Than a Year Has Passed Since Three Giant Mergers Promised to Change the Payments World

More than a year has passed since three giant mergers promised to change the payments world. Change has come, but not where many expected to see it.

Volume Eighteen, Number Two • DigitalTransactions.net • February 2021

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FEBRUARY 2021 • VOLUME 18, NUMBER 2

The Megamergers’ Subtle Impact 22 More than a year has passed since three giant mergers promised to change the payments world. Change has come, but not where many expected to see it.

THE GIMLET EYE The Digital Dollar Revisited 4

TRENDS & TACTICS 6 Walmart Launches The Megamerger Green Dot’s PayPal vs. CFPB: It Trump’s Parting Shot: a Fintech That Wasn’t Latest Bid for the Ain’t Over Til It’s Over A Puzzling Ban on Unlike most startups, A potential FIS-Global Unbanked The U.S. District Court China-Based Apps this one will be a Payments deal blew up, Go2Bank is the latest handed PayPal a The departing president formidable player from but it showed merger initiative from one of big win, but it’s far barred Alipay and the get-go. fever hasn’t subsided. the most sophisticated too early for PayPal WeChat Pay, which have nonbanks. partisans to celebrate. little to no presence in the U.S. market. Plus, Security Notes outlines a strategy against rampant ransomware; and Payments 3.0 explains why the CFPB’s case against PayPal is far from over.

ACQUIRING 14 STRATEGIES 27 Parking Apps Look to Upshift Decisions, Decisions When the pandemic ends, demand for Is your bill-pay provider setting you up parking places is likely to skyrocket. for success? Use this checklist to decide. That augurs well for apps that nd just the right spot—and let you pay for it. ENDPOINT 31 SECURITY 18 Merchant Feedback: Ransomware Makes The Not-So-Secret Key to Success Payments providers must move beyond a Comeback merely transactional relationships to The attack on TSYS last December was build lasting business. a sobering reminder of the vulnerability of payments companies to this insidious fraud. But there are steps you can take to protect your network. Cover Illustration: Jason Smith, 123RF.com

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2 DIGITAL TRANSACTIONS | FEBRUARY 2021 CONTENTS

FEBRUARY 2021 • VOL. 18, NO. 2

THE DIGITAL DOLLAR REVISITED PUBLISHER Robert A. Jenisch EDITORINCHIEF John Stewart SENIOR EDITOR, DIGITAL ONE YEAR AGO IN THIS SPACE, in the waning days of the pre-Covid Age, we Kevin Woodward presented some thoughts about the newly established Digital Dollar Foundation CORRESPONDENTS and its proposal for a central bank digital currency (CBDC) for the United States. Jim Daly, Peter Lucas Since then, the notion of CBDCs has attracted much attention as authorities ART DIRECTOR/PRODUCTION EDITOR not just in America but also in Europe and Asia explore the notion of a fully Jason Smith digital national currency based on blockchain-based tokens. EDITORIAL ADVISORY BOARD Early last month, we published online a piece by payments consultant Eric Eula L. Adams Grover, who predicted that, much as many experts may point derisively at the John Elliott growing pains of Bitcoin and other cryptocurrencies, national governments Alex W. “Pete” Hart Former Chief Executive O cer, and CBDCs will have the last laugh. Mastercard International “Over the long-haul … digital fiat currencies will take share from physical William F. Keenan cash,” Grover wrote. “They will also compete with reigning electronic retail, President, De Novo Corp. money-transfer, business-to-business, and interbank payment systems … Dr. Gideon Samid Chief Technology O cer, Today, more than 80 central banks are exploring digital currencies ... A decade AGS Encryptions Ltd. hence, digital fiat currencies will be in the payments mix planetwide. They DIRECTOR OF ADVERTISING could have a tectonic impact.” Robert A. Jenisch, 877-658-0418 But even before Eric made this prediction, the former head of the Commod- [email protected] ities Futures Trading Commission gave a speech in Zurich that laid out the ADVERTISING SALES REPRESENTATIVES case for CDBCs as clearly as we’ve seen it made. J. Chrisopher Giancarlo, now Robert Mitchell, 877-658-0418, x7 heading up the Digital Dollar Foundation, showed in that November speech [email protected] Rob Akert, 877-658-0418, x6 just how high the stakes are: [email protected] “If we act now, I believe we can harness this wave of innovation for greater Digital Transactions, Digital Transactions News, financial inclusion, capital and operational e iciency, and economic growth for and DigitalTransactions.net are publications of generations to come,” Giancarlo said. “If we do not act, however, this coming Boland Hill Media LLC, 800 Roosevelt Road, Suite B212, Glen Ellyn, IL 60137 wave of the Internet will lay bare the shortcomings of the West’s aged, analog John Stewart, Managing Director financial systems.” Robert A. Jenisch, Managing Director The “coming wave of the Internet” he referred to is what he called the For advertising information, call 877-658-0418. To subscribe or “Internet of value,” a movement that bids to replace account-based money give us a change of address, go to transfers—such as those we have now with cards and checks—with token- www.digitaltransactions.net and click on “Subscriber Care” or call 847-559-7599. based transactions, which in theory require no intermediaries. The exchange The views expressed in this publication are of tokens is a direct transfer of value, the digital equivalent of one person not necessarily those of the editors or of the members of the Editorial Advisory Board. handing a dollar bill to another person. The publisher makes reasonable e orts to “A digital dollar,” Giancarlo said in that speech, “would make sending money ensure the timeliness and accuracy of its content, but is not engaged in any way in as simple, as immediate, and as cost-free as sending a text message.” o ering professional services related to nancial, legal, accounting, tax, or other When we wrote about Giancarlo last February, we referred to the somewhat matters. Readers should seek professional jocular sobriquet his ardent advocacy for a digital dollar had already earned him, counsel regarding such matters. All content herein is copyright © 2021 Boland Hill Media “Crypto Dad.” Now, 12 months later, that vision seems closer, less pie-in-the-sky, LLC. No part may be reproduced without the as national governments examine the concept and as a new administration set- express written permission of the publisher. Subscription prices: $59/year for subscribers tles in in the United States. Will Joe Biden become the new face of Crypto Dad? in the United States; $69/year for Canadian subscribers. All other subscribers, $119/year, John Stewart, Editor | [email protected] payable in U.S. currency.

4 DIGITAL TRANSACTIONS | FEBRUARY 2021 ONLY ONE OF THESE BIRDS CAN GIVE YOU THE LATEST NEWS IMPACTING THE PAYMENTS MARKET

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WALMART LAUNCHES A FINTECH

Unlike many fintech startups, be,” McBride says. “Walmart has 4,700 goal of investing in entrepreneurs Walmart’s Inc.’s new financial com- stores and 1.5 million employees in in financial services. pany is expected to be a formidable the [United States], not to mention “We know that we have an oppor- player right out of the gate. The retail tens of millions of customers that tunity to create a suite of digitally giant unveiled plans last month to represent the target market of their enabled financial products that are partner with Ribbit Capital to cre- fintech o ering.” tailored to the unique needs of our ate a fintech that will provide what Walmart says it partnered with customers and associates,” a Walmart Walmart describes as “modern, Ribbit because of its fintech exper- spokesperson says by email. “We’ll be innovative, and affordable finan- tise. Ribbit’s investment portfolio able to move fast to create solutions cial solutions.” includes the no-fee mobile-invest- in retail and beyond.” Walmart, which will own the ment platform Robinhood, consumer- With Walmart declining to provide majority of the unnamed entity, will technology platform Credit Karma, any further details about potential have a readymade customer base and A irm, which provides innova- products, speculation is swirling through the giant retailer’s mil- tive payment options for customers. about the direction the new com- lions of customers and employees, Ribbit was founded in 2012 with the pany will take. The retailer already payment experts say. More than 265 million customers and members visit Walmart stores in 26 countries, in-store as well as via Web sites. The retailer also employs more than 2.2 million workers worldwide. “What makes the announcement so significant is Walmart’s scale— they will instantly pose formidable competition, and their low-cost retail reputation is a model of what their product o erings will be like,” Greg McBride, chief financial analyst for Bankrate.com, says by email. “Most fintech startups are starting from scratch, but this one won’t Walmart is working with Ribbit to create its latest nancial-services o ering.

6 DIGITAL TRANSACTIONS | FEBRUARY 2021 TRENDS & TACTICS oers myriad financial services to its customers and employees, including THE MEGAMERGER THAT WASN’T its Walmart Money Card with Green Dot Corp. and the Bluebird Card with Mega-merger fever hasn’t subsided in ued push for yet more economies of American Express Co. the payments industry. A combination scale in a business whose profitability In addition, Walmart oers check of FIS Inc. and Global Payments Inc., relies crucially on size, observers say. cashing, money transfers, installment which in December broke o talks to “It’s an example of a continued financing, and its Walmart credit merge in a deal that could be valued at scale play,” says Jared Drieling, senior card through partnerships with third $70 billion, would represent a contin- director of consulting and market parties, all of which the retailer says it will continue to support. “It will be interesting to see which direction the company chooses to go,” says Ben Jackson chief operating oicer for the Innovative Payments Association, a Washington, D.C.-based trade group, by email. “Does it build out in the credit arena, following Rib- bit’s earlier investments in Airm and Credit Karma? Does it dip its toe in investing, like Robinhood, and try to win young, upwardly mobile people? Or does it try to build a new, all-in- one app that would provide a digital option for its in-store money centers?” Whatever services Walmart’s fintech does oer, they are certain to be low-cost, says McBride. Walmart’s new fintech venture Our Focus is You! is not the first time the retailer has attempted to create a financial- services subsidiary. In 2005, the merchant applied to establish an indus- We know your business is unique. trial loan company, largely to lower its Our team will work with you to cost in processing card transactions customize your Unique BIN Solution. at its stores. The move unified banks and anti-Walmart forces to pressure legislators at state and federal lev- Proﬁtability • Personalization • Portability els to take steps to block the move. For now, creating a fintech seems to Partner with Us Today! be a less controversial way for Walmart ® to push deeper into financial services. “With the rise of fintechs, it is pos- Merchant Acquiring sible to oer a wider variety of financial tools without holding a banking www.MerrickBankAcquiring.com/Contact charter directly,” Jackson says. —Peter Lucas Although we are not hosting in-person meetings during the current pandemic, we value your business and are ready to meet with you virtually. Please contact us today to schedule a meeting! TRENDS & TACTICS 7 intelligence at The Strawhecker Group, string of acquisitions it has executed an Omaha-Neb.-based consultancy. A TALE OF TWO GIANTS with companies that specialize in (Third-quarter 2020 revenue, in billions) The two big processing compa- weaving payments capability into nies had hoped to announce a deal, management software. and both entertain hopes of resum- The recently acquired TSYS assets, ing negotiations, according to press including the Cayan point-of-sale reports. Global Payments, headquar- technology, could also help FIS launch tered in Atlanta, will not comment slick new products that meld pay- on the report. Jacksonville, Fla.-based ments with business management and FIS did not respond to a request marketing. “FIS doesn’t have a Clover for comment. $3.2 or a Square,” notes Drieling, citing Both companies in 2019 completed two examples of such technology. big acquisitions that brought vital new Because of the sheer size of the capabilities to their portfolios. The $1.75 parties involved, observers also point two deals, in which FIS paid $35 billion to the possibility of involvement by for merchant processor Worldpay and federal antitrust authorities. If the Global bought acquiring and issuing two companies ultimately strike a processor TSYS Inc. for $22 billion, FIS Global Payments deal, “I think it could pass muster were part of a mega-merger trend that Source: The companies with the Feds, but there will be scru- swept through the payments indus- tiny,” says Drieling. try, reshaping competitive strategies A merger of Global and FIS could Still, if the merger is clinched, for large and small players. accelerate that trend as players com- one consideration will rank above A third major combination last pete to build size and reach to add all others, the one the mega-mergers year, in which Fiserv Inc. acquired volume while controlling unit costs, all have in common. “It’s more mer- First Data Corp. for $22 billion, cre- observers say. The deal would also chants. It’s a scale game,” says Aaron ated another processing giant (for add new strengths for FIS. Global, McPherson, founder of AFM Consult- more on the continuing impact of for example, would bring integrated- ing LLC and a former FIS executive. the megamerger trend, see page 22). payments strengths as a result of a —John Stewart GREEN DOT’S LATEST BID FOR THE UNBANKED As part a strategy to widen its market for banking solutions, Green Dot DRIFTING DOWN (Percentage of U.S. households considered unbanked) Corp. last month launched GO2bank, a mobile-banking application intended 7.7% to help the 7.1 million unbanked households in the United States man- 7.0% age their finances. 6.5% Green Dot says the program is meant to eliminate the costly fees many unbanked consumers are 5.4% charged for financial services. In 2019, nearly 12% of unbanked consumers used fee-based financial services for 2013 2015 2017 2019 Source: Federal Deposit Insurance Corp.

8 DIGITAL TRANSACTIONS | FEBRUARY 2021 TRENDS & TACTICS such services as check cashing, money orders, and bill payment, according to a 2019 study from the Federal PAYPAL VS. CFPB: Deposit Insurance Corp. The new app includes overdraft IT AIN’T OVER TIL IT’S OVER protection of up to $200, up to 7% cash back rewards at more than PayPal Holdings Inc. may have pre- In his ruling, Leon says that the 90,000 retail distribution locations— vailed in its lawsuit against the Con- CFPB overstepped its authority when including CVS, Dollar General, Wal- sumer Financial Protection Bureau, it implemented its final, 1,600-page greens, and Walmart—a 1% annual but the overarching legal battle is rule, which went into e ect in April percentage rate yield on Go2bank likely to continue. 2019. Among other stipulations, the savings accounts, and access to a The ruling, which was handed rule states that for a payment product GO2bank credit card with no credit down Dec. 30 by U.S. District Judge to qualify as a prepaid card it must check or annual fee, as well as a Richard Leon and vacates the CFPB’s be able to hold funds, as opposed to debit card. rules on prepaid cards and digital acting as a pass-through vehicle for In addition, Go2bank includes wallets, will probably be appealed those funds. account access through a net- by the CFPB, says Ben Jackson, chief PayPal argued in its lawsuit that work of more than 19,000 no-fee operating o icer at the Innovative the rule improperly included digi- ATMs and the capability to lock and Payments Association, a Washing- tal wallets under its definition of unlock accounts using the mobile ton, D.C.-based trade group. general-purpose reloadable cards app. Go2bank users receiving direct “The CFPB is likely to appeal because and that there is a clear distinction deposit can also access funds up to [Leon’s] decision will create a lot of between the two products. two days early. Users receiving gov- challenges to the CFPB’s authority,” Leon’s ruling says “[M]ere refer- ernment benefits can access funds Jackson says. “The ruling says in ence to ‘necessary’ or ‘appropriate’ up to four days early. essence that the CFPB can’t mandate in a statutory provision authorizing Green Dot, which serves more when it comes to disclosure and that is an agency to engage in rulemaking than 33 million customers through a di icult precedent for the regulator.” does not a ord the agency authority its retail and direct-to-consumer PayPal filed the suit in the U.S. District to adopt its regulations as it sees fit products, views GO2bank as part of Court for the District of Columbia in with respect to all matters covered a long-term strategy to deliver ser- December 2019 (for more of Jackson’s by the agency’s authorizing statute. vices that attract new customers take on this case, see page 12). And any ‘additional requirement’ and retain their loyalty, a company spokesperson says via email. “GO2bank is built to be the go-to WALLETS TAKE OFF AT PAYPAL destination for seamless, a ordable, (Number of active accounts by quarter, in millions) useful banking – combining the security, stability, and experience of an FDIC-insured bank with the innovation and agility of a leading fintech,” Dan Henry, chief executive of Green 361 Dot said in a prepaid statement. 346 Green Dot is supporting the launch 305 325 with a national TV ad campaign fea- 286 295 turing two commercials, as well as a new Web site, digital advertising, social media, and direct mail. 2019 —Peter Lucas Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020

TRENDS & TACTICS DIGITAL TRANSACTIONS | FEBRUARY 2021 9 must still be within the confines of The door for the appellate court it comes to prepaid cards and digi- the means authorized by Congress.” to return the case was left open by tal wallets. Leon further argues that it is clear a footnote in his conclusion, which “Should the case go back to Leon, it Congress did not provide the CFPB states that because he ruled against could open a whole new can of worms statutory authority to issue manda- the CFPB, that does not mean he con- because it could prompt Congress to tory disclosure clauses. cluded that the rules in question were grant the CFPB more regulatory power A CFPB spokesperson said the bureau “arbitrary and capricious” or that a or clarify its regulatory power, which does not comment on pending litigation. short-form disclosure requirement if that happens, could lead the CFPB Should the CFPB appeal Leon’s “violates the First Amendment” free- to write new regulations,” Jackson decision, it could of course win or speech rights, as PayPal alleged. says. “At issue is what are regulators lose the appeal, Or, says Jackson, the If the appellate court sends the allowed to require of the companies appellate court could return the case case back to the federal district they regulate. This could be the begin- to Leon to clarify the basis for his court, it could pave the way for a ning of a long appeals process.” decision, Jackson says. new regulatory environment when —Peter Lucas TRUMP’S PARTING SHOT: A PUZZLING BAN ON CHINA BASED APPS An executive order by former Presi- actions on eight China-based apps, federal employees and contractors, and dent Donald Trump banning a pair of including the hugely popular Alipay build dossiers of personal information,” major Chinese payments apps came and WeChat Pay digital wallets. The Trump said in the order. in the waning days of his administra- order’s intent is to protect U.S. con- But the action’s e ect is likely to tion and may leave more questions sumer data from being harvested by be considerably muted, observers say. than it answers, observers say. Chinese authorities, according to the For one thing, it doesn’t take e ect The order, issued two weeks before order’s language. Such data could poten- until mid-February, nearly a month Trump’s term ended, prohibits trans- tially be used to “track the locations of after Trump left o ice, leaving an open question whether the succeeding Biden administration will enforce it. Also, while some 4 million U.S. MONTHLY MERCHANT METRIC merchants accept Alipay, mostly from Chinese tourists, experts say the Growth in Same-Store Sales Year Over Year number of U.S. users of either Alipay Annual volume change/growth 2.36% or WeChat Pay is very small. Alipay, of retained for example, was downloaded 207,000 (non-attrited) 4.58% 5.46% 0.31% Q2 2020 times in the United States in 2020, accounts for Q3 2019 Q4 2019 Q1 2020 -10.13% Q3 2020 given period according to data from the research divided by total 1. Trailing three months portfolio volume site Sensor Tower, as quoted by The from same period of the prior year. Wall Street Journal. “This [executive order] will have Note: This is sourced from The Strawhecker Group’s merchant data almost no impact on U.S. retailers warehouse of over 3 million merchants in the U.S. market. The ability to understand this data is important as small and medium-size and merchants as usage of these two businesses (SMBs) and the payments providers that serve them are key drivers of the economy. payment apps in the U.S. by U.S. citi- All data are for SMB merchants de ned as merchants with less than $5 million in annual card volume. zens is extremely low. The impact will Source: The Strawhecker Group © Copyright 2021. The Strawhecker Group. All Rights Reserved. All information as available. be on U.S. citizens visiting or doing

10 DIGITAL TRANSACTIONS | FEBRUARY 2021 TRENDS & TACTICS business in China,” says Thad Peter- son, a senior analyst at Aite Group, a ‘I would be surprised if this wasn’t Boston-based consulting firm. Most experts contacted by Digi- overturned quickly. It punishes U.S. tal Transactions contend the Biden citizens and encourages China to look administration is likely to quash the elsewhere for business relationships.’ order, particularly if it is seen as THAD PETERSON, SENIOR ANALYST, AITE GROUP complicating other negotiations with China. “Biden may not care to pick a fight over this when there are more also sees a contrary possibility. “Biden’s federal authorities quashed the deal consequential issues to deal with,” perceived as soft on China. He just the following January. notes Aaron McPherson, an inde- might therefore let it stand,” he says. WeChat Pay is part of the giant pendent payments analyst. Alipay is a service o ered by the Tencent Holdings Ltd. conglomerate. Adds Aite’s Peterson: “I would be Chinese conglomerate Ant Group Trump in August issued an order surprised if this wasn’t overturned Co., which has made forays into the similar to Tuesday’s ban prohibiting quickly. It punishes U.S. citizens and U.S. payments market before, most usage of the WeChat app along with encourages China to look elsewhere notably when it o ered $1.2 billion China’s TikTok messaging app, again for business relationships, which in May 2017 to acquire Dallas-based on the grounds that the apps posed they’re already doing.” money-transfer network MoneyGram a risk to the privacy of U.S. users’ Eric Grover, principal at Minden, International Inc. Fearing the deal data. Federal judges have blocked Nev.-based consultancy Intrepid Ven- would hand too much power in U.S. both bans. tures, agrees a reversal is likely, but financial services to a foreign entity, —John Stewart

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Subscribe today at Bolandhill.omeda.com/dtr/ or email publisher Bob Jenisch at [email protected] STOLEN DATA PRESENTS A BUR- The secret recovery key shared DEN TO THE THIEF. He needs to among the nodes of the core can- bring it to market, find a buyer, and not be extracted from the cipher- compete with other hackers. Ransom- [email protected] text traversing between these nodes ware gains, by contrast, are paid in a because the nodes use Trans-Vernam lump sum by the victim, the money ciphers, which don’t commit to the is Bitcoin-protected, and any other highly-randomized. By constantly plaintext that generated them—and data crime can be executed on top scanning data through an entropy- are, hence, secure against the coming of the exploit. meter device, one will focus on a quantum computer attacks. It’s a no-brainer, though these small fraction of the stored data, A hacker then will have to steal the attackers are quite a brainy bunch. which has a greater likelihood to be crypto key from the secure enclosure More victims pay every year, which malware. Flagged data strings can where it is housed. Tamper-resistant is expected. The attackers can adjust then be individually analyzed. technology will hinder this e ort. their demand to a sum so low that, Recovery is either “low tech” or (U.S. Patent 9,471,906). Moreover, the economically, it would be cheaper to “high-tech.” A clean backup is the key reservoir used by the core nodes pay the ransom than bother with a natural means of simple recovery. may be written o the digital grid. costly, tedious recovery. Alas, attackers now embed dormant Via a nanotechnology-constructed The countermeasures are deter- ransomware viruses that sneak into “rock,” data is being captured through rence, defense, and recovery. Deter- the backup and are activated when the chemical bonds of the chip, not rence may be based on a “shame- reloaded. You better have an older, as a hackable bit string (U.S. Patent ledger” for ransom-collecting Bitcoin and clean, backup. 10,467,522). accounts, and smartly tailored laws. High-tech recovery is based on The catastrophic breach of the Defense is largely based on behavior Skeleton technology (U.S. Patent federal cyber systems, attributed and data patterns. The former is a 10,523,642). The network is anchored to Russia, exposes a fundamental cat-and-mouse game: the attackers on a “core skeleton” that is immu- strategic weakness in recovery tech- cleverly hide their actions as a bona nized to malware. When compro- nology. It is hard for security pro- fide computational task, while the mised, the network is disinfected fessionals to admit they might have defenders seek to ush them out. and restarted from the protected to resort to it. People who exercise Too often, the attackers out-imagine core. The Skeleton subnetwork is daily and live a healthy life should the defenders. constructed from nodes that have still make sure there is a good hos- Data patterns are largely based only one port of data entry, and all pital nearby. on the “known signatures” of attack the data that ows through this port Defense is a battle of wits. Defend- viruses. All the attackers need to do is is hardwired-decrypted. This means ers cannot reasonably hope to win to write new viruses. A more sophis- that the only meaningful information every round. Given that ransomware ticated method being developed by owing into a core node is informa- is so attractive to its practitioners, BitMint is to hunt high-entropy bit tion that was match-encrypted in a they will keep trying. By contrast, an strings. Unencrypted data, especially similar core node. e ective recovery will dry out this text, and payment forms are highly Decryption is so disruptive that no revenue stream and de-motivate sub-randomized, while malware is malware can survive its onslaught. the attackers.

12 DIGITAL TRANSACTIONS | FEBRUARY 2021 TRENDS & TACTICS PAYPAL HAS WON THE FIRST Any appeal could work out in a ROUND in what is likely to be a long number of ways. The decision could fight with regulators. [email protected] be upheld or overturned. It is also On Dec. 30, Judge Richard Leon, of possible that an appeals court would the U.S. District Court for the District send it back to Judge Leon to consider of Columbia, handed down a summary It is worth remembering the origi- all the issues and require rulings on judgment in the case of PayPal Inc. nal version of the prepaid rule was all the aspects of the suit. vs. the Consumer Financial Protec- short, mostly about disclosures for The Innovative Payments Associa- tion Bureau. The ruling on its face general-purpose reloadable cards tion would recommend that programs was narrow, but it could have wide- sold at retail, and supported by many operate as if the rule is in place until reaching e ects. providers. They thought the Schumer the case is finally resolved to avoid In short, Leon granted PayPal’s Box-like disclosures would help shop- being whipsawed between changing motion to throw out two parts of pers compare products (and, of course, requirements. As noted above, for the CFPB prepaid accounts rule: the all thought their own product would most providers, the logistics would short-form disclosure and the restric- come out on top in those comparisons). be too great for immediate changes. tion on when prepaid providers could Legally, this case is far from over, Even though the case will not play o er their customers credit. His rea- according to most experts. The bureau out immediately, it may have near- soning on both was essentially that may not appeal immediately as we term e ects in the policy arena. The the regulations exceeded the scope transition between administrations, industry will expect more scrutiny of the powers granted to the bureau but the 60-day window for filing an from a Democratically controlled by legislation. appeal will last after the transition. Congress. Both the House Financial The ruling’s consequences will The decision circumscribes the CFPB’s Services Committee and the Sen- fall broadly into three arenas: the power to require specific disclosures ate Banking Committee will look at practical, the legal, and the policy. and credit restrictions. If the ruling the bureau’s e orts to protect con- Practically, the ruling will not were to stand, other financial services sumers, and this lawsuit will come mean much in the near term for most might challenge the regulations that up. If Congress feels current laws prepaid providers. PayPal likely will govern their products. So, the regu- do not give the regulators enough stop providing a short-form disclo- lators will likely appeal because the power, they may decide to write new sure on its digital-only products in decision could a ect their power. legislation to grant the bureau and the short term, and other digital It is important to note that the other regulators the ability to rein wallet providers may follow suit. decision is a summary judgment, in the industry. While the short-form rule is vacated and Leon writes that he did not Despite its first-round win, it is for all companies, most of them reach conclusions on a number of too soon to claim victory for PayPal have already printed collateral that issues brought up in PayPal’s suit, or the payments industry. Compliance includes the short form, so they are including the question of whether teams should add this case to their not going to redesign, reprint, and the short-form disclosure violates watchlists and be prepared to explain recall packaging. the First Amendment. the good work their companies do.

TRENDS & TACTICS DIGITAL TRANSACTIONS | FEBRUARY 2021 13 When the pandemic “THERE’S AN APP FOR THAT” Even parking garages, with their ends, demand for has become a cliché, but most users entry and exit gates and multiple and experts agree mobile apps have levels, are susceptible to this technol- parking places is drained the di iculty and frustra- ogy. Last month, Atlanta-based Park- likely to skyrocket. tion out of scores of everyday tasks. Mobile LLC announced an integra- And perhaps none have done this in tion with a major provider of garage That augurs well for a more mundane market than have parking systems to let ParkMobile parking apps. app users scan a paper ticket to pay apps that nd just These gizmos will let you find a for their time and lift the exit gate. the right spot—and space, tell you how to get to it, reserve No muss, no fuss—and no touch- it, and pay for it. And after you’ve ing of any equipment outside of the let you pay for it. parked your car and are o attend- driver’s control. ing to business, they’ll let you reserve These apps aren’t new. ParkMobile, BY JOHN STEWART more time if you need it. owned by the German luxury-car giant BMW, started up in 2008. The largest parking app developer, it now claims 21 million active users. PayBy- Phone Technologies, based in Van- couver, British Columbia, is close to 20 years old, and since 2017 has been part of Volkswagen Financial Services AG. PayByPhone is used by more than 3 million drivers. Two other big app developers for parking are Arrive Mobility Inc. and SpotHero Inc., both based in Chicago. The former is 14 years old; the latter, nearly 10. These standalone mobile wallets charge transactions to a card embedded by the user. They make money typically by levying a “convenience fee” on top of the cost of parking.

14 DIGITAL TRANSACTIONS | FEBRUARY 2021 ACQUIRING With ParkMobile, for example, the for merchant services at Mercator Cities are bagging or removing park- fee is 35 cents, a sum sources say Advisory Group Inc., a Marlborough, ing meters, he says, leaving drivers no is fairly standard across the board. Mass.-based consulting firm. choice but to use a mobile app. And “Transaction volume writ large is such commuters as there are would ‘ZILCH’ DEMAND still down due to the lack of people rather drive than mingle on mass going in to work,” agrees Jon Ziglar, transit with other straphangers. In But while the apps aren’t new, cur- ParkMobile’s chief executive. But the New York City, “when they do come in rent conditions are. On the one hand, the pandemic has put a premium on contactless transactions, something mobile payment apps o er across a ‘Our vision is we want to be like the Visa and wide variety of markets. That appeals Mastercard for transactions for the vehicle.’ to drivers already struggling to find JON ZIGLAR, CHIEF EXECUTIVE, PARKMOBILE the closest—and, perhaps, cheapest— place to park. On the other hand, many compa- mix has changed, he adds, with the [to work], they drive, so demand for nies have sent their workers home, app accounting now for more than parking has increased,” says Ziglar. depressing parking demand in city 50% of users’ transactions rather At PayByPhone, transactions have centers and suburban metroplexes. than about 35% pre-Covid. been rebounding since they tanked at “The appetite for downtown parking “We’ve seen Covid massively accel- the start of the pandemic last March, garages is zilch because of Covid,” erate adoption,” Ziglar says, adding that says North American chief executive observes Raymond Pucci, director “volumes are coming back rapidly.” Roamy Valera. The app went live in

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16 DIGITAL TRANSACTIONS | FEBRUARY 2021 ACQUIRING THE ONLY MAGAZINE COVERING THE TOTAL PAYMENTS MARKET In 2019, there were 150.2 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 18 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 attack on TSYS CRIMINALS ARE BUSINESSMEN, to spirit out data undetected, then last December was a too, which is why they are always look- find buyers for it on the black market. ing for ways to maximize the return Second, criminals can demand sobering reminder of the on their eorts. It’s no surprise, then, the ransom be paid in cryptocur- that criminals are embracing ransom- rency, usually Bitcoin, which makes vulnerability of payments ware, a type of malware that locks up the payo more anonymous. Since companies to this insidious a company’s data with encryption, cryptocurrency is unregulated, it’s enabling the criminal to demand a easier to move large amounts of it fraud. But there are steps ransom for the decryption key that without attracting the attention of you can take to protect unlocks the data. bank regulators or law enforcement. While ransomware is not new, its That’s especially helpful for cross- your network. popularity is growing among crimi- border transactions, since criminal nals. There are two primary reasons rings are often located in countries for this. First, ransomware allows known for illicit online activity. criminals to realize the payo from Also, once the cryptocurrency has BY PETER LUCAS their attack sooner, as they don’t have been transferred to the criminal’s digital wallet, it can be converted into fiat currencies such as dollars, further masking the criminal’s trail. These are not occasional assaults. More than 4,000 ransomware attacks have occurred daily since Jan. 1, 2016, according to a multi-agency report from the United States government that includes input from the Fed- eral Bureau of Investigation and the Secret Service. That’s up four- fold from the 1,000 attacks per day seen in 2015. “Ransomware has evolved into a very sophisticated, capitalistic enterprise for criminals,” says John Stark, president of John Reed Stark Consulting, a Bethesda, Md.-based

18 DIGITAL TRANSACTIONS | FEBRUARY 2021 SECURITY cybersecurity consultancy. “It’s an eas- for more than $1 billion. The attack the attacker. “One of the largest ran- ier, faster way to commit cybercrime.” reportedly did not affect systems somware demands we’ve seen was for The frequency of attacks has got- that handle payment card processing. $46 million,” says Dubrovsky. ten worse during the coronavirus “As processors grow in size, espe- While criminals can never be sure pandemic. By some estimates, the cially through acquisitions and merg- that a victim will pay up, they know number has increased by as much ers, the task of growing their cyber- companies are more likely to send as 10-fold since the pandemic hit the security defenses becomes Hercu- the money if the ransom is set below United States last March. lean,” says Je Montgomery, senior what a response to the attack would A big reason, says Ed Dubrovsky, vice president for cyber risk services cost, says Gideon Samid, chief tech- managing partner and chief operat Sysnet Global Solutions a Dublin, nology o icer for Bitmint, a McLean, ating officer for Cytelligence, a Ireland-based cybersecurity firm. Va.-based provider of cybersecurity Toronto-based cybersecurity firm, As attacks have increased, so too solutions. (Samid is also the author of is that with more employees work- have the sums criminals are demand- Digital Transactions’ monthly “Secu- ing at home, criminals have a whole ing. A few years ago, the average ran- rity Notes” column. See his take on new set of back doors into corporate som demand was in the low five fig- ransomware on page 11). networks. ures, but today criminals can demand For criminals, that strategy is bet- If a company has any data a crimi- six-, seven-, and even eight-figure ter than pricing the ransom so high nal thinks it will pay to unlock in the ransoms, depending on how deep a company cannot a ord pay it. That wake of malware attack, intruders they think the victim’s pockets are can leave the attacker with no choice will probe those back doors for any and how much it would cost to evict but to permanently lock the data, weakness, Dubrovsky says. BEST PRACTICES FOR DEFENDING BAD BUSINESS AGAINST A RANSOMWARE ATTACK For processors, it’s not just the sensi- tive consumer and account data they Update software and operat- Restrict users’ permissions hold, but their size that makes them ing systems with the latest to install and run software prime targets for malware attacks. It’s patches. Outdated applica- applications and allow no secret there has been a lot of con- tions and operating systems only approved programs solidation in the processing industry are the target of most attacks. to run on a network. in recent years. These mergers have occurred for solid business reasons, but they have also created a size prob- Never click on links or Back up data on a regular lem when it comes to cybersecurity. open attachments in basis. Keep it on a separate The issue is that the larger a pro- unsolicited emails. device and store it o ine. cessor becomes, the larger its defensive perimeter needs to be. And the Enable strong spam lters Scan all incoming and larger the defensive perimeter, the to prevent phishing emails outgoing emails to detect greater the risk that a weak spot in from reaching end users and threats and lter executable it will be missed by cybersecurity. authenticate inbound email les from reaching In December, for example, Total to prevent email spoo ng. end users. System Services Inc., which was acquired by Global Payments Inc. in 2019, came under attack when Con gure rewalls to block criminals found their way into TSYS’s access to known malicious network through Cayan, a payments IP addresses Source: Cybersecurity and company TSYS bought early in 2018 Infrastructure Security Agency

SECURITY DIGITAL TRANSACTIONS | FEBRUARY 2021 19 erase it as it exits the network, or hackers. Large criminal enterprises monetize their eorts,” says Andy Bar- make the data public to prove his are behind more and more attacks. ratt, managing principal, enterprise credibility. Some criminal enterprises are actively solutions for CoalFire Systems Inc., a In such instances, the victimized recruiting hackers who have mounted Westminster, Colo.-based cyber-risk company typically goes out of busi- successful attacks. management advisory firm. “We’ve ness, but the criminal gets nothing, Others are going a step farther, seen access sold for $250,000. For a which is bad business for the crimi- gaining entry into multiple company criminal organization that acquires nal, cybersecurity experts say. networks and selling that access to access into, say, 10,000 companies, other criminals, rather than launch- that’s a lot of potential money.” HIGHPRESSURE TACTICS ing a ransomware attack themselves. Indeed, no longer are criminals “There are criminal enterprises just threatening to withhold the With the potential to hit a home that are franchising the opportu- key to unlock encrypted data or run on every attack, ransomware is nity to launch a ransomware attack erase it if the ransom is not paid. no longer the domain of lone-wolf because it is a more eicient way to They are instead applying new highpressure tactics. Attackers will make public some of the data they have locked up to DDoS ATTACKERS WILL DEMAND A RANSOM, TOO demonstrate they will not hesitate to As with ransomware, distributed denial of service (DDoS) attacks, are release all the data if the ransom is making a comeback. The reason: the opportunity to hold a business for not paid. Another new tactic is pub- ransom. But, unlike ransomware attacks, DDoS attacks ood a network lic embarrassment. They threaten to with so much bogus traic, customers and employees can’t use it. publicize the attack through social- While DDoS attackers have always demanded a ransom, the hefty ran- media channels if their demands soms being asked for in ransomware attacks have now filtered down to go unmet. Both tactics can undermine con- DDoS attacks. As a result, the average ransom demand for a DDoS attack sumer confidence in the company is going up, cyberbersecurity experts say. under attack and its brand. “Ransom- “A DDoS attack is a way to hold a company under water until they pay,” ware aords criminals a lot of cre- says Rustam Lalkaka, director of product for Cloudare Inc. ativity when it comes to extorting DDoS attacks overwhelm a targeted company’s Web server with more money,” Montgomery says. traic than the server can handle, which slows the server’s performance But some criminals are pushing or freezes it up. The attacks are launched using multiple Internet bots, the envelope even further. Today the which are software applications that send simple, repetitive tasks to an likelihood that a criminal will sell Internet server using dierent nodes. Since the incoming traic origi- data, even after the ransom has been nates from dierent nodes, it is diicult for the server’s traic filters paid, is greater than ever, cyberse- to halt the attack. curity experts warn. “Once a DDoS attack starts, the victim has to be able to dierentiate “The way cyber attackers operate good traic from bad traic, and that’s where cybersecurity experts come changes quickly, and trying to keep up in,” Lalkaka says. “The key is being able to see the volume of the attack so with it can be like playing whack-a- data can be gathered on how the attack is working and the damage it can mole,” says Rustam Lalkaka, director cause, before a mitigation plan can be put into place.” of product for Cloudare, Inc., a San If nothing else, payments providers need to remember there are a Francisco-based Web-performance lot of cybercriminal crews looking for ways to extort a ransom. “DDoS and security company. attacks [for ransom] are becoming more common as criminals look to Even if an attacker promises not increase the pressure on companies to pay,” says Je Montgomery, senior to sell copies of any of the data it vice president, cyber risk services for Sysnet Global Solutions. accessed or launch another ransomware attack in the future, victimized

20 DIGITAL TRANSACTIONS | FEBRUARY 2021 SECURITY companies choosing to pay a ran- Multifactor network authentica- around them in the event of an attack. som should never be lulled into a tion for employees is another must. Creating a redundant database for false sense security, cautions Samid. So too is educating employees about core assets on a separate, secure “Once a company pays the ransom, the security protocols for remote server with limited access can also it becomes a target for attack from access to the network. protect core data and ensure recov- other criminals,” he adds. ery in the event of an attack. ‘NO EASY ANSWERS’ Finally, businesses must be vigi- THE LAYERED APPROACH lant against attackers who breach While criminals often target devices their system but lie dormant, wait- Experts point to two e ective defen- used by employees, bosses should not ing for an opportune time to strike. sive strategies for fending off an automatically blame employees for In some cases, dormant attackers attack: layered security measures failing to follow security protocols may have masked their route into throughout the network, which help until they know for certain how a the network through encryption to to contain an attack once it is dis- breach occurred. “You can’t expect evade detection. covered, and the immunization of employees to be perfect, and blaming “There are no easy answers when core data so it can be recovered in them is bad for morale and creates it comes to safeguarding a network, the event of a breach. paranoia about opening emails or because all criminals need to gain Installing defenses that cut o attachments,” says Tiwari. “Besides, entry is a crack in the defenses,” says potential escape routes once an there are a lot of other access points Cytelligence’s Dubrovsky. “The best intruder is detected can also help [beside] employee devices.” way to secure a network is through eradicate a threat after it occurs, Businesses should also identify vigilance. You can never let your cybersecurity experts say. core data sets and layer-in security defenses down.” Layered defenses include monitoring employee behavior on the network and limiting employee access to the network. Monitoring employee behavior is critical because employees can unwittingly have their computers THE ONLY MAGAZINE compromised by hackers, who can steal an employee’s access creden- COVERING THE TOTAL tials to move through the network. Establishing a baseline for how an PAYMENTS MARKET employee moves through the network can help identify an intruder in the network, says Mohit Tiwari, Subscribe today by going to chief executive and co-founder of Bolandhill.omeda.com/dtr/ to start San Francisco-based Symmetry Sys- tackling the ever-changing tems Inc., a provider of cybersecurity payments market. solutions. “Companies that have connections to third parties should also identify what the third party is doing to protect data at their end, then layer-in their own defenses around those connections,” Tiwari says. “Assume every third-party connection can be In 2019, there were 150.2 billion digital transactions broken, if it is not broken already.” in North America. Digital Transactions magazine covered them all. It is the only publication addressing the total market. SECURITY 21 THETHE MEGAMERGERS’MEGAMERGERS’ SUBTLESUBTLE IMPACTIMPACT

More than a year has passed since three giant mergers promised to change the payments world. Change has come, but not where many expected to see it. BY KEVIN WOODWARD ALONE, ANY OF THE SIX COMPANIES INVOLVED IN A big contributor to that was THE ROUND OF MEGAMERGERS IN 2019 IS HUGE. Clover, the point-of-sale system First Data acquired in 2012. Sys- Recall that Global Payments Inc. acquired Total tems that oer payment processing System Services Inc. (TSYS) in a $21.5 billion deal in addition to important operation and Fiserv Inc. merged with First Data Corp. in services like scheduling and inventory management have only gained a $22 billion deal. And, in a transaction valued at in popularity, especially as mer- $43 billion, FIS Inc. acquired Worldpay Inc. chants add order-online amidst the Covid-19 pandemic. Now, the scale of these three Peter Michaud, director of consult- Much of what may lie ahead for combined companies transcends ing at The Strawhecker Group, an these behemoths will have to do previous notions of big. And in Omaha, Neb.-based consulting firm. with the ability to sell products payments, scale is paramount. “Now it’s about implementing across their customer categories. The three companies—Fiserv, FIS, the tactics as part of their strat- In mid-2020, for example, Jackson- and Global Payments—had com- egies,” Michaud says. With very ville, Fla.-based FIS said the inte- bined 2019 annual revenues of strong financial positions, they can gration was largely complete and $25.4 billion. Annual reports for continue to absorb the lessons from its ability to cross sell was helping 2020 were not yet available in their first full year, he says, while shape new product development mid-January. they move forward on their plans. (“The $43 Billion Payo,” July 2020). The two most pressing questions No doubt, that tactic and many are, with a full year of operations as others are anticipated. Not only can merged companies completed, how SYNERGIES AND GROWTH it boost growth, but it can reduce have these companies changed the costs, too. “The merged compa- payments arena, and what impact For example, a year ago, when just nies report substantial revenue have other payment-processing six months had passed since the synergies (e.g., from cross-selling players experienced? The answers, Fiserv-First Data merger, Fiserv deals and referral agreements for now, are the same: it’s mixed. reported that First Data accounted between the issuing and acquir- In the 18 months since the last of for 61% of the combined company’s ing side of the house) and cost syn- the megamergers closed, the three $3.67 billion of internal revenue ergies by saving on operational companies have largely made the in 2019’s fourth quarter. Nearly a expenses,” reports Ron van Wezel, leadership changes in the c-suite year later, merchant acceptance led a senior analyst at Boston-based and lower levels necessary to put Fiserv’s 2020 third-quarter results Aite Group. “The combinations also their next steps into action, says with 6% growth. profited from the strong growth in

THE MEGAMERGERS’ SUBTLE IMPACT DIGITAL TRANSACTIONS | FEBRUARY 2021 23 digital payments, accelerated by the processing arm of Minneapolis- It’s a pattern that is not unlike the pandemic.” based U.S. Bancorp, appears to have what happens in other industries Buoyed by their vast resources, found some pricing maneuvers connected to consumers and retail. these large entities are bound to to increase its competitiveness, How consumers and businesses are exert all kinds of pressure on the he says. “Elavon has made strate- buying merchandise is changing, market. Van Wezel doesn’t have gic moves to capture some of this,” he says. “We’re seeing a lot of con- data on their eects on pricing, “… Michaud says. solidation to try to improve bot- but given the strong competition Generally, however, the rip- tom-line results,” he adds. “We may among the giants as well as other ples these giant mergers have cre- see more at the top end.” competitors in the space, trans- ated so far have been subtle. “In In particular for NAB, which action pricing is under pressure. the merchant acquiring/payments relies on partners to resell its ser- Companies focus more on value- processing business, not much has vices, it’s on the smaller end that added services to compensate.” changed as a result of these merg- more opportunities seems to be ers,” van Wezel says. “The former forming. “We are seeing smaller Worldpay/First Data/[Global Pay- players finding more opportunities STRATEGIC MOVES ments] businesses continue com- than they had before,” Malloy says, pete with the Stripes, Adyens, allowing many of NAB’s partners to At North American Bancard LLC, a Worldlines of this world. All have grow their portfolios and do well. Troy, Mich.-based payments pro- deep pockets and competition All in all, the megamergers have vider, Ryan Malloy, senior vice remains fierce.” had a positive impact on NAB, he president of partner sales, has not France-based Worldline S.A. says, adding, “There are so many witnessed much change in pricing. itself is no stranger to mergers. opportunities in this business to “When I look at new accounts com- It acquired point-of-sale man- grow your portfolio and grow your ing in, thus far things have been ufacturer and payments pro- partner base.” pretty similar to where they were,” vider Ingenico Group S.A. in an Speaking of partners, the inde- he says. $8.6-billion deal in late 2020 pendent sales organization chan- While changes may be coming (“Worldline/Ingenico Is Just Get- nel remains important. Most pro- from the card brands—they post- ting Started,” January). cessors are reluctant to disclose poned planned 2020 interchange Malloy has a similar view. “From how many ISOs they work with, adjustments because of the pan- our perspective, you’re seeing con- but some will talk about over- demic—current pricing has been solidation at the top end and at the all partner numbers or provide an rather consistent, he says. bottom end, but it’s not as public,” approximate number. What has Michaud, though, has seen some he says. “You’re probably getting been the impact of the megamerg- opportunities in pricing. Beyond close to where there won’t be a ton ers on ISOs? “I don’t think we know the big three processors, Elavon, of more top-end consolidation.” yet what the long-term eect is,” ‘I still think the dust is settling. You come out of the chute with your strategies and then you implement, and then you adjust.’ PETER MICHAUD, DIRECTOR OF CONSULTING, THE STRAWHECKER GROUP

24 DIGITAL TRANSACTIONS | FEBRUARY 2021 THE MEGAMERGERS’ SUBTLE IMPACT Michaud says. “In this ecosystem, the ISO serves a purpose. They have the feet on the street.” THE BIG THREE COMBOS That distribution channel has Size of deal, with date closed a role in merchant acquisition and retention. The sales agent can have the benefit of providing a little more instruction or attention, Michaud says. “That will be very beneficial for any merchant,” he adds. That can really come into play BILLION when a merchant wants to use a $43 point-of-sale system or PC-based system with integrated payments. Processors may view ISOs as if $22 BILLION $21.5 BILLION they were value-added resellers, Michaud says. Independent software vendors are another coveted channel. These Fiserv/ FIS/ Global Payments/ First Data Worldpay TSYS are companies that cater in providing PC-based systems, often for July 29, 2019 July 31, 2019 Sept. 18, 2019 specialized merchant types, such as dry cleaners, medical practices, and craft breweries. and should enable them to get to is tracking to budget for the year higher-margin business.” notwithstanding the pandemic,” For example, Atlanta-based Cameron Bready, Global Payments’ ‘A SCALE PLAY’ Global Payments formed an inte- president and chief operating oi- grated payments unit in 2014 fol- cer, said in an October call with ISOs likely won’t be aected all that lowing the acquisitions of PayPros analysts to discuss the 2020 third much by the megamergers, van in 2014 and Accelerated Payment quarter results. Wezel says, though Fiserv oers Technologies in 2012. A commen- “New partner production is the Clover POS system and Global tator on SeekingAlpha.com in 2017 up 70% year-over-year,” Bready Payments sells the TSYS-developed suggested the APT acquisition added. “And I would say the over- Vital line of devices. “ISOs are altered the merchant-acquiring all partner pipeline is as strong as already broadening their services industry by serving as the start- it’s ever been in that business. And to compete with Stripe and other ing point of big acquirers pairing we’re pretty optimistic about the payment facilitators. There won’t up with integrated software ven- momentum we have heading into be a lot of impact on them from the dors and value-added resellers to [the fourth quarter] and 2021 in our mergers, but the increased compet- deepen their relationships with integrated channel.” itiveness in the space is definitely merchants, Digital Transactions Combining sales agents with inte- impacting their business,” he says. reported then. grated-payments products works “The processors would like At the end of 2020’s third quarter, well for NAB, Malloy says. “We have more ISVs because they’re deal- Global Payments counted more than found by combining feet on the ing with a company,” Michaud 4,000 ISVs in its partnership portfo- street with some of the technol- says. “The ISOs serve a purpose. lio. “Our integrated business, as we ogy we have seen a ton of success,” They provide one-to-one service noted in our prepared comments, he says. “They have that personal

THE MEGAMERGERS’ SUBTLE IMPACT DIGITAL TRANSACTIONS | FEBRUARY 2021 25 ‘We love the consolidation because it forces everyone to up their games and make their solutions for both partners and merchants as good as they can be.’ RYAN MALLOY, SENIOR VICE PRESIDENT OF PARTNER SALES, NORTH AMERICAN BANCARD LLC

relationship. Where we’ve seen ISVs “There are definitely a lot of compa- FIS, Fiserv, and [Global Payments] struggle in the past is there is no one nies that could fill any niches com- to acquire smaller competitors in there to translate that value to the ing,” Michaud says. key markets rather than merge merchant.” The likely next round will among themselves. Scale is great, Van Wezel suggests the three include companies with front-end but organizational complexity has combined companies may not com- authorization and back-end settle- a downside, too,” he says. pete more strongly than when they ment in place, he says. He argues Likewise, NAB’s Malloy sees no were six individual ones. “I am not consolidation will continue if only end to M&A activity. Without get- sure that the combined entities are because, even if the big five proces- ting into any NAB-specific per- better able to compete for mer- sors—Michaud includes Chase Pay- spective, consolidation will be eas- chant business than the individual mentech and Elavon along with FIS, iest on the processing side of the companies,” he says. “There is no Fiserv, and Global Payments—gar- payments business, he says. It’s the major dierentiator for the combi- ner, say, 80% of the market, there’s most obvious pat of the business, nations compared to the individual still 20% of the merchants they’re he says, and caters directly to scale. companies.” not reaching, and the providers to “That’s where we’re going to see The other big question is if there those merchants could be acquisi- the massive, headline deals,” Mal- is room for more large-scale merg- tion targets. loy says. “We love the consolida- ers. The answer, apparently, is yes. Say a buyer rolled up payments tion because it forces everyone Though it didn’t materialize, FIS providers Clearent LLC, based in to up their games and make their and Global Payments allegedly had Creve Coeur, Mo., EVO Payments solutions for both partners and merger talks last year, but, as The Inc., and Repay Holdings LLC, both merchants as good as they can be.” Wall Street Journal reported, these based in Atlanta, Michaud sug- Indeed, the trend so far has been a talks broke o (“The Megamerger gests. Together, they don’t come to positive for NAB, he says. That Wasn’t,” Trends & Tactics). As even the smallest of the big five, he 2021 may be a critical year for Michaud’s colleague Jared Driel- says. But that doesn’t mean these FIS, Fiserv, and Global Payments, as ing, Strawhecker senior director of positions are fixed. they work to wring out of their big consulting and market intelligence, “It’s an always-changing ¡ux,” mergers the results they claimed put it at the time, “It’s an example Michaud says. “The smaller ones the deals would generate. of a continued scale play.” are going to get bigger. The big- “I still think the dust is settling,” ger ones have ¡attened on growth, Michaud says. “I don’t know if it’s but still can grow in margins and fully settled yet. You come out of THE NEXT ROUND earnings.” the chute with your strategies and Likewise, van Wezel sees no end then you implement, and then you Big mergers, especially when scale to the M&A trend. “We will cer- adjust.” But, at some point, he adds, is the paramount goal for many pay- tainly see continued consolidation “you have to look and see if you’re ments companies, are still possible. in this industry, but I would expect meeting the goals.”

26 DIGITAL TRANSACTIONS | FEBRUARY 2021 THE MEGAMERGERS’ SUBTLE IMPACT Is your ACCORDING TO POPULAR LEGEND, reevaluation of your current remote the first online payment was made in payment systems and practices. The bill-pay provider 1994, for a Pizza Hut pepperoni and bill-payment vendor you’re using may setting you up mushroom pizza. Whether that holds no longer be the best fit—and may, true or not, online payment process- in fact, be holding your company for success? ing has grown by leaps and bounds back from reaching its full potential. since the 1990s. Roughly 440 million Now that we’ve entered a new Use this checklist consumers took advantage of mobile- year still heavy with the prospect of to decide. payment options in 2018, and that distanced-everything, including shop- number was projected to grow to ping and bill paying, there’s no better 760 million this year, according to time to consider whether your bill- statistical database Statista. payment provider is setting you up for Looking specifically at bill payment, success. To do that, use this checklist another 2018 study found that consum- of five important factors found in a ers made 6 out of 10 bill payments elec- forward-thinking payment platform: BY MICHAEL KAPLAN tronically, a figure guaranteed to rise Michael Kaplan is the chief revenue due to consumers’ pandemic practices. o cer and general manager at What does this mean for your com-  FACTOR 1 PayNearMe Inc., Santa Clara, Calif. pany? In part, it calls for an immediate Accommodates all payment tenders and channels customers use.

Forget the old catchphrase “cash, check, or charge.” Today’s consumers can choose from numerous payment tenders, including card, automated clearing house, cash, and mobile-first payment options such as Apple Pay and Google Pay. Add a variety of remote payment channels, including Web, mobile, text, interactive voice response, agent, and digital wallet, among others, and consumers have more payment tenders and channels available to them than ever before. With this in mind, it’s important to meet your

STRATEGIES DIGITAL TRANSACTIONS | FEBRUARY 2021 27 customers where they are, however collects a receipt. The cash is digitally in place, for example, that says “IF a they choose to pay. transferred to complete the payment. customer has two or more insu icient Your customers have different When your bill-payment provider funds errors within a year, THEN the preferences for payment, depend- has knowledge of both consumer pref- customer must only have the option ing on a host of factors. For instance, erences and technical capabilities, of paying with a debit card or cash.” some payers may prefer to mail a your company will reap the rewards In addition to preventing fraud, check or log on to their account and of customer satisfaction and reliable, business rules can substantially pay using a credit card, whereas oth- on-time collections. reduce your need for manual pro- ers may love the convenience of using cessing and paperwork caused by their Google wallet. both chargebacks and overpayments. Your bill-payment provider should  FACTOR 2 A forward-thinking bill-payment have the capability to accommodate a Anticipates and addresses vendor has business rules, as well as wide range of customer preferences security risks. other automated tools, pre-designed in a way that makes payments quick and on hand to be turned on or o and easy, time after time. The vendor Remote, independent bill payment depending on your specific needs. also must have the technical light- can save your company big bucks on Finally, your provider should footedness to adapt as new payment brick-and-mortar payment centers hold industry-recognized certifica- types and channels emerge. and customer service sta ing—unless, tions, such as PCI-DSS, and undergo Here’s a case in point. Financial of course, you lose money through third-party audits to demonstrate its pundits used to claim, “cash is dead,” security breaches and fraud. team’s knowledge of and proficiency as they advised companies to put A top-tier payment provider should at securing your customers’ data. resources toward electronic-only pay- help protect your company’s reputa- Additionally, they should o er reg- ment streams. However, this advice tion and assets through comprehen- ular compliance training for their own ignored the realities of a large portion of current bill payers. One in 15 households is un-banked, without access to ‘You may be in a contract with a vendor that a bank account, debit, or credit card. ties your hands for the moment, but that And approximately one in six only means you have more time to conduct households is underbanked, mean- ing they live paycheck-to-paycheck a thorough assessment of your needs.’ without significant reserves on hand to cover unexpected expenses and sive risk mitigation, fraud prevention, employees and ensure their agents avoid overdrafts, according to the and compliance support. know how to use their technology Brookings Institute. Look for a vendor that o ers real- tools to stay compliant. Covid-19 and For these consumers, the ability time account validation and risk anal- work-from-home have thrown some to pay bills with cash is essential. ysis to prevent payment reversals and curveballs into typical compliance A forward-thinking bill-payment fraud. NACHA will require account practices, especially for customer- provider must accommodate cash validation for all ACH originators of service agents, so this is especially payment and, even better, think WEB debit entries e ective March 19. relevant right now. creatively about remote cash-pay Demanding that your bill-payment options. For instance, some vendors provider achieve this in time for the make it possible for customers to pay change takes that security step to the  FACTOR 3 bills with cash at retail locations the next logical level. Has a track record of customers frequent regularly. The Additional protection can be accom- reliability. customer simply shows the checker plished through automation tools like a scannable code on his or her smart business rules (coded if/then state- Many payment platforms pause their phone, pays the checker the cash, and ments). The vendor can put a rule services on a regular basis to perform

28 DIGITAL TRANSACTIONS | FEBRUARY 2021 STRATEGIES Co-Branded E-Mail Marketing Get the Results You Need Here’s how it works: You select the part of Digital Transactions’ subscribers you want to reach, sorted how you need it, by function, location, or title. Just ISOs? No problem. Just executives on the East Coast? No sweat. Just CEOs? No worries. Or choose our entire circulation base. It’s up to you! You give us your HTML creative. We create both a text version and a Web version of the e-mail deployment. After the deployment, we track deliveries, opens and clicks, and give you all the stats.

It’s really that easy! To get started, contact Publisher Bob Jenisch today: 877-658-0418 [email protected] updates to their system. Updates are reminders by text, email, or push noti- task, providing clear, consistent, and good and necessary, but downtime fication at designated times before, thorough reporting. is a disaster for companies o ering on, and after the payment date. These For instance, the vendor should their customers 24/7 bill payment. can be further customized for cus- track payment data either in real Your o ices might be closed on Sun- tomers with a history of late pay- time on a per-payment basis or in days or in the middle of the night, for ments so they get more reminders batches daily or monthly. The vendor example, but many of your custom- or more urgently worded reminders. also should report on SMS/e-mail ers are still taking care of business Also, the vendor can send remind- engagements with customers and at home, including paying their bills. ers translated into the customer’s click-through or response rates of Keep in mind that downtime isn’t native language. those communications. just inconvenient, it’s costly. Indus- More advanced payment platforms All reporting should be customized try analysts have estimated that net- also use smart, personalized links to display the information most help- work downtime can cost companies embedded in the payment-reminder ful to your business, and the vendor’s an average of $5,600 a minute. Of messages. The customized links send dashboard should allow you to sort or course, that varies from business to customers directly to their payment filter by categories like payment data business and industry to industry, but screens without having to type in or payment status. Having a support- it demonstrates the seriousness of passwords or account numbers. This ive, service-minded payment provider shrugging o unnecessary downtime. drastically improves follow-through in your corner is key to helping you When your customer is ready to on bill payment because the cus- determine the best data-collection pay, your systems and applications tomer can act immediately and com- strategy and reporting schedule and must be ready and waiting. Look for plete the task quickly, with only a few format to meet your needs. a vendor that mitigates or eliminates clicks or taps. planned downtime, such as scheduled Additional messaging features DECISION TIME maintenance or product releases. It’s can communicate welcome mes- essential to find a payment platform sages, announce new rates or prod- If your current bill-payment pro- that can deliver on that promise to ucts, deliver transaction receipts, or vider falls short on one or more of ensure your company is prepared to provide links to enroll customers in these factors, there’s no better time compete in the 24/7 business cycle. auto-pay, which is the ultimate driver to consider other options and make of on-time bill payment. the switch. You may be in a contract With the help of your provider, you with a vendor that ties your hands for  FACTOR 4 can be extremely creative at engaging the moment, but that only means you Enhances consumer customers in these types of win-win have more time to conduct a thor- engagement. behaviors, and at a very minimal cost ough assessment of your needs and to your company. to interview several candidates to Engaging with your customers builds determine whether another vendor your brand, rewards loyalty, enhances might be a better fit. Transitioning the company’s reputation—and  FACTOR 5 to a new vendor will take both time helps them pay their bills on time. Tracks and makes available and planning, so factor this into your Wait, what? Consumer engagement the data you need. decision-making. improves bill paying? That’s right, No matter your decision, the goal with the support of your bill-payment For you to make the best, most is to come out of this process know- platform, your engagement programs informed decisions for your coming you have a bill-payment provider can provide the reminders and tools pany and plan for its success, you able to support your company in its to help customers pay on time, online need data about your customers, growth and success. With trends in and successfully, each time. including how, when, and where they remote bill payment pointing sky- Here’s one example: The ven- pay their bills. Your bill-payment ward, that’s a strategy to prioritize dor can send customized payment platform should help you with that in 2021.

30 DIGITAL TRANSACTIONS | FEBRUARY 2021 STRATEGIES How to claim your share of a $2-trillion market.

Payments THE GLOBAL PAYMENTS MARKET and create a technology strategy that is becoming an increasingly attrac- allows them to solidify their relation- providers tive space for competition. In 2019, ship with the customer as well. must move global payments revenue was a massive $2 trillion, which is drawing A RELIABLE ROADMAP beyond merely increasing attention from new players that wish to rapidly jump in the In today’s increasingly digital market- transactional payments and fintech space to grab place, payments providers can look to market dominance. merchants for invaluable insight and relationships Just within the U.S. merchant- implement a product-development to build lasting acquiring space, the shift to elec- approach that delivers a reliable road- tronic transactions has brought map for market leadership. business. success to marketplace platforms According to a Harvard Business like Amazon, eBay, and Etsy, increas- Review survey, it is up to 25 times ing the pressure on traditional pay- more expensive to acquire a new cus- BY AUGUSTO LINS ments and fintech players to pro- tomer than to retain an existing one. Augusto Lins is president at vide their merchant customers with But, more important, pleasing direct Stone Pagamentos SA, Sao Paulo, Brazil exceptional customer experience users helps businesses to advance their and digital selling options. That, product-development strategy while in turn, will allow them to better strengthening the customer relation- compete and thrive in a cutthroat ship. By improving customer retention marketplace. rates just by 5%, businesses can boost Merchants traditionally have not their bottom line by as much as 95%. been closely involved in a fintech play- Investing in existing customers er’s strategy and product-development has long been recommended as a process. But there is now an oppor- top strategy for business success. By tunity for payments-technology pro- allowing merchants to share feedback viders to work closely with their cus- that guides the product-development tomers to develop solutions that meet process, payments vendors can build merchants’ expectations and help deeper and stronger relationships them grow. Fully understand- with their customers, who will enjoy ing merchants’ needs will getting the opportunity to contribute help payments providers in the development of the very solu- build superior products tions that they’ll be using every day.

ENDPOINT DIGITAL TRANSACTIONS | FEBRUARY 2021 31 Building customer intimacy and implement much-needed techno- logistics capabilities, and opera- loyalty that goes beyond today’s trans- logical improvements. tional footprint to re ect the needs actional relationships between mer- Payments providers can upgrade a of their customers. Payments com- chants and payments vendors will merchant’s tech suite to help it with panies that incentivize their sales, create long-term revenue opportuni- its business needs, whether this is customer-service, and technology ties and enable the creation of supe- enabling digital or social selling or sta to be more customer-centric will rior payments tools. This will help allowing access to better credit or bank- undoubtedly drive revenue growth traditional and smaller fintech and ing technologies. Investing in technol- and market leadership. payments players to compete with ogy is bound to enhance a merchant’s Stone’s pole position in the Bra- their larger marketplace-platform return on investment, but this requires zilian market can be attributed to rivals, which already benefit from an investment from the payments pro- using customer feedback to build out their ability to invest heavily in tech- vider to work closely with merchants. its unique operational footprint and nology and tap into vast resources to distribution model, which allows the grow their business. LISTEN AND UNDERSTAND company to be close to its custom- Technology, especially payments ers. There is no reason this approach technology, is rapidly changing, which Customer-centricity is a term that cannot be replicated in markets like means payments processors need many businesses understand well, the United States. to keep up to ensure merchants are but the payments and fintech space For too long, businesses in the able to better interact with their key hasn’t always paid close attention to payments and fintech space have consumers. Merchants in the United it. Traditionally, payments and fin- operated in a heavily transactional States don’t always have great tech- tech players have relied largely on manner with their customers. The nology at their disposal, and they the ability of their technology stack U.S. payments market is ripe with lag in their use of modern payments to appeal to their customers. opportunity and enjoys a healthy technologies compared to players in Creating a business model that merchant population, which is in other major markets like China. helps to reach, connect, and engage need of business modernization, As U.S. consumers become more with merchants is a great way to enhanced technology, and customer- demanding in their need for digital- ensure your business’s success. This, centric processes. payments access and purchasing again, requires payments vendors Achieving sustainable growth in power, there is an opportunity to actively listen to customers and the U.S. payments space is not an for payments-technology provid- understand their business needs. easy task, as there are many players to work closely with their mer- Payments players need to invest ers in the marketplace and the list chant customers to identify and more in their customer service, of competitors is only growing. Payments-technology players that take the time and energy to invest ADVERTISER INDEX in their customer relationships, in addition to implementing a strategic Digital Transactions Pages 5, 11, 17, 21, 29 Humboldt Merchant Services Back Cover customer-feedback process, will have a significant advantage compared 877-658-0418 www.digitaltransactions.net 855-767-0685 www.hbms.com to newer players that can’t harness these valuable relationships. Electronic Merchant Systems Inside Back Cover MagTek Page 3 Routinely relying on customer feed- 866-596-8829 www.emsagent.com 562-546-6400 www.magtek.com back and insight will help payments vendors gain that first-mover advantage repeatedly to bring intelligent eProcessing Network Page 15 Merrick Bank Page 7 solutions to their merchant custom- 800-296-4810 www.eprocessingnetwork.com 800-267-23256 www.merrickbankacquiring.com/contact ers and create a business model that is futureproofed and set up for success. Harbortouch, a Shift4 Company Page 1 800-201-0461 www.isoprogram.com 32 ENDPOINT DON’T BE IGNORED. BE INFORMED.

Do you feel ignored by your current processing partner? When you request information or updates on a deal, do they respond to that request?

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