ALSO in THIS ISSUE + Service Providers, Watch out + Will Mobile Wallets Ever Catch On? + Doing Payments Improvement Right + Hold the Obits for Cash Hello Future

VOLUME FIFTEEN, NUMBER FIVE • DIGITAL TRANSACTIONS.NET • MAY 2018

We list 37 entries this year, of which only three appeared in our original Guide nine years ago. ALSO IN THIS ISSUE + Service Providers, Watch Out + Will Mobile Wallets Ever Catch on? + Doing Payments Improvement Right + Hold the Obits for Cash hello future.

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DIGITALTRANSACTIONS.NET

CONTENTS May 2018 ■ Volume 15, Number 5

In our maiden effort TENTH ANNUAL in 2009, we listed 23 20 Field Guide to Alternative Payments Among our 37 entries this year, mobility dominates more than ever, while crypto has companies. Of these, crept in, scoring three places. And just how many “Pays” are there? We list a dozen. only three are among 4 The Gimlet Eye the 37 listed here. Some Promising Signs for Crypto Acceptance And of these three, 6 Trends & Tactics only PayPal remains The Bull’s-Eye on Charlie Lee: Litecoin Is Service Providers’ Backs ‘Targeted Toward Payments’ recognizable more or New research shows just how If any digital currency was designed determined fraudsters are to for payments, it’s Litecoin. Or so its less in its 2009 form. penetrate point-of-sale integrators, inventor argues in a wide-ranging PAGE 20 help desks, and other computer- interview. related service providers. The ACH: 44 Years Old The Bad Guys And Growing Fast Keep on Winning Don’t let its age and sprawling Attempted and actual payments fraud network fool you. The automated is up for the fourth straight year, clearing house system is steadily according to the annual AFP survey, pumping out increases of 1 billion What can be done? or more transactions every year. Plus, Security Notes explains the benefits of negative cash, and, in the second of two installments, Payments 3.0 lays out a method for innovation. 16 Acquiring What Ails the Mobile Wallets? General-purpose mobile wallets have yet to convince most merchants and consumers that they have real value. Can that change, and if so, when? 28 Opinion & Analysis Payment Improvements Take the Long Way Home The U.S. market is finally moving toward faster and more secure payments, but the process is far more deliberate than it needs to be. Look at Australia for an example of how it could be done better. 34 Opinion & Analysis Postpone the Requiem for Cash Despite what you hear about electronic payments displacing coins and folding money, the real story is a little more complicated. 38 Endpoint How Machine Learning Can Deliver Faster— And More Secure—Payments With consumer expectations higher than ever, analytic tools that can meet those demands while weeding out fraud are more important than ever, says Luke Reynolds.

Cover illustration: Jason Smith, Fotolia.com

Digital Transactions (USPS 024-247) is published monthly by Boland Hill Media LLC, 800 Roosevelt Road, Building B, Suite 212, Glen Ellyn, IL, 60137. Periodicals Postage Paid at Glen Ellyn, IL, and at additional mailing offices. POSTMASTER: Send address changes to Digital Transactions, P.O. Box 493, Northbrook, IL 60065-3553.

THE GIMLET EYE MAY 2018 • VOL. 15, NO. 5

PUBLISHER Robert A. Jenisch Some Promising EDITOR-IN-CHIEF John Stewart Senior Editor Signs for Crypto Jim Daly Senior Editor, Digital Acceptance Kevin Woodward even months ago, our piece for this space was headlined, “So, Where Are We Correspondents Jane Adler With Bitcoin?” The concern then was a steady climb in Bitcoin’s value and Lauri Giesen whether it constituted a bubble. The associated question was whether the crypto- Karen Epper Hoffman S Peter Lucas currency could ever establish itself as a means of payment, either online or in stores. So Linda Punch we thought it was time to update what we know and have another try at the acceptance Elizabeth Whalen question. Spoiler alert: that question remains more promise than reality, though there Art Director/Production Editor Jason Smith has been some progress. Editorial Advisory Board First, it may be useful to review briefly just why people might be interested in any Eula L. Adams cryptocurrency as a means of payment. In theory at least, the stuff addresses several John Elliott key concerns these days in digital payments. One such concern is for so-called faster Alex W. “Pete” Hart payments. The Fed has expended much time and ink in helping the industry evalu- Former Chief Executive Officer, ate faster-payment schemes. If they’re working right, digital currencies process in the MasterCard International William F. Keenan blink of an eye. President, De Novo Corp. Another concern is cost of payment. Merchants have been at loggerheads with card Dr. Gideon Samid networks and issuers for years over this very issue, a bitter contest that has spawned Chief Technology Officer, AGS Encryptions Ltd. lawsuits and federal legislation. Again, if they’re working right, acceptance costs for Director of Advertising crypocurrency are exceedingly cheap. Robert A. Jenisch, 877-658-0418 Finally, a big headache with card transactions is chargebacks. There are any number [email protected] of reasons for transactions to be charged back to the merchant, but in any case the returns Advertising Sales Representatives are a headache. As currently conceived, cryptocurrency transactions are irrevocable. Robert Mitchell, 877-658-0418 [email protected] So it’s no surprise, despite price volatility, blockchain congestion, high fees, and pokey confirmation times, that the promise of cryptos like Bitcoin continues to hold Cathy Woods, 602-863-2212 [email protected] its allure. Digital Transactions, Digital Transactions News, But are more brick-and-mortar or online stores accepting any of the myriad and digitaltransactions.net are publications of cryptos (information site Coinmarketcap.com tracks almost 1,600 of them)? Hard Boland Hill Media LLC, 800 Roosevelt Road, to say. There’s no central authority checking on this. Still, there are some Suite B212, Glen Ellyn, IL 60137 John Stewart, Managing Director promising signs lately. In February, the big exchange Coinbase launched Coinbase Robert A. Jenisch, Managing Director Commerce, an acceptance platform enabling merchants to take Bitcoin, Bitcoin Cash, For advertising information, call 877-658-0418. Litecoin, and Ether. To subscribe or give us a change of address, go to www.digitaltransactions.net and click on Meanwhile, independent sales organizations are starting to get into the act. One of “Subscriber Care” or call 847-559-7599. these ISOs, Aliant Payment Systems, has already started marketing Bitcoin, Litecoin, The views expressed in this publication are not necessarily those of the editors or of the members and Ether to merchants. ISOs are largely responsible for the widespread acceptance of the Editorial Advisory Board. The publisher of credit cards, so they may be best positioned to do likewise for digital currencies. makes reasonable efforts to ensure the timeliness Last year, Bitcoin’s value multiplied by a factor of 20, then crashed as 2017 came to and accuracy of its content, but is not engaged in any way in offering professional services related to a close. Such moment-to-moment volatility deters merchant acceptance as sellers and financial, legal, accounting, tax, or other matters. buyers struggle to cover purchase prices. Lately, though, Bitcoin has calmed down, and Readers should seek professional counsel regarding such matters. All content herein is copyright so have its costs and confirmation times. Self-correction may just be this decentralized © 2018 Boland Hill Media LLC. No part may be currency’s signal virtue. reproduced without the express written permission of the publisher. Subscription prices: $59/year for subscribers in the United States; $69/year for John Stewart, Editor | [email protected] Canadian subscribers. All other subscribers, May 2018 $119/year, payable in 4 • digitaltransactions • U.S. currency. Your Payment Partner of Choice

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pax-smart-retail-digitrans.indd 1 9/6/17 8:51 AM Trends & Tactics

The Bull’s-Eye on Service Providers’ Backs

Point-of-sale integrators, help desks, technology to card-accepting mer- of merchants that accept only magnetic- and other computer-related service chants and other businesses. stripe cards are increasingly juicy tar- providers for businesses, look out— On one level, the allure of service gets for hackers. Non-EMV merchants the hackers are after you. providers to cyberthieves is obvi- should “expect to be heavily, heavily The new Global Security Report ous. A successful hack into a pro- attacked in the next year,” he says. 2018 from Chicago-based Trustwave vider’s network could enable hackers Trustwave found that payment says service providers were involved to worm their way into payment and card data remains No. 1 in the eyes in 9.5% of the 700-plus data compro- other databases of all of the provider’s of hackers, accounting for 40% of the mises the firm investigated in 2017. clients, which can number in the hun- targeted information, broken down In 2016, service providers played a dreds, Hussey notes. This new focus into 22% from mag-stripe track data role in fewer that 1% of Trustwave’s on service providers also comes in a originating with POS transactions and investigations, says Brian Hussey, rapidly changing data-security envi- 18% from e-commerce. Some 11% of vice president of cyber threat detec- ronment that includes EMV chip card incidents targeted cash, mostly origi- tion and response. payments that have made POS card nating from compromises of account- “Last year [2016], it was neg- fraud harder to commit. management systems at financial ligible,” says Hussey. Trustwave is EMV “definitely contributes to less institutions, Trustwave said. one of the biggest providers of secu- and less of the POS attacks,” Hussey Even with EMV, more than a rity investigations and data-protection says. He adds that shrinking numbers decade of PCI security rules, and the

Data Compromises by Industry (% of Trustwave investigations)  2016  2017

28.4% 25.0% 22.2% 19.8% 16.7% 13.6% 13.1% 12.3% 11.9% 9.5% 9.5% 1.2% 6.0% 4.8% 0% 2.5% 0% 3.6% Retail Finance/ Hospitality Food/ Service Professional Payment Health Care Other Insurance Beverage Providers Services Services Source: Trustwave

6 • digitaltransactions • May 2018 increasing availability of tokenization The ACH: 44 Years Old And Growing Fast and data-encryption services, 69% of the cases Trustwave investigated involved track data stored in plain A Billion More a Year text, the report says. (ACH network transactions, in billions) The reasons for that are varied. A merchant’s new database system 21.5 might be advertised as encrypting sensitive information, but a hacker 20.3 may discover it doesn’t, Hussey notes. 19.3 “Even if it’s not intentional, it could be the fault of programming,” he says. 18.3 “There’s all kind of scenarios.” 17.6 What’s more, Trustwave found 16.8 that 100% of the Web-based applications it examined last year had vulnerabilities, with a median of 11 each. 2012 2013 2014 2015 2016 2017 Some 86% of those vulnerabilities allowed hackers to monitor traffic Source: NACHA going back and forth within the appli- The nation’s automated clearing processing for debit transactions. cation, further compromising security, house network is on a tear. Transac- Transactions processed the same Hussey says. tion volume grew by 6.3% for the day came to 75 million last year, up Retailers accounted for 17% of fourth quarter of 2017 and by 5.7% 478% over 2016, which included less the compromises Trustwave investi- for the full year, according to numbers than four months’ worth of same-day gated, more than any other industry. released last month by NACHA, the activity. Same-day processing began Next were financial and insurance Herndon, Va.-based governing body in September 2016 with credit trans- companies, 13%, followed by the hos- for the 44-year-old ACH system. actions and expanded to include deb- pitality industry, 12%. All told, the network handled its a year later. Data compromises detected inter- $46.8 trillion in value for the year, a Same-day volume is likely to get nally in 2017 most often were dis- 6.9% increase from 2016, on 21.5 bil- a further boost if NACHA follows covered on the same day of intru- lion payments. through with reported plans to raise sion. Those detected by an external Growth like that is remarkable the transaction cap from $25,000 to party, however, had a median spread only because it’s hard for a net- $100,000. of 83 days between intrusion and work this size to eke out measurable Other fast-growing categories in discovery, up from 65 days in 2016, increases. But the ACH has been par- 2017, according to the NACHA num- Trustwave found. ticularly active since the start of 2015, bers, include: business-to-business The report does have some good racking up year-over-year transaction (3.3 billion transactions, up 5.6% for news, particularly regarding spam. growth exceeding 5% in 10 out of the the year); direct deposits (6.5 billion, Junk emails accounted for 87% of 12 quarters in that span of time. up 5.8%); Internet-based volume (5.2 the incoming email Trustwave moni- All told, the network—which links billion, up 13.1%); and person-to-per- tored in 2009, but with the exception virtually every financial institution in son payments (97 million, up 23.3%). of 2016 spam has declined every year the United States—has added at least For the fourth quarter, total trans- since and currently represents just 1 billion transactions every year since actions grew 6.33% year-over-year to over 39% of emails, the report says. the end of 2014 (chart). 5.49 billion, according to according Many spam emails, however, still Same-day traffic, while still small to NACHA. contain malware or links to hacker- relative to total network volume, WEB credits continued to be a controlled Web sites. is increasing especially fast now hot category, racking up a nearly 25% —Jim Daly that NACHA has added same-day increase to 25.8 million transactions.

May 2018 • digitaltransactions • 7 Trends & Tactics

This category includes P2P payments original application, grew nearly 6% to The ARC application, which con- on mobile devices. WEB debits, 1.63 billion items. These refer to pay- verts checks sent by consumers to bill- which includes e-commerce activ- roll direct deposits. Another variety, ers’ lockboxes, totaled 293.7 million ity by consumers, grew 13.9% to called PPD debits, routes consumer items, down 8.47%. The big losers 1.37 billion payments. payments for recurring obligations were POP, down 14% to 57.1 million Also showing healthy growth was like health-club dues, homeowners’- transactions, and BOC, down 16.6% the TEL code, which includes pay- association levies, and the like. These to 25.4 million. Both codes refer to ments initiated over the telephone increased 3.2% to 976.2 million. checks presented at retail checkouts; (139.5 million, up 7.22%). But applications that depend on with POP, these are converted at the Pre-arranged payments and depos- the conversion of paper checks to elec- register and handed back to the cus- its, or PPD, continued to grow, though tronic formats remain on a slow but tomer, while with BOC they are con- not as smartly as newer applications steady decline, along with the volume verted later in a back office. like WEB. PPD credits, the ACH’s of checks. —John Stewart

Charlie Lee: Litecoin Is ‘Targeted Toward Payments’

Lately, the cryptocurrency craze has The reason, he says, is that trans- Brown, founder and chief executive of raised any number of questions, but actions on the Litecoin network are Aliant Payment Systems, a Fort Lau- probably the most pressing one for faster and cheaper in comparison to derdale, Fla.-based independent sales the payments business is whether any the number-one digital currency by organization. In March, Aliant added of these hundreds of tokens can ever market value, Bitcoin. For example, Litecoin to a crypto menu that includes succeed as an actual payment device. transactions on the Litecoin block- Bitcoin and Ether. “It’s cheaper for But while fluctuating trading chain can be confirmed in two-and-a- consumers and faster to hit the block- values plague all of the digital half minutes, he says, compared with chain,” says Brown. “The payments currencies, one stands out as having 10 minutes for Bitcoin. space, that’s where Litecoin comes in.” been created specifically to buy things As of April 20, the median transac- But Litecoin has also had setbacks. from merchants. tion fee for consumers spending Lite- In late March, a nascent company called “We’re targeted toward payments,” coin was close to 12 cents (chart), LitePay, which had been set up to pro- says Charlie Lee, the inventor of Lite- compared to 15 cents for Bitcoin, cess Litecoin for merchant acceptance, coin. In fact, Lee predicts 90% of according to Bitinfocharts.com. At just suddenly shut down. The Litecoin online and brick-and-mortar merchants over $150 per coin, Litecoin had a Foundation, a Singapore-based non- will be accepting cryptocurrency market value of $8.4 billion, ranking it profit which Lee heads and which had within 10 years, and Litecoin will be fifth among the cryptos after Bitcoin, been helping to fund LitePay, posted leading that charge. “A coin like Lite- Ether, Ripple, and Bitcoin Cash. a note about the startup’s failure and coin can do a better job at it,” he says. Litecoin enthusiasts include Eric its alleged opacity regarding its operations. “Litecoin was doing perfectly fine before the promise of LitePay and will What Price Litecoin? continue to do so,” the post promises. (Value and median transaction fee, 2018) For his part, Lee, a former engineer at Google and Coinbase who created Value Median transaction fee Litecoin in 2011, entertains few illu- January 20 $206 $0.0465 sions about the tough road ahead for his brainchild. “It’s not easy competing February 20 $239 $0.0895 with credit cards and debit cards,” he says, even though, he adds, cryptocur- March 20 $163 $0.0420 rency offers consumer advantages over April 20 $151 $0.1160 plastic, including the ability to keep personal information private. Source: Bitinfocharts.com 8 • digitaltransactions • May 2018 While he maintains a majority of The Bad Guys Keep on Winning merchants will accept digital currencies by 2028, the first wave of accep- Payments executives may abhor fraud, Last year’s big increase over tance will come from online retailers, but they have to admit the scamsters 2016, when the survey found 74% of he says. Already, major e-commerce and hackers are a determined lot. respondents had experienced actual or sites like Overstock.com and Newegg The percentage of organizations sus- attempted fraud, comes as companies have become well-known for their taining actual or attempted payments struggle with an epidemic of so-called support of Bitcoin. fraud increased in 2017 for the fourth business email fraud while also con- Brick-and-mortar will come later, straight year, reaching a record high tending with ongoing challenges in Lee predicts, in part because many 78%, according to the latest “Pay- checks and cards. of the companies that make payment ments Fraud and Control Survey” “It is concerning that [fraud] is terminals remain unconvinced about from the Association for Financial climbing like this. You would hope crypto. “They’re not very friendly,” Professionals Inc. (chart, page 10). to see fraud go down, but it goes he says. This 14th annual survey, which the up,” says Magnus Carlsson, man- Last year, Lee says, he sold all of AFP fielded in January and which drew ager for treasury and payments at the his Litecoin, arguing his holdings rep- responses from 682 financial executives Bethesda, Md.-based AFP. “Fraud- resented a “conflict of interest” because at companies of various sizes, pulls no sters are one step ahead.” of the potential they had to influence punches in laying out the challenge for With business email fraud, crimi- the coin’s price. “I don’t invest in Lite- the payments industry. “Payments fraud nals dress up email messages to make coin right now,” he notes. “I want it to activity continues to increase, and there them look like genuine communica- be independent of myself.” are no signs of it abating any time soon,” tions from a responsible finance or trea- —John Stewart warns the report’s opening paragraph. sury official. They send these messages

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May 2018 • digitaltransactions • 9 Trends & Tactics to executives who have authority to release funds, instructing them to wire Fraud’s Inexorable Climb 78% money to a particular account. (Percent of organizations that sustained 73% 74% The tactic has helped turn wire actual or attempted payments fraud) fraud into a raging problem after years as an afterthought. Some 48% 62% of respondents that had experienced 61% 60% fraud last year said they had sustained 2012 2013 2014 2015 2016 2017 actual or attempted wire fraud, up from just 3% in 2009. Source: Association of Financial Professionals’ “Payments Fraud and Control” survey The problem, says Carlsson, is the controls on who can disburse funds, any advice from their banks.” plethora of information about them- when, and how. More stringent controls One type of fraud on the decline selves people expose on the Web, may be having an effect, says the sur- is actual and attempted compro- including social-media sites. With this vey report, as reflected in the fact that mise of commercial cards. This was data, “you can really build a profile on the incidence rate slowed down in 2017. reported by 30% of responding orga- your target,” he says. Samples of gen- An emerging area of concern, nizations that had sustained an actual uine emails help, too. “How do they according to the survey results, is same- or attempted fraud attack, the low- typically look? [Fraudsters] will pick day automated clearing house activity. est level since 2012 (29%) and down up on that to make their attacks look ACH credits cleared and settled the from 39% in 2015 and 32% in 2016. authentic,” he adds. same day, rather than the next busi- At the same time, actual finan- Wires aren’t the only channel used ness day, were introduced in September cial loss from any type of fraud has by these criminals. According to the 2016, followed by same-day debits a been muted. According to the survey report, 34% of organizations reported year later. But faster processing requires results, 54% of responding organiza- checks had been used in business email faster fraud detection, something the tions that experienced an attack last compromises, while 15% cited cards. AFP study indicates is slow in coming. year sustained no loss at all. Still, this Overall, 77% of respondents experi- “A majority of organizations (54 result comes with a warning from the encing attempted or actual fraud were percent) are not actively taking steps report: “While financial loss due to victims of business email compromise to prepare [for] and mitigate additional payments fraud may not be large, the last year, up from 74% in 2016 and risks that might arise,” the study notes. risk of reputational damage could be 64% in 2015, according to the survey. “In addition, 29 percent of respon- far more significant.” There is no easy solution. “You dents report their organizations have Or, as Carlsson warns, “You can’t really control what people do no plans to make any revisions to pre- can’t be complacent about payments on social media,” laments Carlsson. vent additional risks, and another one- fraud.” DT The only option, he says, is to tighten fourth indicates they have not received —John Stewart

MONTHLY MERCHANT METRIC Growth in Same-Store Sales Year Over Year Annual volume change/growth of retained (non-attrited) accounts for given period divided by total portfolio volume from same period of the prior year. 5.62% 5.19% 5.04% Note: This is sourced from The Strawhecker Group’s merchant datawarehouse of over 3 million merchants in the U.S. market. The ability to understand this data is important as SMB merchants and the payments providers that serve them are key drivers of the economy. 4.09% 4.24% All data is for SMB merchants defined as merchants Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 with less than $5 million in annual card volume.

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Security Notes The Positives of Negative Cash Gideon Samid • [email protected] ave you ever seen a No acquirers, no issuers, no processors. It’s you, your bank note marked “One lender, the merchant, and the mint. The coins themselves H Negative US dollar”? carry the full measure of the accounting load. Have you ever tossed a “nega- Minting credit and obligations as coins of negative tive dime?” Can you even think denomination lubricates the flow of wealth and trust. of any meaning for such entities? The coins carry around the full history, and offer a third What is impossible for physi- accounting leg to complement the two sets of books: expense cal money is a simple tag for and income. For a loan to be executed, the lender will issue digital currency. It is not just easy to mint, it is very helpful to the borrower two coins. One is positive cash in the amount to trade with. of the loan, payable right away, and the other is negative cash If I hand you a digital string worth $100, it is the same for a larger amount, payable by the borrower at a later time. as if I pulled out of my wallet a $100 bill and handed it to Negative digital coins may be posted on a public ledger you. That is positive cash. On the other hand, if I hand over to allow traders to assess the financial viability of other to you a digital string worth minus $100, then I confer upon players in their financial community. you an obligation to pay me that much money. Paying nega- The same security that keeps positive digital money tive cash is in essence being paid positive change. from fraud and counterfeiting will keep negative money Positive cash and negative cash cancel each other out. from repudiation and mischief. Positive and negative coins They share the same digital representation and are traded will mix and match. They will enjoy the same protocol of with equal ease back and forth—stored anywhere, exposed safekeeping and for safe transporting. This is the benefit of or hidden, as the case may be. By casting both cash and streamlining, which creates new efficiencies and leverages credit into a unified format, both accounting and planning the power of credit to create greater and greater prosperity. become that much more frictionless. By minting negative coins (obligations to pay), any We are all painfully aware of the complexity of today’s entity that commands community trust can be a de facto consumer credit market: the networks, the issuer, the mint for tradable currency. Say Google and Amazon issue acquirer, the processor, the gateway, and the myriad com- digital coins that obligate them to pay the coin’s face value pliance outfits, all in full force for any insignificant credit- at some specific future date. These mammoth companies based transaction. may use their trade power to force these coins on their sup- Instead, let your lending bank issue you $5,000 of nega- pliers. For as long as Amazon and Google command the tive cash. You then carry in your phone a digital coin worth community standing they claim today, their digital negative that much, and marked “negative $5,000.” You take your coins will have a dollar-equivalent value. Much as the Euro family to dinner, and you honor the $250 restaurant bill by trades against the dollar, so would Amazon’s negative dollar splitting your negative money coin and handing over to the have an exchange rate with Uncle Sam’s currency. waiter $250 negative dollars. While everyone is worried about Bitcoin competing with The waiter’s portable terminal recognizes your digital fiat currency, the competition, in fact, would emerge from transmission as negative cash (a promise to pay made by any entity of community trust. It would be virtually impos- your bank), and presents this negative money to the mint. sible to halt this avalanche of currencies with regulatory The mint verifies this negative coin, debits the lender’s countermeasures. More important, it would not be advisable. account, and sends positive digital cash for $250 to the res- Society should level its collective trust. That is how prog- taurant. In parallel, the mint sends you a negative cash coin ress is made. By simply extending the efficiency of positive for $250, with you as the obligated party at a specified due digital cash to negative digital cash, society would shift up a date. The lender is the designated payee. gear in its drive for better lifestyles.

12 • digitaltransactions • May 2018

Trends & Tactics

Payments 3.0 How To Innovate, Part II George Warfel • [email protected] (This is the second part of a two- they need some additional objects and also find that some part column. Part I appeared in objects have no necessary role and can be dropped out. the April issue.) The people who aren’t playing roles as objects monitor the process to point out when an object wouldn’t be able to ast month, we went perform its function. Maybe it needs data it doesn’t have. through the first three How might it get the data? Could something else substi- Lsteps in a process that tute for the data? Is an additional object needed? Each time banks and fintechs have used to a fault is discovered and repaired, it is a good idea to start innovate. This month, we’ll complete our description of the again at the beginning. This often reveals opportunities to process of facilitated group innovation. simplify the design by eliminating unneeded objects. It’s All In Your Mind. Sigmund Freud believed that After several rounds, the process should be able to be dreams were the royal road to the subconscious. In group completed. But maybe it won’t accomplish what it was innovation, our subconscious can be a route to breakthrough designed to do. How could the group fix it so the object ideas. The facilitator encourages the group to use their sub- model accomplishes the task? Often, the breakthrough inno- conscious minds, knowing that it won’t yield a complete vation occurs only after the first several ideas fail when solution, but may point to a solution. modeled. Once the model can make a full circuit through the The facilitator might ask, “What color is the idea that process, it is time to evaluate the innovation. your mind might be forming?” Let’s say a participant says, Evaluating Innovations. Does the group feel that the “It’s blue.” The facilitator then responds, “Blue. Maybe innovation would resolve the problem? Is it efficient in like the sea. How would the sea make payments?” The par- how it does it? Would it have access to each of the kinds of ticipant might say, “Maybe with shells?” There’s an idea data that are required? Could it likely be built for a cost that to go on the wall: What if the system used tokens instead would, over time, be recovered? Would people pay to use it, of currency? and if so, use it enough to recover its operating cost and yield Modeling the Innovations = More Innovation. Once a profit? If “yes” to all, the group can redraw the final version people have put several ideas on the wall, groups can start of the innovation and go on to the next proposed solution. modeling and testing the ideas using a method derived from Throughout the process, the facilitator’s role is not object-oriented programing. The first step is to have people coming up with an innovation. Her role is to make the pro- assign themselves roles in a one-to-one correlation with cess work successfully for the group, using a combination of each of the “objects” in their proposed new, innovative pro- graphic and other facilitation skills. cess. Each thing in the system is an object: the customer, or Using this framework, other techniques are often deployed a mobile phone, or a token, or a database, etc. The person to seed the original insights such as analogs of the problem in taking the role of an object makes a sign for herself telling other industries or analogs in nature. The new seed ideas are the rest of the group what object she is role-playing. then worked back to their origins, graphed, modeled, and tested. As one person reads out loud through the group’s wall chart of the idea, the role-players model the flow of the Conference Review system by passing a token from object to object, with each The Bank Innovation 2018 conference March 5-6 in San narrating the action their object takes while verbalizing the Francisco highlighted several truly new banking innovations data being sent to it. Then the next person states what object via a series of quick-paced, competitive demos. The winner, they’re role-playing and what data they have just received, Baton, is a multicurrency, international account-to-account narrates what action they take, and verbalizes the new data processing system that connects multiple banks’ payments they send to the next object. Usually, the group discovers systems via a proprietary permissioned ledger.

14 • digitaltransactions • May 2018 ONLY ONE OF THESE BIRDS CAN GIVE YOU THE LATEST NEWS IMPACTING THE PAYMENTS MARKET

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What Ails the Mobile Wallets?

Jim Daly

General-purpose mobile wallets have yet to convince most mer- terminals come with near-field com- chants and consumers that they have real value. Can that change, munication technology that enables acceptance of contactless transactions. and if so, when? NFC also is now common in the leading smart phones, and it’s the he hype over mobile wallets according to close market observ- core technology behind Apple Pay hasn’t ceased ever since Google ers. They include a lack of contact- and Google Pay. Samsung Pay uses T Checkout launched way back in less payments acceptance, the greater NFC too, though the service also uses 2006, and it’s only become louder appeal of proprietary wallets to big a specialized technology that enables since Apple Inc. unveiled Apple Pay merchants, and, despite plenty of conventional magnetic-stripe POS in September 2014. Apart from early- hype, a general lack of awareness terminals to accept it. adopter enthusiasts, however, most among consumers about the wallets. On the other side of the payments merchants and consumers don’t seem “Things are kind of stagnant at fence, a fair number of consumers to be getting the message. the moment,” says Jordan McKee, now seem willing to dip their toes The major selling point of the the Boston-based principal analyst for in the wallet waters. 451 Research Big 3 ‘Pays’—Apple Pay, Google Pay, payments at 451 Research. reports that just over a third of new which is Alphabet Inc.’s successor to owners of Apple’s iPhone link a card Google Checkout, and Samsung Pay Recent Converts to Apple Pay. from South Korea-based consumer- None of this is to say the wallets can’t Similarly, 14% of owners of new electronics giant Samsung—is fast turn things around. On the accep- smart phones running Alphabet’s contactless transactions using your tance side, McDonald’s, Subway, Android operating system link a card smart phone. But contactless trans- Walgreens and many other national to Google Pay (graphic, page 17). San actions from mobile wallets and so- merchants accept the wallets, and Carlos, Calif.-based Crone Consult- called dual-interface plastic debit and new acceptance locations are being ing LLC estimates Google Pay has credit cards combined account for announced steadily. 15 million active users (chart, page 18). 1% at most of U.S. point-of-sale pur- Recent converts include the “I think adoption is increasing chases, payments executives say. Pennsylvania Lottery, whose ticket steadily,” says Lawrence Berlin, a Despite this, another big Korean machines will accept mobile wal- senior vice president at Chicago- phone maker, LG, is expected to join lets, and Metro, the public-transporta- based First Analysis Securities Corp. the U.S. mobile-wallet fray at any tion system in Washington, D.C. and who follows the payments industry. time with its LG Pay service, already its suburbs. Metro in April disclosed live in LG’s home country. plans to accept mobile wallets in sub- ‘It’s Going To So why haven’t more American way stations and on buses. Take a Long Time’ merchants and consumers jumped The infrastructure for potential The wallets have a long way to go, onto the mobile-payments train? And wallet acceptance is growing, thanks however. Millions of merchants still will things change in the near future? in large part to the coming of EMV haven’t bothered to turn on the NFC Several major factors are holding chip cards to the U.S. (“Contactless functionality in their new EMV ter- the Pays back in the U.S. market, II,” April). Nearly all new EMV POS minals. Only 18% of U.S. merchant

16 • digitaltransactions • May 2018 locations accept contactless payments, according to Mastercard Inc. RECENT CONSUMER “It’s going to take a long time for MOBILE-WALLET contactless acceptance to be ubiq- ADOPTION TRENDS uitous,” Jamie Topolski, director 34% of new iPhone owners for output solutions at Fiserv Inc., a link a card to Apple Pay during the Brookfield, Wis.-based banking pro- device onboarding process. cessor and payments provider, said 14% of new Android smart- in late March at a Secure Technology phone owners link a card to Google Alliance conference in Orlando, Fla. Pay (formerly Android Pay) during the device onboarding process. Many merchants, especially smaller ones, see little need for NFC, partly 8% of Samsung smart-phone because they and their customers have owners have tried Samsung Pay in the past 90 days. just gotten used to contact chip transactions in which an EMV card is inserted 8% of Android smart-phone owners have tried Google Pay into the terminal. in the past 90 days. Meanwhile, only about 5% of 19% of iPhone owners have tried U.S. general-purpose EMV payment Apple Pay in the past 90 days. cards are of the dual-interface variety that supports both contact chip Source: 451 Research fourth-quarter 2017 consumer survey payments as well as contactless NFC Last November, Walmart senior “I definitely see those merchants transactions. Card manufacturers and vice president Dan Eckert boasted that were in MCX going down that payment processors say demand for to the Bloomberg news service that path to develop their own wallets,” dual-interface cards is building, but it Walmart Pay could surpass Apple says McKee. “I definitely think we’ll has yet to reach critical mass. Pay in usage at stores where they’re see more of that.” Further, some of the nation’s accepted. Walmart does not accept biggest merchants favor proprietary the Pays. ‘More To Offer’ mobile-payment systems. At Star- Walmart, Target, and CVS were A key advantage of proprietary wal- bucks, which rolled out a proprie- members of the Merchant Customer lets is their ability to draw on the tary system in 2011, mobile payments Exchange (MCX), a group of about 40 retailer’s customer data and easily account for 30% of U.S. tender. Dunkin’ retailers that formed in 2012 and devel- link discounts and rewards redemp- Donuts, Kohl’s, CVS, Potbelly, and oped CurrentC, a mobile-payments sys- tions with payments (“Mobilizing the some others also have branded mobile tem separate from the general-purpose Store Card,” March 2017). wallets or payment services, just about card networks. The idea was to not only “Part of the reason Walmart Pay is all of which eschew NFC in favor of reduce card-acceptance costs, but also so successful is they have more to offer familiar barcodes. to create attractive loyalty programs. than Apple Pay, Samsung Pay, and No. 1 retailer Walmart Inc. includes Some MCX members, however, Google Pay,” says payments researcher its Walmart Pay service, which uses including Walmart and CVS, began Richard K. Crone of Crone Consulting. quick-response codes, in its general developing their own mobile-pay sys- “It has all these features that streamline mobile app. Rival discounter Target tems apart from CurrentC. Ultimately, the purchasing process.” Corp. is coming out with its own vari- retailers gave up on a joint effort and Plus, the merchants put plenty ation on that theme that links mobile last year sold CurrentC’s technology of marketing support behind their payments to its proprietary Redcard to JPMorgan Chase & Co., which used branded wallets to build customer debit and credit cards. it to develop its own Chase Pay app. awareness and usage. By comparison, promotions for the Pays seem paltry. The services do run promotions in ‘We’re really excited about mobile digital and general media channels— Google, for example, until May 14 is payments, mobile apps, as it relates offering Google Pay users who refer to corporate and commercial cards.’ friends for the service up to $100 in —PEGGY YANKOVICH, PRODUCT AND MARKETING MANAGER credits good on the Google Play app FOR LARGE-MARKET BANKCARD, U.S. BANCORP market after a new user makes his or her first purchase.

May 2018 • digitaltransactions • 17 Estimated Active Mobile-Payment Users (In millions)

32 29 23 21 15 9 2

Venmo Apple Pay Starbucks Walmart Pay Google Pay Samsung Pay Chase Pay

Note: Active defined as at least two transactions per month. Source: Crone Consulting

Apple’s marketing tactics include Peggy Yankovich, product and mar- “That’s the big hurdle for the email promotions to Apple Pay users keting manager for large-market bank- space, to guide these small merchants that highlight merchants in specific card. “We had client demand for it.” that don’t see any impetus to invest,” categories and niches. But the Pays Facilitating mobile wallets keeps McKee says. have yet to match the proprietary U.S. Bank at the cutting edge of pay- wallets’ marketing resources. ment innovation, and enhances card- ‘Here To Stay’ “There’s nowhere near the mar- holder choices, according to Yankovich. Another avenue to greater adoption keting they need,” says Berlin of First “We’re capturing transactions we is integration with person-to-person Analysis. would have had on plastic anyway, payment services such as Apple Pay Alphabet recently rebranded but it’s allowing customers and poten- Cash. The Apple Pay offshoot runs on Android Pay as Google Pay. Earlier tial customers, corporates and their Apple’s Messages app and competes names for the service were Google employees, to pay the way they want with PayPal Holdings Inc.’s Venmo Wallet and Google Checkout (“Field to pay,” Yankovich says, adding that and Zelle from the big-bank-owned Guide to Alternative Payments, page the bank will be providing “a lot of Early Warning Services LLC. 23). It’s no wonder if consumers education” about mobile wallets to its “They can ride the coattails of are confused. cardholders. people sending money to virally Apple, Alphabet, and Samsung Next up, though it could take up increase adoption,” Crone says. “The did not respond to Digital Transac- to a year and a half, is linking U.S. master of this script is really PayPal tions’ requests for comment. Bank’s purchasing cards to the Pays. and Venmo.” “In the corporate space it’s a little bit Still another tactic for the Pays ‘The Big Hurdle’ more complex,” she says. is working with retailers to embed The Pays sometimes get assists from The demand for cardholder pay- their credentials into mobile apps that card issuers. A recent example comes ment choice may become the Pays’ facilitate order-ahead-and-pay trans- from Minneapolis-based U.S. Bancorp, best friend, particularly as NFC spreads actions, a fast-growing payments seg- a major commercial card issuer and throughout the U.S. merchant base and ment. Crone says fast-casual chain owner of the big merchant acquirer the services continue to add enrollees Panera Bread Co. gets about 30% of Elavon. In April, the holding compa- who could turn into frequent users. sales through order-ahead, and he pre- ny’s U.S. Bank enabled its Mastercard “I don’t think you as a merchant dicts order-ahead-and-pay could cap- travel cards to be loaded into Apple should be limiting customer choice ... ture 60% of sales in the entire quick- Pay, Google Pay, and Samsung Pay. to pay for something,” says McKee of service restaurant sector in coming That move followed a similar one last 451 Research. years. That could be good news for year for the bank’s Visa travel cards. The Pays, however, can’t just sit by general-purpose wallets. “We’re really excited about mobile waiting for that to happen; they’ll espe- “The Pays are here to stay,” says payments, mobile apps, as it relates to cially need to find a way to persuade Crone. “They’re not going to go corporate and commercial cards,” says small merchants to come on board. away.” DT

18 • digitaltransactions • May 2018 Digital Transactions News We deliver the payments industry news to your email inbox daily!

Digital Transactions News is packed with news and information from the $123.4 billion transaction industry:  Two original stories every issue  Trending stories, so you know what our subscribers are reading  Links to Digital Transactions magazine  Calendar of events  PLUS! “In Other News” The most complete listing of announcements from the payments community

Subscribe today at Bolandhill.omeda.com/dtr/ or email publisher Bob Jenisch at [email protected] By John Stewart, Jim Daly, Field Guide to and Kevin Woodward ANNUAL TH 10 Alternative Payments We list 37 entries this year, of which only three appeared in our original Guide nine years ago.

his year’s Field Guide repre- PayPal remains recognizable more or less for this purpose), enables payments in a sents our 10th annual effort to in its 2009 form. The other two, Amazon way that stands apart from that network catalog the broad currents in Payments and Google Checkout, served as (even if it ultimately uses it), and/or electronic payments by listing launching pads for much more ambitious stands between that network and the con- some of the more salient players efforts now known as Amazon Pay and, sumer in an important way. We empha- providing alternatives to the big lately, Google Pay. All three companies size consumer-facing payment systems, networkT brands. In those 10 years, we’ve make it plain their future lies in mobility. but of course many, if not most, of the seen a pretty significant shift away from An emerging trend showing up in this systems profiled here market themselves discrete PC-based services and toward a year’s list is the steady introduction of to merchants to maximize acceptance heavy reliance on fully digital platforms digital currencies as a serious bidder for of their products. aimed at mobile devices. Just count up the merchants’ attention. Indeed, this year’s Information for the listings comes from number of services below whose names Guide includes three entries for crypto- news reports over the past year, company follow the “X Pay” formula, popularized currencies showing promise as payment Web sites and spokespersons, and finan- by Apple Pay. We’ll save you the trouble: methods: Bitcoin, Litecoin, and Ripple. cial filings in a few cases. We list pricing there are a dozen, if you include SelfPay. As in prior years, Digital Transactions gen- for the merchant and consumer when it is That shift can also be seen in who has erally defines an alternative-payment sys- relevant and publicly available. The “Year had staying power in our Guide. In our tem as any network or consumer interface Founded” line refers to the year the par- maiden effort in 2009, we listed 23 com- (a mobile app, for example) that displaces ticular service was founded, not the par- panies. Of these, only three are among the the Visa/Mastercard/AmEx/Discover net- ent company, except in those cases where 37 listed here. And of these three, only works (seen as one traditional system the two coincide. Digital Transactions 21

Cash. Apple also says the number of overall Apple Pay users doubled in the 12 months AMAZON PAY from November 2016. Financial institu- CHASE PAY PARENT Amazon.com Inc. tions that adopted Apple Pay at its launch in PARENT JPMorgan Chase & Co. HQ Seattle October 2014 also had to renew their con- HQ New York City FOUNDED 2007 (including tracts with Apple, which had a three-year FOUNDED 2015 predecessor services) provision. It is unknown how many banks WEB ChasePay.com WEB pay.amazon.com and credit unions renewed. As of early PRICING Volume-related fixed fee for merchants FIELD Amazon Pay is a payment service April, Apple says almost 2,400 U.S. banks NOTES Amazon makes available to other and credit unions support Apple Pay. Apple FIELD Nearly three years after its much- Web sellers, and is now starting to deploy also has been on a push to increase con- NOTES heralded launch, the bloom may in physical locations. The service, which sumer use of the service, with a string of be off the rose for Chase Pay. Despite its claims at least 33 million users, has grown advertisements in early 2018. In October, parent’s formidable resources and a Chase out of predecessor services like Amazon at the Money 20/20 event, Apple’s Jennifer card base numbering around 94 million, Flexible Payments. It depends on the card Bailey, vice president for Internet service, the wallet by all accounts is suffering credentials Amazon shoppers have stored outlined the company’s ambition to make through adoption pains—as are most with the massive online retailer over the the digital wallet usable in “everyday” others launched in the past few years. years, some of whom are among the com- spending for consumers. One major success for Chase Pay was its pany’s 100 million Prime members. Last March announcement that 10,000 Shell summer, Amazon began experimenting stations across the United States will with an extension of the service to restau- accept the wallet. The addition of Shell rants in a pilot with TGI Fridays. Users BITCOIN means at least five major chains now sup- can order ahead using the Amazon Pay PARENT Satoshi Nakamoto port Chase Pay, with Best Buy, Starbucks, feature in the Amazon app and show up HQ Not applicable Target, and Walmart also on board. Also, later to pick up their meal. The extension FOUNDED 2009 a $10 million investment Chase made in builds on a trend: nearly one-third of WEB BitcoinFoundation.org September 2016 in LevelUp, an ordering- Amazon Pay transactions in 2016 came PRICING Miners’ transaction fees are and-payment app for eateries, may yet pay from a mobile device. Next up: Payments volatile and paid by user off for Chase Pay if it helps the wallet through Alexa, Amazon’s voice-controlled FIELD 2017 was the year Bitcoin had to be penetrate that key retail segment. Unlike form of artificial intelligence. In Novem- NOTES taken seriously. By year’s end, it was other wallets that are also struggling to ber, Amazon began piloting Amazon Pay trading near $20,000, or more than 20 win mass adoption, such as Apple Pay, for payments through certain Alexa skills times its value at the start of the year, and Chase Pay works with familiar barcode with partners like Atom Tickets, a mobile investors were clamoring to buy in. The technology rather than near-field com- app for movie tickets. subsequent, probably inevitable, crash did munication, a factor that many merchants little to dampen interest in the cryptocur- may find congenial. rency, as even venerable futures exchanges early in 2018 began trading Bitcoin con- APPLE PAY tracts. But all the hype and hysteria PARENT Apple Inc. obscured the question of Bitcoin’s useful- HQ Cupertino, Calif. ness as a medium of exchange—something CIRCLE INTERNET FOUNDED 2014 ordinary people could actually use to buy PARENT Circle Internet Financial Ltd. WEB Apple.com/Apple-Pay/ things. By the spring of 2018, some mer- HQ Boston FIELD The big news for the most well- chants and processors—including Stripe, FOUNDED 2013 NOTES known mobile-payment service was which had been supporting Bitcoin trans- WEB Circle.com the launch of Apple Pay Cash in December, actions since 2014—had stopped taking the FIELD One of the least publicized pay- another facet designed to hook consumers currency, pointing to wicked swings in NOTES ments providers, Circle has had further into the popular service. Its debut price and a congested blockchain that drove an active year. Two big moves involved also meant a lot of potential for Discover up both transaction costs and confirmation peer-to-peer payments, both local and Financial Services, if merchants embrace times for a payment method that was sup- cross-border, and cryptocurrency. Last the service. That’s because Apple Pay Cash posed to be superfast and supercheap. But fall, it began allowing users of Circle Pay, purchase transactions will ride Discover’s there was good news, as well. Some organi- its P2P payments app, to switch funds network rails. Green Dot Corp. manages zations—including at least one merchant they receive in the app to a U.S. bank the prepaid product embedded in Apple processor for credit and debit cards—began account nearly instantaneously and with- Pay Cash. One survey, released in February, pushing Bitcoin for merchant acceptance. out fees. Circle followed up that move by found that 15% of consumers between 18 The sky-high cost and confirmation times acquiring token exchange Poloniex in and 35 years old used Apple Pay while finally began to retreat to reasonable levels. February, building on its foundation in shopping online and that 10% of this age And a project called the Lightning Network blockchain technology and furthering its group used the mobile-payment service in made progress on work it has been pursu- ambitions to operate an open, worldwide a store. Three percent had used Apple Pay ing to vastly speed up Bitcoin transactions. token marketplace. 10th Annual Field Guide To Alternative Payments

the app enables users to pay for in-store pay feature, a signature service for rival purchases, find a store location, track Starbucks. Dunkin’ added the feature in COINBASE rewards progress, and view savings from 2016 with its new mobile app developed PARENT Coinbase Inc. using the app. In August, Cumberland by CardFree Inc. HQ San Francisco Farms said it had sold $2 billion in fuel via FOUNDED 2012 the SmartPay app since its January WEB Coinbase.com 2013 launch. PRICING 1% merchant fee for converting Bitcoin EXXONMOBIL to U.S. dollars. U.S. users under Method 1 pay 1.49% to 3.99% for cryptocurrency purchases SPEEDPASS+ or sales. Method 2 charges a 1% variable fee with a $1 minimum and $50 maximum, with CVS PAY PARENT ExxonMobil Corp. credit and debit card transactions also subject PARENT CVS Health Corp. HQ Irving, Texas to a fixed 2.49% fee HQ Woonsocket, R.I. FOUNDED 2016 WEB Exxon.com/en/Speedpass FIELD Coinbase, reportedly the largest FOUNDED 2016 NOTES of the cryptocurrency exchanges, WEB CVSHealth.com FIELD ExxonMobil’s Speedpass+ app claims 10 million users. The company FIELD The pharmacy giant CVS, which NOTES debuted as a smart-phone app that offers iOS and Android digital wallets, NOTES created CVS Pay in its own digital- used mobile-payments services and credit and acceptance and processing services innovation lab, launched it as a pilot in and debit cards to make in-app payments for merchants. In February, Coinbase August 2016 and took it national two for fuel at the pump. The app enables con- unveiled an acceptance platform called months later. The app works with all sumers to pay for fuel and other Coinbase Commerce for merchants that major credit cards as well as the chain’s convenience-store products and services want to take Bitcoin, Bitcoin Cash, Ethe- own ExtraCare loyalty card, and comes without dipping a card into a reader. It reum, or Litecoin payments. Two months with some built-in advantages, experts say. determines the consumer’s location either later it created Coinbase Ventures to fund One is that ExtraCare connection. The via the global positioning system or bar- early-stage digital-currency companies. loyalty program embraces 70 million code on the pump scanned by the con- Coinbase encountered a couple of pro- members who might be inclined to use a sumer. Once a transaction is initiated, the cessing glitches over the past year that wallet that automatically processes points consumer can authorize payment with a apparently caused little more than short- toward purchases. Another is the privacy stored credit or debit card, or Apple Pay, if term disruption. factor. Customers can pay for prescrip- using an iPhone, or Samsung Pay, if using tions while keeping private sensitive infor- an Android smart phone. The app is not mation about themselves, such as date of only a way to avoid dipping a card, and birth. Like Walmart, CVS is a former perhaps exposing it to a card-skimming CUMBERLAND member of the failed MCX wallet consor- device, but as a way to drive additional sales FARMS tium that saw the writing on the wall for with prompts for offers in stores or a car MCX and created its own payments app. wash. In 2017, ExxonMobil made the app PARENT Cumberland Farms Inc. available to motorists driving a Ford vehi- HQ Westborough, Mass. cle with SYNC3 technology. Consumers FOUNDED 2013 with SYNC3-equipped Ford vehicles now WEB CumberlandFarms.com/SmartPay DD PERKS can use the in-vehicle touchscreen or voice FIELD Cumberland Farms, a convenience- PARENT Dunkin’ Brands Group Inc. commands to authorize payment. Speed- NOTES store chain in the Northeast and HQ Canton, Mass. pass+ was an original member of the Plenti Florida, added biometric support to Smart- FOUNDED 2012 rewards program managed by American Pay, its iOS or Android app that gives users WEB DunkinDonuts.com Express Co. AmEx announced in April a 10-cent discount per gallon of gas when FIELD Coffee and breakfast-food chain that Plenti, a coalition-based rewards pro- they use it to pay for fuel. The app requires NOTES Dunkin’ Donuts has more than gram, will shut down in July. consumers to enroll a checking account as 9,100 franchised U.S. locations and the payment method. The app—developed accepts the major mobile wallets, but its in-house by Cumberland Farms—uses auto- DD Perks customer-loyalty program cen- mated clearing house payment technology ters on a prepaid account and mobile app FACEBOOK from Portland, Maine-based ZipLine Inc. that uses barcodes for payments and MESSENGER The biometric log-in feature for the rewards redemptions. DD Perks ended updated app works with any iOS or Android 2017 with 8 million members versus PARENT Facebook Inc. smart phone that has a fingerprint sensor, about 6 million in 2016. Dunkin’ doesn’t HQ Menlo Park, Calif. or facial recognition, as with the iPhone X. disclose mobile-payments volume, but FOUNDED 2015 To pay for fuel, the user verifies the store says payments through its app are increas- WEB Messenger.com location and pump number within the app ing. Customers with iPhones can now FIELD Facebook’s messaging app was one to activate the pump. In addition to paying send mobile DD gift cards through Apple NOTES of the first to enable peer-to-peer less for fuel at one of the more than 600 Inc.’s Messages app. Dunkin’ continues to payments in addition to conversations, Cumberland Farms locations in eight states, heavily promote its own order-ahead and and with 1.2 billion users, it remains the Digital Transactions 23 largest and perhaps most useful such util- Oil Web site. Gulf Oil has more than customers to redeem offers, rewards in ity. It’s running into headwinds lately, 1,800 Gulf gas stations. The app is built the chain’s Yes2You program, and Kohl’s though, as a result of a scandal involving on technology from P97 Networks Inc., a Cash in one barcode-based flash. “When Facebook’s sharing of user data with an Houston-based petroleum-services com- we say fast savings at checkout, we mean outside entity. As of mid-April, it appeared pany. Other companies using its technol- really fast,” the company says on its Web likely it will weather the storm of bad pub- ogy include To Go Stores, a Puerto Rico- site. As of February, the app had been licity with little impact. Messenger was based convenience-store chain, Phillips downloaded 21 million times since its also the first social network to embrace 66, and JPMorgan Chase & Co.’s Chase introduction, according to information chatbots, which crawl the network to Pay. Later in 2017, Gulf ran a promotion on the site. The app’s developer is Omny- enable functions such as payments. for Discover cardholders that gave them a way Inc. (formerly known as Omnypay), a 15-cents-per-gallon discount when using 4-year-old startup cofounded by Bill the app. Melton, well-known in the payments industry as a founder of point-of-sale GOOGLE PAY terminal vendor VeriFone. PARENT Alphabet Inc. HQ Mountain View, Calif. KLARNA FOUNDED Android Pay, 2015; Google Wallet, 2011 PARENT Klarna Bank AB WEB pay.Google.com HQ Stockholm LEVELUP FIELD Perhaps Google Pay is the name FOUNDED 2005 PARENT SCVNGR Inc. NOTES that finally will resolve Alphabet’s WEB Klarna.com/US HQ Boston payments identity crisis. The brand, for- FIELD Sweden’s Klarna, known for its FOUNDED 2011 mally unveiled in February, is the successor NOTES single-click purchasing utility and WEB TheLevelUp.com to Android Pay, which Alphabet adopted its willingness to delay payment until a cus- FIELD LevelUp, especially because of in September 2015 to take over Google tomer receives the goods she ordered NOTES JPMorgan Chase & Co.’s support Wallet’s point-of-sale payment functions online, entered the U.S. with some fanfare of the mobile order-and-pay app, has for mobile devices running on the Android in 2015. Sensing an opportunity in its new been on an integration tear. Earlier this operating system. Google Wallet, which market, it has expanded its credit offering year, it announced a deal with Gusto Point could trace its electronic DNA back to the to allow for monthly installment payments, of Sale that enables Gusto’s clients to use original Google Checkout that launched in putting it in competition with conventional LevelUp’s payment and loyalty service in 2006, at the same time became a person- credit cards. Its latest move: a 30-day their stores. That followed a similar deal to-person payments service only. Under financing period called Pay Later, which is with Revel Systems, a tablet-based POS the new rebranding, this is now known as in tests and expected to come to the U.S. system provider. The deal enables Revel’s Google Pay Send. Analysts say the unified this summer. Privately held, Klarna carries restaurant clients to reach customers on branding could help Google Pay, which is a lofty $2.5 billion valuation, ranking it their smart phones. LevelUp’s mobile available in 18 countries, gain share in the third among so-called payments unicorns, ordering, loyalty, and payment services U.S. where Apple Pay dominates. All of or private companies boasting $1-billion- were integrated into Revel’s POS plat- the “Pays” have struggled, however: con- plus valuations. Klarna is outranked only form. It also announced a deal with Open tactless mobile payments account for less by One97, operator of India’s Paytm Dining, a mobile order-ahead technology than 1% of Visa’s U.S. card-based POS mobile-payments system ($5.7 billion) and provider, to list restaurants using Open transactions. U.S.-based Stripe ($9.2 billion). One of Dining’s platform in the LevelUp and Klarna’s backers is Visa Inc. The company Chase Pay apps. A lowlight for LevelUp says it added 26,000 new merchants in last year, however, was by a lawsuit filed 2017, bringing its total to 89,000. It does against it by CardFree Inc. that alleged GULF PAY not break out how many of these are now in LevelUp improperly accessed CardFree’s PARENT Gulf Oil LP the United States. Some 19 million con- technology. The suit was later dismissed. HQ Wellesley Hills, Mass. sumers used Klarna for the first time last FOUNDED 2016 year, the company says. WEB Gulfoil.com/Gulf-Pay LG PAY FIELD Announced in early 2017, Gulf NOTES Pay is slowly rolling out in Gulf PARENT LG Electronics Oil’s market. In addition to paying for KOHL’S PAY HQ Seoul, South Korea fuel at the pump with a smart phone, Gulf PARENT Kohl’s Corp FOUNDED 2017 Pay users will be able to locate Gulf sta- HQ Menomonee Falls, Wis. WEB LG.com tions, view actual fuel prices, obtain FOUNDED 2016 FIELD LG, whose smart phones have about directions, and view offers for fuel and WEB Kohls.com NOTES 10% of the U.S. market, in a month in-store products. Details of how pay- FIELD Kohl’s may operate a department- or two is expected to join the mobile-payment transactions will process were not NOTES store chain, but its emphasis with ments fray with LG Pay, a service it launched released. The app will be available for iOS its payment app is speed at checkout, and in its home country about a year ago. Like and Android devices, according to a Gulf not just for payment. The app also allows rival Google Pay, LG uses host card 10th Annual Field Guide To Alternative Payments emulation, a variant of near-field communi- market punished PayPal for days after the cation technology in which credentials are MONEYGRAM announcement, the company estimates stored in the cloud rather than on a phone’s eBay will account for just 4% of its total secure element. HCE gives payment card ONLINE volume by the end of the agreement. issuers that want their cards loaded into PARENT MoneyGram International Inc. mobile wallets a degree of freedom they don’t HQ Dallas have with systems such as Apple Pay, where FOUNDED 2010 PEOPLE PAY cardholder credentials are stored on an WEB MoneyGram.com Apple-controlled secure element within an PARENT Fidelity National Information PRICING Varies, $4 for $500 online wire transfer to Services Inc. (FIS) iPhone. Apart from HCE, it’s not yet clear Mexico if funded by checking account with cash how LG Pay will distinguish itself in a very pick-up; $6.99 if funded by Visa or Mastercard HQ Jacksonville, Fla. crowded mobile-payments market. Yet just credit or debit card FOUNDED 2013 WEB FISglobal.com having a payments option could help LG lift FIELD The biggest news for MoneyGram its smart-phone market share, where it ranks NOTES in the past year is what didn’t FIELD People Pay is FIS’s white-label a distant third behind Apple and Samsung. happen to it, which was get acquired by NOTES person-to-person payment ser- China’s Ant Financial Services Group. vice. Financial institutions can apply their Federal opposition to Chinese ownership own brands and set pricing for the ser- finally killed the planned $1.2 billion deal vice. People Pay is built on the PayNet LITECOIN in January. Ant and MoneyGram said network FIS introduced in 2012 to offer PARENT Charlie Lee they will still work together on new remit- real-time settlement for various non-card HQ Not applicable tance and digital-payments projects glob- payments, and it also draws on FIS’s FOUNDED 2011 ally. In April, MoneyGram and its biggest NYCE electronic funds transfer switch WEB Litecoin-Foundation.org agent, Walmart Inc., introduced an inter- that links thousands of financial institu- FIELD The cryptocurrency mania that national service for Walmart customers tions, including ones that aren’t other- NOTES overtook the country in 2017 was dubbed Walmart2World. wise FIS clients. Users send payments mostly concerned with Bitcoin, but this through their bank’s online-banking sys- tide lifted a number of boats, including tem using the recipient’s email address or Litecoin, a crypto that was specifically mobile-phone number. The recipient conceived as an alternative way to pay PAYPAL receives a text or email with instructions merchants. Charlie Lee, the former PARENT PayPal Holdings Inc. on how to retrieve the money. Early in Google and Coinbase engineer who HQ San Jose, Calif. 2017, BMO Harris Bank launched People invented Litecoin, predicts 90% of online FOUNDED 1998 Pay for its customers. The no-fee service and brick-and-mortar merchants will be WEB PayPal.com deposits funds to a recipient’s account in accepting cryptocurrency within 10 years, PRICING 2.9% plus 30 cents per U.S. merchant one to three business days. and Litecoin will be leading that charge. transaction; for PayPal Here, 2.7% for swiped transactions, 3.5% plus 15 cents for manually The reason, he says, is that transactions entered transactions. on the Litecoin network are faster and PHILLIPS 66 cheaper in comparison to Bitcoin. For FIELD PayPal is not only one of the oldest example, transactions on the Litecoin NOTES digital wallets, it’s also probably PARENT Phillips 66 blockchain can be confirmed in two-and- the most successful with respect to actual HQ Houston a-half minutes, he says, compared with 10 adoption and usage by consumers. Since FOUNDED 2016 minutes for Bitcoin. The first wave of 2016, the company has worked hard to WEB Phillips66.com acceptance will come from online retail- forge partnerships with major banks and Refinery operator and fuel retailer FIELD People Pay Park ers, Lee says. Brick-and-mortar will come card networks—entities that once eyed NOTES Phillips 66 announced a mobile- later, in part because many of the compa- PayPal with considerable suspicion—to commerce-focused platform in 2017 nies that make payment terminals remain gain access to their tokenization engines based on the P97 PetroZone mobile- unconvinced about crypto, Lee main- to protect consumer card credentials. commerce service Phillips announced in Klarna Seafood tains. “They’re not very friendly,” he says. That effort will pay off if PayPal, as 2016. In August 2017, JPMorgan Chase expected, soon makes a major play for in- & Co. said its Chase Pay service would be store acceptance. The company hit a part of Phillips 66’s m-commerce' service. speed bump in January, though, when “The new platform will connect retail eBay Inc., a long-time client and PayPal’s fueling consumers to Phillips 66, former owner, announced it plans to Conoco, and 76 locations through a build its own payments operation and mobile app using a dynamicChase station Pay Athletic replace PayPal as its gateway provider with finder, enabling a mobile paymentFields wallet Adyen, a Dutch company. PayPal will and delivering contextual commerce Ripple Water Park Ria/Euronet continue in its current role until July digital offers,” said developerRail DepotP97. Later 2020, when its five-year operating agree- in 2017, Phillips 66, along with its Con- ment with eBay expires. While the stock oco and 76-branded smart-phone apps, Circle Internet Financial Roundabout Facebook Messenger Convention Center Digital Transactions 25 announced the ability to use a checking parameters such as dollar limits, where the international trading partners. With account as a payment method thanks to an code can be used, and an expiration date, instant liquidity, global firms can free up integration with Buy It Mobility Networks, and users can revoke the code at any time. funds they would otherwise tie up in for- a payment platform. In February, Phillips To use the code at the point of sale, the user eign accounts to back real-time payments. 66 launched the mobile-payment option scans a barcode generated on his smart- Cambridge processes more than via the My Phillips 66 app in the Kansas phone screen. At ATMs or online, he enters $20 billion in cross-border business-to- City, Mo., area. The company expects to the 8-digit code. business payments annually for 13,000 cli- roll it out nationally. ents. In November, American Express Co. said business customers of its FX Interna- tional Payments service could use the RIA FINANCIAL RippleNet network for payments between POPMONEY the U.S. and the United Kingdom. PARENT Fiserv Inc. SERVICES HQ Brookfield, Wis. PARENT Euronet Worldwide Inc. FOUNDED 2009 HQ Leawood, Kan. WEB Popmoney.com FOUNDED 1987 SAMSUNG PAY WEB RIAmoneytransfer.com FIELD Launched in 2009 by CashEdge PARENT Samsung Electronics Co. Ltd. NOTES Inc., the Popmoney person-to- PRICING Varies, $3 online transfer fee for sending HQ Seoul, South Korea $500 to Mexico from checking account with FOUNDED 2015 person payments service came under cash pick-up, $4 and $20 if funded with debit Fiserv’s wing when the big processor or credit card, respectively WEB Samsung.com/US/Samsung-Pay/ bought CashEdge in 2011 for $465 million. FIELD Samsung Pay can connect to point- Fiserv then merged Popmoney with its in- FIELD Wire-transfer provider Ria last NOTES of-sale terminals via near-field house ZashPay P2P service under the Pop- NOTES year expanded in India and con- communication. But, unlike Apple Pay money brand. Funds sent via Popmoney tinues to provide domestic money trans- and another NFC-based competitor, must be deposited into an eligible account. fers at U.S. Walmart stores. Ria won that Google Pay, Samsung Pay also enables The person-to-person payments arena is Walmart business from MoneyGram in Samsung’s Android phones to link to the changing. Zelle, a bank-owned P2P ser- 2014, but it generates significantly lower POS via a technology called magnetic vice, began national advertisements in margins than its traditional wire trans- secure transmission (MST), which means January, but banks took notice before fers. Parent company Euronet’s several it works with just about any mag-stripe then. In December, SunTrust Banks Inc. money-transfer brands including Ria reader in the market. Samsung has been switched to Zelle, replacing Popmoney. handled 92.2 million transactions in busy adding new features to the service. In Still, Popmoney continues to be used by 2017, up 12% from 82.3 million in 2016. July, Samsung said consumers with a PayPal many banks and credit unions. Fiserv is Euronet last year tried and failed for the Holdings Inc. account could add it as a even enlisting Popmoney in its CardFree second time in a decade to buy rival payment method. PayPal will be available Cash service that enables consumers to MoneyGram. within Samsung Pay for in-app, online, draw cash from their accounts at an ATM and in-store transactions. The link-up using a smart phone. To use CardFree starts in the United States and will expand Cash, users obtain an access code, which later to other markets. Apparently, the they can activate from their phones. With RIPPLE integration was fairly involved because the the access code and a temporary PIN, they PARENT Ripple Labs Inc. U.S. integration was made available only can then get cash at any machine support- HQ San Francisco in April, nine months after the announce- ing the Popmoney network. FOUNDED 2012 ment. Later in 2017, Interac, Canada’s WEB Ripple.com debit network, announced Interac debit FIELD While Bitcoin and many other transactions using Samsung Pay in Canada NOTES cryptocurrencies struggle with would use the Interac token-service pro- QWICK CODES wild price swings and opaque business vider. The move enables Interac debit PARENT MagTek Inc. cases, Ripple, a provider of blockchain- transactions within Samsung Pay. HQ Seal Beach, Calif. based technology and the XRP digital cur- FOUNDED 2012 rency, over the past year has quietly struck WEB QwickCodes.com deals with more than 100 banks and other PRICING $49.99 annual subscription firms, often for low-cost and fast alterna- SELFPAY FIELD Qwick Codes rely on MagTek’s tives to traditional cross-border settle- PARENT Digital Retail Apps NOTES MagneSafe security architecture to ments and correspondent banking. In HQ Toronto generate one-time transaction codes con- March, FleetCor Technologies Inc., FOUNDED 2013 sumers can use in place of actual payment whose main business is payment services WEB DigitalRetailApps.com cards in stores, online, and at ATMs. Users for trucking fleets, announced a test in FIELD SelfPay enables consumers to pay add cards to the Qwick Codes wallet by which its Cambridge Global Payments NOTES for merchandise while standing in swiping them with a reader supplied by unit will use Ripple’s XRapid service to a store aisle and leave without stopping at a MagTek. The wallet can also keep transaction provide so-called on-demand liquidity to cash register. SelfPay supports cards 10th Annual Field Guide To Alternative Payments carrying the Mastercard, Visa, Discover, Rewards loyalty program, which is linked to and American Express brands. Consumers SQUARE CASH the prepaid card, allows users to earn “stars” also can use their PayPal and Apple Pay for free coffee and food. The program had PARENT Square Inc. accounts. The app presents only the mer- 14.2 million active users in fiscal 2018’s first HQ San Francisco chant’s accepted payment methods once quarter, up 11% in a year. Member spend FOUNDED 2012 the consumer has been located in the represented 37% of sales at company- WEB Cash.me store. After recognizing the consumer, the operated U.S. stores. The company’s popu- app displays a custom retailer-branded FIELD The Square Cash app is a popular lar Mobile Order and Pay service, which has screen, which unlocks the capability to NOTES one, used for P2P transactions, caused congestion at some stores as custom- make a purchase. The user scans either the and when users pull out the Cash card to ers come in to get items they purchased ear- Universal Product Code or a barcode gen- use in stores. In February, Square said the lier, represented 11% of transactions at U.S. erated by the retailer’s point-of-sale system app had 7 million active users and card- company-operated stores, up from 7% at for items they are interested in. SelfPay holders spent $90 million using the card the end of 2016. Starbucks’ payment strat- then displays an in-store price and product in December, good for annualized volume egy is now expanding beyond its private- description, also pulled from the retailer’s of $1 billion. Many of these users may be label offerings, in addition to making POS system. The shopper adds the item to trying one of Square Cash’s new features: Mobile Order and Pay available to custom- her cart, selects a payment method, and the ability to buy and sell Bitcoin. Tests ers who don’t belong to the loyalty program. enters a SelfPay PIN. In recent news, the with a small number of users began in The company recently launched a cobranded company moved to a license and consulting November but expanded to most users in Visa credit card issued by JPMorgan Chase stance to boost market adoption. By licens- February. The move represents the second & Co. that enables cardholders to earn stars ing its patent portfolio, Digital Retail Apps expansion of the capability, which was at an accelerated rate for Starbucks pur- says it enables merchants to verify their extended to an undisclosed number of chases, and they’ll also get stars for non- scan-and-go purchases and provide an additional users in December. Earlier this Starbucks transactions. Starbucks early this audit trail. year, Square said Bitcoin trading had an year began testing a cashless store in Seattle “immaterial” effect on its financial results. that accepts only cards and mobile-phone As for the Square Cash card, cardholders payments, and more could be on the way. are using it most at McDonald’s Uber, Lyft, SKRILL and Walmart, Square said. These in-store PARENT Paysafe Group plc transactions have the benefit of generating HQ London interchange revenue for Square. Making TARGET WALLET FOUNDED 2001 money with P2P services is challenging PARENT Target Corp. WEB Skrill.com because such providers have found it nearly HQ Minneapolis FIELD Skrill began its digital life in 2001 impossible to persuade consumers to pay FOUNDED 2017 NOTES as Moneybookers, a United King- fees. Square Cash also faced the prospect WEB Target.com dom processor for online gaming trans- of another competitor, in addition to FIELD Discount retailer Target merged its actions that rebranded as Skrill in 2010. Apple Pay Cash, Venmo, and PayPal, when NOTES popular offers app known as Cart- The company had 17 million users a year reports surfaced that Amazon.com Inc. wheel into its main Target app last year later when it made its U.S. debut through might add a P2P function to its Alexa and in December unveiled what it dubbed a partnership with Live Gamer Inc. to voice-commerce service. Wallet, which is a feature within the Target offer a micropayments platform for game app for iOS and Android mobile phones. publishers worldwide without chargeback After the shopper loads a Target Redcard or foreign-exchange risk. Acquisitions in credit or debit card, Wallet enables the the next few years brought Skrill into the STARBUCKS customer to redeem offers and pay in one invoicing and prepaid markets and added PARENT Starbucks Corp. scan by displaying a barcode at checkout. mobile capabilities. Eyeing Skrill’s big HQ Seattle Wallet also stores Target’s Weekly Ad elec- presence in online gambling, money FOUNDED 2011 tronic coupons and applies Target’s signa- transfers, and e-commerce, U.K. pro- WEB Starbucks.com ture 5% discount on Redcard purchases. cessor Optimal Payments, now Paysafe, FIELD Starbucks’ barcode-based mobile- bought Skrill in 2015 for $1.2 billion. NOTES payments service continues to be the Paysafe in February introduced Skrill envy of the general-purpose mobile wallets Send Direct, a money-transfer service from Apple, Google, and Samsung. Mobile VENMO that enables users to send money to payments now account for 30% of U.S. PARENT PayPal Holdings Inc. recipients’ bank accounts or mobile wal- tender, up from 20% a year earlier, the HQ San Jose, Calif. lets in 35 countries, with 40 currencies company said in January. The mobile app is FOUNDED 2009 available. Two months later, Paysafe tied to the prepaid Starbucks Card, which WEB Venmo.com announced a deal to buy the big U.S. accounted for 42% of transactions at PRICING Free merchant processor iPayment. How that company-operated U.S. and Canadian FIELD Peer-to-peer payment app Venmo acquisition might affect Skrill was not stores for the quarter ended Dec. 31, up NOTES just keeps sizzling. It ended 2017 immediately clear. from 40% a year earlier. The Starbucks with $35 billion in volume, a 100% Digital Transactions 27 increase over 2016, indicating it’s as pop- paid cards as a Walmart Pay source, in blog post marking the acquisition’s two- ular as ever with its Millennial customer addition to the Walmart credit card. Users year anniversary. Three-quarters of base. Much of that popularity stems from can split payments across multiple pay- Xoom’s transactions are on mobile devices. the fact that, unlike most P2P apps, ment types. At the register, the consumer Last August, Xoom increased sending lim- Venmo includes a social-media overlay, first pays with the method not loaded into its to $10,000 for some transactions from allowing users to converse with each other the app and pays the remaining balance the U.S. to Canada, the United Kingdom, as well as send or receive funds. But there with the Walmart Pay method. India, and Australia. Xoom added a are some dark clouds over Venmo. One request-funds feature in 2016. has to do with its price, which is exactly zero. That wasn’t much of a problem WESTERN when its volume was smaller, but now all ZELLE that free volume is helping to drag down UNION.COM PayPal’s take rate, or how much it earns PARENT Early Warning Service LLC on each transaction. The solution is Pay PARENT The Western Union Co. HQ Scottsdale, Ariz. With Venmo, a service that lets users buy HQ Englewood, Colo. FOUNDED 2011 (as clearXchange) things in stores and restaurants as well as FOUNDED 2012 WEB ZellePay.com WEB WesternUnion.com pay each other. The service is new, so the FIELD This might be the year of Zelle. jury’s out on how well it will perform. In PRICING Varies, $4 for $500 wire transfer to NOTES The bank-based P2P service came Mexico with cash pick-up, $5 for bank-account- September, PayPal began testing a Visa- funded transfer and $7 for transfers funded on strong with its national debut targeting branded Venmo debit card, a product with credit or debit cards; bill payments vary by younger consumers with stylish television backed by Venmo balances that would amount and funding method commercials. “The advertising for Zelle is generate some interchange income. No focused on the Millennial and younger word so far on how that’s going. Another FIELD The world’s biggest wire-transfer Gen-Xer,” said Norm Marraccini, direc- problem facing Venmo could be competi- NOTES provider said revenues and trans- tor and vice president for payments mar- tion from major banks in the form of actions through its westernunion.com ser- keting and adoption at Fidelity National Zelle, a new app that already accounts for vice increased 22% in 2017 over 2016, and Information Services Inc. In January, more payment volume. Earlier this year, the online channel now accounts for 10% when Zelle released its most recent statis- Zelle launched a major advertising cam- of consumer-to-consumer revenues. Last tics, the service said $75 billion in money paign aimed squarely at Venmo’s audi- May the company said its digital service was moved across its payment network in ence. If that effort siphons off customers live in 40 countries. In the past year, 2017. It processed more than 247 million from Venmo, free transactions could be Western Union plugged into Mastercard payments in 2017. Zelle says its service is the least of its problems. Inc.’s Mastercard Send service to enable available to more than 95 million con- transfers to be sent to U.S. debit cards, sumers. In comparison, Venmo, the Pay- developed a bot for payments through Pal service Zelle is gunning for, processed Facebook’s Messenger, and enabled in-app $35 billion in payments in 2017. Venmo, WALMART PAY transfers through Apple Pay. however, added the capability to use the PARENT Walmart Inc. service in stores. Meanwhile, Zelle is HQ Bentonville, Ark. focused on the P2P aspect, a Zelle FOUNDED 2015 executive said. DT WEB Walmart.com/cp/Walmart-Pay/3205993 XOOM PARENT PayPal Holdings Inc. FIELD The world’s largest retailer com- NOTES HQ San Jose, Calif. pleted the rollout of Walmart Pay, People Pay Park FOUNDED 2001 its QR-code-based mobile-payment ser- WEB Xoom.com vice, in 2016. Part of Walmart’s strategy PRICING Varies, $4.99 for $500 transfer to with the service is to make it easy for consumers to use their Walmart-branded Mexico funded with a bank account, $12.99 if funded withKlarna a credit Seafood or debit card. Bill-payment credit cards in the app. One way to moti- fees start at $2.99 vate them is via the Instant Access pro- ' gram, launched in 2017. This enables FIELD PayPal bought online wire-transfer new Walmart credit card holders to add NOTES provider Xoom Corp. in Novem- temporary credentials to their Walmart ber 2015 for $1.06 billion and instantly Pay accounts and use the credit line in gained 1.5 million active U.S. customers. Chase Pay stores, or online, before receiving the Two years later, Xoom had expanded into Athletic physical card. Walmart offers a private- 27 new receiving countries, bringing its Fields label credit card and a cobranded Master- total to 67, and integrated its international Ripple Water Park Ria/Euronet card, both issued by Synchrony Finan- money-transfer service into PayPal’s. The Rail Depot cial’s Synchrony Bank. Consumers can active user base is up 30%, monthly trans- use any network-branded card, a Walmart actions are up 50%, and usage of its bill- Circle Internet gift card (physical or electronic), and pre- pay service has doubled, Xoom said in a Financial Roundabout Facebook Messenger Convention Center OPINION&ANALYSIS May 2018 digitaltransactions

Payment Improvements Take the Long Way Home

Steve Mott

The U.S. is finally moving toward faster and more secure payments, with the industry, managed to pass leg- but the process is far more deliberate than it needs to be. Look at islation (The Payment Systems Act of 1998) that expanded the central bank’s Australia for an example of how it could be done better. mission to provide specific forms of direction and guidance to the payments bservers of the U.S. payments responsibility that resulted in divulg- industry (Figure 1, page 30). industry can be forgiven for ing data that enables hackers to move The ability to set interchange rates Owondering—in the wake of up from one-off payment card com- was included as part of 2 (b). While the the colossal Equifax breach last fall— promises to seemingly endless Social RBA was empowered to decide what where the fixes in security and effi- Security benefit and tax-return fraud issues it needed to address, the legisla- ciency are supposed to come from, seems lost on an apparently recalci- tion also required the central bank to and who’s going to see them through. trant legacy payments constituency. consult with the industry for feedback A lot of those observers hoped the What’s missing, it’s clear, is a reg- and direction (Figure 2, page 30). Federal Reserve could create a level ulatory body or federal agency that’s The foundation for this legal man- of urgency and unanimity to finally fix able to circle the wagons of the indus- date was reviewed in 2007-08, and this nation’s fraud-prone and exces- try around collaborative assessments updated again in May 2016. sively expensive payments system. of what needs to be done. One of the first actions the RBA But what we’ve learned from Aus- took under its new mandate was a tralia’s two decades of experience is How Australia Did It rejiggering of interchange rates for that meaningful reform of payments The Fed has a general charter to “pro- credit and debit cards. This came in requires a sustained and resilient effort mote the integrity and efficiency of 2002, following comprehensive con- that acknowledges problems and the payments system,” as well as met- sultation with the industry. addresses solutions in a holistic way. rics for recovering its costs for “the The concern was that bank card Very little of that is happening in provision of payment services to all rates were excessive, and contributed this country so far. depository institutions on an equitable to a perceived lack of innovation and It was bad enough that big credit- basis and to do so in an atmosphere less-than-expected support for alterna- issuing banks formed third-party credit of competitive fairness.” This char- tives to cards, including the national “bureaus” to help the banks make ter was outlined in an appendix to the EFTPOS network. So credit card port- better decisions on creditworthiness Fed’s White Paper (January 2015), folios were limited to an average of for financial products like credit cards. which launched its comprehensive 50 basis points, and debit card rates In the process, these banks created approach to making improvements in were capped at 12 Australian cents. largely unregulated entities that vacu- the payment system. Also, merchants were permitted to umed up credit histories and personally Australia’s equivalent of the Fed, surcharge for use of credit cards. identifying information (PII) for tens the Reserve Bank of Australia (RBA), The RBA has checked in on the of millions of consumers—often with- faced a similar issue two decades ago, industry at various points to see if out their knowledge or permission. when many observers then viewed the proactive regulation was still war- What’s even worse is that the payments system as lacking impetus for ranted. For example, the milestone shocking lack of attentiveness and innovation. The RBA, in consultation timeline (page 31) was produced for

28 • digitaltransactions • May 2018 THE ONLY MAGAZINE COVERING THE TOTAL PAYMENTS MARKET In 2015, there were 131.2 billion digital transactions in North America. Digital Transactions magazine covered them all. It is the only publication addressing the total market. Financial institutions, independent sales organizations (credit and debit ISOs, ATM deployers and value added resellers), processors, along with the top tier retailers all turn to Digital Transactions for the trends affecting the payments market and, more importantly, their livelihoods.

Covering the electronic payments business for 13 years, Digital Transactions magazine is your independent source for changes affecting the payments market.Digital Transactions is also available in a digital edition on our web site, DigitalTransactions.net

Subscribe today by going to Bolandhill.omeda.com/dtr/ to start tackling the ever-changing payments market. the U.S. Fed in 2010 in a study done Excerpts from The Reserve Bank of Australia’s for it on regulation in Australia. Since that time, the RBA—under its Payment Systems Act of 1998 preferred mode of non-confrontational engagement with the payments industry—has continued to revisit the rate of FIGURE 1 innovation (and competitiveness inter- Part 3—Regulation of payment systems nationally), including progress toward a faster-payments network option. Division 1—Overview Another major intervention on 10 Overview of main regulatory provisions interchange occurred in 2016 (co-inci- (1) Under this Part, the Reserve Bank is given the power to designate payment dent with the May 2016 confirmation of systems (see Division 2). its proactive role) with respect to esca- (2) The Reserve Bank has the following powers in relation to a designated lating rates on high-end rewards cards. payment system: It turns out that the original rate (a) it may impose an access regime on the participants in the payment structuring in the early 2000s came with system (see Division 3); and an audit of issuer portfolios every three (b) it may make standards to be complied with by participants in the years. However, some issuers would payment system (see Division 4); and juggle their card portfolios in between (c) it may arbitrate disputes relating to the payment system (see Division 5); and audits to take advantage of higher-rate offerings. The RBA addressed this situ- (d) it may give directions to participants in the payment system (see Division 6). ation by putting a cap of 80 basis points on rewards card portfolios, and by con- ducting the audit every quarter. FIGURE 2 To the surprise of many observers, 27 Power to determine requirements for applications protests from issuers were quite restrained, with some relieved to be The Reserve Bank may, in writing, determine requirements to be complied with in relation to applications under this Act, including rid of pressures for an ‘arms race’ in (but not limited to) requirements relating to: cardholder rewards. And a comparison (a) the means by which an application is to be made; and of Australia’s Big Four banks (which (b) the information or documentation that is to be included in or control about 80% of most financial submitted with an application; and services there) shows their profitability (c) the verification of an application or of information or documentation to be comparable to similar issuers in included in or submitted with it. Canada, the U.K. and the U.S.—without all the extraneous fraud and other costs. 28 Consultation obligations The lesson is that occasional regu- (1) Subsection (2) applies to the following actions proposed to be taken latory intervention has been construc- by the Reserve Bank: tive of value throughout the payments (a) the proposed imposition of an access regime; system. (b) the proposed variation of an access regime, other than a variation to which subsection 14(3) applies; The Fed Steps in (c) the proposed determination of a standard, other than a determination to which subsection 18(5) applies; In another era, perhaps in a different industry, the U.S. Fed’s subtle role as (d) the proposed variation of a standard, other than a variation to which subsection 18(5) applies. a central bank looking after payments (2) If this subsection applies to a proposed action, the Reserve Bank must, might have found its way into mean- before taking the action: ingful collaboration with, and guid- (a) cause a notice to be published in the Gazette: ance for, a troubled industry. (i) advising of the proposed action; and The draft governance framework (ii) summarising its purpose and effect; and for faster payments scheduled for (iii) inviting people to make submissions within a specified time to the release for industry comment in late Reserve Bank on the proposed action; and April by a working group of the Fed’s (b) consider any submissions that are received within that time limit Faster Payments Task Force is one more effort to ‘tease-out’ progress on

30 • digitaltransactions • May 2018 resolving volatile governance issues affecting legacy payments before they Timeline of Australian Payment System Reforms bog down faster payments. But the U.S. payments industry has been embroiled in constant conflict between providers and users for 1997 March 1997 - Financial System decades—most recently on the levels Inquiry final report (Wallis Report) of card fraud incurred compared to 1998 other countries, as well as on standards 1998 for data protection and cybersecurity. Payment Systems (Regulation) Act 1999 As a recent example, the American Bankers Association (ABA) offered a series of Webinar briefings to its 2000 October 2000 community-bank members on what RBA & ACCC Joint Study it called the “jungle” of payment card 2001 fraud. It pointed out that this fraud December 2001 - Credit card reform Consultation Document “rose to over $20 billion globally last 2002 July 2002 year alone, a rise of over 20%.” August 2002 - Credit card Debit reform process commences reforms finalised & published Yet, in multiple venues and dialogs 2003 January 2003 since last summer, the ABA (with sup- November 2003 Merchant surcharging allowed Regulated credit interchange 2004 port from some of its big bank members method comes into force April 2004 - New credit card and the bank card brands) has fiercely Access Regime comes into force resisted any public discussion that the February 2005 2005 U.S. has a fraud problem with cards— Debit consultation document including and especially signature-debit 2006 November 2006 - Revised fraud as compared to PIN-debit rates. November 2006 - Regulated credit interchange benchmark This legacy banking and pay- debit interchange & HACR 2007 ment card “consortium” also objects May 2007 - Review of Payment Systems Reforms commences to endorsement of a new (and widely 2008 supported) cybersecurity framework April 2008 Consultation document September 2008 from the National Institute of Stan- 2009 Findings of review published dards and Technology designed to replace inferior frameworks currently January 2010 - Revised standard 2010 2010 - EMV migration begins required in financial services. The for EFTPOS interchange fees reason often given is to avoid more 2011 or duplicate regulatory requirements. 2010-2012 - RBA Strategic Review 2011 - Contactless deployed of Innovation in the Payments Instead, in a Feb. 28 letter to House 2012 System (including Faster Payments) of Representatives leaders, the Ameri- can Bankers Association and several 2013 2013 - RBA’s Payments System industry trade groups have advocated Board (PSB) supports new for “a national data-security and noti- 2013-14 payments platform fication standard” in support of pend- Financial Services Innovation Inquiry 2014 into, including Faster Payments 2014 - Australian Payments ing legislation to that end. Council (APC) formed The letter noted the groups’ differ- 2015 - APC’s National 2015 ences with “statements by some retailer Payments Strategy completed/ announced in public documents 2015-2016 - RBA review of card groups” with respect to “regulatory 2016 payments regulation mandates that set rigorous data-protection and breach-notification practices 2017 2017 - Implementation for financial institutions to follow.” of rewards card fee caps And on March 7, the ABA pro- 2018 2018 - Australia’s New Payments vided Congressional testimony that Platform (NPP) goes live attributed most data-breach damage to compromises by “businesses”

May 2018 • digitaltransactions • 31 The Reserve Bank of Australia’s New Payments Platform Network

The NPP uses ISO 20022, the Overlay Services global standard for electronic data interchange between financial institutions. Addressing Service Connection to the NPP is via Payment Gateways (PAGs). Clearing Request and Notification

Bank Payment Settlement Request Payment Bank The NPP PAGs are Channels Gateway Gateway Channels configured to support processing and routing Payer Settlement Settlement Payee of transactions between NPP Participants Notification Notification NPP Participants the PAGs and the RBA’s (Financial Institutions) (Financial Institutions) Fast Settlement Service.

Overlay services can sit on Payment Gateway top of the basic infrastructure Fast Settlement Service to offer different customer Reserve Bank Information and Transfer Service (RITS) value propositions and experiences. Reserve Bank of Australia

(ostensibly merchants and corporates), But recent research on the “Aus- Instead of back-biting and play- not “regulated financial institutions.” tralian Journey to Payments Ratio- ing the blame game, Australia’s pay- Yet, nowhere is the Equifax debacle nalization” depicts a process where ments leaders chose to harness cyber- addressed. senior payment-industry officials security acumen and investment to And so it is no surprise that when from all sides have come to collabo- create an economic advantage for the the legacy payments providers hold rate materially on issues of conse- country. the fraud data tight to their vests, quence—thanks in no small part to Further, the Australian govern- and offer only partial descriptions the RBA’s soliciting and “nudging” ment is working on a digital-ID sys- of who or what is at fault, the Fed’s the high-level “decision-makers” to tem that matches a user’s photograph, most interesting follow-up activity for work constructively on them. Medicare, driver’s-license, and birth- faster and secure payments is a com- A safer, saner transactional envi- certificate details with information prehensive fraud study of its own— ronment has resulted. Caps on extrav- already known by government ser- designed to get to the bottom of agant interchange, coupled with a high vices and departments. sources and responsibilities for fraud, reliance on safer payment options These “GovPass” users will reg- as well as effective solutions. such as PIN debit (while not being ister for the service with their email saddled with fraud-prone and high- address and mobile-phone numbers. No Blame Game cost card products such as signature- That’s a far cry from the predomi- By contrast, in Australia, the RBA’s debit) and use of chip cards at the nance of payment-account credentials frequent and comprehensive convening point of sale, have all contributed to and PII used largely in the clear by of the payments ecosystem around manageable fraud rates. card issuers and their agents—such foundational industry issues such as As well, overseen by the Aus- as Equifax. security has resulted in quicker adop- tralian government, the financial- And in February, Australia tion of new technologies—including services industry and other sectors of announced its New Payments Plat- EMV (beginning in 2010)—designed the Australian economy collaborated form (NPP) was open for business to protect payment accounts. productively on a comprehensive and after years of development. The path Clearly, the argument can be made action-oriented approach to escalating to this important innovation is per- that with just four banks needed to cyber attacks and threats: “Australia’s haps the most instructive use-case convert 80% of payment volume, such Cyber Security Strategy—Enabling for central-bank regulation working technology migrations can move more Innovation, Growth & Prosperity,” in combination with a functional, expeditiously (and less painfully). published in 2016. respectful industry ecosystem.

32 • digitaltransactions • May 2018 At the urging of the RBA in 2006, regularly convenes consumer and options will arise, there has been the Big Four Australian banks set about merchant user councils separately). grass-roots support for the Fed serv- to build a faster-payment network, ing as an operator, providing the ubiq- nominally called MAMBO (“Me and Lost in Translation uity of its reach (it connects with My Bank Online”). After three years, By contrast, the U.S. Fed mounted every bank) as a default service—just and some fractious meetings among the a huge effort to nurture 16 different as it does for smaller financial institu- big banks, the effort was mothballed. proposals for faster payments out of tions with ACH and wire payments. But the need for a real-time network the payments ecosystem. The apparent But many of the big U.S. banks was surfaced again by the RBA in its early leader in the market was the big- say they are loath to consider any payments-innovation review in 2010- bank alternative—fielded by The Clear- competitive network service from the 12 as a central aspect of the next-gener- ing House (TCH), the consortium of the Fed—unless perhaps as needed down ation payments that Australia needed to 24 largest financial-services companies, the road to provide integrating capa- be competitive on the world stage. including 16 of the largest retail banks. bilities that might arise (e.g., in the The RBA continued to lobby Smaller banks and credit unions event four or five different faster- behind the scenes for another stab at (12,000 of them at last count) and their payments networks surface, including the project, and by 2013 the successor network processors have struggled with from new fintech providers). project—eventually named the New the business model of the TCH option, Meanwhile, governance and own- Payments Platform (NPP)—made its which for now allows them to partici- ership aside, a number of questions way to the Payments System Board pate, but only up to the funding level of remain to be answered about how effi- (PSB) in the form of a business- a prepaid account (e.g., $1 million each). cient, secure, and cost-effective the development and design proposal. Consumer and merchant users have TCH network design—or any other The PSB—an adjunct function of the their own challenges with the big-bank faster-payments system—will turn RBA—approved it, and the new com- alternative for the U.S.—especially the out to be. pany launched in December 2014. availability of ubiquitous, low-cost, Lost in translation seems to be the NPP’s approach to real-time pay- good-funds arrays of payment options industry will, motivation, and leader- ments was not without debate. Smaller capable of reaching all 12,000-plus ship to do better that should have come banks (about 150 in number) had con- financial institutions (as well as non- out of the Equifax travesty. What might cerns about terms and costs of partici- bank providers). still be a catalyzing event for collabora- pation, including whether there was As a result, along with the uncer- tion on payments security so far appears a choice of applications to pursue. tainty of how many faster-payments to be just another wasted crisis. DT The big innovation, in the eyes of many, was the design of the system to build “overlay services” (effectively, individual business applications) on top of an end-to-end, secure, digital- Co-Branded network component. This design translated into banks serving as the primary originators and E-Mail Marketing receivers of real-time payments—and Get the Results You Need therefore being unequivocally responsible for the security (the NPP net- You select the part of Digital Transactions’ subscribers work serves as an encrypted pipe). you want to reach, sorted how you need it, by Once a bank integrates into the function, location, or title. Just ISOs? No problem. network (big banks directly, smaller Just executives on the East Coast? No sweat. banks via third-party processors), it Just CEOs? No worries. Or choose our entire circulation base. It’s up to you! can then choose which applications You give us your HTML creative. We create both a text make sense to field and offer. NPP version and a Web version of the e-mail deployment. thereby serves as a single, national After the deployment, we track deliveries, opens and utility for faster payments. clicks, and give you all the stats. Importantly, the NPP and other To get started, contact payments-organization boards include Publisher Bob Jenisch today: user representation and are infor- 877-658-0418 | [email protected] mally cultivated by the RBA (which

May 2018 • digitaltransactions • 33 OPINION&ANALYSIS May 2018 digitaltransactions

Postpone the Requiem for Cash

David Dove

Despite what you hear about electronic payments displacing coins dead ... a zombie in the world of pay- and folding money, the real story is a little more complicated. ment form factors. Notable predictions of the demise he world is flat. Or at least that’s did not disband until 2001. So much of cash have been made over the what most people believed until for sending men to the moon and years by CEOs and journalists alike. T Aristotle around 330 B.C. pro- taking pictures of Earth. In 2015, Tim Cook, chief executive vided evidence of a spherical Earth. And so it is with cash, whether in of Apple, said that modern payment Even then, it was slow to catch the U.S. or other developed econo- methods, including Apple Pay, would on. Recall that prevailing wisdom had mies. For at least 25 years, the pre- render old-school notes and coins the Earth at the center of the universe vailing wisdom has been that cash redundant, adding “Your kids will not until around 1500, when Copernicus is bound for the trash heap, to be know what money is” to Trinity Col- proved otherwise. replaced first by cards and more lege students. You’d think that the argument recently by mobile wallets carrying At the February 2018 Apple would have been put to bed fairly any of a variety of powerful brands shareholder meeting, his tone was quickly after word got back to Eng- (e.g., Apple Pay, Samsung Pay, etc.). more muted—“I’m hoping that I’m land that Columbus did not sail over The question was never whether still going to be alive to see the elimi- the edge (as many feared). But as late this would happen, only when. Even nation of money,” adding that “mobile as 1956, the Flat Earth Society was in the face of empirical evidence payments have taken off slower that I a healthy organization, and even that to the contrary, cash was presumed personally would have thought.”

FIGURE 1

 $1  $2  $5  $10 Notes in Circulation (billions of notes)  $20  $50  $100 12

0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: FRB Cash Payments Office, The State of Cash: Preliminary Findings from the 34 • digitaltransactions • May 2018 2015 Diary of Consumer Payment Choice. November 2016 FIGURE 2 Value of Transaction Currency in Circulation Per Person $1-20 $1-50 Linear ($1-20) Linear ($1-50) $1,000 y = -14.916x + 914.79 $800 R² = 0.86161

$600

$400 y = -11.89x + 667.53 R² = 0.87931 $200

$0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Dove Capital Partners analysis

FIGURE 3 Value of Transaction Currency in Circulation Per Household $1-20 $1-50 Linear ($1-20) Linear ($1-50) $2,500 y = -34.646x + 2349.9 R² = 0.82069 $2,000

$1,500

$1,000 y = -27.98x + 1715.2 R² = 0.84602 $500

$0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Dove Capital Partners analysis

Over the past few years, I have And there are other proof points Consequently, my thesis is simple. had numerous discussions with capital as well, notably that ATM transac- Cash is not dead. In fact, it continues sources (private equity, venture, family tions have peaked and in some mar- to grow, maybe not as fast as debit or offices, etc.), and almost to a person the kets are declining at 1%-to-2% annu- mobile, but on an absolute basis, growth  $1  $2  $5  $10 sentiment toward cash is negative— ally. In the same breath, it is fair to is positive. Now for the evidence:  $20  $50  $100 if not an outright belief that cash is point out that other cash-access points  In the U.S., the Federal Reserve already dead, then a fear that it will be (e.g., cash back at the point of sale) Bank’s Cash Payments Office (CPO) dead shortly. Even when presented with are growing, though this fact is rarely tracks cash in circulation (see Figure 1). evidence to the contrary, the response is mentioned. Even with the introduction of competi- predictable: “Yes, but what if in two or In fact, cash back at the point of tive payment forms, growth has been three years a tipping point is reached sale now occurs more than 1 billion fairly steady, with an uptick following and cash falls off a precipice.” In other times annually in the U.S., growth the 2008 recession. words ... the world is flat. that would have accrued to the ATM  Normalizing this data on a channel had not banks and indepen- per-person or per-household basis Cash Is Growing dent ATM operators increased their delivers the same story (Figures 2 and It is true that cash, once the paragon price points so much over the past 3). Transaction value notes, whether of payments, no longer dominates. In decade. Why pay $5 (a $3 surcharge just $1, $5, $10, and $20 or these the U.S., debit is now the leader, with plus a bank fee of $2) at an ATM in plus $50, are all growing, again with cash being relegated largely to small- a retail location, when I can get cash an uptick since the 2008-09 reces- value payments. back at the point of sale for free? sion (Denominations larger than $50

May 2018 • digitaltransactions • 35 FIGURE 4 Value of Transaction Currency in Circulation as a % of GDP $1-20 $1-50 2.5%

2.0%

1.5%

1.0%

0.5%

0% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Dove Capital Partners analysis

FIGURE 5 Share of Transactions Debit Cash Credit Check Online Banking Bill Payment 35%

30%

25%

20%

15%

10%

0% Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Source: Survey of Consumer Payment Choice, Federal Reserve Bank of Boston. have been excluded from this analy-  Even when normalized against segment. It also plays a valuable role sis in order to more accurately reflect gross domestic product, we don’t with the substantial segment of under- denominations used largely for trans- see a pattern that would indicate an banked individuals and households actions. Denominations of $100 and imminent demise of cash (Figure 4). in the U.S. It is by no means dead. larger, although used for transactions Rather, cash appears to be leveling (Figure 5) in a few urban markets like New off at 1.2% on a per-person basis and None of us should be foolish York City, more accurately reflect a 1.65% on a per-household basis. enough to believe that cash will store of value, and are often held in endure in its current state. New form markets outside the U.S.) On a per- Curved, Not Flat factors will continue to be introduced, person basis, growth was 1.7% per Is cash the preferred method pay- and each will fight for its share of the year before 2009, 4.0% per year after ment? Does it dominate the point of global payments market. 2009; on a household basis, growth sale? No, those days are over. That That world, however, the one rep- was 2.1% per year and 3.5% per year, said, cash continues to play a valu- resented figuratively as a payments respectively. able role in the small-value payments horizon, is curved, not flat. DT

36 • digitaltransactions • May 2018 SPONSORED CONTENT GENERATION Z: THE UNKNOWN FACTOR THE PAYMENTS INDUSTRY has long been matter more than ever. To deliver, the industry focused on Millennial consumer habits and must design payments experiences around with good reason: They are a highly in uential human needs. consumer base and our rst generation of digital natives. Now, however, it’s time to be aware of an According to a 2017 study completed by the even more revolutionary demographic stepping Capital Performance Group (CPG), banks today into the payments spotlight: Generation Z. have control over the data needed to create a meaningful customer experience. However, they According to the Pew Research Center, are yet to create the ultimate digital wallet. The Generation Z are those born between 1997 and CPG study noted the banking industry’s lack of 2020. They’ve never known life without the preparedness for payments industry changes: internet. They’ve grown up with iPhones, Wi-Fi, After de ning large banks as those holding at and social media. least $10 billion or more in assets, the study noted that of the 219 banks responding to the A recent Forbes article tells us that GenZers survey, most held $1 billion or less in assets. don’t create distinctions between their online Of this group, 87 percent revealed their institu- and real lives. They understand social media tions did not have a formalized payments strategy and utilize it to promote their own curated and 41 percent had no plans of developing one. self-images and professional “brands.” They understand their options are innumerable, but A major reason banks have not kept up with their time is limited. the desires of Generation Z consumers for payments services may be because of the There are 74 million Generation Z members complexity in developing and implementing plans. in the United States today, accounting for It’s an extremely arduous process involving 25 percent of the national population. By 2020, risk management, compliance, operations, and they will outnumber both Baby Boomers and information technology departments, amongst Millennials. In short: They are our next big many others. Because of this complexity, it trendsetters in the payments industry. is imperative that third-party, non-banking payments technology companies actively work One of the key ways that Generation Z with banks to test and launch new products. may in uence our industry is regarding the customer experience. In 2017, an Accenture Together, we can capture the attention of the report revealed: sought-after Generation Z demographic. Now is the time to think past the minutia of transactions About 70 percent of Millennials and GenZers and re-envision what the payments industry are interested in digital payments advisory and can do. The industry can blossom far beyond expense management services. This is a clear the reaches of individual transactions and help signal that payments have moved beyond the instigate social and lifestyle changes than will transaction. Next-level customer experiences in uence future generations.

Founded in 1992, North American Bancard is a leading payments technology company who helps more than 350,000 satis ed merchants process more than $50 billion in transactions each year. For more, visit gonab.com. ENDPOINT Machine learning analyzes each customer’s behavior in real time, enabling organizations to quickly and accurately detect the subtle anomalies that indicate someone is acting out of character. How Machine Learning Can Deliver Faster—And More Secure—Payments

With consumer expectations higher than ever, analytic tools that can meet those demands while weeding out fraud are more important than ever, says Luke Reynolds.

recent survey conducted by Juniper as it occurs, and actually create a stronger cus- Research predicted the overall value tomer experience. A of fraudulent online transactions globally will reach $25.6 billion by 2020. Of that Using the Right Data activity, retail fraud will account for 65%, while Machine learning is a form of intelligence banking fraud will contribute 27%. that allows your risk-management platform to Luke Reynolds is chief product officer This significant jump (up from $10.7 billion understand each individual customer touchpoint at Featurespace in 2015) points to the increased sophistication and actively detect and recognize patterns in Ltd., Cambridge, of fraudsters. Sadly, as consumer, e-commerce, a customer’s purchasing journey. It relies on United Kingdom. and banking technology advances, it is making it understanding and reacting to behavior in the even easier for fraudsters to get better at account same way that we do as humans. takeover, synthetic identity, and creating havoc Human beings are innately in tune with generally. each other’s behavior. We can tell a local from So what products can aid banks, merchants, a tourist in a coffee shop simply by observing and processors in the fight to better safe- how they look around and noting their body guard their customers’ collective data? One language. Machine learning works in a similar of the most significant technology solutions way. It analyzes each customer’s behavior in employed today resides in machine learning, or real time, enabling organizations to quickly and adaptive analytics. accurately detect the subtle anomalies that indi- The traditional, rules-based model for fight- cate someone is acting out of character. ing fraud creates an environment where con- By incorporating this type of learning into sumers must experience fraud first, then busi- your risk-management strategy, you are teaching nesses analyze and adjust their rules or models a machine to separate the signals of a legitimate for the next attack. consumer’s behavior from those of a fraudster. These systems are an excellent method of This approach enables machines to make blocking certain types of fraud. But taking an autonomously data-driven decisions in place of advanced, layered-risk approach can reduce your being manually programmed to perform explicit manual intervention, block fraud immediately tasks. After being exposed to new data, machine-

38 • digitaltransactions • May 2018 SPONSORED CONTENT SUPPORTING ISOs AND ISVs IN A CHANGING MARKET By Sarah Adams, VP Product, Card Present at Paysafe IN AN ARTICLE POSTED EARLIER THIS WEEK, Consider whether your PSP partners provide a complete my colleague Todd Linden, CEO of Payment Processing business management solution—from in-store to North America, looked at how the US payments land- online—to ensure that your merchant customers are scape is changing. He also explored how Independent able to make the eCommerce transition as smooth and Sales Organizations (ISOs) and Independent Software straightforward as possible. Vendors (ISVs) were evolving in response, adapting their service o ering in a way that is beginning to blur the A PARTNER THAT OFFERS EXTRA SERVICES lines between the two. Merchants don’t just want their ISO and ISV suppliers As Todd commented in his piece, this ISO/ISV convergence to meet their payment needs, they want other kinds of is a fascinating phenomenon, presenting exciting new support as well. To meet this demand, you should work opportunities for companies on both sides of the divide. with PSPs that o er exciting value-added services. Nevertheless, it does also pose inevitable challenges for companies as they seek to meet their merchant customers’ PSPs that provide big data analysis, for instance, ever-changing requirements. Both ISOs and ISVs need can enable you to provide your merchant customers support through this transition—help that some Payment with key insights into customer behavior, such as Service Providers (PSPs) are perfectly placed to provide. how buying habits are a ected by the weather and at what time of day sales increase for certain types of With the right partner by their side, ISOs and ISVs can product. This kind of information can help merchants make sure they have a wide range of services at their tailor their o ering to create a better service disposal that can help them meet their speci c business for consumers. goals. But what does the right payments provider look like, and what do they o er? Here are my top tips to help ISOs THE MOST SUPPORTIVE PARTNER and ISVs nd the most suitable partner for their needs: PSPs that o er comprehensive, dedicated customer- A PARTNER THAT OFFERS A RANGE OF PAYMENT SOLUTIONS centric support services can give your ISO or ISV business the support it needs to face future market Consumers have an ever-increasing amount of choice challenges. They can help you explore new technologies and control over the way they pay for their goods and and products, or provide you with guidance and informa- services, from cash, to card and alternative payments. tion to develop your own services so you can deliver the To address this trend, ISOs and ISVs both need to best possible solutions for customers. consider how many payment methods their PSP partners are able to process. Choosing a PSP partner that o ers PARTNERING FOR SUCCESS not just card payments, but eWallets, bank transfers, and even next-generation Pay Later instalments, can ensure The payments landscape continues to evolve rapidly. that you meet your merchant customers’ varied payment ISOs and ISVs need support from experts to help them needs whilst simultaneously streamlining your supply continue to meet merchants’ needs. Such partnerships chain, thus saving yourself time and resource. are key to helping everyone in the payment ecosystem to thrive into the future. A PARTNER THAT OFFERS ONLINE AND OFFLINE PAYMENTS We explore the manner of support that PSPs such With more bricks-and-mortar SMBs making the move as Paysafe can provide in our latest whitepaper, into the eCommerce space, you need to make sure your The ISO/ISV Convergence: Do Payments Systems ISO or ISV business is able to support customers in Hold the Key to Helping Both Sides Thrive?, available accepting both online and in-store payments. at PaySafe.com/ISOtoISV/

To discover what support Paysafe can provide ISOs and ISVs, visit PaySafe.com learning programs can enhance them- leads to a higher false-positive ratio, Return on Investment selves over time. No surprise this tech- which can then lead to good customers At a time when consumers are nology has recently become the center having their cardholder accounts tem- demanding a friction-free experience, of many technological advances in the porarily suspended or merchant funds faster checkouts, and speedier approv- payments landscape. held, pending investigation. When als, merchants and processors must According to a report released by these are actually genuine transactions, use the necessary analytic tools to Javelin Strategy & Research, fraud this process leads to customer calls and stay ahead of fraud. claims a new victim every two sec- emails criticizing the experience. The adoption of machine-learning onds, and many of those fraud inci- With any risk-mitigation tool, you solutions is helping reduce the amount dents involve credit cards. In an are only as good as your data. Some of fraud and chargebacks, improve environment where transactions can tools take a unique approach to data operational efficiency, and reduce take place in milliseconds, identi- by focusing more heavily on good customer friction. Companies that are fying and preventing fraud requires behavior versus bad behavior, assum- actively embracing this technology more than just manual monitoring. ing fraud will be the exception and are already seeing a big return on Machine-learning providers are work- not the rule. This approach allows investment. ing steadily to innovate their layering merchants, acquirers, and financial In the long run, it is widely technology, aiming to capture fraud institutions to develop a larger pool of expected that machine learning will without increasing false-positive rates. good-behavior data than bad-behavior continue to serve the payments indus- Financial institutions, issuers, and data. The advantage of this approach try as an incredible resource for acquirers are finding that machine is that the models will learn each cus- helping financial institutions operate learning has not only helped their tomer’s character traits more quickly in a safer, more efficient environment. customers by improving their risk compared to models that focus on Routine tasks once handled solely strategy, but also by reducing their fraud labels as their data source. by humans can now be performed in operational costs. These are not just Many issuers, acquirers, and proces- conjunction with machines, allowing operational costs associated with sors are now seeing a practical applica- us the ability to capture fraud as it fraud and chargebacks, but also those tion for these analytics tools when layer- occurs, learn more rapidly as fraud- stemming from customer service. ing them over an existing fraud solution sters become more complex, and, For example, if an issuer or acquirer and are partnering with machine- ultimately, enhance the consumer has a low risk appetite, this typically learning experts to create this approach. experience. DT

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