over $4.0 million in rebates throughout its short tenure but ran short on money due to low interest margins and the residual effects of the Durbin Amendment. More road kill along the payments highway. IFC SafetyPay Web-based Payments IFC is an investor offshoot of the World Bank and has made a $7.0 million investment in SafetyPay. The Florida-based company came to life in Peru six years ago and serves the needs of consumers in Mexico , Costa Rica, Colombia, and Brazil through linkages between 84 LATAM banks and major retailers. The underlying system facilitates web purchases via the consumer’s banking account. IFC has also taken a similar position in Earthport, the UK processor that provides similar account-to-account transactions. TIO Networks Global Express International Payments Vancouver BC-based TIO is acquiring Global Express and its money order business to expand its market footprint. It is hoped that TIO will be able to leverage the acquisition to cross-sell its mobile payment, kiosk and financial wallet service lines to the Global Express user base. TIO is being helped in the deal by Core Innovation Capital which is injecting $3.0 million in new equity (and, at $0.35 each, that’s a boat-load of shares.) Davis + Henderson Harland Financial Solutions Financial Service Processing Harland Clarke Holdings spins off HFS to Davis + Henderson for $1.2 billion in cash. HFS represented 15 percent of the parent’s business in 2012. It is unclear if the balance between Canadian and US processors will be impacted as a result of the transaction. For the 385 FIs that use Ultradata for core processing, it should be good news to hear that D+H is making the acquisition to build a stronger base in the US. Or so the story goes. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 17 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  18. 18. M&A/Alliance Activity - Continued Buyer/Investor Target Swiftsure Capital, other angel investors Viableware Payments Scheme Another payments processor in the consumer dining niche gets more funding. Viableware is the innovation company behind RAIL, the fullservice restaurant payments system the utilizes hand-held terminals when settling up a restaurant tab. Investors anted another $6.5 million on top of an earlier $1.0 million round. RAIL enables self-swipe card payment, bill splitting and tip calculation without server intervention. Receipts are emailed. Investors like us Loop Wireless Payments Launched recently and showcased at Money2020, Loop is striving to find a position of détente among the mobile payments combatants by delivering a way to use mobile phones and wallets with any POS terminal having a mag stripe reader. So far, management has sorted out 60 percent of the terminals (although they claim it’s 90 percent). A KickStarter.com investment of $150 or more will get you a card swipe fob and a transmission dongle so you don’t need to drag your wallet out anymore. So, while the NFC v. 2D v. RFID bigots hash it out and until EMV either dies or makes a go of it, Loop will make us all look cool and dazzle cashiers the world round. Provenance Ventures, Saturn Partners Chirpify Mobile and Social Payments Chirpify, the folks behind the #DoGood social benefits hashtag, have raised $4.0 million on top of the earlier round of $2.0 million. The Portland-based company marries social networking with purchases, donations, and group events. Users need to be facile with Twitter to make things happen. MoneyGram Nexxo Money Transfer MoneyGram takes a step toward kiosk distribution by acquiring Nexxo Financial and its 200 money transfer kiosks located in California, Illinois and Texas. Funds can be delivered to 15 LATAM countries. Lower labor means lower cost and higher margin. Good move for MoneyGram. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 Payments Emphasis Possible Strategy 18 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  19. 19. M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy Floodgate, Initialized Capital, Rothenberg Ventures Buttercoin Bitcoin Trading Likely to be but one of hundreds of similar investments, Buttercoin raises $1.0 million to expand its Bitcoin trading and remittance operation. Funds will also be used to begin operations in India (naturally) and open six new markets (if Bitcoin is universallyaccepted and border neutral, are “markets” germane any longer? ) Just a thought. Menlo Ventures, Morgenthaler Ventures, Pitango Venture Capital Check Mobile Banking and Payments Once known as Pageonce, “Check” raises a whopping $24.0 million in a Series C round. The Check app tracks bill timing, sends alerts, and suggests alternative spending patterns. Returning investors and a customer Paydiant Mobile Payments You can’t pick up a trade rag or the popular press these days without seeing a passage on Paydiant; they’re everywhere. Yet, like all startups, Paydiant needs money to keep growing (well, not all, read the history of Litle & Co.) Paydiant offers bar code-centric solutions to avoid NFC wrangling and to keep out of V.me’s way. Returning investors and one of its whale-sized customers tossed $15.0 million on the table bringing total funding to $35.0 million. Google Bump P2P Technology Once a PayPal favorite, Bump technology was used early on to initiate mobile transactions between phones. PayPal left Bump at the altar in favor of its own solution. Bump has now become part of Google, itself in dire need of some oomph for its Wallet strategy. Naturally, terms of the deal were not disclosed so we’ve got nothing more to say. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 19 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  20. 20. M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy Village Ventures, Contour Venture Partners, others Zipmark B2B Payments Founded by ex-VC guys, Zipmark provides B2B payments for SMB companies through its hybrid network structure that links participating firms and moves AR/AP monies is a single day. The objective is to avoid remittance delays caused by paper check and ACH transactions. New and returning investors add another $1.5 million to the kitty to propel market growth. CVC Capital Partners Powa eCommerce Payments CVC invests a staggering $76 million in Powa as it moves into the mobile payments sphere under the “mPowa” handle. UK-based for now, the SaaS platform provider is moving ahead with low-cost chip and PIN readers, apps, and an mPOS platform. The curious issue here is that CVC is a majority stakeholder in Skrill, a payments platform that already has a U.S. presence via its paysafecard.com acquisition. We’ll likely hear more from both Skrill and Powa on US shores. Goldman Sachs United Merchant Services POS Transactions Processor Don’t recall this happening that often but a wire house brokerage has taken an investment position in a POS processing firm to accelerate global expansion. Goldman Sachs Specialty Lending Group is funding UMS but declined to mention how much is involved so that’s all we have to say about either. Parallax Capital IdenTrust Digital ID Services IdenTrust, formerly a bank-owned consortium before being cashed out by Polaris Software, is now majority owned by Parallax, a PE firm. Terms were not disclosed. The target claims to provide more than six billion digital certificates per year in the UK alone. Wonder who got the bigger payday, the banks or India-based Polaris? Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 20 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  21. 21. M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy WorldPay Century Payments Merchant Processing Aptly named WorldPay continues its expansion plans and acquires Century Payments, a beefy provider of white label payments solutions. The transaction brings tens of thousands of additional merchants to WorldPay. Royal Bank of Scotland must still be miffed that it had to sell WP in 2010; we wonder when the equity firms owning the majority interest are going to take the cash and run. Undisclosed Investors Deem eCommerce Platform Somebody with lots of cash burning a hole in his pocket puts up $70 million to capitalize Deem, a stealthy eCommerce player former known as Reardon Commerce. Corporate investors include American Express, Citibank, and JPMorgan Chase so there’s gotta be something worth talking about. Still, just how big will the market for eCommerce processors with clever schemes become? Richard Branson Clinkle Mobile Payments Clinkle had just pocketed $25 million in funds when Sir Branson came along and plopped own a bunch more. Still stealthy, Clinkle relies on high-frequency sound waves to chat between smartphones and merchant terminals. College campuses are being targeted for the first release with Stanford, University of Michigan, Duke, SMU and ‘Bama reportedly in the queue. Not the first time sound wave technology has been proposed (remember Zoosh?) but with this kind of funding from these types of investors the main event should be fun to watch. eBay Braintree Payments Platforms The vibe created by eBay’s $800 million purchase of Braintree continues as speculation centers on how PayPal will utilize Venmo, a recent Braintree acquisition, to punch up its mobile commerce offering. The deal brings 4,000 merchants and $12 billion in payments processing to PayPal, a firm considered by some to be getting a bit long in the tooth. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 21 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  22. 22. M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy Sequoia Capital Shopular Mobile Coupons The mobile coupons space remains crowded as Shopular raises $6.4 million to finance growth beyond the 40,000 stores already served. Shopular takes on ShopKick and other notables in the space. Two recent segment changes may tilt things somewhat – imbedding payment options in the shopping app and the new PayPal Beacon and Apple’s support for iBeacon. Both may wind up disrupting the playing field for Shopular and others. Returning Investors LevelUp Mobile Loyalty/Payments Returning investors plunk down another $7.5 million to spur LevelUp growth. The loyalty marketing app rewards consumers for repeat behavior and store shopping while giving merchants a no-fee card processing option. LevelUp uses the “show me” approach and is rewarded when consumers respond to promotions. LevelUp gets a share of the lift. Heartland Payments Leaf Tablet Merchant Services You don’t see this everyday; a mainline merchant services processor has made a $20 million investment in Leaf, the tablet-based processor for merchants in the quick service restaurant, fine dining, and boutique retail verticals. HPY will bundle Leaf with its core payments products and utilize its network of 800 relationship managers to promote the service. The times, they are a-changing. Late add: Heartland and TabbedOut announce a strategic marketing agreement. Vantiv Element Payment Services Merchant Services Surging Vantiv gobbles up Element Payment Services and captures much needed encryption, tokenization, and EMV chip and PIN technology. No terms were disclosed for this tuck-in acquisition. Core Innovation Capital Wipit Mobile Money Transfer Core Innovation funds a Series A round for Wipit, a key player in underbanked mobile services and other remittance services – international money transfer, RDC, and bill payment. Core is the investment partner for the Center for Financial Services Innovation, an advocate for inclusion of the underbanked in global financial services. Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 22 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  23. 23. M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy TestLink Airis ATM Technology ATM Services UK-based TestLink pays $18 million to acquire Ohio-based Airis. Both firms specialize in re-curving and supporting ATMs produced by the major device vendors. TestLink gains access to the US market and picks up a tremendous NCR and Diebold parts inventory. An interesting end-game strategy or preparation for a slug of EMV upgrades? Either way, a good move by the Brits. OuterWall ecoATM Mobile Device Recycling OuterWall (once known as Coinstar) pays $350 million for the ecoATM network of mobile and electronic device recycling kiosks. Coupled with its Redbox DVD dispensing asset and little known Rubi coffee devices, OuterWall is capturing the kiosk business in much the same way TRM captured the merchant copier machine space in the last decade. Hope the results are better for OuterWall. Ironwood Capital, Connecticut Innovations Payveris Money Movement Platform Money movement company Payveris scores $5.2 million in Series A funds to expand its mobile money movement application. Payveris has been selected by Moven, the mobile debit card app folks, to backbone their product. Insight Venture Partners, CrunchFund, others Branding Brand Mobile Website Developer Looking for a very cool mobile website for your enterprise? Check out Branding Brand. Working with BB will put you in good company – Costco, Ralph Lauren, American Eagle and all the big boys. Investors seem to like the approach; plunking down another $9.5 million to keep the dazzle coming. ACI Worldwide Official Payments Government Payments Acceptance It’s happened again. Seems like OPAY has been owned by just about everyone at one time or other. ACI pays $109 million to bring the C2G processor into its shed. We hope the OPAY management team fares well. If not, we’ll see them at the next payments convention with something new. Right, Alex? Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 23 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  24. 24. 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 Loop Mobile payments www.looppay.com Check PFM and payments processor www.check.me Deem ecommerce platform www.deem.com Paydiant ecommerce/mCommerce www.paydiant.com Buttercoin Bitcoin trading exchange www.buttercoin.com Clutch Gift card wallets www.clutch.com Akimbo Prepaid card program www.akimbo.com clearXchange P2P processor www.clearxchange.com Clinkle Sound based authorization systems www.clinkle.com Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 24 (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com
  25. 25. Back in the day! Network State B. Georgia 3. Relay C. New York 4. Alert D. Texas 5. Honor E. The Carolinas 6. MAC F. New York 7. NYCE G. South Dakota 8. MOST H. Connecticut 9. KETS I. 10. Magic Line J. Missouri 11. Cash Station K. Florida 12. Yankee24 L. Iowa M. California 14. BankMate N. Washington 15. The Exchange O. Louisiana P. Maryland Q. Kansas 18. GulfNet R. Nebraska 19. CU24 Dorado Industries 655 Deep Valley Drive, Suite 125-P Rolling Hills Estates, CA 90274 2. Pulse 17. Cactus First to email us a list of network numbers matched to state letters wins a Dorado Industries polo shirt. A. Arizona 16. Star The answer to last quarter’s photo contest was trickier than we had thought. The network CEO circled in the picture is Denny Dumler, long time Colorado National Bank exec and former head honcho for TransAlliance, the successor company to The Exchange. We still cannot identify the occasion but are certain that no collaboration was in the works. The others include (L-R): Ron Congemi, Dumler, Dennis Lynch, and Stan Paur. 1. Advantage 13. Shazam This quarter’s challenge is to match the network name with its state of origin. To keep things fair, we omitted obvious matches like InNevada and Alaska Option. There are a couple of cases where more than one network emerged from a single state so give it some thought. S. Pennsylvania 20. CO-OP T. Michigan 25 Illinois (310) 544-1316 jmacallister@doradoindustries.com www.doradoindustries.com

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