Field Guide to Alternative Payments
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11th Annual FIELD GUIDE TO ALTERNATIVE PAYMENTS We catalog the most dynamic payment services now on o er from merchants, service providers, and other nonbank players. Volume Sixteen, Number Five • DigitalTransactions.net • May 2019 ALSO IN THIS ISSUE: ACH Fraud's Unexpected Jump What's Fueling the Mega-Mergers? Petroleum's EMV Headache Debit Costs Irk Merchants—Again pax-2019-smart-retail-solutions(digitrans).indd 1 2/19/19 12:08 PM MAY 2019 • VOLUME 16, NUMBER 5 11th Annual Field Guide to Alternative Payments 18 Churn is still the overarching theme in a dynamic market dominated by mobile options and eyeing digital currency. THE GIMLET EYE Remember That Prepaid Rule? 4 TRENDS & TACTICS 6 A Surprising Jump How Apple Card Pushes How An IPO Exposes Banks Check Their in ACH Fraud Digital Authentication— an Uber Merchant Mobile-Capture Fears Of the payment methods And Apple Pay The ride-share pioneer’s Ten years after mobile studied by the AFP in engine is fueled by a capture debuted, nancial The new card isn’t exactly its annual fraud report, massive ow of digital institutions are nally an afterthought, but credits and debits payments. ready to assume a bit there’s a reason it doesn’t were the only ones to more risk. come with a chip. register increases. Plus, Security Notes explains how digital payments can o er the anonymity of cash while preserving security against fraud. ACQUIRING 14 NETWORKS 34 Let’s Make a Deal Debit Dynamics The gravitational pull toward M&A The Fed’s latest probe into debit card is claiming some of the industry’s costs and revenues has merchants biggest merchant processors. Are clamoring for lower regulated more mega-deals inevitable? interchange. COMPONENTS 30 ENDPOINT 39 Where EMV Spells Headache A Year of Opportunity With almost 18 months to go, the for Retail Petroleum petroleum industry is having a hard Independent gas stations will have time with a crucial EMV deadline. their hands full with the shift to EMV, Not many gas stations are expected but there are ways to mitigate the to make it. Here’s why. pain. And ISOs can help. Cover Illustration: Jason Smith, 123RF 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 o ces. POSTMASTER: Send address changes to Digital Transactions, P.O. Box 493, Northbrook, IL 60065-3553. 2 DIGITAL TRANSACTIONS | MAY 2019 CONTENTS MAY 2019 • VOL. 16, NO. 5 REMEMBER THAT PUBLISHER Robert A. Jenisch PREPAID RULE? EDITORINCHIEF John Stewart SENIOR EDITOR Jim Daly SENIOR EDITOR, DIGITAL TALK ABOUT AN ANTICLIMAX. Did anyone really notice that on April 1 the Kevin Woodward Consumer Financial Protection Bureau’s long-dreaded diktat regulating the CORRESPONDENT prepaid industry finally took e ect? We took note of the event, of course, in Peter Lucas our daily news service, Digital Transactions News, because that’s our job. But ART DIRECTOR/PRODUCTION EDITOR though we bent our ear, we heard none of the wailing and gnashing of teeth Jason Smith we were led to expect from the $700-billion U.S. prepaid card industry. EDITORIAL ADVISORY BOARD At first, this seemed surprising. After all, opposition to this 1,600-page tome Eula L. Adams of regulation was at one time so fierce that a hostile Congress tried to scupper John Elliott the whole thing. At the time, much concern centered on the rule’s unwieldy Alex W. “Pete” Hart Former Chief Executive O cer, bulk. After all, what snares might lurk for the unwary in all those pages? Mastercard International That’s the lingering reservation Ben Jackson, chief operating o icer of the William F. Keenan Innovative Payments Association, a prepaid-industry trade group, passed on President, De Novo Corp. to us when we reported on the rule taking e ect. “Where people are con- Dr. Gideon Samid Chief Technology O cer, cerned is that’s a really big rule with a lot of moving parts,” he told us. “Could AGS Encryptions Ltd. there be a gotcha in there?” DIRECTOR OF ADVERTISING But if today—seven years after the CFPB started planning for regulation Robert A. Jenisch, 877-658-0418 of the prepaid market and three years after it published its final rule (with [email protected] two deadline extensions afterward)—enough time has passed to allow issuers ADVERTISING SALES REPRESENTATIVES and program managers to make adjustments. Even making the language on Robert Mitchell, 877-658-0418, x7 [email protected] card packaging compliant—something that was once a big concern—seems Rob Akert, 877-658-0418, x6 no longer to be the hardship it once was. [email protected] That’s not to say all queasiness about the rule has been put aside. For exam- Digital Transactions, Digital Transactions News, ple, it covers mobile wallets when they store funds for prepaid products, so and DigitalTransactions.net are publications of Boland Hill Media LLC, 800 Roosevelt Road, apps ranging from Apple Pay to Venmo may have to make some adjustments Suite B212, Glen Ellyn, IL 60137 if they haven’t already. “The biggest risk will come for fintechs who tried to John Stewart, Managing Director pretend they’re nonfinancial companies,” Jackson told us last month. Robert A. Jenisch, Managing Director For advertising information, call In its essence, the CFPB’s massive rule is a consumer-protection mandate 877-658-0418. To subscribe or whose basic anatomy may strike many in the payments business as famil- give us a change of address, go to www.digitaltransactions.net and click on iar stu . It extends protections for prepaid accounts under Regulation E, “Subscriber Care” or call 847-559-7599. which implements the Electronic Funds Transfer Act, and under Regulation The views expressed in this publication are not necessarily those of the editors or of the Z, which does the same for the Truth in Lending Act. members of the Editorial Advisory Board. That’s all to the good. But it’s too bad it had to come to this, that it had to The publisher makes reasonable e orts to ensure the timeliness and accuracy of its involve seven years of wrangling leading to the establishment of a complicated content, but is not engaged in any way in o ering professional services related to fiat of Dickensian girth. Did it really require all this blood, sweat, and tears to nancial, legal, accounting, tax, or other arrive at processes the industry might have come up with of its own accord, per- matters. Readers should seek professional counsel regarding such matters. All content haps with a bit of nudging from consumers and, yes, a lighter-handed regulator? herein is copyright © 2019 Boland Hill Media LLC. No part may be reproduced without the express written permission of the publisher. John Stewart, Editor | [email protected] Subscription prices: $59/year for subscribers in the United States; $69/year for Canadian subscribers. All other subscribers, $119/year, payable in 4 DIGITAL TRANSACTIONS | MAY 2019 U.S. currency. THE PLATFORM FOR ALL YOUR PAYMENT PROCESSING NEEDS PAYMENT TREASURY PLATFORM PROCESSING AUTOMATION SECURITY ACH, CHECK AND TREASURY WORK FLOW ADVANCED MONITORING, CARD PAYMENT AUTOMATION, API’S, FRAUD PREVENTION RAILS SDK’S AND SAMPLE UI’S AND RISK TOOLS TENS OF BILLIONS 45% 100,000+ Payments Processed Annually In AR Days-Outstanding Locations The iStream payments platform, Pymntz™ is centered around Payments, Data, A/R, A/P, Treasury Management and Reconciliation. Utilization of iStream for payment processing for both bank and card centric transactions, requires no changes to existing banking relationships, resulting in decreased costs, increased revenue, all from a single provider. powered by FINANCIAL SERVICES 262.796.0925 istreamfs.com trends & tactics A SURPRISING JUMP IN ACH FRAUD WHICH PAYMENT METHOD holds the dubious distinction of racking up HOW FRAUD WENT UP—AND DOWN the fastest growth in fraud last year? (Percentage of organizations reporting attempted or actual fraud) According to the latest annual CHECKS 75% 74% fraud report from the Associa- 70% tion for Financial Professionals, it’s 46% WIRE TRANSFERS 48% debits and credits on the automated 45% clearing house network. In fact, the 32% CREDIT/DEBIT CARDS 30% 33% ACH was the only payment method 30% ACH DEBITS 28% 29% examined in the report that regis- ACH CREDITS 20% tered an increase in fraud in 2018. 11% 13% Some 33% of responding orga- 2016 2017 2018 nizations said they had been the Source: Association for Financial Professionals victims of actual or attempted fraud on ACH debits last year, up organizations. The others are same-day clearing for credits in Sep- from 28% in 2017. Meanwhile, 20% checks, credit/debit cards, and wire tember 2016 and for debits a year reported being the targets of ACH transfers (chart). later, Carlsson says it’s far from clear credit fraud, up markedly from 13%. Indeed, the near-ubiquity of ACH that the faster processing figures in Surprised? So was Magnus Carls- usage was enough to shove the over- the fraud increase. That’s because iso- son, manager for treasury and pay- all portion of organizations absorb- lating same-day transactions wasn’t ments at the Bethesda, Md.-based ing attempted or actual payments part of the study. A likely explanation AFP, a trade group for financial fraud up to 82% from 78% in 2017. for the higher fraud, he adds, lies in managers in a wide variety of indus- Not that the jump in fraud on the popularity of ACH, along with tries. The ACH results were “proba- ACH credits should have been a wire transfers, for schemes like busi- bly the most stunning numbers we complete surprise, says Carlsson.