FOR 43 YEARS, THE LEADING PUBLICATION COVERING PAYMENT SYSTEMS WORLDWIDE JANUARY 2014 / ISSUE 1032

Host Card Emulation for NFC SimplyTapp’s Host Card Emulation (HCE) technology can Projected Growth in disintermediate mobile network operator (MNO) control over NFC payments at the point of sale by using software in handsets that direct Purchase Transactions > see p. 9 Worldwide 2012–2018 Hewlett-Packard and HPS Partnership U.S. Canada Latin Europe Middle Asia/ Eleven card management software modules from Hightech Payment America East/ Pacific Systems (HPS) will be ported to HP servers worldwide as part of a new agreement between the companies. The aim is to offer midrange > see p. 6 Klarna Adds Sofort for Web DEbit Klarna, a company that offers instant credit for Web purchases to consumers in Sweden, Norway, Finland, Denmark, Germany, the Netherlands, and Austria on behalf of 15,000 Web merchants, will > see p. 5 Market Shares 2018 Canada’s 42% 4% 8% 20% 2% 25% The Royal Canadian Mint (RCM) wants to make Canada the first country in the world whose government backs a digital currency alternative to banknotes and coins. Currently the only digital cash 120 > see p. 7 Transactions (Bil.) 76 71 OTI’ve s Wa Device 59 On Track Innovation’s (OTI) proprietary Wave device gives banks 38 29 22 13 another way to keep mobile network operators (MNOs) from 8 11 3 6 dominating NFC-based contactless payments owing to their control ‘12 ‘18 ‘12 ‘18 ‘12 ‘18 ‘12 ‘18 ‘12 ‘18 ‘12 ‘18 > see p. 5 Amex Settles Enforcements/Class Actions © 2014 The Nilson Report Two class-action lawsuits filed by U.S. merchants that challenged provisions in American Express card acceptance agreements on Transactions Worldwide — antitrust grounds will be settled for payment of up to $75 million in > see p. 11 Projected Through 2018 The payment card industry is projected to reach 288.59 M&A and Corporate Financing — Oct./Nov. 2013 billion purchase transactions at merchants (card present Turn to pages 10 and 11 for a list of 89 mergers, acquisitions, joint and card not present) by 2018. This will be an increase of ventures, and corporate financing deals that occurred in Oct. and Nov. 122.28 billion from the 166.31 billion purchase of 2013. There were 414 transactions from Jan. 1 through Nov. 30. transactions in 2012 generated by credit, debit, and > see p. 10 > see p. 8

INSIDE 2 – 4 Fast Facts CHARTS 8 Market Shares of Purchase Transactions 8 IRIS Analytics Fraud-Fighting Software Worldwide, with Change in Basis Points, 2008 vs. 2018 9 Global Money Transfer Joint Venture 10, 11 Payment Industry Acquisitions & Investments — 12 Georgia Finalizes Rules for Acquiring Banks October and November 2013

© HSN Consultants, Inc. 2014 THE NILSON REPORT VISIT US ONLINE AT WWW.NILSONREPORT.COM Fast Facts J.P. MORGAN is exploring the possibility of selling its Corporate, OUR NEW LOOK! Welcome to this updated version of The Nilson Public Sector, and Health Savings Accounts prepaid card businesses. Report for 2014. Continuing the work that began with the launch It has discontinued all sales efforts. Cards in circulation are in the 10 of our redesigned website in 2013, this new design allows us million range. to provide even more information on every page. Look inside. You will find all of the familiar features including Fast Facts, CONNECT FINANCIAL SERVICES' credit union customers now Featured Conferences (including your special subscriber have access to the CU Wallet mobile payments platform. The platform discounts), Management Changes, as well as contact informa- will be integrated with Connect's mobile banking and online banking tion for the company representatives mentioned in our report- channels. Paul Fiore is CEO at CU Wallet, (818) 224-6071, pfiore@ ing, all in a new format. We hope these changes improve your cuwallet.com, www.cuwallet.com. Grant Parry is President at experience with the newsletter. As always, we welcome your Connect FSS, (801) 327-9701, [email protected], comments and questions. Contact us at [email protected]. www.connectfss.com. CAN CAPITAL is the new name of Capital Access Network. Other U.S. BANK now offers the Visa Community Credit Card to nonprofit brand names used by the company, including AdvanceMe, NewLogic organizations and small municipalities. The card has no annual fee, Business Loans, and CapTap, now also use the CAN Capital name. no late fees or over-limit fees, online expense-management tools, Dan DeMeo is CEO, (212) 548-6202, [email protected], and consolidated central-billing statements. Community Credit Card www.cancapital.com. is guaranteed by the organization, not the individual. A free rewards program is optional. Bob Hengge is VP, Retail Payment Solutions at FIRSTBANK PUERTO RICO has signed a long-term contract exten- U.S. Bank, (513) 277-5505, [email protected], sion to continue using TSYS to provide payment processing for its www.usbank.com. consumer credit card portfolio. Cassan Pancham is EVP and Business Group Executive at FirstBank Puerto Rico, (787) 729-8200, TRANSFIRST now offers its merchant customers VeriFone's EMV- [email protected], www.firstbankpr.com. Bill Pruett is and NFC-capable VX680 Wireless POS terminal. Jennifer Miles is President, TSYS's North American Services Segment, (706) 649-2303, President of the Americas at VeriFone, (678) 773-5882, jennifer_m1@ [email protected], www.tsys.com. verifone.com, www.verifone.com. Steve Cadden is COO at TransFirst, (303) 625-8253, [email protected], www.transfirst.com. FIDO (FAST IDENTITY ONLINE) ALLIANCE has added Discover Financial Services as a member. DFS has also been appointed to CORRECTION: In issue #1031, we twice referred to Capital One's FIDO's Board of Directors, which aims to create the first standards- Spark Pay merchant processing unit as Smart Pay. We regret the based specifications for online authentication. Michael Barrett is error. Spark Pay has been beta testing products and services since President at FIDO Alliance, (831) 479-1888, [email protected], early 2013. Products include PushPoint's location-based mobile offers www.fidoalliance.org. Daniel Almenara is VP of Authentication and platform, which Spark Pay white labels. Decision Infrastructure Solutions at Discover, (224) 405-4625, [email protected], www.discover.com. SAVE FEATURED CONFERENCE SAVE Subscribers to The Nilson Report will receive a 20% discount. 20% FEATURED CONFERENCE Subscribers to The Nilson Report will receive a 20% discount. 20% MOBILE PAYMENTS CONFERENCE 2014 MERCHANT PAYMENTS ECOSYSTEM 2014 Four-Day Conference January 28-31, 2014 Three-Day Conference The Miami Beach Convention Center February 18-20, 2014 Miami, Florida The InterContinental Berlin, Germany Topics include: EMV, mobile POS, integrating analytics into m-commerce, the effort to bridge e-commerce and Topics include: commerce and regulation, business models, m-commerce, mobile payments and fraud, NFC, merchant platforms and processes, merchants and payments, mobile and acquirers, and real-time mobile payments. Speakers represent: POS, and multichannel opportunities. Speakers represent: First Capital One, FIS Global, Gemalto, Kount, MasterCard, Spindle, Data, IKEA, Carrefour Banque, payworks, Bitcoin Foundation, Tyfone, Vantiv, and more. Cost is $599 January 1 through 28 Handelsbanken, METRO, WorldPay, VeriFone, PayFair, Monitise, ($699 for onsite registration). (Discount will be off the current SIX Payment Services, Seamless, Groupon, and many more. Cost fee at the time of registration. Use code NR2014.) is $2,835. (Use discount code 2014mpe.) Contact David Vesely at Contact Marla Ellerman at MM&T, (602) 315-8808, Empiria Group, 421 (245) 248-931, [email protected]. [email protected]. Register at Request brochure and registration form at

Conference links at www.nilsonreport.com http://mobilepaymentconference.com. Conference links at www.nilsonreport.com www.merchantpaymentsecosystem.com.

2 VISIT US ONLINE AT WWW.NILSONREPORT.COM Order Back Issues / Preview Upcoming Conferences / View Newsletter Archive Fast Facts CSR has received U.S. Patent No. 8,626,671 for its Breach Reporting 3PAY, a provider in Turkey of payment card processing services, will offer ToolKit system that handles the required reporting to relevant authori- its merchants fraud prevention technology for card-not-present trans- ties of the loss, breach, compromise, or exposure of data. The soft- actions from ReD. Inseva Technologies is ReD's partner in Turkey. Erol ware aggregates organization and breach information, selects relevant Kaya is Managing Director at Inseva Technologies, 90 (533) 712-8246, reporting entities based on geography and types of breach data, and [email protected], www.inseva.com. Alper Akcan is CEO at 3pay, generates breach reports to appropriate authorities as required by 90 (532) 412-5889, [email protected], www.mikro-odeme.com. federal, state, and international laws and regulations. Manish Patel is Regional President EMEA at ReD, 44 (148) 372-8700, Ross Federgreen is Founder, (772) 225-0007, [email protected], www.redworldwide.com. [email protected], www.csrcorporate.com. KEYCORP SERVICES, an independent sales organization in Australia, FICO SCORE ECONOMIC CALIBRATION SERVICE offers lend- will sell POS terminals manufactured by Spire Payments. Joe Bonin is ers assistance in strategic capital planning decisions by leveraging CEO at Keycorp, 61 (3) 9403-1777, [email protected], Moody's Analytics regionalized data including unemployment insur- www.keycorp.net. Kazem Aminaee is CEO at Spire, 34 (91) 722-7700, ance claims, consumer credit debt outstanding, auto sales volumes, [email protected], www.spirepayments.com. oil prices, used car prices, ABA/MBA delinquency rates, and personal savings rates. Andrew Jennings is Chief Analytics Officer at FICO, VODAFONE GROUP is launching Vodafone SmartPass, its mobile (415) 492-5780, [email protected], www.fico.com. Mark Zandi is commerce strategy, in Spain, Germany, the U.K., and the Netherlands. Chief Economist at Moody's Analytics, (610) 235-5299, mark.zandi@ Other countries in Europe will follow. Wirecard is providing all back- moodys.com, www.economy.com. office and front-end support. This includes the issuing and payment processing of physical and digital Visa cards. Christian Wirtz is Group CASHSTAR now offers an interactive module on its prepaid card Director mCommerce at Vodafone, 49 (211) 820-1880, platform that lets consumers who receive virtual cards repli- [email protected], www.vodafone.co.uk. Markus Braun cate the process of unwrapping their gift. Ben Kaplan is CEO, is CEO at Wirecard, 49 (89) 4424-1415, [email protected], (207) 549- 2200, [email protected], www.cashstar.com. www.wirecard.de.

EMV IS NOT ENOUGH: CONSIDERATIONS FOR IMPLEMENT- ING 3D SECURE is a white paper produced by TSYS that discusses how the increase in card-not-present fraud coupled with the growth MANAGEMENT CHANGES of e-commerce should lead issuers to consider deploying risk-based authentication using the 3D Secure protocol. Mike Day has been appointed Chief Operating Officer at Servebase, Jonathan Hancock is Director of Fraud Management at TSYS, 44 (844) 209-4370, [email protected]. Kenny Douglas has been 44 (190) 456-2918, [email protected], http://www.tsys. appointed Vice President, Business and Partnership Development, com/3DSecurewhitepaper. Americas at Seamless, (727) 742-7333, [email protected]. THE MPOS STRATEGY: SHIFTING THE BALANCE OF POWER Peter Chisnall has been appointed Country Manager for New is a new white paper available from Mobey Forum. The paper exam- Zealand at MasterCard, 64 (64) 9375-5020, peter_chisnall@ ines how mPOS disrupts the established four-party model (cardholder, mastercard.com. Lisa Shipley of Transaction Network Services merchant, acquirer, issuer) and identifies the potential winners and has been elected President at Women's Network in Electronic losers in the marketplace. It is available for download from http:// Transactions, (703) 506-2882, [email protected]. Kamran Zaki has www.mobeyforum.org/whitepaper/the-mpos-impact-the-shifting- been appointed President, North American Operations at , balance-of-power/. (415) 957-1000, [email protected]. David Luther has been NEW MEDIA INSIGHT GROUP offers mCardNetwork.com, a smart- appointed CMO at Mozido, (678) 250-8418, david.luther@mozido. phone payment and loyalty rewards platform tied to the company's com. Chris Reinmuth has been appointed VP of Mid Market Sales at mCard prepaid vouchers. Michael Palethorpe is CEO, (480) 275-2294, Meritus Payment Solutions, (949) 788-1010, creinmuth@ [email protected], www.newmediainsights.com. merituspayment.com. Bill Ranta has been appointed Senior Vice President, Global Acquiring at Pivotal Payments, (514) 313-1190, SPINDLE'S MeNetwork360 and marketing applica- [email protected]. Laurie Minarik has been appointed tion for iOS and Android devices links to the company's location-based Senior Director of Client Relations at The Members Group, mobile marketing and payment processing platform. The new app in- (515) 457-5554, [email protected]. John Kirkpatrick cludes a single dashboard that consumers can use to find merchants, has been appointed IT & Data Security Expert at The Strawhecker read reviews, accept special offers and promotions, track and earn Group, (402) 964-2617, [email protected]. Michael loyalty rewards, and share discoveries through social networks. Tools for merchants let them use smartphones or tablets to create and dis- Dubyak has been appointed Executive Chairman of the Board at tribute marketing campaigns, subscription rewards, loyalty programs, WEX, (207) 761-7103, [email protected]. Michael Ting location-based offers, and other customized content. has been appointed Vice President of Payments at SecureKey, Michael Stevens is EVP at Spindle, (303) 594-1819, mstevens@ (416) 477-5625, [email protected]. spindlehq.com, www.spindlehq.com.

© HSN Consultants, Inc. 2014 THE NILSON REPORT JANUARY 2014 / ISSUE 1032 / THE NILSON REPORT 3 Fast Facts BELGAZPROMBANK in Belarus has deployed BPC Banking Tech- GLOBALPLATFORM has published the first release of its End-to-End nologies' SmartVista suite of card management products. The Simplified Service Management Framework v1.0, which focuses on bank issues Visa payWave and MasterCard PayPass products contactless payments. The document, which is available free to mem- as well as offering Visa Money Transfer and MasterCard bers at the GlobalPlatform store, specifies: the workflows between MoneySend services. Daragh O'Byrne is Chief Marketing the involved parties to ensure a seamless user experience; the overall Officer at BPC Banking Technologies, 353 (51) 347-737, architecture to provide clarity in the data flow and implementation; [email protected], www.bpcbt.com. Dmitry Furs is Head of and the configurations that should be used to ensure interoperability Bank Cards at Belgazprombank, 37 (51) 7229-1621, across various interfaces and devices. www.globalplatform.org. [email protected], www.belgazprombank.by. EQUITY BANK will become the exclusive issuer of American Express EVERTEC, a provider of merchant acquiring and related services in 19 card products in Kenya, Tanzania, and Uganda. The first cards will be countries in Latin America, will offer FEXCO's Dynamic Currency issued later this year. The bank has already started to acquire Conversion services, which instantly convert POS and ATM trans- merchants on to the American Express network in Kenya. Andrew actions to the currency of the cardholder. Peter Harrington is CEO at Stewart is VP and General Manager, EMEA Partner Card Services at Evertec, (787) 759-9999, [email protected], American Express, 44 (127) 321-6389, [email protected], www.evertecinc.com. Dermot O'Shea is Executive Director at Fexco, www.americanexpress.com. Alfred Mwangi is CEO at Equity Bank, 353 (66) 976-1258, [email protected], www.fexco.com. 254 (20) 274-4000, [email protected], www.equitybank.co.ke. EUROPEAN PAYMENTS COUNCIL and the Cards Stakeholders Group have published version 7.0 of the Single Euro Payments Area FIRST ATLANTIC COMMERCE'S (FAC) payment gateway has been (SEPA) Cards Standardization Volume. The document defines a set of connected to software component provider /n software’s e-Payment requirements to ensure an interoperable and scalable card and integrator for card processing. FAC clients include merchants, gate- terminal infrastructure across SEPA, based on open international ways, and banks in Europe, Mauritius, Panama, Bermuda, and the standards. The documentation is available at Caribbean. Chris Burns is CEO at FAC, (441) 294-4622, [email protected], http://www.europeanpaymentscouncil.eu/content.cfm?page=sepa_ www.firstatlanticcommerce.com. Eric Madariaga is VP, Marketing at cards_standardisation_volume_version70_published_in_2014_ /n software, (919) 544-7070, [email protected], ready_for_market_implementation. www.nsoftware.com. CONFERENCES & SEMINARS

5TH ANNUAL WORLD CARDS & PAYMENTS SUMMIT 2014: PAYMENTS, CARDS AND INNOVATIVE TECHNOLOGIES February 10-12, 2014. The Dusit Thani Hotel, Dubai, United Arab 2014: March 4-7, 2014. The Radisson Blu Resort Hotel, Bukovel, Emirates. Estimated attendance: 300 industry experts. Cost for the Ukraine. Estimated attendance: 150 participants. Cost for the four- three-day conference is $3,199. Subscribers to The Nilson Report day conference is $2,324 (€1,700) (accommodation for 1 company will receive a 20% discount. Contact Karthik Naik at Fleming representative included); for banks: $752 (€550) (accommodation Gulf, 971 (4) 609-1570, [email protected]. Register is not included). Subscribers to The Nilson Report will receive a at https://finance.fleminggulf.com/cards-and-payments- 20% discount. (Use code 0706.) Contact Dmytro Sakhno at EMA, summit/register. +380 (50) 469-55-87, [email protected]. Register at http://ema. com.ua/ema-conferences/retail-bd-conferences/retail-bd- MOBILE PAYMENTS LEADERSHIP SUMMIT 2014: February conference-2014/. 26-27, 2014. The Wyndham Orlando Resort, Orlando, Florida. Estimated attendance: 150. Cost for the two-day conference EMERGING PAYMENT SYSTEMS 2014: March 24-25, 2014. is $1,595. Subscribers to The Nilson Report will receive The Omni San Francisco Hotel, San Francisco, California. Estimated a $300 discount. (Use code NILSON300.) Contact Kathleen attendance: 130. Cost for the two-day conference is $2,095. Daffner at Strategic Solutions, (203) 209-0520, kathleen@ Subscribers to The Nilson Report will receive a 15% discount. strategicsolutionsnet.com. Register at (Use code TNR15.) Contact Nicole O’Neill at ACI, (212) 352-3220 www.paymentinnovations.net. x5257, [email protected]. Register at www. americanconference.com/2014/823/emerging-payment- See links at www.nilsonreport.com TOTAL PAYMENTS CANADA 2014: March 3-4, 2014. The systems. Sheraton Centre Toronto Hotel, Toronto, Canada. Estimated attendance: 200. Cost for the two-day conference starts at $995 SEAA 2014: March 24-26, 2014. The Omni CNN Center, Atlanta, until January 24 (view pricing options at http://bit.ly/18BEZ4e). Georgia. Estimated attendance: 650-700. Cost for the three-day Subscribers to The Nilson Report will receive a 15% discount. conference is $75. (Rooms start at $169.) Contact Judy Foster at (Use code EHEF.) Contact Felipe Lima at Terrapinn, (212) 379 6320, Ingenico, (770) 670-1284, [email protected]. Register at [email protected]. Register at http://bit.ly/HLr9BL. www.southeastacquirers.com/press/annual-conference/.

4 VISIT US ONLINE AT WWW.NILSONREPORT.COM Order Back Issues / Preview Upcoming Conferences / View Newsletter Archive OTI’ve s Wa Device from page 1... over a dedicated Secure Element or enhanced SIM in handsets. card in a mobile handset. Wave (shown here) is Transit companies equipped with ISO 14443 and MIFARE contactless can use Wave in its interfaces, giving NFC and MIFARE capabilities to key fob form as a any iPhone and Android device while device. It uses the Java operating giving transit riders the system and can be used to deploy opportunity to move multiple applets to handle global it to the audio jack to payment cards, transit, access, top up their accounts. loyalty, event ticketing, healthcare, The device also enables and PKI functions. MasterCard a transit company to certification has been received. Visa’s communicate with its customers for additional sales is pending. When Wave, which is and about other services. priced in the $­­20 range, is inserted Several financial institutions with businesses in into a phone, issuers can ask for a PIN at the point of sale. ...gives NFC and MIFARE capabilities to Wave can be used any iPhone and Android mobile device. essentially as a smart card, working in Hong Kong, Taiwan, and Macau will use Wave as conjunction one of the technologies they deploy for NFC-based with a payments. Deployments of Wave devices will begin in mobile phone’s operating system when inserted into the second quarter of this year. a phone’s audio jack, or act as a stand-alone device OTI has been in the business of manufacturing when used as a dongle on a key chain. It can replace contactless smart card and reader products for 23 USB devices that financial institutions give select years. Its Board of Directors has recently called for a customers to help secure high-value transactions. new strategy to monetize the company’s intellectual When using the phone’s audio jack interface it property portfolio on a global basis. To support that can deliver that same PKI function across multiple effort it has hired Global IP Law Group to act as an channels (phone, tablet, PC) used by the customer. advisor. OTI believes MNOs will consider Wave to support Ofer Tziperman is CEO at OTI in Rosh Pina, Israel, 972 (4) their NFC plans with consumers using iPhones and in 686-8000, [email protected], www.otiglobal.com. markets where NFC chips are not yet widely available

Klarna Adds Sofort for Web DEbit from page 1... pay approximately $185 million in Germany, Europe’s second bank. Sofort’s service complies (€150 mil.) to acquire Sofort, largest online market. It has 15 with the European Union’s SEPA a company that offers Web million consumer users there, and directive that calls for cross-border others in Poland, Austria, France, debit payments to be handled for Italy, Spain, Switzerland, and the the same fee as an intracountry U.K. payment, as well as functioning in Consumers give Sofort almost real time. permission to log in on their In time, Sofort and Klarna will behalf to an online banking site be available to merchants through where Sofort executes transfers a single connection, although the merchants a bank-to-bank debit from the consumer’s account to Sofort brand will continue to exist. payment channel for consumers. the merchant’s account. There The combined Klarna/Sofort Sofort is a payment option is no need for Sofort to have a entity will still be very small available to 46% of all Web sellers contract with the consumer’s > see p. 6

© HSN Consultants, Inc. 2014 THE NILSON REPORT JANUARY 2014 / ISSUE 1032 / THE NILSON REPORT 5 Klarna Adds Sofort for Web DEbit from page 5... in terms of online merchant Consumers have their goods in when the company’s revenues acceptance in Europe compared to hand before paying the invoice. exceeded $400 million, up more Visa and MasterCard acceptance They agree to pay Klarna than 100%. Sofort revenues were locations there. However, it is within 14 days. Merchants pay significantly lower but the number the first alternative payment a percentage of the total sale of debit transactions it processed depending on the type of goods last year was about the same as sold and the country in which they for Klarna credit transactions. are sold. Together, the companies handled Klarna says merchants see $10 billion in online payments 10% to 30% increases in sales last year from 45,000 online option for merchants with a depending on the country. Last merchants. broad footprint on the continent, year 25% making it of increased value of all to multinational merchants. transactions The company has received about $250 Other alternative payment acquired million in venture capital funding. providers serving Europe’s online by Klarna merchants are country specific originated such as Ideal, a debit service in from a smartphone or tablet. More The Swedish Financial the Netherlands, and Germany- than half of those transactions Supervisory Authority has based BillPay, a credit competitor were from a phone. It is working certified Klarna as a bank. Most of to Klarna. PayPal is available to bring mobile conversion rates, its funding comes from consumer in select markets. However, which are currently only 1 out of deposits (which are a separate the overwhelming number of every 10 attempted purchases, of business), debt, and equity. transactions it handles are settled to the same level as desktop Sebastian Siemiatkowski is CEO at into the Visa and MasterCard conversion rates — 6 to 7 out of Klarna AB in Stockholm, Sweden, networks. every 10 attempts. 46 (8) 1201-2000, sebastian. With Klarna credit Klarna is processing 100,000 [email protected], transactions, consumers pay payments daily and was used by www.klarna.com. Klarna not the merchant. 10 million consumers last year, Prior Issue: 1,016

Hewlett-Packard and HPS Partnership from page 1... servers that have a lower cost of operation as an First Data, TSYS, FIS, and Atos. It can offer issuers alternative to legacy, mainframe-based hardware that and acquirers consolidated program management for requires more time to create new products and is portfolios they operate in multiple countries or it can expensive to maintain in-house. process in country if governmental HP’s Cards and Payments Practice regulations require. HP has 80 data will first bring its new third party centers worldwide. processing service to Tier 1, Tier Over the last year HP’s Cards 2, and Tier 3 customers in Europe and Payments Practice has been and Asia. hiring bankers and processing HP has a bigger presence in industry experts with operational card payments than is generally experience in payment cards known. Customers in 29 countries use its services for as consultants and advisors. Teams are already one or more aspects of their card businesses including established in the EMEA region and are forming in call centers, acquiring processing, switching, mobile other parts of the world. payments, print departments, and analytics. By Ed Adshead-Grant is General Manager, Cards and adding HPS card management applications to its Payments Practice at Hewlett-Packard in London, U.K., existing capabilities, HP becomes a provider of 44 (777) 503-5565, [email protected], complete outsourcing services in competition with www.hp.com.

6 VISIT US ONLINE AT WWW.NILSONREPORT.COM Order Back Issues / Preview Upcoming Conferences / View Newsletter Archive HPS’s PowerCARD version 3 is a suite of eleven the Middle East and North Africa, Credit Agricole modules that cover every aspect of issuing, acquiring, (acquiring) in Europe, Mekong Development Bank and switching in a single processing platform. HP (ATMs) in Vietnam, International Card Processing selected HPS after interviewing six companies that Services (Web publishing) in Mauritius, Ghana were able to deliver the flexible architecture best Interbank Payment and Settlement (switching), and suited to its mission-critical servers. Embratec (PCI-DSS) in Brazil. HPS offered modules not available from other vendors, including Web Publishing Suite, which HP benchmarked HPS software at allow users to fully exploit Internet and mobile opportunities to reduce a number of tasks that more than 100 million cards. require manual processing in most systems. Version 3 is also fully compliant with PCI HP benchmarked HPS software successfully at DSS version 3.0. more than 100 million cards. The joint marketing PowerCARD 3 came on the market agreement gives HP the opportunity to sell in December 2012. Since then HPS PowerCARD globally to large issuers and acquirers has gone live with a first-time issuer that want to obtain card and payment processing on and managed two conversions to an outsourced basis. This group had previously been PowerCard 3 from other systems. closed off from HPS because its balance sheet was This year it begins migration of considered to be too small to be a business partner. existing PowerCard 2 customers to Abdeslam Alaoui Smaili is Managing Director at PowerCard 3. Hightech Payment Systems in Casablanca, Morocco, More than 320 financial institutions in over 212 (529) 045-000, abdeslam.alaoui@hps-worldwide. 70 countries use one or more of HPS’s modules. com, www.hps-worldwide.com. Customers include American Express (acquiring) in

Canada’s Digital Currency from page 1... products available are the open case with cash, if the MintChip source type such as Bitcoin, which account is held on a device, losing can’t offer users any financial that device means losing funds in backing to secure a value transfer. the account. MintChip digital currency Marc Brûlé is Chief Emerging accounts in Canada have been Payments Officer at The Royal designed to reside in the cloud, on Canadian Mint in Ottawa, Canada, a phone, tablet, computer, or even (613) 993-5384, [email protected], in a wearable device. Monetary amount. The RCM would issue www.mint.ca. value would be transferred MintChip account ID numbers. Ingenico has created the source directly from MintChip account Initially Canada’s banks would code needed to facilitate retailer to MintChip account without any act as trusted brokers. Consumers acceptance of MintChip payments third party network involvement. and merchants would move at any Ingenico POS terminal. Transactions would be instant Canadian dollars from their And it has co-developed with the and irrevocable. No personal data deposit accounts to MintChip RCM the specifications needed accounts, meaning there would be between MintChip-enabled no expansion of the money supply. mobile devices and Ingenico POS No personal data would be part of Over time, merchants and telcos terminals. Ingenico is Canada’s the exchange of information. could become trusted brokers largest POS terminal provider. in closed-loop systems. Trusted Suzan Denoncourt is VP Market brokers would be responsible Development for Canada at would be part of the exchange of for Know Your Customer due Ingenico in Toronto, Canada, information when a transaction diligence obligations. (416) 245-6700 x20229, occurs. A transfer message would MintChip would be targeted at [email protected], include only the MintChip ID displacing cash, particularly for www.ingenico.com. number, date, and transaction low-value payments. And as is the

© HSN Consultants, Inc. 2014 THE NILSON REPORT JANUARY 2014 / ISSUE 1032 / THE NILSON REPORT 7 Transactions Worldwide — Projected Through 2018 from page 1... prepaid cards with Visa, purchase transaction total in 2012. Latin America’s 7.79% share MasterCard, American Express, Its market share is projected to fall in 2012 is projected to drop to to 41.58% by 2018, even though 7.72% in 2018 when purchase Market Shares of Purchase the region is projected to gain transactions are projected to reach Transactions Worldwide 44.48 billion transactions to reach 22.28 billion, an increase of 9.32 with Change in Basis Points 119.99 billion. billion. Cards issued in Europe Canada’s 4.67% share in 2012 Asia/ U.S. generated 22.78% of the global is expected to fall to 3.72% of 42% Pacific 2018 25% -921 total in 2012. Europe’s share is the world total by 2018 when +1,039 projected to fall to 20.38% of transactions are projected to reach 51% 14% the world total by 2018, even 10.73 billion, an increase of 2.96 1% 2008 though the region is projected to billion. MEA gain 20.92 billion transactions to Middle East/Africa’s share of 21% Canada +66 reach 58.80 2% 7% 6% -217 Europe 4% Latin billion. ...will reach 288.59 bil. purchase trans- -97 20% 8% Amer. Asia/ actions worldwide by 2018. ©2014 The Nilson Report +129 Pacific’s 17.66% Discover, JCB, Diners Club, share in 2012 is projected to reach 1.69% at the end of 2012 will grow UnionPay, Interac (Canada), and 24.52% of the global total by 2018. to 2.09% of the global total by the PIN-based EFT system (U.S.) Purchase transactions reached end of 2018 as transactions are brands. 29.37 billion in 2012 and are projected to reach 6.02 billion, an Cards issued in the U.S. projected to reach 70.77 billion in increase of 3.21 billion. generated 45.41% of the global 2018, an increase of 41.39 billion.

IRIS Analytics Fraud-Fighting Software The latest version of IRIS Analytics’ antifraud problem of combating organized crime with its more software has become the first stand-alone detection sophisticated strategies for committing payment system to receive Payment Application Data Security fraud on a much larger scale and across multiple Standard approval. Transactions initiated by channels. IRIS version 5.1 currently deployed more than 100 million payment cards covers all types of electronic payments as well as in Europe, North America, and the nonfinancial transactions. Middle East are monitored by IRIS, The IRIS user interface is now fully browser- including half of all debit cards in based. Multiple tenants can share a single IRIS Germany, more than half of all card installation without disrupting any party and without payments in France, and 60 million having access to another user, while providing a way wallet to reduce operational account holders in the costs. Alternatively, Russian Federation. ...covers all types of electronic pay- parties can decide to The system operates ments and nonfinancial transactions. share information in real time and uses in- to improve scoring memory data management to results. increase throughput and to speed up analytics. It has IRIS has been represented worldwide by Wincor the capacity to score more than 5,000 transactions Nixdorf since 2010. In December 2013, Zoot, a per second within a response time of 5 milliseconds, global provider of instant credit decisioning, risk providing full decisions “in flight” even during peak management, and more, started to offer IRIS to its periods. customers on a software-as-a-service basis. Created in 2007, IRIS has evolved and moved Nikolaus Bayer is Managing Director at IRIS Analytics in beyond the challenge of thwarting individual thieves Neu-Isenburg, Germany, 49 (6102) 560-5802, nikolaus. with a single stolen card to the far more complicated [email protected], www.iris-analytics.com.

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MasterCard will own 55% amount of the remittance. This CONTACTS of a global money transfer joint would put the market for vendors MasterCard Ed McLaughlin is venture (JV) with eServGlobal that facilitate transfers in the $40 Chief Emerging Payments Officer in (35%) and BICS (10%). The JV billion a year range. Purchase, New York, (914) 249-6525, will retain the name HomeSend, MasterCard sees opportunities edward_mclaughlin@mastercard. to gain revenue even as it lowers com, www.mastercard.com. ...expects remittances to developing the per transaction costs to senders. It expects to expand eServGlobal Paolo Montessori is countries to reach $540 bil. by 2016. HomeSend, which currently has CEO in Paris, France, 33 (1) 4612-5885, contracts with mobile network paolo.montessori@.com, a global remittance hub formed in operators (MNOs) and money www.eservglobal.com. 2008 by BICS and eServGlobal to transfer operators in 50 countries, BICS Frederic Salmon is VP, Mobile provide a mobile service that could through its connections to more Financial Services in Brussels, be safer, faster, and less expensive than 20,000 financial institutions Belgium, 32 (2) 547-5360, frederic. for cross-border remittances to in 210 countries and territories. [email protected], www.bics.com. developing countries. Branch offices, card accounts, HomeSend remittances and and mobile and Internet banking airtime transfers can be initiated managed by those financial network operators and financial from mobile devices, Web-based institutions will expand choices institutions in developing markets money transfer organizations, for both senders and recipients. for 30 years. Its products, which payment cards, bank accounts, BICS’s core business is to provide end-to-end financial or cash paid over the counter. provide international wholesale services, include PayMobile, which Recipients can receive their voice and data roaming and has applications for mobile wallet, funds by any of those means. capacity services. It has contracts account top-up, domestic money Transactions can be initiated and with 700 customers including 400 transfer, microfinance (savings, received anywhere in the world. MNOs, fixed-line operators, and insurance, and loans), and more. The World Bank expects other telecom companies. Its competitors include Comviva, remittances to developing EServGlobal is the technology Fundamo (owned by Visa), Sybase countries to reach $540 billion provider to HomeSend. The 365 (owned by SAP), and Telepin. by 2016. Fees paid by senders company has been selling average an 8% premium above the software products to mobile

Host Card Emulation for NFC from page 1... transactions to remote servers that hold card account data. The software emulates the function performed by a dedicated secure element chip or enhanced SIM card in handsets, which are used to hold card data. MNOs can charge issuers for access to card data in handsets. After creating HCE, which currently works only (latency) problem that commonly occurs when data with Android among the mainstream operating is sent from a handset to a remote server over 3G systems, SimplyTapp donated the coding to the and 4G wireless networks. SimplyTapp says it can CyanogenMod operating system, an open-source move data at twice the speed of NFC transactions in offshoot of the basic Android OS. the ISIS e-commerce program available from AT&T, SimplyTapp will not earn any revenue from T-Mobile, and Verizon. It can do so because its ARM HCE. Its business case revolves around a platform processor is twice as fast as the processors currently for mobile payments, which it will initially offer used in a SIM card. to application developers and card issuers. The SimplyTapp’s platform will use tokenization to company’s biggest technological achievement is not secure data transmissions that go from the point of HCE. More importantly, it has solved the time-delay > see p. 10

© HSN Consultants, Inc. 2014 THE NILSON REPORT JANUARY 2014 / ISSUE 1032 / THE NILSON REPORT 9 hospitality industry firms could also benefit from as Canada, Singapore, Hong Kong, New Zealand, Host Card Emulation for NFC HCE architecture. and Australia where there already exists a high from page 9... Google included HCE in Android version 4.4 penetration of NFC card readers. sale to its cloud-based servers where card data will be SimplyTapp needs approval from Visa, launched in November 2013. The majority of version Currently, SimplyTapp has over 100 developers stored on behalf of issuers. Unlike other tokenization MasterCard, Discover, American Express, and other 4.2 devices could, with an upgrade, support HCE. By working with its SDK tool. The company has received technologies, SimplyTapp’s protocol requires no networks before it can maximize the sales potential year-end 2014 SimplyTapp believes 1 billion Android $1.4 million in Series A funding led by Lightspeed changes to any POS terminal that uses existing NFC- of its mobile payments platform for general purpose- devices worldwide could facilitate HCE. Venture Partners. based card readers. It says type credit and debit HCE is likely to find acceptance in markets where Doug Yeager is CEO at SimplyTapp in Austin, , that more than 20% of the SimplyTapp’s tokenization protocol cards. Although it Android phones are predominate including , (512) 298-2774, [email protected], top 100 U.S. merchants requires no changes to POS terminals. is possible for an , and Malaysia, as well as in markets such www.simplytapp.com. have deployed NFC card issuer to deploy readers, and even more independently, it is merchants have the readers but they are not yet seeking approval and can receive it after a network Amex Settles Enforcements/Class Actions activated. audit process. Retailers, transit companies, and from page 1... attorneys fees. Litigation filed in 2004, referred to as Marcus Corporation, challenged American Express’s Payment Industry Acquisitions & Investments October and November 2013 Honor All Cards Provisions in the U.S. District Court Amount Amount Amount for the Southern District of New York. Litigation Company Buyer/Investor (mil.) Country Company Buyer/Investor (mil.) Country Company Buyer/Investor (mil.) Country filed in 2006, known as American Express Anti- 1 OCTOBER ShopRunner new funding round24 $206.0 China nCourt Mainsail Partners * U.S. Steering Rules Antitrust Litigation, challenged Non- 49 41st Parameter Experian1 $324.0 U.S. Shopular Series A25 $6.4 U.S. On Track Innovations shares purchase * Israel discrimination Provisions in Amex’s contracts in the 50 Alternet Sys. Trans. Utiba1 $6.5 U.S. Swirl Networks Series B26 $8.0 U.S. PKO Bank Polski EVO Payments $113.5 Poland U.S. District Court for the Eastern District of New 2 27 Prizm Pay. Services Hitachi1 * India Amex Global Bus. Trav. Certares $1,000.0 U.S. TabbedOut Series B $7.8 U.S. York. Terms of the settlement have been submitted to 1 1 Prodigy Pay. Sys. EVO Payments1 * U.S. BillPay Wonga * Germany Threshold Financial DirectCash Payments $50.0 Canada judges in both federal courts. 3 Tinkoff Credit Sys. Bank TCS Group Holding28 $1,090.0 Russia Qubecell Boku1 * India BTI Payments ICICI Venture $1.9 India The proposed settlement obliges merchants not CaixaBank Global Payments4 * Brazil Victrio Verint Systems1 * U.S. Ribikloud seed funding51 $1.1 Canada to pursue any additional legal challenges against CardFlight seed funding5 $1.6 U.S. Xero new capital29 $150.0 N.Z. Ripple new funding52 $3.5 U.S. 53 American Express regarding the Non-discrimination CGI Direct Cardtronics1 * U.S. undisclosed30 Pivotal Payments * U.S. Sift seed funding $1.5 U.S. 54 and Honor All Cards Provisions for at least 10 years Internet Fin. Series A6 $9.0 U.S. NOVEMBER SimplyTapp Series A $1.4 U.S. 1 after payment of the settlement. Merchants are free Contego Fraud Sol. seed funding7 $1.5 U.K. Azox kCentric31 * U.S. Sincerely Provide Commerce * U.S. CouchCommerce Series A8 $1.4 Germany Banco Popular EVO Payments32 * Spain Sold Dropbox1 * U.S. to pursue individual lawsuits or arbitration seeking Credorax new investment9 $40.0 U.S. Betable Series A33 $18.5 U.K. Spreedly seed funding55 $0.5 U.S. alleged monetary damages relating to the provisions. Depop seed funding10 $1.0 U.K. Bill.com growth funding34 $38.0 U.S. TapCommerce Series A56 $10.5 U.S. However, if the settlement is approved by the courts, Equifax Credit Info. Svcs. State Bank of India11 * India BrandLoyalty LoyaltyOne35 * Netherlands Tinypass new funding57 $3.0 U.S. any potential payments by American Express would ERN seed funding12 $1.0 U.K. BTC China Series A36 $5.0 China TransferTo management58 * Singapore be limited to alleged damages for the period prior to Fastacash Series A13 $3.0 Singapore CardCash.com growth funding37 $6.0 U.S. World First UK new funding59 * U.K. imposition of the proposed agreement. Flashiz Fexco/BNP Paribas1 * Luxembourg Cardtronics convertible senior notes $250.0 U.S. WorldPay Advent/Bain Capital60 * U.K. Flint Series B14 $6.0 U.S. Clip convertible note12 $1.7 ZenDeals RetailMeNot1 $18.0 U.S. 15 38 *Terms not disclosed. (1) Acquisition. (2) Certares will become 50% owner of a new joint venture Merchants are free to pursue indi- Funding Circle Series C $37.0 U.K. Coinplug seed funding $0.4 U.S. with American Express. (3) Acquired a 30% equity stake. (4) Formed a 50%-50% joint venture for Helgeson Parago1 * U.S. CurrencyFair seed funding39 $2.5 U.K. merchant card acquiring. (5) Led by ffVenture Capital. (6) Led by Accel Partners and General Catalyst vidual lawsuits or arbitration. Partners. (7) Led by Rainbow Seed Fund. (8) Investors included Venturepreneurs. (9) From FTV Capital. 1 40 Identity Stream DigitalPersona * Georgia Esso (credit card portfolio) WEX * Europe (10) Led by Red Circle Investments. (11) Took a minority equity stake. (12) Investor(s) not disclosed. IdenTrust ParallaX & StepStone16 * U.S. Financeit Series A41 $13.0 Canada (13) Investors included Jungle Ventures. (14) Led by Digicel Group. (15) Led by Accel Partners. (16) Acquired a majority stake. (17) From Flexpoint Ford. (18) Equity investment. (19) Led by KPCB. Current Amex card acceptance agreements 1 42 InteliSpend Blackhawk * U.S. GE Cap. Ret. Bank Green Dot Bank * U.S. (20) Acquired the remaining 50% equity of a joint venture with First Eastern. (21) From private inves- prohibit merchants from attempting to lower their JetPay new funding17 $10.0 U.S. Encore Pay. Sys. EVO Payments1 * U.S. tors. (22) From Runa Capital. (23) Innovation Network Corp. of Japan will invest up to $10 million. (24) Investors included American Express and Alibaba. (25) Led by Sequoia Capital. (26) From Hearst card fees by asking customers to pay with a card other Leaf Heartland Pay. Sys.18 $20.0 U.S. Granify seed funding43 $1.5 U.S. Ventures. (27) Investors included Heartland Pay. Sys. (28) Initial public offering. (29) From Matrix than American Express. If finalized, the settlement Level Series A19 $5.0 U.S. Hybrid Paytech convertible debentures12 $0.4 Canada Capital, Valar Ventures, and others. (30) Undisclosed ISO generating $700 mil. annually in card payments. (31) The companies have merged. (32) Acquired 50% interest in merchant card processing will continue this prohibition. Monitise Asia/Pacific Monitise20 $17.3 Hong Kong Index Series A44 $7.0 U.S. business. (33) Led by Venture 51. (34) Investors included Amercian Express, Bank of America, and 1 Fifth Third Bank. (35) Took a 60% ownership stake. (36) Led by Lightspeed Venture Partners. (37) Current card acceptance agreements also provide Munchcard Yezzi * U.S. Ingo Money growth equity $8.4 U.S. Led by Guggenheim Partners. (38) From Silverblue. (39) Led by Frontline Ventures. (40) Joint venture MyCheck Series A21 $6.1 Israel ItBit new funding45 $3.3 Singapore formed by WEX (75%) and Radius (25%) for commercial fuel cards in nine countries. (41) Led by that if a merchant chooses to surcharge Amex cards TTV Capital. (42) Acquired certain assets and assumed certain deposit liabilities related to Walmart 18 46 they must also surcharge all other payment cards they Payfone Early Warning Svcs. $10.0 U.S. Kopo Kopo Series A $2.6 Kenya prepaid products. (43) Investors included Valar Ventures. (44) Led by Innovation Endeavors. (45) Led PayLife Bank SIX1 * Austria Loop Commerce Series A47 $7.0 U.S. by Canaan Partners. (46) Led by Javelin Venture Partners. (47) Led by Novel TMT. Investors included accept including debit and prepaid. The settlement PayPal. (48) Led by DG Incubation. (49) Board of Directors members purchased 69,000 shares. (50) Perka First Data1 * U.S. Malauzai Software Series B12 $3.0 U.S. Acquired 66% interest in merchant card processing business. (51) From Horizon Ventures. (52) Inves- says that merchants must agree that if they surcharge 1 1 tors included Camp One Ventures. (53) Led by DN Capital. (54) Led by Lightspeed Venture Partners. Visa, MasterCard, Discover, or any other credit Provus MasterCard * Turkey Mobility Effect Mobiquity * U.S. (55) From E-Merge. (56) Led by Bain Capital Ventures. (57) Led by Cascabel Management. (58) RocketBank seed funding22 $2.0 Russia Momentum Pay. Sys. EVO Payments1 * U.S. Ingenico will sell 70% of its 90% ownership stake in a managment buyout. (59) Investors led by FTV cards, they will not surcharge American Express 23 48 Capital took a minority equity stake. (60) Acquired the 20% stake in WorldPay still owned by Royal Royal Gate INCJ $10.0 Japan MoneyTree seed funding $1.6 Japan Bank of Scotland. © 2014 The Nilson Report cards at a higher amount. However, they will be > see p. 12

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Amex Settles Enforcements/Class Actions from page 11... allowed to surcharge credit cards even if they do not The Consumer Financial Protection Bureau surcharge prepaid cards. Debit cards are not part of (CFPB), formed as part of the Dodd-Frank Wall the proposed settlement because, while Street Reform and Consumer Protection foreign banks issue American Express Act of 2010, along with the FDIC brand debit cards, currently neither and OCC have reached a settlement Amex nor any of its partners issue with American Express tied to alleged American Express-brand debit cards deceptive marketing practices related in the U.S. If American Express or U.S. to payment protection and credit partner banks issue a traditional debit monitoring products sold to more than card in the future, merchants will have 335,000 Amex cardholders since 2000. the option to not accept that card while American Express will pay a $16.2 continuing to be obligated to accept all million civil penalty and provide at least other Amex cards including Amex debit cards issued $59.5 million in customer remediation. Amex did not outside the U.S. admit any wrongdoing. American Express will also reimburse up to $2 American Express joined Chase, Capital One, million of the plaintiffs’ costs of notifying merchants and Discover Card as issuers who have paid fines of the settlement, and will provide an additional $2 from sales of credit card insurance and identity theft million fund for plaintiffs to communicate terms of products. the settlement to merchants.

Georgia Finalizes Rules for Acquiring Banks The Department of Banking merchants, issuers, and other No merchant can hold more and Finance for the State of parties, statement generation and than 5% of any class of voting Georgia approved final rules information reporting, and more. securities in a holding company for the Georgia Merchant Activities are limited to the or an affiliate. Banks must comply Acquirer Limited Purpose United States including handling with Payment Card Industry Data Bank Act on December 3, Web merchants who must have Security Standard practices. 2013. The scope of merchant a physical location in the U.S. Nonbanks with offices in acquiring activities includes Deposit taking is limited to Georgia ranked among the 50 entities that own a majority of largest U.S. acquirers include First Activities are limited to the United the shares. Money transfers are Data, Elavon, Global Payments, States including Web merchants. prohibited as are card issuing, WorldPay, Cynergy Data, PayPros, ATM sponsorship, merchant and Priority Payment Systems. receivables factoring, merchant membership in card networks receivables financing, advancing (Visa, MasterCard, etc.), signing funds to merchants against merchants and underwriting future card receivables, as well card acceptance agreements, as any soliciting, processing, or providing authorizations to making loans to payment cards or merchant terminals, clearing of otherwise. transactions to the card networks Banks must have at least 50 and settlement of funds to employees who reside in the state.

David Robertson, Publisher Jan 16, 2014 www.fsc.org MIX Paper from responsible sources FSC ® COO2528

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