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045_ISOApr14 2 3/18/2014 7:47:58 PM Inside 04.2014 Cover Story
Burton C.J.
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T A T N S G il r i i i r r i ir r i r l r i i ri il ll r r A E T S AA T T A S I A T G A T O i r i i r r A i r r r i i A p i i r r p i r i ip T T S S T l p p r ir i r i i i A i l i r r i r i i p r il r r r i i i
In Every Issue E S r i r iri r A i r r p i r ri i r r pl r r r iri lp r ll r i ll i r ip l i l i i l ir ppr lli r r ir r i A p r p r p i ir r pr i r l A i
ISO&AGENT April 2014
002_ISOApr14 1 3/19/2014 11:17:58 AM 003_ISOMar14 2 2/24/2014 1:25:22 PM Online isoandagent.com
Is Square Preparing Companies Di er For Public O ering? On Cloud Models March March r r p r l l il i A r i pr i r i r p i i i l r i l r p p r li i i p i
TSYS Ups Investment In Central Payment eb. MasterCard And Visa i r i i i Join Forces On EMV r l i r March r r r r p r i i r ri
O N OA ISO&AGENT EE A I ES l ir i ri r A l i pr i li A i li r p l r A i r r r r ll p i i p i i i www.isoandagent.com iri i r r r i r l r r r www.isoandagent.com r i www.isoandagent.com il p i A i r l r
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005_ISOApr14 2 3/18/2014 2:25:52 PM ED MCKINLEY Editor’s Letter Editor
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E ITO Ed McKinley 312-777-1380 [email protected] ONT I TING E ITO David Heun A T I E TO Monica Pizzi G O E ITO IA I E TO AN ING Richard Melville [email protected] I E TO O ESEA onoring omen In a ments Dana Jackson NATIONA SA ES ANAGE A E TISING T EE A I ING IN ST E E TI ES are among the 2014 Most Hope Lerman 312-475-0649 Influential Women in Payments, as chosen by SourceMedia, parent com- [email protected] pany of ISO&Agent and ISO&Agent Weekly. G O EATI E I E TO Hope Fitch-Mickiewicz They are Holli Targan, a partner at the law firm of Jaffe Raitt Heuer GENE A ANAGE IGITA ONTENT & Weiss; Donna Embry, senior vice president of strategic development Paul Vogel E E TI E I E TO INT & for Payment Alliance International; and Linda S. Perry of Linda S. Perry IGITA AN A T ING & IST I TION Consulting. Michael Candemeres ASSO IATE O TION ANAGE Honorees from other parts of the payments industry are Vickie Brown, Jason Tebaldi chief operating officer of ercmhant processing, First Data; Elizabeth Buse, G O A ETING I E TO former executive vice president of the global solutions group, Visa; Ann JeaNNie Nguyen A ETING OO INATO Cairns, president of international markets, MasterCard; Sabrina Chin, Ashley Tavoularis senior director of payments services, Walmart; Janet O. Estep, president I ENT ANAGE Christopher Onyekaba and CEO, Nacha; Annmarie “Mimi” D. Hart, president and CEO, Mag- E INTS ANAGE Howard Gilbert Tek; Pamela Joseph, vice chair of payment services, U.S. Bancorp; Linda 212-803-8367 Mantia, executive vice president, cards and payment solutions, RBC; [email protected] STO E SE I E Jennifer Miles, president of the Americas, VeriFone; Diane Offereins, 800-221-1809 executive vice president, president of payment services, Discover; Sandra [email protected] Pianalto, president and CEO, Federal Reserve Bank of Cleveland; Ginger Schmeltzer, senior vice president of emerging payments, Fiserv; Jennifer Shasky Calvery, director of Fincen; Melissa Smith, president and CEO, Wex; Susan Sobbott, president of global corporate payments, American IE E E TI E O I E Douglas J. Manoni IE INAN IA O I E Rebecca Knoop Express; Valerie Soranno Keating, CEO, Barclaycard; and Colleen Taylor, E & ANAGING I E TO AN ING & executive vice president, head of treasury management and enterprise A ITA A ETS Karl Elken payments, Capital One. E & IE ONTENT O I E David Longobardi Look for more details in future issues of ISO&Agent. E A ETING SO TIONS Adam Reinebach IE IGITA O I E Minna Rhee S ON E EN ES John DelMauro * * * S TE NO OG Aneel Tejwaney S AN ESO ES As I write this it’s late March and just about time to start working once O I E ANAGE ENT Ying Wong again on the ISO&Agent Fact Book, our annual directory of acquiring industry companies. The Fact Book takes up much of the July-August © 2014 ISO&Agent and SourceMedia, Inc. and ISO&Agent. issue. ISO&Agent is published 7 times a year by SourceMedia, Inc., One State Street Plaza, 27th Floor New York, NY 10004. For The Fact Book’s becoming an integral part of the acquiring industry, customer service contact us at (800) 221-1809 or (212) 803-8333; fax: (212) 803-1592; email: [email protected]; or send with more companies participating every year. And that’s a good thing. correspondence to Customer Service, ISO&Agent, One State Street Plaza, 27th Floor New York NY 10004. Having more information makes the Fact Book more valuable and enc- For permission to reprint published material, call (800) 367-3989 or (212) 803-8367. Those registered with the Copyright Clearance courages your colleagues, customers and partners to keep it on the shelf Center (222 Rosewood Drive, Danvers, Mass., 01923) have permission to photocopy articles. The fee is $10 per copy. Copying for reference throughout the year. for other than personal use or internal reference is prohibited What’s unfortunate is that a lot of executives who would like to see their without express permission. This publication is designed to provide accurate and authoritative companies included in the Fact Book don’t know how to make it happen. information regarding the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering Each spring, we send a questionnaire to everyone who subscribes to the financial, legal, accounting, tax, or other professional service. ISO&Agent is a trademark used herein under license. Direct ISO publications. Simply fill it out and email it back. Don’t miss out! ISO editorial inquiries, manuscripts, or correspondence to ISO&Agent, 550 W. Van Buren St., Suite 1110, Chicago IL 60607 USA.
ISO&AGENT April 2014
006_ISOApr14 1 3/19/2014 11:05:23 AM 005_ISOFeb14 3 1/30/2014 3:44:58 PM Perspectives O O A ISO OA
at ad i e would ou gi e to someone starting out in t e pa ments industr
s F t ew entrants to the smartphone and tablet P have been acceptable. ow Apriva payments industry today o erings. nderstanding however businesses want would be well advised to and advocating how these the e ibility to work with become sub ect matter solutions can bene t a processor that can meet e perts with the newer merchants will be critical for their changing re uirements. products in the market. the successful payments erchant ac uirers should obile payments and professional. consider partnering with a integrated software solutions hey should also reliable gateway provider o ering loyalty capabilities recogni e that today s that can not only connect can represent a signi cant merchant wants e ibility merchants to multiple growth opportunity for and options. n the past processors but can also merchant ac uirers and their o ering a single payment help customers seamlessly agents as they look to tap processor to an entire integrate new features and into the strong demand for merchant portfolio may services.
d e y advice for someone issues facing the industry. e networking are available in Payment Alliance International starting out in the payments curious when reading these one place. industry would be to become articles formulate some All of the payment related deeply R and to uestions and reach out to associations such as the A . the authors and companies to and A A have various o begin take some basic drill further into the sub ect. committees that need new courses o ered by the A o become involved ideas and talent so seek some of which are online. attend annual national out those committees and here are many free and or regional conferences volunteer. t s a great way to industry publications such such as the AA idwest network and contribute to as Agent that can keep Ac uirers Association the industry. you up to date on trends where educational sessions statistics and compliance product e hibitions and
d s ork a niche like the medical can identify as likely to buy you don t have a supervisor EZCheck Check Services industry. ecome an e pert from you in a meaningful holding you accountable for learn what uni ue needs timeframe. hey have a need the number of new prospect those buyers value and work you have contact with the calls you make the follow that industry thoroughly to decision maker the timing is up calls you place and the build your portfolio network right your price is right. he results you get then do and referral base. suspect is one you want to this yourself. t s not fun for earn to identify a sell but they will waste your anybody but it can absolutely prospect versus a suspect. time and never buy. make or break you in any he prospect is one that you anage your numbers. f sales career.
8 ISO&AGENT April 2014
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009_ISOApr14 4 3/18/2014 2:25:54 PM O ENSATION THE AGREEMENT
Under Contract oo many sales agents fail to scrutini e their contracts with s and even fewer seek legal help to review a contract. hat can result in lost residuals and other hassles. E I A ET A EN
ince starting his ISO in 2009, Michael Hass has recruited more than 200 sales agents, but only one has sent a contract to an attorney for review. Only Sabout a quarter of agents ask specific questions about contracts. “I’ve seen it where we send our agent agreement to somebody at one o’clock in the afternoon, and it comes back signed, with no comments, questions or concerns, less than an hour later,” says Hass, president of Priority Pay- ment Systems PDX, an ISO based in the Portland, Ore., area. “We try to do the best we can for our agents, but some agents are either too trusting or they’re not doing their due diligence.” Instead of pleasing Hass, these trends surprise him and even cause him some concern. “Historically speaking, I find that when people are taking their time and doing their due diligence on us, on the agreement, that we have a longer-term relationship with them, and that they’re not hopscotching from one ISO to an- other,” Hass says. Many new sales agents skip having a lawyer review their first contract, says Holli Targan, partner at Jaffe Raitt Heuer & Weiss in Southfield, Mich. and past president of the Electronic Transactions anything. They won’t change anything More experienced agents, or those Association. anyway. I don’t have any negotiating who have suffered the consequences of “Typically, agents are so happy to just leverage. Therefore, I’m just going to a one-sided or vaguely worded contract be able to do business in the industry sign whatever is put in front of me.’ And are more likely to seek legal counsel, that they figure, ‘This all looks like then they realize that’s probably not the she says. boilerplate, and I’m not going to question wisest course of action,” she says. But Targan doesn’t recommend wait-
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ing: she advises all agents to have their don’t adequately protect their rights to First of all, that is a breach of the Visa agreements reviewed. residuals could spend years building a and MasterCard rules, so even if they “There are certain contract clauses portfolio, only to forfeit that income. continue to trust each other forever, that, if you’re not experienced, you don’t they would still be creating liability for realize that you should be wary of,” she N themselves vis a vis the card associa- says. “A knowledgeable lawyer will Sometimes what’s missing is not a clause tions,” Atlas says. also be able to suggest things that the but a contract altogether, says Adam If a misunderstanding or falling out sales representative has probably never Atlas, founder of Adam Atlas Attorney occurs, neither party has anything to thought of,” she notes. “In other words, at Law, a firm based in Montreal, that point to that defines the terms of the it’s not only what’s in the contract; it’s serves Canadian and U.S. clients. Atlas is relationship, he says, which exposes also what’s missing from the contract licensed to practice law in both Canada them to disputes over their rights and that you have to be cognizant of.” and the state of New York. obligations. For instance, the contract may fail No written contract? That most often When a contract is in place, agents to state that the sales agent is entitled occurs when friends or relatives are should think carefully about how it ad- to residuals for as long as the ISO re- working together, he says. dresses exclusivity, Atlas says. Contracts ceives revenue from those merchants, “And the parties never think to sign a may prohibit agents from soliciting Targan says. Agents whose contracts contract because they trust each other. merchants on behalf of other ISOs.
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Visa / MasterCard
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ISO / MSP (Registered)
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Agent/ Independent Sub-Agent Cardholder / Contractor/ Merchants Consumer MLS
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“And there may be circumstances for agents to understand concerns the stand those clauses and deem them where, commercially, that is an agree- conditions under which they would lose reasonable, says Atlas. Some clauses able outcome, where the agent is being their residuals, Atlas notes. go too far, he notes. trained, compensated or assisted in Contract provisions governing those “Next, I would want clear language such a way that an exclusive relation- conditions can be vague, warns Paul as to liability for merchant chargebacks, ship makes sense,” Atlas says. “How- Rianda, owner of the Law Offices of and the agent not being liable for mer- ever, maybe there aren’t and the agent Paul A. Rianda in Irvine, Calif. chant chargebacks and other fraud by shouldn’t have become exclusive.” “They may say that any breach of the or through merchants,” Atlas says. Targan advises against ever signing an agreement, no matter how minor, can be exclusive arrangement. That way, if the used to terminate the agreement with no agent-ISO relationship sours, the agent right to notice and no right to cure the In some cases, assuming liability makes has access to other sources of revenue. problem,” Rianda says. “The sales agent commercial sense for agents, but in many ISOs may think they are better off could do something and not even know cases it does not, he says. Ultimately, with agents working under exclusivity they violated the agreement, and that’s agents should be sure the contract is arrangements, Atlas says, but that’s not the end of it. Their residuals are gone, clear on the liability point and they’re necessarily the case. Regardless of the and they can’t do anything about it.” comfortable with what it says. language in a contract, state labor com- One way agents may find themselves Contracts should also address is- missions or taxing authorities may find in such a position is if they’ve unknow- sues such as whether the agent can sell such agents are not independent contrac- ingly violated the non-solicitation clause residuals to the ISO or another entity tors but are actually employees. Then the of their contracts. Those clauses gen- and what happens if the ISO sells its ISO would be responsible for taxes and erally preclude an agent from taking portfolio, Atlas says. deductions it would not have to deal with merchants from one ISO to another, Some contracts include clauses that for an independent contractor. Rianda says. allow the ISO to sell the merchants, Perhaps the most important clause It’s important for agents to under- including the residual stream, and pay
ISO&AGENT April 2014
014_ISOApr14 3 3/17/2014 1:06:08 PM 015_ISOApr14 7 3/18/2014 2:26:38 PM O ENSATION THE AGREEMENT
the agent nothing in return, Targan says. “Learning good marketing practices of accounts, but some do. She would work to change that clause is also important,” says Rianda. “There’s “I would try to delete that, so you do to ensure the agent is compensated if a lot of marketing practices that could not have any minimums,” she says. “Or the ISO sells. get you in trouble.” make sure the sales rep can really meet Agents should also be sure they One example: agents claiming they whatever minimum is in the contract understand what their contracts say represent the sponsoring bank. That because, otherwise, they’re going to about their continuing responsibilities to practice is prohibited, Rianda says, and be penalized.” merchants after acquisition, says Chris could lead to breach of contract. Dryden, founding partner of Global “Another important thing is cost in- S Legal Resources LLP in San Diego. creases,” Rianda says. “A lot of contracts Having an attorney review a contract can Some agreements may make agents say that, basically, the ISO can add fees, help prevent problems, says Dryden. But responsible for helping merchants with change fees, change compensation agents who engage attorneys unfamiliar equipment or point-of-sale software percentages or amend the agreement with the payments industry are wasting systems included in the account, Dryden whenever it wants.” their money, he asserts. When attorneys says, and agents may not even realize One possible manifestation of that unaware of the specifics of an industry that’s the case. language is a $20 monthly charge per encounter broad language in a contract, “The duties of the agent beyond merchant that the ISO will not share they defer to industry customs. acquisition should be clearly spelled with the agent, Rianda says. Yet the “If the attorney’s not aware of any out,” Dryden says. “These are nego- agent must deal directly with the mer- of that stuff, you’re either going to get tiable points, but if you’re not looking chant, who will likely be irked by the an inadequate review of a contract that at the agreement to know where you additional fee. doesn’t contemplate everything that’s can negotiate, then potentially some Minimums can also become an negotiable, or you’re going to end up of the duties and responsibilities to the issue, Targan says. Not all contracts paying that attorney to educate himself,” merchant unrelated to payment could contain clauses obligating a sales Dryden says. come back to you.” agent to produce a certain number “It’s a very complicated business,” Targan says. “Although it’s a contract, and every lawyer was taught contracts their very first semester of law school, these contracts are, and the industry is, so complicated, that you don’t do yourself a favor if you don’t have an industry lawyer take a look at it and advise you.” She also says that agents are likely to get better terms if they have someone advocate on their behalf. Attorneys with industry expertise can also offer agents an assessment of how the deal they’re considering compares to others, Rianda says. For people new to the industry, the potential increase in income from that knowledge can more than cover the cost of legal advice. How an ISO responds to an agent’s proposed contract changes can indicate how good of a partner that organization will become, notes Rianda. “If they won’t negotiate, or if they accept every single change that you give them, without any edits, that could
ISO&AGENT April 2014
016_ISOApr14 4 3/18/2014 2:27:42 PM
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017_ISOApr14 8 3/18/2014 2:27:11 PM O ENSATION THE AGREEMENT
also be a problem because that means attorney to have. them, ISOs face litigation risk, which they may not care about the contract “We can just read the agreement is both expensive and distracting to and they’re going to do what they want and red-flag issues for the agent to talk any company. anyway,” he says. to the ISO about,” she says. “The next Industry attorneys can also ease the level of involvement is us recommending A ISO T contract-review process for the ISO, revisions and incorporating them into ISOs could jeopardize their own rev- says Hass, because they understand the document itself. And another level enues if they don’t have an adequate the complexities of the business, which is us doing all that and also negotiating agreement, says Atlas. prevents confusion and saves both sides the contract.” “One of the key benefits of a contract time. He does note, however, that it’s Agreements themselves vary, says for the ISO is the right to prevent an important for an industry lawyer to Atlas; some may be only two pages long agent from simply taking merchants have reasonable expectations for the while others are close to twenty pages. away that they’ve brought to the ISO,” he ISO and what it can offer, especially However, he suggests four to five hours says. “And if you don’t have a contract, with new agents. of an attorney’s time would generally there’s a question of the extent to which How much time an attorney needs suffice to review and negotiate a typi- you could convince a court that you to review an agreement varies, Tar- cal contract. have the right to stop the agent from gan says, and depends on how much Contracts don’t just protect agents stealing your merchants.” involvement the agent would like the but also ISOs, says Targan. Without Clear, well-understood contracts also promote agent performance, says Targan. Agents who clearly understand their rights, responsibilities, obligations and risks are much more likely to fulfill those aspects of their contracts. ProcessingNetwork All is not lost if an agent has signed a
TheeverywhereProcessingNetworkSM contract and been working under it for some time, says Rianda. Agents often hire him to review existing agreements, and well over half of the time, ISOs have been willing to negotiate. Those clients usually have a good, ongoing relation- ship with the ISO, he says. Agents can also limit their risk by initially placing only a few deals with any one ISO, says Hass. Then, as it becomes clear that the ISO fulfills its contractual obligations and proves itself a good partner, the agent may send more business to the ISO. “One of the biggest things I tell people when they are getting into this industry is to try before you buy. I even tell people to place ten or twenty deals with us,” he says. “Get to know us first, before you commit to doing business with us, because you want to make sure that we are abiding by the contract. A contract can state whatever it wants, but if your
123 partner is not following its own contract, then you have a whole set of other prob- lems to deal with.” ISO
8 ISO&AGENT April 2014
018_ISOApr14 5 3/18/2014 2:27:20 PM 009_ISOFeb14 5 1/30/2014 3:45:47 PM O ENSATION SURVEY How Do You Stack Up ? E IN E SO&Agent’s annual compensation members of the industry responded to the refinements in mind for 2015, but nothing survey is becoming an institution in questionnaire, up from 127 last year and that would deviate significantly from the Ithe acquiring business. This year, 232 98 the year before that. We have some study’s successful formula. ISO
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ISO&AGENT April 2014
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021_ISOApr14 10 3/18/2014 2:27:50 PM O ENSATION SURVEY
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ISO&AGENT April 2014
022_ISOApr14 2 3/18/2014 2:28:02 PM 023_ISOApr14 11 3/18/2014 2:28:32 PM O ENSATION SURVEY
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ISO&AGENT April 2014
024_ISOApr14 3 3/17/2014 1:06:58 PM 025_ISOApr14 12 3/18/2014 2:28:33 PM O ENSATION SURVEY
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C&H Financial Services, Inc. is a registered ISO of BMO Harris Bank N.A. Chicago, IL
C&HFinancial.ISOAgentAd.indd 1 2/21/14 6:56:48 AM 021_ISOMar14 11 2/24/2014 1:27:51 PM I argaining for the best possible contract with an re uires finding the optimum compromise.
t might not be the stuff of hearts and flow- demands. The most productive negotiations are ers. But as any well-paid sales agent will open and honest. At the same time, the ISO tell you, bargaining for a compensation should offer the resources and environment agreement seems a lot like playing the dat- that help the agent thrive. ing game: You should find a good match. What doesn’t work is when agents make IBe willing to compromise. Communicate. And things up as they go along. It doesn’t bode well remember that it’s not just about you. for an agent who promises to bring in 50 deals “The ‘gimme, gimme, gimme,’ never works. a month but closed only two deals the month It has to be a give and take,’” says industry before, Winingham says. She points out that consultant Mary Winingham, CEO of Delvan, there are plenty of salespeople out there, and Wis.-based Mirror Consulting. ISOs don’t want all of them. The ability to hustle and close deals does “They don’t need problem children,” she dictate an agent’s earning potential. But know- says. ing what to say and do at the bargaining table sets the stage for agents to get the most money T S out of those deals. If payments executive Todd Linden were to ISOs aren’t looking to play the field, though. construct an ISO from the ground up today, Compensation experts agree that organiza- it would consist of several well-established tions want salespeople who seek a long-term agents who are interested in building a base of commitment. What’s more, agents stand to residuals over the span of several years. What benefit from that kind of relationship because he wouldn’t want is a bunch of reps who are they can make more money in the long run by mainly interested in pocketing a few thousand pursuing residuals that take time to cultivate, dollars in up-front bonuses and equipment, instead of up-front, one-time bonuses. because chances are they just want to bounce When it comes to Negotiations 101, Win- from one ISO to the next. ingham and other experts believe that the Linden says most ISOs share his prefer- most successful contracts involve a two-way ence for salespeople who are in it for the relationship. Salespeople should respect the long haul. ISO as a partner, and avoid making unrealistic “They’re not looking for the quick pop,” says A T N A IE O GI STI
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C.J. Burton Linden, executive vice president and “Read it. Not just some of it. Read it all. Better yet, chief operating officer for Merchants Choice Payment Solutions Inc., a Hous- hire a lawyer to look at the contract.” ton-based processor that has grown into a super-ISO model in recent years. –Mary Winingham, Mirror Consulting, on scrutinizing agent agreements Linden encourages his ISOs to go after experienced reps who have a residual who are that good.” Salespeople should make sure that history, and he has the ISOs check out Talent alone isn’t enough to guaran- the ISO has plenty to offer them in the agents’ residual reports. Agents who tee compensation, though. Salespeople return. And that means more than promise stability are good for the ISO, first need to prove they have something just money. too. “Anyone who is looking to build a to offer. An organization’s product and service real company, from an ISO perspective, Skilled salespeople should not be offerings can help agents sign more cli- wants to look for seven, eight or nine shy about their strengths–especially ents and do their jobs more effectively, agents who want to build residuals and at the negotiation table, Winingham Winingham says. It helps to evaluate the stay there,” he says. says. When working with salespeople ISO’s sophistication with technology and Outside salespeople can earn twice on contract negotiation matters, she what point of sale systems it offers. That as much in residuals if they pass on the advises her clients to show the ISO includes tablet and mobile offerings, but up-front bonuses and equipment that what they bring to the table in terms also whether the company is plugged some ISOs offer to lure them in, says of sales track record. into EMV chip card payments, the new Paul Rianda, an Irvine, Calif.-based pay- “The biggest mistake I see people PCI 3.0 compliance standard and other ments industry attorney who specializes make is they’re not sure who they are. technology upgrades. in contract negotiations. They’re not confident in what they have “You don’t want someone who’s still Instant incentives might enable sales- to offer. Don’t be afraid to sell that to stuck in 2005,” she says. people to make a bunch of money right your partner,” she says. Winingham suggests that agents away, but agents end up sacrificing Industry newcomers sometimes also check to see what the ISO can do back-end residuals over the years be- overlook their own skills because they to nurture their skills. An agent spe- cause the ISO needs to pay back that lack experience in payments. Someone cializing in restaurants might look for money somehow. “After two years, the who was successful in telecommunica- an ISO that has experience servicing guy on the residual program is making tions or insurance still brings a host of that industry. a lot more than the guy on the bonus skills that can apply to the payments program,” Rianda says. field, Winingham says. T The salespeople with the best compen- At the same time, some agents make Fine print can become an agent’s undo- sation are the ones who convince the ISO the mistake of being overly confident. ing during negotiations. Simply trying of their ability to produce more and bring Salespeople should also be able to deliver to comprehend the terms of a contract on larger-processing merchants. on their promises, says Errick Wiener, can be mind-bending. But settle for a “That gets to corporate. We hear co-owner of Advanced Merchant Group vague understanding of those terms, about that,” Linden says. Inc., a Philadelphia based merchant and you might be setting yourself up It’s not unusual for Linden’s office services company. for trouble. to get calls from its ISOs saying they Wiener sees lots of agents who assure Winingham stresses that salespeo- want to do more for a particular sales- him that they can land a big account like a ple should sit down with the contract, person, because the agent is bringing Walmart or an Apple, but never deliver. closely examine it and ask plenty of in a substantial amount of business “Everybody always ends up going questions. each month. whale hunting. We tell them to get that pro- “Read it. Not just some of it. Read it ISOs that employ good agents might cess out of their head,” Wiener says. all,” Winingham says. be willing to take a hit on profit margins An agent might spend all of his or Better yet, hire a lawyer to look at just to hire and keep good salespeople, her time going after one big account the contract, sort out all the jargon because those people make up for losses only to lose it. Instead, that agent could and help the agent make an informed in production, Linden says. have been building up 100 accounts decision, she says. “And if you don’t take care of those and could more easily afford to lose Winingham finds that the problems kinds of reps, you’re going to lose them one or two. that arise for salespeople a year or two to a competitor,” Linden says. “There “It’s a lot of overpromising and under- into their contract could have been are fewer out there than you’d think delivering,” Wiener says. avoided during negotiations. Newcomers
ISO&AGENT April 2014
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029_ISOMar14 14 2/24/2014 1:29:07 PM to the payments industry might have a the revenue percentages the company is One factor known to drive down an hard time deciphering the terminology offering without figuring out how much agent’s compensation is the fee ISOs in an MLS contract. money those percentages might yield. charge to the agent per merchant per Agents should pay close attention “You really have to sit down and do month, to pay for the ISO’s overhead. to sections of the contract that might the math,” she says. Winingham warns that those fees can affect residuals, Winingham says. She points out that a 100% split might add up and sometimes put agents at a Those sections might dictate what sound attractive, but find out first what disadvantage. happens to the agent’s residuals if he or the company is offering 100% of. The ISO With so many factors for the agent to she leaves the business. Or the terms might drastically mark up fees and the consider, Winingham says it pays to enter- might specify that agents could lose costs of doing busineses. tain multiple offers. She tells clients to put residuals if they fail to produce a set For example, if an agent is looking together a spreadsheet detailing each offer number of deals each month. at a 100% split and there’s a statement and all of its variables, and then compare fee of $50, compared to an 80/20 split the numbers and the pros and cons. T anda statement fee of $2, the 80/20 deal Once all of those pieces of the nego- might be a better offer. E I N tiation fall into place, then and only “Just because the percentages sound When you’re in the midst of a contract then is it time to talk about pricing, like they’re in your favor, they may not agreement, attorney Rianda says it’s Winingham says. be. You have to look deeper,” Wining- important to remember that everything All too often, agents get drawn in by ham says. is negotiable.
ISO&AGENT April 2014
032_ISOApr14 4 3/19/2014 4:10:42 PM iso-agt_ipmt_022014.indd 1 2/19/14 12:28 PM 033_ISOApr14 15 3/18/2014 2:29:22 PM Independent salespeople are trying ule, so that when you do leave, you can with a cost. The ISO might need ad- to get the best compensation package get what you’ve built up over time,” ditional employees to monitor the and buy rates. Most larger ISOs pay 80% Rianda says. process of helping merchants comply of residuals without any requirements He also advises independent sales- with PCI. for production. Salespeople don’t always people to ask to keep fees, such as those The good news for salespeople is that realize that when they see a contract for complying with the Payment Card some ISOs appear more generous with offer for only 50%, that number is ne- Industry data security standards, or to contract terms lately, offering higher gotiable, Rianda says. get a compensation percentage of those residuals than they had in years past. Salespeople who work as employees fees. Often, a company will pay 50% on Winingham sees companies shrink- should also look closely at their vesting PCI with a high buy rate. As a result, ing the wide gap between the heavy schedule, Rianda says. Most employee salespeople don’t receive much back revenues on the ISO side and lower contracts dictate that residuals terminate on those fees, Rianda says. residuals on the agent side. at the end of employment. But some Savvier salespeople opt to take “There seem to be some pretty good might offer vested residuals depending control of the fees themselves, Rianda deals out there, especially compared to on how long the salesperson stays with says. An ISO or agent who controls five or 10 years ago. So it pays to look,” the company. For instance, a salesperson the PCI fees can make considerably she says. might get 20% for two years, 40% for four more than they would sharing those All it takes then, she says, is for the pair- years and so on. fees with a larger processor. But tak- ing between ISO and agent to be right–and “You can negotiate a vesting sched- ing charge of those fees also comes for both parties to realize it. ISO
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ISO&AGENT April 2014
034_ISOApr14 5 3/19/2014 4:11:22 PM Advertorial “The Secret Diary Of An ISO/Agent That Closed 3 Merchant Cash Advance Deals In 1 Week Netting $29,122.00 In Profits With No Advertising Costs!” The article below are frustrations and secrets of an ISO/Agent who finally discovered a unique and amazing marketing system to generate an endless supply of merchant cash advance, merchant account, ACH, merchant services and b2b leads daily. Became the top producing ISO/Agent in the region. A FREE REPORT Reveals their Amazing ISO & Agent Merchant Lead System: www.zeroadvertisingleadsystem.com/isoagent January 8- We just had 6 more August 9- Decided to sign up for live December 20- I ran the system for 3 days and merchant cash advance prospects said to us transfer merchant cash advance lead service. got 39 leads! Closed 1 merchant cash advance "we're just shopping around for the best Got 15 transfer leads. Cost me $60 per deal for $85,000 and a merchant processing deal". This is the 10th time this year that merchant cash advance lead call for a total of $125,740 a month, using the proven system these prospect blew us off after we pre $900. Very expensive leads so they better & software. I have never been this excited approved and spent weeks working on these close. My agents closed 1 cash advance deal. since the first day I started in this deals. Maybe it's because we only have a few Well 1 out of 15 ain’t bad or is it ? Net profit business. Of the remaining leads from the leads. Can’t afford to loose any more deals! on this deal was only $2,100. Nothing is first 3 days, I have 3 more merchants who working right! wants me to fund their cash advance in a February 11- 4 more cash advance deals my August 28- Ordered 40 internet cash advance couple of weeks, 2 needed it for working agents were working on for weeks said capital and landed another 3 cash advance they've decided to go to our competition leads, cost me $2,450. 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007_ISOMar14 4 2/25/2014 10:47:05 AM T AINING SALES
Finding The Proper Motivation alespeople share their techni ues for shrugging off re ection and focusing on the ne t sale and the one after that. E INO N
s a salesperson, you find that things don’t always go the way you might prefer. Once, for instance, Bill Pir- tle had a merchant throw Aa shoe at him when he mentioned what he did for a living. But even when things aren’t going smoothly, it’s important to keep working toward the next sale and the next one after that. “It’s so easy to get discouraged,” says Pirtle, a former salesman who now writes about the acquiring industry. “You have to try to stay motivated.” The life of a salesman is full of ups and downs. It’s easy to get into a rut, especially during a prolonged dry spell when it seems like all doors are slam- ming in your face. One way that sales- people say they stay enthused about the business—and make it through the hard times—is through a variety of self-motivating techniques. For instance, some salespeople have a passion for reading books by well- known self-help gurus, such as Zig Ziglar and Tom Hopkins. Others get a burst of encouragement by watching Pirtle, who wrote the book “Navigating for another. That’s why it’s so important motivational videos, CDs, DVDs or Through the Risks of Credit Card Pro- for people in the trenches to figure out attending inspiring lectures. Others cessing” and also compiled a 44-chapter what helps them and run with it, acquir- rely on mentors, training seminars and training book and study guide on the ing industry salespeople say. everyday life experiences for career credit card processing industry. For instance, Drew Freeman, presi- pick-me-ups. To be sure, motivation is a very dent and owner of Freeman Consult- “It’s all in convincing your mind that personal thing. What works for one ing Inc. in Fort Lauderdale, Fla., says the no’s will help you get to yes’s,” says salesperson doesn’t necessarily work he finds certain books particularly
ISO&AGENT April 2014
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inspiring. He gravitates toward the Irvine, Calif., uses a combination of education pay off, is more motivating works of Zig Ziglar and Og Mandino, techniques to stay positive. One book for me than most anything I can think author of “The Greatest Salesman in he recommends is “Laugh Your Way to of,” he says. the World.” Health & Wealth” by Tom Hopkins and Over the course of his more than 30 Ben Brooks. It’s a good laugh—not at all I years in the acquiring business, Free- about sales—but it helps keep negative Marc Solomon, managing director man says he’s purchased numerous thoughts at bay. of the U.S. division of BPC Banking copies of Mandino’s book to keep on Now that he’s in management, Fox Technologies in Alpharetta, Ga., tends his shelf and give away to family and says he also gets pumped up by helping to find inspiration in off-the-beaten-path co-workers. Freeman also keeps a file newer salespeople succeed. He thrives places. While there are a lot of great of pick-me-up resources that he turns on coming up with creative ways to help motivational books on the market, he to on an as-needed basis. If he sees an his team become better salespeople. For says he personally doesn’t find most of interesting article or some tool that instance, he’ll put on a team movie night them all that helpful. “Some people have he thinks will help other salespeople where the feature film has something to seek out motivation. For others, it just achieve success, he shares it at sales to do with sales or teamwork. One of comes to them in different forms when meetings. his favorites is “Remember the Titans,” they least expect it,” he says. The trick, he says, is to maintain a the Denzel Washington flick based For example, Solomon says he was positive attitude. “Sometimes people on the true story of a newly appointed watching an episode of “The Tonight make fun of motivation, but positive men- African-American coach and his high Show” with Jimmy Fallon not long ago tal attitude in sales is everything,” Free- school team on their first season as a where actor Will Smith was speaking man says. You’ve got to learn to look on racially integrated unit. about skydiving. Solomon says he found the bright side. “Every failure increases Fox does what he can to energize his it encouraging that someone was trying your odds of success,” he says. team, and in the process, he feels more to live his life without regrets. He says Mike Fox, vice president of sales driven as well. “Seeing my hard work after the show he felt reinvigorated at Group ISO Merchant Services in and dedication to them, their skills and and felt the desire to push himself even harder in his work life. For inspiration Solomon also likes listening to speakers at local and re- gional conferences he attends. He says he found the keynote address at ATMIA USA’s annual conference in Orlando in February particularly stirring. The speaker was legendary Washington Redskins quarterback Joe Theismann, now a successful entrepreneur and motivational speaker. Hearing Theismann speak about his injury and how he reinvented him- self really resonated with Solomon. An excellent way to leverage your portfolio (Theismann’s football career came to without having to sell it. an abrupt end in 1985 when he suffered a badly broken leg during a Monday Night Football game against the New York Giants broadcast on national tele- vision.) So many times salespeople let roadblocks get in their way instead of trying to overcome them, but hearing Theismann’s story reinforced an im- portant lesson, Solomon says. “You can either try to solve your issues or you can
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let them get you down,” he says. “Many times, motivational speakers and Aside from the inspirational speak- ers, attending national and regional materials can take you out of a funk.” conferences can help with motivation because you’re networking with others –Steve Eazell, Secure Payment Systems who know how hard the sales business can be, says Freeman, the acquiring Diane Vogt Faro, president of National he was unsure whether he wanted to industry consultant. Networking with Benefit Programs LLC in Atlanta. “I stay in sales, Harty’s employer sent him other salespeople helps you find out had a phenomenal mentor early in my to a sales training course through The how others in similar circumstances career,” she says, referring to Paul PAR Group, a management consulting are achieving success. What’s more, Garcia, who is now chairman of Global firm based in Tucker, Ga. He credits that conferences provide a prime opportunity Payments Inc. “He knew how to make course with motivating him to stay in for salespeople to learn more about their people feel calm and comfortable and the business. “It lifted me up because craft, which can also provide a powerful want to buy from him,” she says, adding it showed me how I was making things incentive for those in the trenches. “You that watching him in action gave her so complex and in reality they were come back from the shows all pumped the drive to succeed. “Without [Garcia] very simple.” up,” Freeman says. I always say I wouldn’t have been as Harty says he’s running similar sales successful as I have been.” training courses at Merchant Warehouse G A O Faro says she’s read books and at- through Negotiation Resources, an Some salespeople say they would have tended inspirational seminars but none international training and consulting left the acquiring industry years ago of those techniques really helped her get firm in San Francisco. It’s a company were it not for the jolt they got from to the next level to the same extent that he’s worked with at other firms with self-motivation techniques. having a mentor did. “The wow was the great success in terms of motivating “Many times, motivational speak- human being effect,” she says. the sales staff. ers and materials can take you out of a Freeman also stresses the impor- funk. That’s what [self-motivation] is tance of having a mentor. Salespeople A O T T designed to do—move you forwards need someone to look up to, someone Because salespeople can find inspira- when you’re going backwards,” says who can pick them up and dust them tion in any number of ways, Harty says Steve Eazell, vice president of national off when things aren’t going according it’s important that they head into train- sales and marketing at San Diego-based to plan. “It’s very important that you ing opportunities with an open mind, Secure Payment Systems. have somebody with whom to share even if they have many years of sales Eazell remembers a time earlier in successes and failures and industry experience. “A lot of times you know a his two-decade-long career when he knowledge,” he says. lot of what’s being taught already, but almost gave up. After a long period of Some salespeople say they get a you forgot about it, or you just never success, he and his business partner needed boost of energy by attending thought about it that way. Once you at the time had reached a point where interactive sales training. Even veteran start applying it toward your own life, they were hitting a brick wall. Eazell salespeope say that can help because it that’s when you realize it’s worth your says he wanted to try working on his reminds them of tricks they may have time,” he says. own, but fear of the unknown was hold- forgotten or teaches them new strategy Clearly, when it comes to staying ing him back. for effective selling. motivated, there’s no right or wrong It so happens that around the same time Even people who aren’t in a slump way to go about it. The important thing, he attended a Zig Ziglar lecture. “He’s the benefit from coaching, says Russell Har- according to Pirtle, the salesman turned one that pulled me out of my funk—[al- ty, senior vice president of key accounts author, is for salespeople to do whatever lowing me] to overcome my fear and go and partner channels at Boston-based helps them stay ahead of the curve. out on my own. That was a big turning Merchant Warehouse. “If you look at Good salespeople “look for any edge point in my career,” Eazell says. the best athletes in the world, they still they can get to be the best at what they For others, self-motivation is about have coaches. They still have people they do,” he says. “There are so many things finding someone to look up to, a person work with to make them better. That’s you can do. If you’re not going to try who can lead you in the right direction. really what this is all about.” and get better at your craft, you may “I’m really big on mentors,” says About 15 years ago, at a time when as well not do it.” ISO
ISO&AGENT April 2014
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Not Such Risky Business s with a knack for the high risk segment can prosper by taking on lucrative merchants accounts that others may want to avoid. A T N A IE O GI STI
n an industry where many acquir- gaming sites to timeshare properties nesses rack up $500,000 to $1 million ers shun high-risk merchants, and nutritional supplements. in volume each month, Foy says. Michael Foy seeks them out. The stakes are high for Foy and other “It would take 1,000 pizza shops to For the past 15 years, Foy has acquirers of high-risk merchants. Bank- get to the level of even one high-risk run International Merchant Pro- ruptcy, fraud, litigation, high chargeback merchant,” he says. Icessing Solutions, a company he set up in rates and data security breaches rank Belize for the sole purpose of providing among their chief concerns. But for A E processing services to the kinds of online acquirers who are willing to take their This line of work isn’t something most merchants that most U.S. banks won’t chances, the profits are astronomical high-risk acquirers initially seek out. touch. The businesses in his portfolio compared to what they would make from Instead, it’s usually something they run the gamut from adult content and a restaurant or boutique. Many busi- stumble upon while working with more
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traditional merchants. Then more busi- “In one week, my residuals literally multiplied 100 ness comes in by word of mouth. “I didn’t wake up one day and say, times. That really piqued my interest.“ ‘I’m going to be in high risk.’ It usu- ally starts because something comes –Michael Foy, International Merchant Processing Solutions, on high-risk through your office that you can’t place in the U.S.,” Foy says. processing arrangement, the bank business outside of the U.S. When he discovered the high-risk shut it down, so the business needed “Mention ‘offshore’ to someone, and segment, he was the national ISO another home for its processing. That’s they’ll say, ‘Oh, are they hiding money director for American Spirit Process- when Foy started looking into the off- somewhere like Belize or the Cayman ing and servicing the cab companies shore banking community and started Islands? No, they’re the only ones who in Boston. One of the taxi company International Merchant Processing will give these people a merchant ac- owners approached him to find help Solutions in Belize. count,” Foy says. getting a processor for a business he From there, Foy’s client base knew in the online adult entertain- expanded significantly. Primarily I A ment industry. through word of mouth, he built up For acquirers who are willing to brave “Not knowing much about it, I did the a portfolio with a mix of high-risk the myriad hazards that come with the research and found a bank that would merchants and more traditional busi- territory, boarding high-risk merchants do it,” Foy says. nesses. About 99% of Foy’s clients are can become a lucrative proposition, The U.S.-based bank started process- e-commerce merchants. veterans of the segment agree. ing the business right away, and his Foy spends most of his time traveling Whereas ISOs typically make about earnings immediately shot up. to sign merchant agreements with banks 10 basis points on the average merchant “In one week, my residuals literally around the world to obtain processing transaction, they can make 1% to 3% multiplied 100 times. That really piqued for businesses that domestic banks on a high-risk merchant because they my interest,” he says. avoid. That’s where Foy sees himself are offering a hard-to-find service, Foy A few months after Foy set up the filling a niche–and why he conducts says. “Simply 1% of $1 million is $10,000
10 tips on high-risk merchants From attorney anthony ogden i i l p i ri r r i ll i i i i ri 1 p i ri r i r p r li r r r r i i i r i il l pr ri l r i r i r ri i pr i i r r 2 ili r l ri r pl i r r r l r l r l i l p i i i pl r i l i ri i r i r r p i r p r li r r r r r i pli r ir i pr i ri l p i r r i i l r 4 r p i ll ri i i pi i r i l r r i p r i i r r r r r i r ri l r i r r l ri r l ir i p r i r r r i i i r i i r r p i r i i ll r l ri r p r li 10 ri r A ir r r pr p r r r l r r
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in residuals each month–from one ac- “You’ve got your desire to make money...and the count,” he says. Foy can charge high-risk merchants desire to avoid risk.” more for processing because it’s a lot harder for them to get. Typically, the –Payments lawyer Paul Rianda, commenting on ISOs and high-risk accounts merchant pays 2.5% or even 3.5% more in fees than in the U.S., he says. In addition to pure monetary losses, “The products sold by these busi- The acquirer should also manage ISOs can face the risks of litigation, nesses may be low-risk, mainstream chargebacks, says Paul Rianda, an regulatory scrutiny, data security, consumer items, but the marketing Irvine, Calif.-based payments attorney. bankruptcy and damage to the overall methods and business operations Lots of chargebacks can provide a source banking system in use, he says. qualify the merchants as high risk,” of revenue for the acquirer, which gets Ogden says. to cash in on the $25 chargeback fee O O The “high-risk” label does not always placed on every transaction. But from Not every high-risk merchant deals in indicate a business’ financial practices, a risk perspective, the ISO doesn’t porn or gambling. High-risk special- says Jason Field, CEO of Instabill Corp. want to rack up so many chargebacks ists point out that a good number of a Portsmouth, N.H.-based merchant that the Federal Trade Commission merchants in other industries have services company that specializes in gets involved. cleaner reputations but are actually high-risk and offshore processing. A “You’ve got your desire to make more susceptible to chargebacks, fraud stigma might surround merchants in money pulling you one way and the and regulatory scrutiny. controversial industries, such as adult desire to avoid risk pulling you another. Some furniture stores and ticket entertainment or gaming. But these It’s a question of which one wins out,” resellers, for example, are considered merchants may still maintain sound Rianda says. high risk because they charge for their operations. merchandise up front, but it might take “An ISO should be able to provide months until they actually deliver the their merchants with multiple merchant Banks generally evaluate merchants products. account solutions, both domestic and based on two types of risk: reputational The longer it takes to deliver, the offshore, so that honest high-risk busi- risk, and financial risk, Rianda notes. higher the risk for chargebacks. The nesses can feel secure in their payment Taking on a controversial merchant same goes for the airline industry, which processing.” can damage a bank’s reputation. But books tickets months in advance of Ogden maintains that the stigma financial risk tends to pose an even fulfillment. arises from the traditional conserva- greater threat to banks and acquirers, Also at risk are merchants sell- tism in banking and that many unusual they say. ing goods that criminals can easily and innovative businesses are viewed The acquirer is taking on merchants convert to cash. A jewelry seller or a with undue scrutiny simply because that might produce excessive charge- merchant selling electronics or com- they do not fit a traditional “plain backs or attract fraudulent activity. The puter hardware or software might be vanilla” model. ISO either takes all of the liability for considered a liability for that reason, “It doesn’t necessarily mean these the merchant, or shares that liability Ogden says. are bad merchants who shouldn’t be in with the bank. There is also the risk of regulatory business,” he says. “And it doesn’t mean Any time a merchant offers a prod- scrutiny. Many types of businesses rely the banks that choose to do business uct or service with a high likelihood on outbound telemarketing, which is with them are doing anything improper of buyer’s remorse, that can lead to subject to great scrutiny by the FTC, either.” chargebacks, says Anthony Ogden, a Ogden says. One group that has come under Washington-based attorney and policy Recurring billing or subscrip- intense scrutiny is merchants selling adviser for the acquiring industry. That tion businesses also pose the risk of nutritional supplements, or “nutraceuti- can be anything from a timeshare condo chargebacks. For a while, gyms were cals,” Those merchants tend to qualify to a travel merchant. considered high risk because they as high risk because of their business “Educated cardholders know that take recurring payments from the model, not their product, Foy says. Most they have chargeback rights, and they customer’s account. one source tells of these types of products are available use and abuse them,” Ogden says. ISO&Agent. in stores like GNC.
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“When you sell these products “If you can’t...underwrite and manage that risk, online, all of a sudden it becomes a high risk,” he says. you shouldn’t take on high risk merchants.” In the early days of nutraceutical sales, merchants often offered a free –Washington-based attorney Anthony Ogden trial, but they charged for shipping and handling. The fine print said that of federal and state laws that apply to The business owner also undergoes a if the customer didn’t call back and those businesses and make sure that thorough background check. cancel the subscription, the merchant the merchants have the appropriate Then once the merchant has started would charge the customer’s credit licenses, he says. processing, Instabill calls the business’ card each month. Avoid merchants that harm consum- customers at random to verify transac- “The consumer would get their state- ers through criminal, fraudulent, decep- tions and to determine whether consum- ment, see that they were getting charged tive, predatory or otherwise unsavory ers are satisfied with their purchases. and then call the issuing bank and enterprises, Field says. Instabill reps also visit the merchant’s charge it back. So chargebacks went “No amount of profit will offset the place of business in person. out the window,” Foy says. damage done to an acquirer by these Maintaining regular communication A history of poor business practices types of businesses,” he says. with customers–whether face-to-face has also plagued the timeshare indus- or over the telephone–can prolong the try. Today, major hotel chains such as ISO acquiring relationship the client will Hilton and Marriott have cleaned up ISOs that serve high-risk merchants have with the ISO and the acquiring the time-share segment. But because a have to learn how to manage the risk. bank, Field says decades-old bad reputation still exists, “It’s not something you take on un- “By continuing a close relationship those businesses often have to turn to less you’re fully prepared to handle it. with merchants, not only can an ISO offshore enterprises for processing. And that’s why it generates higher fee help to improve their acquiring needs, “The time-share industry gets a bad income,” Ogden says. but also ensure that the merchant is rap, when it’s actually very regulated Just because an acquirer works with providing the best possible services to now,” Foy says. high-risk companies doesn’t mean every their clientele, so that their business can Another topical merchant segment merchant receives instant approval. continue to flourish,” he says. is medicinal marijuana. Attorney Paul Field says Instabill reviews high-risk Ogden says acquirers should tailor Rianda, who has clients in the segment, merchants case-by-case and follows a their operations to fit the high-risk says traditional processors tend to stay protocol for each business it considers. merchant and mitigate risk. He says away from those merchants because of The first step is to conduct a series of having a good relationship with the legal implications. Yet, a customer can phone conversations with the prospec- merchant is one of the best weapons an walk in, buy marijuana and leave. So tive merchant and ask questions to ISO can have in reducing risk. there’s not much of a chargeback risk, identify potential risks. “You want to encourage them to Rianda says. Next, Instabill requests documenta- contact you in regard to certain issues “The bad rap has to do with what tion, business plans, financial documents they might have. Then you’ll be able to they’re selling, and not the risk that a and bank statements from the company identify problems and solutions earlier,” processor would bear from merchant and sometimes from the individual he says. losses,” Rianda says. business owner. Whether or not an ISO should avoid ISOs should avoid some businesses If the merchant is an existing busi- a high-risk merchant depends on the and keep up to date with industries the ness, Instabill looks at credit card state- acquirer’s ability to board and monitor card associations deem illegal, Field ments, monthly sales volume, refunds, that business, Ogden says. says. They should also remain aware chargebacks and other business records. “If you can’t effectively underwrite and manage that risk, you shouldn’t take on high risk merchants, regardless of the “No amount of profit will offset the damage done possible revenue generation,” he says. to an acquirer by these types of business.” Great risks can yield great rewards, but high-risk acquirers say it’s only after they –Jason Field, Instabill Corp. put in the work to get them there. ISO
ISO&AGENT April 2014
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005_ISOMar14 3 2/25/2014 11:09:22 AM ASSO IATIONS MWAA
Inside A Regional Trade Group rom the hark Attack to the ound ff session and behind the scenes automation the idwest Ac uirers Association continues to innovate at its conference. E IN E
f the Midwest Acquirers Associa- MWAA has ventured outside north- ence in 2007 made quite an impres- tion holds its annual conference in eastern Illinois for a convention, sion—the party at the Rock and Roll downtown Chicago, some exhibi- holding the show in St. Louis and Hall of Fame and Museum and brunch tors and attendees complain that Cleveland. in the V.I.P. zone overlooking Progres- it wasn’t in the suburbs, where “Everybody always mentions that sive Field, home of the Cleveland Ithey can avoid city traffic and play Cleveland show,” notes Donna Embry, Indians. The newly renovated Renais- golf. When the show convenes outside senior vice president of strategic de- sance Cleveland Hotel served as the the Chicago city limits in suburban velopment for Louisville, Ky.-based venue in a downtown where hip new Oak Brook, Schaumburg or Lombard, Payment Alliance International, bars and restaurants contrasted with there’s grousing about missing out on who’s now serving her second year remnants of urban blight. the excitement of downtown. as MWAA president. But wherever the conference takes Twice in its 12-year history, the Two events at the Cleveland confer- place, the cadre of volunteers who work
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part-time 10 months of the year on the “We think it’s become a big part of event can point with pride to a couple of relatively recent additions to their what MWAA is.” handiwork. –Donna Embry, Payment Alliance International, on the Shark Attack competion at the regional association’s trade show S A S The Shark Attack, modeled on the television show called the Shark Tank, provides a showcase for new compa- nies or new products from established of seats, trapped heat down at stage the conference. John, who’s an author, companies. A panel of judges listens to level.Embry recalls feeling miserably motivational speaker and CEO of the the entrepreneurs’ pitches and awards hot in the suit, but the discomfort paid FUBU clothing line, quickly charmed prizes of $1,000 for first place, $500 for off for two reasons. First, Mark Dunn, the crowd. Many remember his ap- second and $250 each for the other two a consultant who runs Hartland, Wis.- pearance as a landmark event for the competing companies. The judges fund based Field Guide Enterprises LLC association. the awards. and helped found the MWAA, paid her “I don’t know how we can top that,” “We think it’s become a big part of $100 to wear the outfit. Second, she says Mary Winingham of Delavan, what MWAA is,” Embry says of the snapped the crowd out of the afternoon Wis.-based Mirror Consulting, who will Shark Attack. doldrums and helped launch a lively ascend to a two-year term as president To promote the first MWAA Shark first-time Shark Attack. when Embry steps down. Attack three years ago at the Oak Last year, in honor of the third edi- Brook Marriott Resort Hotel, she tion of the MWAA Shark Attack, the S O S A donned a shark costume and took to association persuaded Daymond John, Another annual MWAA event, the the stage in a basement meeting room. one of the judges of the Shark Tank TV “Sound-Off” session, will convene for The room, with steeply banked rows show, to make a personal appearance at the third time this year. Last year’s ses- sion alerted the industry to the federal government’s increasing scrutiny of the payments industry and how that may result in more regulation of the acquiring business. But high-profile events aside, much of the recent innovation at the conference %! # % ! " occurs behind the scenes. The asso- $! ! ! ciation has automated the registration process for attendees and exhibitors, ! streamlining the assignment of exhibit # space and eliminating many hours of hard labor. % ! % Automated payment acceptance % ! % # began last year–a move that strikes Dunn as only appropriate. “We should practice what we preach,” he says of accepting electronic pay- ments. The MWAA has also begun hiring
temporary workers to staff the registra- GET PAID. tion tables, freeing the association’s volunteer leaders to “enjoy the meet- ing,” instead of sweating the details, Embry says.
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The group cultivates leaders through “We should practice what we preach.” an established process that begins with membership on an advisory board. From –Mark Dunn, Field Guide Enterprises LLC, on the MWAA’s there, some of the volunteers move up relatively newfound ability to accept electronic payments to the board and take on additional responsibilities as officers. Winingham, like other key volun- teers, assumes responsibility for some roles every year. Her specialties have included overseeing the sponsor dinner registration; Rod Katzfey of Credorax and is known as a “jack of all trades,” and shepherding social media. administers the Passport Program and Jim McCormick of General Credit Other volunteers have also estab- helps juggle exhibit hall assignments; Forms Inc., who works with Dunn lished areas of expertise. Lori Carney and Dunn helps with exhibitors and and Katzfey on running the exhibit of First Data Corp. handles sponsor- serves as board treasurer. hall; Brent Barg of Transfirst, serves ship; Donna Ayers of Wimsett & Co. Advisory board members and their as another exhibit hall specialist; Art oversees marketing; Dinah Suppes specialties are Steven Koller of First Petrarca of ACH Federal, serves as of Secure Bancard LLC takes care of Data Corp,, who heads up the website empresario of golf outings; and Sean
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Fuery and Danny Suppes, both work ”I don’t know how we can top that.” on registration. Some professional meeting planners –Mary Winingham, Mirror Consulting, on celebrity Daymond John’s wildly also get involved ech year in the MWAA popular personal appearance at last year’s MWAA conference show. Bob Giese and Tina Smith, of the Travel Leaders Group, manage the hotel site, contracts, rooms, audio-visual sition to the EMV standard is occupying Club in Portsmouth, N.H. equipment, meeting rooms and meals, the thoughts of many members of the One of the organizers of those first says Embry. payments community, he observes. NEAA shows was Jacques Breton, “It’s been a 12-year relationship with Dunn presents Field Guide seminars who’s now vice president of ISO sales the meeting planners,” notes Dunn. “It’s at the MWAA show and the Western for My Clear Reports but was work- a big part of doing a show like this.” States Acquirers Association conference ing in those days for General Credit Last year, the association formed an to teach the basics of the business. The Forms, which was owned by the Mc- agenda committee, with Embry as chair. meetings, held since 2004 at the MWAA Cormick family. Board members Winingham and Dinah and since 2005 at the WSAA, draw a Breton handled sales in the North- Suppes served on the committee. Indus- cross section of new and experienced east for GCF and helped start the show try veterans who aren’t members of the ISOs and agents, he says. there. The GCF salespeople respon- board or advisory board served on the And work was under way at press sible for other regions followed his agenda committee, including Linda Perry time to set up yet another show, this lead and helped start shows in their of Linda S. Perry Consulting, Deana Rich one scheduled for August and slated territories. of Deana Rich Consulting, Linda Rosetti to return to the Chicago suburb of of Bluestone Payments and Matt Watts Lombard. O O T S of Crowdtilt. Tim Willi of Wells Fargo In the central states it was Jim McCor- Securities, who’s on the advisory board, T S mick and five others who founded the also helped build the agenda. The MWAA expects 106 exhibitors this MWAA in 2002, as Dunn recalls it. Mc- Working together is one of the re- year. About two-thirds of the exhibitors Cormick and Dunn worked with Caroline wards of volunteering, says Dunn. and approximately 80% of the attendees Marino, Lisa Lenczyk, Lori Carney and “It’s an exciting group to be part will be from the Midwest if well-estab- Misty Rowe to start the trade group, he of,” he says. lished trends continue. says. McCormick, Dunn and Carney The volunteers, all of them “take- Many attend the regional shows remain active in the association. charge” people, don’t sit and wait for because it’s not as expensive at going McCormick served two years as direction from the association’s presi- to the national conferences, Dunn says. president and four years as treasurer, as dent, says Winingham. The MWAA charges attendees $125, Dunn recollects. Carney was president “It’s a big group effort,” Embry says of while a trip to Las Vegas can cost more two years and vice president two years. the volunteers’ efforts. “I’m embarrassed than $4,000 for a couple, including Dunn was president four years and has to say I do the least amount of work.” airfare, hotel bills, restaurant tabs and been treasurer eight years. But others might disagree. Dunn, incidentals, he notes. Despite the efforts of those and other for example, says the show’s presenta- “And that’s not including the wagers volunteers to keep the conferences run- tions have improved markedly during in the casino,” Dunn says. ning smoothly, unanticipated glitches Embry’s tenure as president. They come for the presentations, can occur. “She has such a wide range of con- the exhibits and the networking—ele- In one example, a panel of experts tacts,” to serve as speakers, he notes. ments of the show that have formed took to the dais at the very first show, The association tries to keep its the basis of the conference from the Dunn recalls. The chair of the speaker presentation topics from different from beginning. on one end slid off the stage, and the those at the other regional meetings, All of the regional associations spun speaker tumbled to the floor. Gamely, but that can prove challenging because off from the original, the Northeast he climbed back up, placed his chair acquirers throughout the country face Acquirers Association, which got its back in line and continued as though the same issues at the same time, start in 1985 when eight foursomes got nothing had happened. Dunn says. together for a day of golf and network- “It was an amazing show of bravery,” Right now, for example, the U.S. tran- ing at Wentworth By The Sea Country Dunn says. ISO
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Why Bitcoin Matters avvy observers are looking beyond bitcoin as a currency and seeing its potential as a new set of payment rails. ut that s not even half of it. A O STEIN
t can feel lonely out there to a bitcoin aficionado, especially one who’s a banker. Ask Alan Lane. In October, the president and CEO of Sil- Ivergate Bank in La Jolla, Calif., was in Sacramento for a roundtable convened by the California Bankers Association and the state’s Department of Business Oversight. Reading a laundry list of about a dozen issues on the department’s radar, Commissioner Jan Lynn Owen mentioned Bitcoin—the internet cur- rency, payment system and technology that’s been grabbing headlines, igniting controversy and inspiring innovation across the globe. Lane pricked up his ears, in part because Silvergate had been in discussions about banking a Bitcoin startup. “I raised my hand and I said, ‘Is any- body else talking with any potential Bitcoin customers?’ There were a lot of blank stares around the room,” Lane recalls. “A lot of the bankers hadn’t heard of it. ... One guy, I don’t remember who it was, said, ‘I think they ought to outlaw it.’” Lane’s reply: “Well, if they outlaw it, I’m going to lose about $1,200 because are you going to learn about this stuff ally known merchants like Overstock. I just bought 10 bitcoin.” Later, he says, if you don’t step into it?” com, Zynga and the Sacramento Kings another banker friend teased him, “Uh Since that California bankers’ meet- basketball team have begun to accept oh, Alan, you shouldn’t have said that. ing, learning about Bitcoin has seemed Bitcoin payments. Even political candi- You just put a target on yourself with more and more worthwhile. At Sen- dates are taking donations through the the regulators.” ate hearings in November, regulators, system. Worldwide transaction volume Lane had purchased the bitcoins with lawmakers and law enforcement of- keeps growing, as does the number of his own money, not as an investment ficials all acknowledged that Bitcoin Bitcoin users. but to experience firsthand how the has legitimate and innovative uses as a “If this becomes a valid means of ex- system works. As Lane puts it, “How payments system. More recently, nation- change,” Lane says, “then shame on us
ISO&AGENT April 2014
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as bankers for not understanding it.” the country’s disco-era infrastructure to Europe to make a down payment on a A true understanding of Bitcoin (up- for moving money. vacation rental would cost $15 using the percase “B” for the payment system and “One of the reasons we’ve got so many Bitcoin network (including commissions technology, lowercase for the currency) questions and why the Fed’s paying at- paid to exchangers), compared to $50 means looking beyond its potential tention to fixing the payment system is for a cross-border credit card payment as an alternative form of money. The that there are some deficiencies in the and $40 to $80 for a bank wire. network’s rails one day could conceiv- payment system the way it stands now,” “You can’t look at that and say, ‘Well, ably provide a means of exchange for a says James Wester, a research analyst that’s just crazy,’” Wester says. “If it can whole lot more than a stateless, digital at IDC Financial Insights. “Bitcoin, help us address some of these issues, currency—think stock certificates or almost by chance, it seems, has solved maybe even solve some problems, then property titles. For financial services, those problems.” maybe we need to stop talking about it in an industry predicated on trust in third For example, Bitcoin offers near- terms of bubbles and stuff like that.” parties, the long-term implications real-time settlement, something the But even this appreciation of Bit- of Bitcoin’s underlying decentralized Fed says is “desired increasingly by coin is old hat. Payments aren’t the technology are staggering. end users” and is “generally lacking in half of it. many legacy payment systems.” T S “Within 60 minutes at the longest, T Most news stories about Bitcoin have usually less, the money is settled, and To get the full sense of why Bitcoin focused on its more tabloid-esque it’s settled for good,” says Jeremy Al- matters, start thinking of it not as a aspects: the currency’s illicit uses in laire, the founder and CEO of Circle currency, nor as a payment system, but online black markets; its mysterious Internet Financial, a startup in Boston as a protocol—that is, a series of rules creator, who went by the pseudonym that aims to make Bitcoin easier to use for exchange of information among Satoshi Nakamoto before disappearing for consumers and merchants. “That is computers in a network. The applica- in 2011; the bitcoin’s wildly fluctuating radically faster than the settlement that tions we all know and love are built on exchange rate with the dollar; its adop- we see in credit and debit transactions top of protocols. The World Wide Web, tion by celebrities like the Winklevoss today. From a merchant perspective it’s for example, was built atop TCP/IP, the twins. Online comment threads and even better because they know they got protocol underlying the Internet. Twitter conversations endlessly debate the funds. It’s there.” The heart of Bitcoin is the blockchain, the red-herring question of whether Another item on the Fed’s wish list a decentralized, constantly updated public bitcoins have any intrinsic value. Finan- that Bitcoin satisfies is cost reduction, ledger detailing the history of all transac- cial journalists view the phenomenon particularly for cross-border transac- tions on the network since its inception through a pinhole and shriek that the tions. Transfers from one Bitcoin address in 2009. The blockchain does not reside price is a bubble soon to burst, while to another are free, unless the sender on any single server; it is maintained on the blogosphere’s pundits criticize the elects to pay an optional transaction fee, thousands of computers. libertarian leanings and somewhat which usually amounts to pennies, for You’ve probably heard of bitcoin fanciful predictions of Bitcoin’s most faster confirmation. “mining.” The term is something of passionate supporters. Of course, buying and selling bitcoins a misnomer. The job is more like that Some observers have considered for fiat currency, usually through online performed by county clerks, except the Bitcoin’s merits as a global, frictionless exchanges, can carry additional costs. miners do it competitively. payment system—one that offers an Even so, using Bitcoin to transmit value Mining computers essentially race elegant answer to many of the questions can end up cheaper than legacy payment with one another to solve a complex math raised last year in a paper released by the methods. An analysis last year by Adam problem necessary to record the latest Federal Reserve, in which it called for Shapiro of Promontory Financial Group block of transactions in the blockchain. public comments on how to modernize found that sending $1,000 from the U.S. The prize for winning the race, which restarts roughly every 10 minutes, is 25 newly minted bitcoins (plus any transac- “Bitcoin settlement is radically faster than we see tion fees senders have elected to pay for in credt and debit transactions today.” faster settlement). The process is called “mining” because it adds new bitcoins –Jeremy Allaire, Circle Internet Financial to circulation, akin to extracting gold or
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silver from the ground—expcept instead “The whole (Bitcoin) system is messy and chaotic of elbow grease, Bitcoin miners expend electricity and processing power. and not top-down. Nobody is 100% in charge.” There’s no referee for this race. So who decides if a miner was first to cross –Gavin Andresen, Bitcoin Foundation the finish line? The other miners. They accept a new block only if all the trans- “hundreds of extremely competent reverse-engineer it to figure out the actions in it are valid—that is, if no one technical people have looked at it,” original data. But you can verify that has attempted to spend bitcoins they did Andresen says. “Both white-hat and a given hash belongs to a certain data not have—and they communicate their black-hat hackers had a chance to try set if you have both. acceptance by turning their attention to to break it, and nobody could.” Even the smallest modification to the computing the next block. Consensus As the lead developer for the core data will result in a completely differ- replaces central clearing. Bitcoin software, Andresen is probably ent hash. Apply SHA-256, the hashing By turning recordkeeping into a the closest thing the community has to algorithm used in Bitcoin, to the word competition that participants anywhere a figurehead. He says he and the founda- “pickle,” and you get the 64 character can quit or rejoin at will, with a monetary tion, formed in 2012, have influence, but string 6d08a4e630e4aa0d5cd873e65ae incentive to take part, Nakamoto aimed that the governance model for Bitcoin a0a23df42de61073ecb49ef17158fe6a9d to allow any two people in the world to is “very distributed, very loose,” like cea. But the plural “pickles” produces a engage in peer-to-peer transactions governance of the Internet itself. very different string of the same length without relying on a trusted third party. “The whole system is messy and (3614e3639c0a98b1006a50ffe5744f05 If a miner in Oakland blows a fuse, chaotic and not top-down like a central- 4cf4499592fe8ef1b339601208e80066, counterparts from Iceland to Australia ized system is. There’s nobody who’s should you be wondering). can pick up the slack. 100% in charge,” Andresen says. “Having the technology provide a “Bitcoin having no center means decentralized solution means you can there’s no target to attack, there’s no I trust that no matter what you’re using concentration of power. Power is diffuse Just as the decentralized setup of the In- the application for, you can trust the data and distributed among the entire com- ternet allowed Tim Berners-Lee to invent anyway, because it won’t be modified munity,” says Andreas M. Antonopoulos, the Web without asking anyone’s permis- by any third party,” says Araoz. a technologist and entrepreneur in the sion, the Bitcoin protocol has allowed A more advanced idea in development Bay Area who has emerged as one of innovative applications of the blockchain is colored coins. These are bitcoins Bitcoin’s most fervent and articulate at the edges of the network. that have been digitally marked in the evangelists. “There are no levers to A simple example is Proof of Ex- blockchain as carrying some secondary pull, no points to compromise. And that istence, a notary service created by value. A colored coin could represent provides certainty for everyone.” Manuel Araoz, a software developer ownership of a stock, a bond, or another But why should anyone trust software in Argentina. The site enables any- asset. In theory, Bitcoin could serve as whose own creator is a mystery? Impor- one to embed a time-stamped crypto- the backbone for a worldwide capital tantly, Bitcoin is open-source, meaning graphic fingerprint, known as a hash, market where companies could issue the underlying code is public information, of any document into the blockchain. securities while relying less on inter- and thus anyone can inspect it. The user can prove later on that the mediaries like clearing houses. “A geek like me can look at the source document existed at a specific point in “You combine the decentralized code. We don’t care who wrote it,” says time, whether it’s a will, a contract, a nature with the open ledger and the Gavin Andresen, the chief scientist at property deed, a patent application, a ability for two parties who don’t know the Bitcoin Foundation, the de facto screenplay or a love letter. Storing the each other to transact without having trade association for the Bitcoin net- proof in the blockchain means there to have a trusted intermediary, and it work. “Kind of like a mathematician will be a permanent, ubiquitous public really does open up the possibilities relying on a theorem that was written record of it. for Bitcoin being used as a way to clear by somebody they detest, you don’t To be clear: that doesn’t mean ex- certain types of asset transactions,” says really care where the idea came from; posing the document itself. Hashing Barry Silbert, CEO of the New York you care about the idea itself.” is a one-way function; if all you have broker-dealer SecondMarket. In Bitcoin’s five years of existence, is the hash of a document, you can’t Aside from dispensing with certain
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middlemen and bookkeepers, such I make my payments, that would be economy even in the most mundane a market might be more resilient. “It reflected by my bank to the blockchain way: opening deposit accounts for doesn’t rely on the New York Stock and I would be able to continue to operate virtual currency exchangers. Exchange, which can crash and does my vehicle. But were I to stop making “Every Bitcoin business has had crash, or the Nasdaq, which can crash payments on my car, instead of lawyers at least one bank account shut down and does crash,” says Gil Luria, an and debt collectors and repo men getting on them,” Tony Gallippi, CEO of the analyst at Wedbush Securities. “It relies involved—if the blockchain was not to Atlanta payment processor BitPay, said on the distributed ledger that does not receive a message from the bank that at a conference last summer. have one point of failure.” I’d made my payment that month—they Jonathan Mohan, the founder of Bitcoin- could disable the Tesla and quite directly T E NYC, a Bitcoin community networking prevent me from operating it.” For many bankers, guidance released group in New York, likens colored coins And since everything would be re- last year by the Treasury Department’s to a stamped envelope—the bitcoin is the corded in the blockchain, both parties Financial Crimes Enforcement Net- stamp that enables the contents of the pack- could see exactly what happened, and work, which subjected virtual currency age to travel through the postal system. neither side could deceive the other. No firms to the same know-your-customer Looking at the recent price of bitcoins, more “check’s in the mail” excuses from requirements as traditional money you might think $800 is pretty steep for a borrowers; no more predatory acts by services businesses, hasn’t sufficed to postage stamp. But bitcoins are divisible creditors, like failing to post a consumer’s remove the scarlet “A” (for anonymity) to the eighth decimal point. So an issuer payments in a timely manner. And the bor- from these startups. could conceivably acquire a thousandth of rower needn’t sacrifice privacy. Because “The challenge here with a lot of a bitcoin for 80 cents, tag it as a stock or Bitcoin addresses are pseudonymous the reluctance of financial institutions bond, and then subdivide it into smaller alphanumeric strings, outsiders looking to provide banking services for Bitcoin bits for distribution to investors. at the blockchain wouldn’t necessarily companies, it’s because they need guid- know who the parties are. All that would ance from the regulators, too,” says Bruce S S be visible is how many bitcoins have moved Wallace, the chief operations officer at Imaginative potential uses of the block- from A to B and when. SVB Financial Group, parent of Silicon chain involve the interrelated concepts Antonopoulos envisions Bitcoin even- Valley Bank in Santa Clara, Calif. of smart property, smart contracts and tually enabling a new field of “computa- As one might expect from its name programmable money. tional law,” in which contracts—which and location, that bank is more favorably In the basic Bitcoin transaction, if could include loans, asset sales or ser- disposed than most to working with in- Bob wants to send Alice a bitcoin he vice agreements—are written as largely novative companies and has a handful needs two pieces of information: his self-executing computer programs, of virtual currency clients. But it’s not private key, and an address generated and much of the counterparty risk of taking on any more. from her public key. Anyone can send business simply disappears. That, An- “We’re challenged a little bit right money to a Bitcoin address, but only a tonopoulos says, would leave lawyers now,” Wallace says. “We need to spend signature generated by the private key “much more focused on capturing and more time on trying to help regulators, can release money from it. expressing the desires of the parties [in trying to figure out the right guidelines But what if the private key were a car writing the scripts] rather than settling here with companies as opposed to key? A car owner or a rental company or the disputes or arbitrating the disputes spending more time figuring out how a lender could configure a vehicle to turn on the back end.” to bank more companies.” on only if it receives a message signed by That’s a long way off, of course. One issue that federal regulators need a private key that owns a colored coin. As Lane witnessed at the California to clear up, he says, is how far a bank is ex- “Were I to borrow money in order banker meeting, most U.S. banks are pected to go in monitoring its customers’ to buy a Tesla,” says Luria, “as long as still wary of participating in the Bitcoin customers after they convert their dollars to virtual currency or vice versa. “Today, if a consumer went into a “If I were to stop making payments on my Tesla, bank, and they withdraw $5,000 in cash, the blockchain could disable my car directly.” the bank is absolutely required to know that they took $5,000 in cash. But then, –Gil Luria, Wedbush Securities what they subsequently do with that,
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it would be impossible for the bank to “Every Bitcoin business has had at least one bank know,” Wallace says. Bitcoin, which has characteristics of account shut down on them.” both cash and electronic funds transfers, –Tony Gallippi, BitPay does not cleanly fit into either category. “When you can’t see who they’re exchanging the bitcoin with, when be much more stable than it’s been.” ASICs, designed specifically for mining all you can see is it’s just a wallet ad- Is stability attainable for a currency bitcoins, and the math problems became dress,” Wallace says, “it’s difficult for that, unlike most others, is not supported more difficult. The last year saw a couple a financial institution to say, ‘Yes, we by any government with the power to of close calls in which a mining pool came can confidently report that we saw that tax its citizens (or “backed by men with close to controlling 51% of the processing transaction happen and we saw that the guns,” in economist Paul Krugman’s power on the network. Realizing that the other side of the transaction was with memorable phrasing)? Allaire at Circle value of bitcoins depends on Bitcoin be- a legitimate third party that we know Financial says the price could stabilize ing controlled by no one, the pool wisely the identity of, and we know the reason if institutional investors start to get cut back each time. that they did that transaction.’ ” involved. Silbert’s firm, SecondMarket, “There’s so much vested interest With the blockchain offering a launched the Bitcoin Investment Trust by all the participants for Bitcoin to be trail of crumbs, it’s ambiguous as last year for accredited investors; the successful that even when we approach to whether banks should follow it Winklevoss brothers, famous for their these types of levels, the system wants or treat a bitcoin purchase like an wrangling with Mark Zuckerberg over to self-correct so as not to cast the ATM withdrawal. (Wallace says he the genesis of Facebook, are still await- whole network in doubt,” Luria says. doesn’t have a preference which side ing SEC approval for their proposed “Absolutely this could be a point of the regulators come down on, as long bitcoin exchange-traded fund. vulnerability, but at least for now the as they provide clarity.) As a payment system, Bitcoin offers stakeholders are trying to manage that But further regulation, warranted or an attractive safety feature in that it is a risk and steer clear of it.” not, presents a risk to Bitcoin achieving “push” system, requiring an active step Andresen predicts that mining chips its full potential. by the accountholder each time a pay- will become cheap after manufacturers “No one government can shut Bitcoin ment is triggered. Contrast that to “pull” engineer them down to the tiniest, most down. No one regulator can shut Bitcoin payments, where the consumer gives a energy-efficient size possible. “These down,” says Luria at Wedbush. “But what credit card or bank account number to chips will become ubiquitous,” he says. governments and regulators can do is a merchant or recurring biller, trusting “Just doing that will make mining much impede the progress and the innovation, that this third party will safeguard the less centralized and much more ... ‘one especially in their country.” information. Security breaches like the mining chip, one vote.’” Price volatility presents another one Target suffered during the holiday Even if Bitcoin is taken over by a impediment to Bitcoin’s adoption as shopping season highlight the advan- malicious actor, or is crippled by govern- a payment system. Processors like tages of a push-only system. ments or by a price collapse, the idea BitPay and Coinbase have made this is here to stay. issue manageable for merchants by im- As for Silvergate’s CEO, Lane, he isn’t mediately converting bitcoin payments Probably Bitcoin’s biggest long-term banking any Bitcoin startups yet but he’s to dollars for them, for a fee that still risk is the possibility of a “51% attack,” definitely intrigued. The currency, he says, beats the credit card companies. But not in which one entity takes over the major- “touches all the things I’m interested in, knowing how much a currency will be ity of mining power and wreaks havoc, in terms of finance, technology and pay- worth from one day to the next could perhaps by double-spending coins or ments. The more I learned, the more I hinder adoption by consumers outside preventing other users’ transactions said, ‘Gosh, this is pretty cool.’ ” ISO a core group of speculators, curiosity from being processed. seekers and die-hard Bitcoiners. Mining already has strayed from “Volatility is definitely an issue and Nakamoto’s vision of “one CPU, one vote.” arc ochstein is American anker s definitely a problem,” says Andresen at As the business grew more competitive, e ecutive editor and oversees ank the Bitcoin Foundation. “For it to really be miners formed pools, manufacturers hink a blog about ideas in financial a viable payment system, you do want it to introduced powerful chips, known as services.
8 ISO&AGENT April 2014
068_ISOApr14 5 3/17/2014 11:03:31 AM Guest Column ASON O AN
dable force, powering local economies, Conferen es Foster Conne tions creating jobs and generating revenue for local businesses, such as hotels and res- espite e awn Of igital ge taurants. However, they also power the industries that they’re dedicated to. Tradeshows are genuine hubs of technological innovation. They provide a forum where ideas are hatched, where TE NO OG NO A I ITATES EETINGS eight distinct tracks carefully designed partnerships are formed and where between businesses and individuals to meet the needs and interests of our new products are revealed, maximizing anywhere in the world. The internet is attendees. visibility. The payments industry has a constant flow of company information, But in an era when companies are enjoyed a significant period of dynamic and email messages deliver instant juggling the efficiencies of digital busi- change over the last 50 years, expanding personal interaction. Yet despite such ness interactions with tight financial from traditional payments systems to a successful digital business world, constraints, conferences have to deliver include areas such as loyalty and cou- the conference and trade exhibition even more value. pons with the advent of mobile. appears timeless. In my experience, conference attend- Every year in the U.S. alone, 225 ees really do want to mix business with There s still no better million attendees participate in around pleasure. Attending exhibitions is an substitue for meeting 1.8 million conventions, conferences, in person...catching up investment, so the action doesn’t stop in congresses, trade shows and exhibi- with customers engaging the seminar room or on the show floor. tions. prospects or securing a Secreted away behind closed doors or Those numbers are still growing, business deal. relaxing at a cocktail party, networking and the popularity of attending industry at conferences is the lifeblood of business conferences continues to rise. According deals that create new customers, build to the U.S. Bureau of Labor Statistics, partnerships and deliver cutting-edge the number of conventions and events This can come from a strong seminar technology that can shape the direction are expected to expand by 44% from program and enticing keynote speakers, of an entire industry. 2010 to 2020, a trend likely to be shared but it’s the opportunities to meet face- Missing out on a conference can mean the world-over. to-face and network with industry peers losing out on vital education, the launch So what makes the industry confer- that are the most significant. Securing of new products and a crucial chance to ence such an enduring phenomenon? time face-to-face is a rarity in the digital network with industry peers–seriously Throughout history like-minded people age. However there’s still no better sub- damaging your own and maybe your have gathered at forums and meetings to stitute for meeting in person. Whether businesses’ competitive edge. Against share ideas and nurture innovation. This it’s simply an introductory handshake, all odds, as the digital world grows and “meeting of the minds” and educational catching up with customers, engaging face-time becomes an ever more pre- principle is still firmly at the core of many prospects or securing a business deal, cious commodity, we can expect the conferences and exhibitions. conferences provide the ultimate meet- popularity of conferences and value The best conferences are content- ing environment. Where else can you they deliver to boom. ISO rich, featuring seminars and training. interface with all of these people in one They also provide a crucial platform for place at one time? When it comes to the the launch of new products and services. time and cost of business meetings, it ason man is of the lec For example, ETA’s upcoming annual really doesn’t get much more efficient tronic ransactions Association event, TRANSACT 14, offers four times than investing in attending an industry which is staging the RA A 1 more educational opportunities than last conference. trade show. Reach him at o man@ year; we are providing 60 sessions on The conference industry is a formi- electran.org.
JTPBOEBHFOUDPN April 2014 ISO&AGENT
069_ISOApr14 1 3/19/2014 11:02:33 AM AN ING WALLETS
rently is very little interest. So, like a songwriter hoping to come Finally Going Mobile? up with a hit, Ormseth, Wintrust’s di rector of non-credit services, knew he ill anyone ever make money with mobile wallets needed a hook—something to entice oes the public even want them uch remains to be seen. S ANE ITE retail banking customers to use a mobile wallet so that the bank, in turn, could convince merchants to pay for the data that would be generated. FIS, Wintrust’s mobile banking pro vider, eventually offered up something that was music to his ears. intrust Financial’s Working with mobile wallet provider Tom Ormseth knew Paydiant and ATM maker Diebold, FIS the time was right developed a white-label, cloud-based for the $18 billion- service that lets bank customers with asset, Chicago-area draw cash from ATMs using a basic Wcompany to come up with a mobile wal- mobile wallet. let offering when merchants curious The bank gets to brand the service about the concept started asking him as its own, and with only a software questions. A lot of questions. upgrade it could enable existing ATMs The request for guidance was under- to handle the cardless withdrawals. standable. While “mobile wallet” has The money goes into the consumer’s become an industry catchphrase, its pocket the old-fashioned way—this is definition remains amorphous. real cash, not digital credit—but no No one knows exactly when, how or card is needed. from whom the supposed mobile wallet The phone replaces the card, with future will arrive. identification and authentication handled Nor can anyone say what it will mean by a mobile app where users can enter for banks, merchants and card networks their debit card information, estab as more consumers start buying things lish a PIN, see menus of withdrawal with their phones, instead of debit or amounts and find ATM locations where credit cards. the cardless cash withdrawal service Nevertheless, the proliferation of is offered. phone-based payments seems inevi- When the customer selects the “.com table. munityWallet” feature on the ATM Less certain is whether banks will welcome screen, up pops a QR code profit from it, by monetizing their mobile that can be scanned with a smartphone customer data. and the withdrawal can be made, turn To do that, they will need enough ing “what is normally a 30-plus second consumers using mobile wallets to transaction into about a nine-second convince merchants that purchasing the data will help boost their own bot- tom lines. “For the first time, (loyalty programs) is where we It’s a chicken-or-the-egg conundrum, can actually start to monetize mobile banking.” requiring banks to create demand among –Tom Ormseth, Wintrust consumers, where many say there cur-
ISO&AGENT April 2014
070_ISOApr14 1 3/17/2014 9:54:41 AM rently is very little interest. “Does the corner ice-cream seller really need that So, like a songwriter hoping to come Finally Going Mobile? up with a hit, Ormseth, Wintrust’s di- much analytics on their customer base?” rector of non-credit services, knew he ill anyone ever make money with mobile wallets needed a hook—something to entice –Giles Ubaghs, Ovum S ANE ITE retail banking customers to use a mobile wallet so that the bank, in turn, could transaction,” Ormseth says. working with its local merchants, it can convince merchants to pay for the data The model excited Wintrust execu- become valuable. But I question how that would be generated. tives, who are betting that a cardless much small merchants would pay for FIS, Wintrust’s mobile banking pro- cash withdrawal feature at the ATM will this. Does the corner ice-cream seller vider, eventually offered up something jumpstart consumer interest in a more really need that much analytics on their that was music to his ears. fully functional mobile wallet. customer base?” Working with mobile wallet provider Ormseth hopes the service, tested While Wintrust waits to find out, it is Paydiant and ATM maker Diebold, FIS first with employees, can achieve a 20% promoting the cardless ATM withdrawal developed a white-label, cloud-based adoption rate among Wintrust’s retail service in videos and in live demonstra- service that lets bank customers with- banking customers within 18 months tions at its branches. draw cash from ATMs using a basic of its rollout. A YouTube clip from FIS on the mobile wallet. With that kind of traction, Ormseth BusinessWire channel, which calls The bank gets to brand the service says, the bank should have enough data attention to the Wintrust pilot test and as its own, and with only a software to attract the attention of retailers, who demonstrates how the service works, upgrade it could enable existing ATMs might, for instance, be interested in had more than 2,800 views at ISO&Agent to handle the cardless withdrawals. sending coupons or other enticements press time. The money goes into the consumer’s directly to the smartphones of Wintrust General awareness of mobile wallets pocket the old-fashioned way—this is customers who are withdrawing money is starting to proliferate with the help of real cash, not digital credit—but no from nearby ATMs. competing bank-branded wallets from card is needed. “For the first time, this is where I the likes of Gemalto and Monitise. The phone replaces the card, with think we can actually start to monetize Wallet technology startups such as identification and authentication handled mobile banking,” Ormseth says. LevelUp and Square also are creating by a mobile app where users can enter “Customers who go to one of my buzz and gaining users. their debit card information, estab- ATMs within a mile of any one of these According to Ormseth, employees lish a PIN, see menus of withdrawal businesses could be presented with a involved in Wintrust’s pilot test re- amounts and find ATM locations where value, and we could manage that for sponded enthusiastically to the cardless the cardless cash withdrawal service a lot of our merchants that aren’t big cash withdrawal service, which will be is offered. retailers but want to compete on that available at all of Wintrust’s 185 ATMs When the customer selects the “.com- level. We think that’s something they’d by the end of the first quarter. munityWallet” feature on the ATM be willing to pay for.” Given the choice of using the app or welcome screen, up pops a QR code But will they? getting cash via their traditional ATM that can be scanned with a smartphone “It’s hard to say,” says Gilles Ub- cards, “everybody” chooses the app, and the withdrawal can be made, turn- aghs, senior analyst at the research Ormseth says. ing “what is normally a 30-plus second firm Ovum. “That data can provide But the expense of providing the transaction into about a nine-second quite a bit of insight, so for a local bank service and developing other mobile wallet applications weighs heavily on Ormseth’s mind. “For the first time, (loyalty programs) is where we “We’ve got to be able to monetize can actually start to monetize mobile banking.” this at some point,” he says, “or we’re not going to be able to keep paying –Tom Ormseth, Wintrust for it.” ISO
JTPBOEBHFOUDPN April 2014 ISO&AGENT
071_ISOApr14 2 3/17/2014 9:54:43 AM Guest Column I O
tests, and businesses that conduct their Compl it CI SS er a own tests find it can take some time to schedule, perform, and remediate ot ust uring ssessments (if necessary). The results of a PCI assessment will be delayed until the penetration test is completed, so now is the time to schedule the test. E A ING O A A ENT A IN ST foundation of any security program The next step is to train employees. data security standards compliance and comprise a large percentage of Technical employees should obtain assessment looms as a major task for the PCI requirements. certifications or take classes so they can any organization. Business leaders and department control and monitor security. Non-tech- The complexity derives from PCI’s heads should arm themselves with nical employees should learn general standards, which include up to 13 re- the PCI requirements and the results security awareness practices, such as quirements that specify the framework of the risk analysis. password protection, spotting phish- for secure payments for companies That way they can establish detailed ing attacks and recognizing social that store, process or transmit credit engineering. card transactions. All the security controls and policies etermine the level of ris Following several steps can make for data compromise and in the world provide no protection if a the assessment easier. then set about reducing iit. employees do not know how to operate For an organization to manage its valuate systems sub ect the tools in a secure manner. own risk effectively, it must complete to C standards and then Likewise, the strongest 42-character e amine systems that a detailed risk analysis. password with special characters, num- aren t in scope for C . The goal is to determine the threats bers and mixed cases becomes utterly and vulnerabilities to services per- useless if an employee writes it on a formed and assets. sticky note attached to a monitor. As part of a risk assessment the security policies and procedures that When an organization is ready for organization should define its critical address the requirements but are tai- a full-scale PCI assessment, it should assets, including hardware, software lored to business processes and security also be able enter a maintenance mode and sensitive information—and then controls in the organization. with periodic internal audits and regu- determine risk levels for those com- Building upon the foundation of secu- lar committee meetings to perform ponents. rity policies, the committee of business risk assessments and update policies, That in turn enables the organization leaders and department heads should procedures and security controls to to determine priorities for reducing then review the PCI requirements in respond to an ever-changing threat risk. Note that merchants should set detail, discuss potential compliance landscape. risk priorities for systems that will be gaps and establish a remediation plan Companies should integrate PCI in-scope for PCI and then other company for closing those gaps. standards into everyday operations to systems and networks. It is important to have the full support remain secure and ease the burden of Once the organization completes of business leaders who can authorize annual assessments. ISO the risk assessment it should have funds and manpower for remediation. a clearer view of its security threats That’s also the right time for busi- and risks and can begin determining nesses to schedule the required annual Phil orc uk a senior associate with its security posture. penetration testing. right ine speciali es in P as Policies and procedures form the Third parties typically perform those sessments and gap assessments.
ISO&AGENT April 2014
072_ISOApr14 1 3/17/2014 5:45:30 PM ITIGATION HEARINGS
Lawmakers Ponder Breaches he challenges that data breaches present to retailers the payments industry and lawmakers were on display at recent congressional hearings. I TO IA IN E
arget’s chief financial officer, significant benefit for consumers.” Consumer advocates argued that John Mulligan, acknowl- Some lawmakers, including Sen. Rob- the payments industry could do more edged rcently in testimony ert Menendez, D-N.J., questioned whether to protect consumers from debit card before congress that the it would be prudent to legislate improved fraud. “The issue here is that zero liabil- retail chain was not aware standards without mandating specific ity may not occur in all circumstances. Tof its holiday-season breach until it was technology, which could quickly become It may only apply to signature transac- notified by the Justice Department. outdated given the t pace of innovation in tions, not to PIN-based transactions,” John Kingston, the chief information financial services. said Edmund Mierwinski, consumer officer at Neiman Marcus, told thecon- But “at what point,” he asked, “should program director at the U.S. Public gressional hearing that his company it be considered a reasonable security Interest Research Group. “And also I learned of a problem when MasterCard risk for a company not to be using chip- would look at the zero-liability contract reported that more than 100 credit cards and-PIN technology or something that and say, ‘What if I had two violations in used at the luxury goods retailer were performs equivalently?” a year; do they honor the second one?’ reported to have fraudulent activity. Lawmakers also asked witnesses Because some banks don’t.” Debate at the hearings focused on whether additional security standards Several lawmakers, including Judi- actions that financial institutions and are needed for debit cards, as well as ciary Committee Chairman Sen. Patrick merchants can take together to improve credit cards. “ ... [G]rowth in debit cards Leahy, D-Vt., referenced proposals for protection of credit and debit cards, in- is coming [from] younger folks and the legislation to beef up data security stan- cluding the use of EMV chip technology underbanked community, who potentially dards and consumer notification. But to replace the magnetic stripe on the are the most vulnerable if they don’t it’s unclear if momentum will coalesce back of most U.S. cards today. have these protections,” said Sen. Mark around any one bill. Lawmakers pressed witnesses as to Warner, D.-Va. “It would seem to me that In the meantime, lawmakers urged why the technology has not advanced equalizing cards on the same standard the industries involved in the breaches more quickly here, given ongoing con- makes common sense, too.” to strengthen their efforts to protect cerns about data security. Mulligan James Reuter, an executive at First against cybercrime. said Target tried to adopt chip technol- Bank in Colorado who was representing “I think that the industry, or maybe I ogy with its store cards more than a the American Bankers Association at should say industries, have a lot of soul decade ago, but that the effort should the hearings, downplayed the need for searching to do about whether they’ve be matched by others in the industry. congressional action on the issue, saying been protective of consumer informa- “We put guest payment devices, as we that banks already are doing enough to tion,” said Sen. Richard Blumenthal, call them, in our stores to read chips. protect consumers using debit cards. D-Conn. “Because, as we know, you We introduced a new payment card, a “I’m not sure additional legislation can apprehend, investigate, prosecute Target Visa card, with a chip in it,” he is needed, because we are adhering to criminals, but rarely does that compen- told the Senate Judiciary Committee. a zero-liability policy as a matter of our sate [consumers] when they are victims “But without broad adoption, there isn’t business practice,” he said. of identity theft.” ISO
JTPBOEBHFOUDPN April 2014 ISO&AGENT
073_ISOApr14 1 3/17/2014 1:07:18 PM ESEA MOBILE
Closed To The Public? peculation continues on how an Apple allet would look. f the company decides to offer one it might work for members only. A I E N
hen Apple makes which handles payments for digital Apple Inc. has 5,960 entries in the its long-awaited content sold on its iPhone, iPad and U.S. Patent and Trademark Office da- plunge into mobile Mac products. Apple also created the tabase, though not all relate to payment payments, it’s more Passbook app, which collects other systems, the report states. likely to create a mobile wallet apps, and stores payment The first “natural step” for Apple to Wclosed system for Apple customers than credentials in its iCloud keychain. expand payments beyond its own custom- a truly open mobile wallet for all consum- Those assets, in combination with ers would be to bring online merchants ers, a new study from Celent says. Apple’s TouchID fingerprint scanner on into the fold, the report adds. Admitting it doesn’t possess any the iPhone 5s, provide the technology Adding a “Pay with iTunes” button to inside information from highly secre- groundwork for a more complete payments the merchant’s checkout pages, similar tive Apple, research firm Celent’s new system, Bareisis says in the report. to a “Pay with PayPal” button would be report offers its “educated guess” as After establishing a mobile payment a viable choice for Apple. to how Apple is positioning itself for a system for Apple device users, the com- PayPal has already expressed an future in payments. pany would likely “try to do payments interest in partnering with Apple, Bare- “The key hypotheses that I haven’t facilitation online” and then move on to isis says. PayPal was willing to offer its seen much discussed elsewhere is this payments for physical goods, Bareisis platform capabilities, anything from fraud notion that Apple will start with provid- says. In the future, Apple could poten- detection to back-end infrastructure, even ing payments for their devices only,” says tially expand its services for “payments possibly down to processing of payments, report author Zil Bareisis, a London- disruption,” Bareisis adds. on a white-label basis, he says. based senior analyst for Celent. Apple could possibly leverage its Apple can handle payments for more Speculation about Apple’s road to AirDrop technology, which allows us- merchants by bringing them into the mobile payments picked up steam last ers to share photos, videos, websites Apple ecosystem in the same manner month when the Wall Street Journal and other material with nearby iOS 7 their customers can currently subscribe reported the company had given Jennifer devices, into a person-to-person pay- and pay for a Netflix movie rental sub- Bailey, a vice president of the company’s ment platform, Bareisis says. scription through Apple TV. online stores, the task of building an In addition, Apple’s Bluetooth Low In creating a “Pay with iTunes” or a Apple payments business. Energy system, iBeacon, can be con- “Log In with iTunes” service that could Apple is already in the payments figured to support multiple applications plug in to other merchant websites and business with its iTunes media store, from marketing to payments. apps, Apple would have to ensure it could effectively compete with payments ser- vices from companies such as Braintree “The hypotheses...is that Apple will start with and Stripe, Bareisis says. providing payments for their devices only.” Other options include building on the iCloud Keychain or storing actual payment –Zil Bareisis, Celent card inside the Passbook app. ISO
ISO&AGENT April 2014
074_ISOApr14 1 3/18/2014 4:01:28 PM E TRANSITION
A Team Of Rivals aster ard and isa are oining forces to ease the nation s transition to smartcards. A I E N
asterCard and Visa networks “spoke with a range of senior security vendor ValidSoft, supports the have formed a group executives at retailers, financial institu- effort to speed up the EMV transition, to improve efforts in tions and manufacturers to gauge their but says the payments industry should the U.S. to switch to interest in this working group” before its be aware that any technology calling for EMV-chip cards other launch, says MasterCard spokesperson the use of payment cards at a physical Msecurity methods. Seth Eisen. point of sale may have to change. The cross-industry group will include Because the group is new, Visa and “The industry must be fully cognizant representation from banks of all sizes, MasterCard declined interviews. of how payments and fraud is evolving,” credit unions, acquirers, retailers, ter- Even with most entities agreeing that Carroll says in a prepared statement. minal manufacturers and industry trade that the U.S. should have better card “There is a grave danger that it will find groups, the card brands say. The group security, there’s still conflict over the itself having spent billions of dollars on was formed to improve collaboration proper approaches. A new group could new cards and POS devices capable of and cooperation on security issues, help bring all parties into sync and work processing chip-and-PIN, only to find with the goal of maintaining consumer past the issues, Pascual says. that both consumers and the crooks confidence and trust. But perhaps there are still some have moved on.” Such collaboration is necessary, as differences to overcome. Besides addressing the EMV issue, the atmosphere in payments has bred One major sticking point in the U.S. the new group intends to become a rivalries like those in “West Side Story,” shift to EMV cards has been whether catalyst for other types of security says Al Pascual, senior analyst for Javelin issuers should require consumers to technology, such as tokenization and Strategy & Research. use a PIN to make EMV payments. end-to-end encryption. Both methods “Left to their own devices, we may Visa has openly supported using sig- replace payment card details with data still end up with this Sharks versus nature authentication as an easier and that criminals cannot exploit. Jets thing going on…it’s nothing new cheaper method. “The recent high-profile breaches that retailers and the financial industry Shortly after Visa and MasterCard have served as a catalyst for much- don’t tend to get along for a variety of announced their cross-industry group, needed collaboration between the reasons, but with all of the breaches and the National Retail Federation issued retail and financial services industry scrutiny from legislators, they’ve really a statement outling how it wants the on the issue of payment security,” Visa kind of been at each other’s throats,” group to proceed. president Ryan McInerney states in a Pascual says. “We remain insistent that U.S. re- press release. “As we have long said, Neither group wants to get up in front tailers’ customers be given the same no one industry or technology can of Congress and say that the industries protections as consumers in more than solve the issue of payment system could never cooperate with each other, 80 countries who have both a chip and fraud on its own.” Pascual says. “This is a way to get it all a PIN securing their credit and debit Group members will share ideas, on the table.” cards,” NRF senior vice president and break down barriers and “spur the Already, the group has been received general counsel Mallory Duncan said adoption of next-generation security positively by key constituents in each in a prepared statement. solutions for the benefit of all,” McIn- industry, MasterCard says. The card Pat Carroll, executive chairman of erney maintains. ISO
JTPBOEBHFOUDPN April 2014 ISO&AGENT
075_ISOApr14 1 3/17/2014 1:07:45 PM Guest Column O SSO
employees, and having clear processes In lude Full Se urit C e kup for the handling of sensitive payment card data. These processes are critical for all In e ransition o M C ips businesses—both large retailers and small businesses—who themselves have become a target for cyber criminals. At AS E I EN E E ENT IG merchants should consider fu- smaller businesses, EMV chip card tech- profile data breach incidents at ture Point-to-Point Encryption nology will have a strong positive impact. major retailers, keeping pay- (P2PE) plans and what addi- But if small businesses are not aware of ment data secure in today’s tional layers of security that the need to secure other parts of their world is an increasingly com- may be desired. systems, or if they purchase services and plex challenge. Even after the EMV migra- products that are not capable of doing that While EMV solves one part tion is complete, it’s only part for them, then they will still be subject to of the problem, there’s no single of a broad security strategy the ongoing exposure of the compromise solution that addresses all se- that includes other identity risk of cardholder data and resulting financial curity challenges. For example, EMV measures and IT security. or reputational risk. ISO is not intended to protect the growing Implementing EMV doesn’t do away part of our global economy that conducts with the need for secure passwords, business online. patching systems, monitoring for intru- ob Russo is general manager of the EMV provides excellent protection sions, using firewalls, managing access, P tandards ecurity ouncil Reach against fraud in a face-to-face environ- developing secure software, educating him at [email protected]. ment. But in preparing for migration to EMV, multi-channel organizations need to consider their entire payment infra- structure, not just brick and mortar, and Is S uare Read o o u li specifically e-commerce environments. O N A A S In fact, those countries that have adopted EMV chip have experienced a significant S A E AS E O TE E A E AN to have all of your revenue sources lined spike in other types of fraud, especially initial public stock offering, which gives up in advance,” Crone says. in card-not-present environments, like the company a chance to build more Square has raised capital at a $5 bil- e-commerce. For help understanding services that position it for sustain- lion valuation, and would have trouble how to apply PCI Standards to secure able growth, according to payments achieving that market cap in the public online transactions, check out the PCI consultant Richard Crone. market, Fox Business’ sources said. DSS E-commerce Guidelines. The The company has postponed its “I wonder if there isn’t some concern PCI Security Standards Council also IPO indefinitely, according to Fox that the financials of a payment company works closely with EMVCo and is an Business, which quoted unnamed like Square, where the revenue comes active member of the EMV Migration sources who attributed the delay to from taking a small fraction of a small Forum (EMF) problems with the company’s projected fraction, might look underwhelming The soundness of payment termi- financial performance. to the market,” says James Wester, a nals is also an important component of “The micromerchant market is nearly research director at IDC Financial In- security in an EMV environment. The saturated,” Crone says, noting that sights. “Square has touted its processing EMV migration is a great opportunity Square would benefit from building the rate, usually on an annualized basis, but to look at overall terminal security, and user base for its mobile wallet, which only a small amount is actually revenue. for retailers to invest in a terminal that would expand the company’s strength That might make it difficult for Square meets various security standards and as a merchant acquirer. to live up to its pre-IPO hype.” needs. The PCI Security Standards Square has also tried to attract larger Square, which was created by Twitter Council provides a list of PCI compli- merchants with products like Square founder Jack Dorsey, has raised more ant transaction security devices. Also, Stand. “To have a lucrative IPO you have than $340 million from investors. ISO
ISO&AGENT April 2014
076_ISOApr14 1 3/19/2014 10:20:21 AM O O ATIONS MERGERS
EBay: A House Undivided ay is clinging to its PayPal subsidiary despite a well known activist investor s efforts to tear the company asunder. O N A A S
Bay has been adamant that that they have benefited from being so Microsoft’s acquisition of Skype at the its auction and payments tightly integrated. expense of eBay’s shareholders. Icahn businesses are best kept “No other payments competitor has said Andreessen has made investments united, but if activist inves- achieved PayPal’s success because and advised eBay competitors such as tor Carl Icahn succeeds in no other competitor has a commerce mobile payments provider Boku, the Ehis mission to split off PayPal, eBay platform like eBay,” John Donahoe, Bitcoin wallet Coinbase, mobile card probably would not exit the payments eBay’s CEO, said in January. “In 2010, payment company Jumio and mobile business completely. PayPal generated approximately $600 technology developer Dwolla. Without PayPal, “I would fully expect million of mobile payments volume, EBay in late February issued a de- to see [eBay] immediately experiment 80% of which came from eBay mobile fense of its management and board, with a de novo version of the failed Bill- apps. In 2013, three short years later, saying “Mr. Andreessen’s track record point,” says James Van Dyke, CEO of PayPal’s mobile payment volume grew of creating value and driving innovation Javelin Strategy & Research. Billpoint to $27 billion both on and off eBay. makes him an extraordinary asset on was a joint venture of eBay and Wells That’s massive growth, a 45x increase eBay’s board.” Fargo that dissolved when eBay bought in a three-year period and a leadership PayPal may be able to stand on its PayPal in 2002. position in mobile payments.” own. The payments company was profit- The trouble with the Billpoint model Since eBay disclosed its dispute with able before the eBay acquisition, and it was, simply, PayPal was better. EBay Icahn during a Jan. 22 earnings call, the has options for revenue expansion, says has repeatedly tried to compete with opponents have published numerous Penny Gillespie, a Gartner analyst. payments businesses by creating its own press releases and blog entries defend- “PayPal has been and is currently version in-house, but time and again the ing their positions. pursuing offline payments at the point company has admitted defeat and pur- In a March 6 press release, Icahn of sale,” Gillespie says. “PayPal is also a chased its rival. Other examples include said a PayPal spinoff could enable two payment gateway, payment processor, eBay’s 2009 purchase of Bill Me Later separate management teams to focus payment service provider, a payment and its 2013 purchase of Braintree. more closely on their core businesses type and a digital wallet, so there are “On the surface it may seem a bit odd and make better strategic decisions other opportunities that could be more for an auction company to own a global for each company. An independent aggressively pursued.” payments company,” says Jordan McKee, PayPal could attract talent and facilitate Today, PayPal’s greatest growth po- an analyst at Yankee Group. “However, partnerships with companies that may tential comes not from auctions, which is when you take a look under the hood the now be reluctant because of competitive a mature and steady business, but from dynamics and synergies between the two concerns with eBay, Icahn said. challenging the large card networks and organizations are undeniable.” Icahn, who is trying to alter the card issuers’ retail and merchant pay- Icahn did not return requests seek- composition of eBay’s board, also said it ments businesses, Javelin’s Van Dyke ing comment, and eBay/PayPal would was an “epic blunder” for eBay’s board says. “By [hypothetically] removing not comment. But from the beginning, to allow an investor group that includ- PayPal’s certain success with eBay, eBay’s top executives have said the ed eBay director Marc Andreessen’s PayPal would be forced to focus primar- auction and payments businesses are venture capital firm to capture the ily on taking on the banking payments inseparable and provided evidence lion’s share of the financial benefit of networks,” Van Dyke says. ISO
JTPBOEBHFOUDPN April 2014 ISO&AGENT
077_ISOApr14 1 3/17/2014 1:45:24 PM SE IT PREPAID
Clearing The Air In Prepaid Cards orrowing a decades old idea isa is creating a clearinghouse to help in the fight against fraud committed with prepaid cards. A I E N
isa Inc. is deploying a In the prepaid card market, “we have consequences of those good intentions classic fraud prevention a good sense of what our fraud looks turn out to be.” model to combat the like compared to debit, but we don’t Most prepaid program managers are growing sophistication have a way of sharing information and ready to begin submitting fraud data to of prepaid card fraud. protecting ourselves,”Vriheas says. the clearinghouse now, instead ofwait- VThe card brand has established a pre- “And that’s what this is about.” ing until 2015, Barrett says. paid clearinghouse service, a database Those who miss Visa’s deadline will Any new Visa prepaid program spon- for Visa prepaid issuers and program be subject to fines or other penalties, sored by a financial institution over the managers to share fraud data with each similar to a merchant who has not met next 15 months would be required to other. It’s a tactic that has been around compliance with the Payment Card report data by the June 2015 deadline, for decades. Industry data security standard, says and any Visa prepaid program launched “The concept of the credit card issuer Melyssa Barrett, Visa’s senior director after that date would be required to clearinghouse service from the 1980s of solution delivery, risk products and participate with the clearinghouse as proved to be a good fit because of the business intelligence. a condition of its operation. similarities in what was happening fraud- Visa partners may also “report data Program managers can provide in- wise on the prepaid side of the business,” from other brands to get the benefit of quiries to the prepaid clearinghouse says Carrie Vriheas, vice president of that fraud data as well,” Barrett says. service about previous fraud reports prepaid strategy for Visa. Visa’s new fraud data service is or questionable data indicative of fraud. Fraudsters move from one prepaid “a great thing,” says Shirley Inscoe, “They would get that information back, card program to another to steal ac- senior analyst with Boston-based Aite and then further validate it with their count data to create counterfeit cards Group. customers,” Barrett says. “Essentially, or pursue other schemes. Even though “This is really needed because there it gives them the opportunity for further most prepaid programs manage their is a great propensity for fraud and money investigation.” own files and systems, the fraud pre- laundering in any payments system that In the spirit of complete disclosure vention employees at those companies doesn’t have some oversight,” she says. for a prepaid program, Visa wants the have been talking to one another about However, any new processes cre- consumers who use prepaid cards how to mitigate this growing threat, ate extra costs, which could cause a to become aware of the service and Vriheas says. problem for prepaid program managers understand it. Visa aims to formalize this com- who compete in a thin-margin industry, Even though Visa does not expect munication process by establishing Inscoe says. many inquiries from cardholders, the the prepaid clearinghouse service “Some of that cost will trickle down process would provide an opportunity as a requirement of the Visa prepaid a bit, or some managers will decide not for consumers, after full authentication, program, giving managers until June to issue prepaid cards,” Inscoe says. to request and receive certain informa- 2015 to submit fraud data to the new “Visa has all the right intentions in doing tion. “It helps them understand what we database. this, but we’ll see what the unintended have,” Barrett says. ISO
8 ISO&AGENT April 2014
078_ISOApr14 1 3/17/2014 9:54:54 AM SE IT EMV
Still Resisting Change ard issuers appear unlikely to mimic arget s plan to speed up the switch to after some high profile breaches. A I E N
ost card issuers are others. “One remains skeptical that EMV provided some motivation to examine not allowing recent will ever take place,” Dahiya says. other strategies. retailer data breaches Consumer media coverage of the “One advantage Target gives to the to change their sched- retailer breaches gave the impression issuers is they get an opportunity to ules for adopting that all issuers might consider moving advertise the advantage of a chip card,” MEMV-chip cards, even though Target EMV forward more quickly. “But they Legters says. “Without some level of and other companies have said they are sticking with their wait-and-see a breach in the marketplace, and the would fast-track their plans. approach, especially on the debit side,” heightened awareness, it would be In the wake of its 2013 holiday-sea- Dahiya says. “One said that credit cards more difficult to put out a product for son card data breach, Target execu- are a clearer path and that would be the security as a value-add.” tives have promised to put adopt EMV first to move. Learn some lessons, then Many issurs may get started with chip- technology and issue chip cards about move to debit later in 2015.” card technology by following the lead of six months before the October 2015 EMV smartcards would not have pre- those issuers already providing EMV liability shift for EMV in the U.S. That vented the malware-triggered breach at cards to international or clients or U.S. puts Target so far ahead of the pack that Target but would have rendered the stolen clients traveling abroad, Legters says. other companies may not catch up, says data less valuable because of the difficulty But the issuers’ return on investment Render Dahiya, CEO of Chicago-based in counterfeiting chip-based cards. will remain a key parameter in timing card provider Arroweye Solutions. But the breaches create a timing di- their switch to EMV cards, says Sha- “It’s totally understandable why these lemma for banks that have to reissue large ron Pazlar, director of card solutions at issuers are not looking at accelerating numbers of mag-stripe cards, which would Brookline, Wis.-based Fiserv. EMV because they don’t know what the soon be rendered obsolete by the EMV In addition, banks have to monitor the impact will be, and they are of the stance cards issuers are planning to deploy. readiness of other players in the industry that there is no return on investment “To reissue now and then reissue before forging ahead with EMV. on it,” says Dahiya. “Even though the again for EMV in a year is a big question “I can assure you that pretty much Target breach has scared people, there the issuers are asking,” says Bob Leg- 100% of the processors, including re- is a significant value out there when you ters, senior vice president of product at gional networks, are ready to process look at the costs.” Jacksonville, Fla.-based payments tech- EMV transactions,” Pazlar says. “But the Banks remain wary of what may nology and financial services provider banks must identify which cardholder come out of federal Judge Richard Fidelity National Information Services segments they want to issue to, and then Leon’s ruling last year that the Federal (FIS). “They know that if they have to the merchants’ availability.” Reserve Board has to re-examine its jump to EMV now, to what is going to Even if other players don’t accelerate debit fee caps and routing mandates, be the end game, they will have to take their EMV plans, the recent breaches Dahiya says. some losses in the short term.” have fostered a spirit of collaboration While Target has the resources to Issuers who work with FIS had origi- to resolve issues holding up EMV in engineer a switch to EMV early next year nally planned to wait until late 2015 to the U.S. Visa, for example, worked and the company is focused on delivering issue EMV cards as customers’ mag- with First Data to offer a free, long- on its promise for an earlier transition, the netic-striped cards expire, Legters says. term license for Visa’s debit routing same sense of urgency does not exist for But he acknowledges the Target breach technology. ISO
JTPBOEBHFOUDPN April 2014 ISO&AGENT
079_ISOApr14 1 3/17/2014 9:54:58 AM SE IT LEGISLATION
“The good news is there are multiple committees examining this legislation, Seeking Uniform Breach Reports but that also creates a procedural chal lenge” as congress tries to reconcile the he lectronic ransactions Association is asking congress for a national standard differing bills before passing one into to govern retailers breach reporting to consumers. E IN E law, Talbott says. While supporting that legislation, the ETA is also playing “defense” to prevent congressional mandates of any particular payments technology, such as EMV, tokenization or encryption, he says. “We think that the industry or the mar ketplace is best-positioned to determine which types—plural—of technology are best-utilized in this space,” Talbott says. “We would have a wary eye toward legislation that imposed technological requirements on the industry.” Guarding against tech mandates and pushing for a breach reporting standard both represent part of the ETA’s drive to increase its influence on Capitol Hill.
ETA A The association announced in October at its Strategic Leadership Forum in Scottsdale, Ariz., that it had formed a PAC, or public action committee. That organization, called ETA PAC, has raised $10,000 to $20,000 in pledges, mostly for campaign contributions to politicians who support the association’s causes. Talbott hopes the PAC will raise an additional $75,000 before the end of the year. “Our goal is to support those can didates for office or those members of he Electronic Transactions breach reports to consumers but would The senate is considering three pro- congress who understand the issues fac Association is lobbying con- not address notification of state and posals for a national standard, and two are ing the payments industry,” he says. gress to enact a uniform na- local agencies, says Scott Talbott, the circulating in the House, he notes. The paperwork to launch an initiative tional data breach reporting ETA’s new senior vice president of “They focus mostly on the consumer to bolster the ETA PACwas on Talbott’s standard. Such a law would government affairs. angle so if a particular state or a local desk when he spoke with Tsupplant the welter of state and local rules “Right now, there are 46 different government agency wanted notification, Details will be forthcoming, he says. that require merchants to alert their cus- state laws that govern what has to hap- these bills would not address those is- “The goal is to strengthen that tool tomers after cyber attacks occur. pen—who has to be notified and when,” sues,” Talbott says. and the ETA as we go about our policy The Washington-based trade group Talbott says. “Those laws can be in The legislation faces what he consid- advocacy,” he says. is seeking legislation that would codify conflict with each other.” ers “an uphill battle.” ETA PAC focuses on Washington, but
8 ISO&AGENT April 2014
080_ISOApr14 1 3/17/2014 9:55:31 AM “The good news is there are multiple “Our goal is to support candidates or members of committees examining this legislation, Seeking Uniform Breach Reports but that also creates a procedural chal- congress who understand payments issues.” lenge” as congress tries to reconcile the –Scott Talbott, Electronic Transactions Association he lectronic ransactions Association is asking congress for a national standard differing bills before passing one into E IN E law, Talbott says. While supporting that legislation, the some PAC funds could finance efforts at Such meetings supplement the day- ETA is also playing “defense” to prevent the state level in the future. to-day work of ETA lobbyists, who visit congressional mandates of any particular “We have an eye on some of the congressional offices to discuss issues payments technology, such as EMV, states,” Talbott notes. with members of congress or their tokenization or encryption, he says. California state lawmakers, for ex- staffers, Talbott says. “We think that the industry or the mar- ample, are considering legislation that The morning he took time out to ketplace is best-positioned to determine would make the card brands’ EMV speak with ISO&Agent, for example, which types—plural—of technology timetable a state law, he says. ETA is he was preparing for four such visits are best-utilized in this space,” Talbott also following the progress of tax issues that afternoon. says. “We would have a wary eye toward in some states, Talbott says. legislation that imposed technological Meanwhile, the organization is calling A N E requirements on the industry.” upon members to become involved in Talbott began working for ETA last Guarding against tech mandates the legislative process and has created a month after nearly 20 years with the and pushing for a breach reporting “grassroots” website called “The Voice of Financial Services Roundtable. standard both represent part of the Payments” to help them get started. He was attracted to the ETA because ETA’s drive to increase its influence Members who sign up on the site of its overlapping membership with the on Capitol Hill. receive notification when congress is roundtable and the advanced technology considering legislation that would affect of many ETA members. ETA A I the payments industry. The site provides “So, the landscape’s always going to The association announced in October the names of bills and suggests points change,” he says of the influence of tech- at its Strategic Leadership Forum in to raise when communicating with nologically advanced ETA members. Scottsdale, Ariz., that it had formed a senators or representatives by mail, Jaime Graham, who joined the staff in PAC, or public action committee. email, phone, at home district meetings September as senior government affairs That organization, called ETA PAC, or during Washington visits. manager, works with Talbott on lobby- has raised $10,000 to $20,000 in pledges, The ETA held a meeting in Wash- ing, the ETA PAC and the association’s mostly for campaign contributions to ington last fall to gather members from grassroots efforts. politicians who support the association’s throughout the country to meet as a group Mary Bennett, who has served as causes. Talbott hopes the PAC will raise for breakfast with a member of congress, ETA’s director of government and industry an additional $75,000 before the end followed by individual or small-group relations, plans to remain active in the as- of the year. afternoon visits to senators’ and repre- sociation as a consultant, Talbott says. “Our goal is to support those can- sentatives’ offices. The whole group re- To “amplify” its message, the ETA didates for office or those members of convened later for a wrap-up session. works with other trade associations on The senate is considering three pro- congress who understand the issues fac- The association is planning two legislation that’s mutually beneficial, posals for a national standard, and two are ing the payments industry,” he says. more similar events later this year, he notes. circulating in the House, he notes. The paperwork to launch an initiative one in early summer and another in At the same time the ETA urges its “They focus mostly on the consumer to bolster the ETA PACwas on Talbott’s the fall, Talbott says. members to take part in the legisla- angle so if a particular state or a local desk when he spoke with ISO&Agent. “A good number for a fly-in is about tive process. government agency wanted notification, Details will be forthcoming, he says. 20,” he says. “Twenty executives is a “Politics is not a spectator sport,” these bills would not address those is- “The goal is to strengthen that tool good showing, and it’s manageable in Talbott says, “so get involved with and the ETA as we go about our policy terms of teams. It is critical mass to send the policy makers who are making The legislation faces what he consid- advocacy,” he says. a signal to members of congress that the decisions that will have an affect your ETA PAC focuses on Washington, but issue warrants their attention.” business.” ISO
JTPBOEBHFOUDPN April 2014 ISO&AGENT 8
081_ISOApr14 2 3/17/2014 9:55:18 AM E DEBIT
Breaking The Logjam? irst ata is trying to end the debit routing impasse by supporting isa s technology. A I E N
he U.S. payments industry Pulse, NYCE, Co-op Financial Services, this EMV solution.” disagrees on how to route Jeanie and Shazam. No other country deploying EMV EMV debit transactions, “I can’t speak for the other networks, technology had more than two networks. stalling the country’s shift but First Data is proud to have paved this The U.S. has more than a dozen, and the to chip-based cards. But pathway with Visa, not only for First Data Durbin amendment’s routing mandate TFirst Data hopes its decision to support and Visa, but for the industry, consumers requires that merchants have a choice and share Visa’s technology will finally and merchants,” McCarthy says. of networks. break the stalemate. Star Network hopes that Master- The payments industry was on a path To combat the debit networks’ con- Card will come forward with a similar to resolving these issues until federal cerns that debit routing would become a licensing arrangement for the routing of Judge Richard Leon complicated the competitive differentiator for the major MasterCard-branded cards, McCarthy issue in July, Lawrence says. Leon in- card networks, Visa has agreed to of- says. MasterCard has previously said its structed the Federal Reserve Board to fer its common application identifier common AID meets all of the require- reconsider whether a choice of only two (AID) without a licensing fee and for ments of issuers and merchants. networks for routing followed the spirit an extended period of time. The Visa agreement “on the surface, of the Durbin amendment in providing “This is a very long-term arrange- is a good step,” says Paul Tomasofsky, merchants a choice. ment, and it covers all of the relevant executive director of the Debit Network “We felt we were making good prog- CVMs [cardholder verification meth- Alliance. “The alliance has always advo- ress in 2013 when Visa and MasterCard ods] that use that common AID,” says cated for having three CVMs processed announced their common solutions, but Barry McCarthy, president of First through a common AID, and that was a the uncertainty that was brought about Data financial services. “[First Data’s sticking point for a long time and it seems by debit regulation rulings really stalled Star Network] will be able to use that like it has been resolved here.” out that progress,” Lawrence says. “The same application ID for any future card It will be important for other networks recent data breaches really brought verification methods.” to study the arrangement, Tomasofsky everyone’s attention back to solving Mostly, the common AID can be “a says. “You can’t have a common solu- this debit routing issue.” neutral specification, not intended to tion unless all of the networks are in Last summer, Visa and MasterCard be a competitive tool,” McCarthy says. on it,” he notes. agreed to share their common applica- “It allows the networks to compete on Visa is looking to keep momentum tion identifier technology for EMV debit something besides the AID, as that is from the First Data licensing agreement transactions to originate from a single common and shared between us.” moving forward with other networks. app, while giving merchants a choice The independent networks in the “We continue to be in active dia- of networks for routing. Debit Network Alliance, of which Star logue with all of the other networks, The card brands’ decision came the Network is a member, have emphasized the major ones and the smaller players,” same week in July when the Secure RSWe- the need for a neutral specification. says Kimberly Lawrence, senior vice mote Payment Council, whose member- Networks in the alliance, which was president for corporate initiatives for ship later formed the Debit Network established to create a common AID Visa. “I think everyone in the industry Alliance, announced it would welcome with a neutral governing body, include is interested in a clear path forward for Visa and MasterCard applications. ISO
8 ISO&AGENT April 2014
082_ISOApr14 1 3/17/2014 9:55:17 AM SE IT EMV
PIN Versus Signature (Still) ven after recent data breaches captured the nation s attention the debate over P and signature authentication hasn t ended. A I E N
or years, the U.S. has been di- the cardholder verification landscape ity of the fraud problem and eliminates vided on whether EMV-chip at the same time,” says Ellen Richey, worry about consumer attrition,” Conroy cards should be deployed as Visa’s chief enterprise risk officer and says. chip-and-PIN cards or the chief legal officer. PIN also adds to merchant costs simpler chip-and-signature. “That’s why we are saying, let’s get and overhead. “Combine that with the FAfter the Target data breach drew at- the EMV cards out there and not force attrition risk and the small percent of tention to the threat of data theft, the a massive change upon consumers with fraud problem it addresses beyond debate seems to have lost its edge but credit cards by forcing them to use a chip-and-signature” and more issuers it hasn’t gone away. PIN,” Richey says. see reason to support a signature-only Visa Inc. continues to support chip- Ultimately, the industry has to focus approach, Conroy says. and-signature for credit card transac- attention on card-not-present fraud and Still, she says discussions of PIN tions, whereas other card networks sup- tokenization, instead of continuing to security in congressional hearings held port chip-and-PIN. But either approach debate secondary authorization on a in the wake of data breaches may change is better than sticking with less-secure chip card, she says. issuers’ views in coming months. magnetic stripe cards. Some merchants maintain that the Regardless of whether PIN or sig- “There isn’t a one size fits all, and added security of a PIN justifies the cost nature wins out, the biggest security we don’t see it as one versus the other,” of upgrading their terminals to accept issue remains the magnetic stripe, says Carolyn Balfany, MasterCard’s EMV-chip cards. which would still be used on EMV cards senior vice president and group head But some industry experts see Visa’s to keep them compatible with older of U.S. product delivery. stance as a practical approach for issuers terminals, says Mark Horwedel, CEO Card brands will continue to base and merchants to switch quickly to EMV of the Merchant Advisory Group and a verifications on the risk case for each by the October 2015 deadline set by the strong proponent of chip-and-PIN. particular transaction, Balfany says. card networks. After that date, most “Without a plan for the elimination That’s why the industry can expect to merchants who cannot accept EMV cards of the magnetic stripe, merchants and see “a variety of strategies continue to face an increase in fraud liability. consumers will continue to be exposed to be embraced across the market,” she “The PIN is redundant because the the fraud-prone nature of that outdated maintains. true benefit of EMV is that the card can- technology even after EMV has been JPMorgan Chase, the first major card not be counterfeited,” says Al Pascual, implemented,” he says. issuer to adopt the chip-and-signature senior analyst for Javelin Strategy & The card networks “don’t want to model for U.S. cards, announced on Feb. Research. “So, unless we go back to a force the issuers to move away from 25 that it would begin issuing chip-and- world where pick-pocketing becomes mag-stripe or signature, but they want PIN cards this year. Whether Chase the norm, it’s not really an issue.” the merchants to invest in systems that remains a lone convert or the first of Most issuers say they plan to con- will support all issuer options, including many signature advocates to switch centrate on chip-and-signature credit those of international issuers who support sides remains to be seen. cards, says Julie Conroy, a senior analyst offline PIN,” Horwedel says. That would From Visa’s perspective, it would for Boston-based Aite Group. saddle merchants with new costs associ- not seem wise to move the industry “Chip-and-signature makes a lot of ated with fraud if they do not convert to forward for EMV adoption and “change sense because it addresses the major- EMV technology, he maintainws. ISO
JTPBOEBHFOUDPN April 2014 ISO&AGENT 8
083_ISOApr14 1 3/17/2014 9:55:35 AM Guest Column AN ON ENSON
time. How many apps on the top charts Mo ile n r ption lone are affected? I’m not picking on mPOS dongles. on t anis a kers In fact, the audio jack mobile vulner- ability has nothing to do with mobile processing dongles, sleds, apps or even encryption in general. It’s all about mobile devices them- O I E O ESSING SE IT AS A to and records any sounds coming from selves. I can’t say it enough: Mobile but slipped from the spotlight, with the the audio jack. Say a merchant used a devices were not designed with card industry has declared mobile payments mobile processing dongle to process processing security in mind. “encrypted and secure.” Unfortunately, a $20 transaction. The mPOS app and One way to solve this pervasive issue the industry still has much to do before hacking app both hear that credit card’s is mobile P2PE. Unfortunately, no P2PE claiming it has secured mobile payments. sound blip. The difference is, the hack- mobile exists today, but the technology Many merchants, consumers, and pro- ing app copies the encrypted sound. is only 12 months from production. cessors are mistakenly comfortable with But wait! The credit card is encrypt- P2PE gives each mobile POS de- the equation: encryption=100% secure. ed, right? Doesn’t that mean the hack- vice its own unique encryption keys. A mobile device hack leads to the ers can’t use it? That’s the tricky part. Even if a hacker manages to get hold same fines, brand degradation, and of encrypted credit card information, it headache as traditional POS compro- wouldn’t work on another device. Each The best security scenario mise that may get back to the processor. device is unique, and the encryption key includes encrypted Because of that, ISOs and agents should hardware in partnership only works for that device. That’s why remain wary of promoting mobile point with software-based mobile P2PE is so secure. of sale , or mPOS, as secure. mobile security. Besides the white-labeled mobile mPOS encrypt-at-head hardware POS systems many ISOs offer, they such as Square, PayPal Here or other need additional mobile software. The white-labeled hardware dongles can software ensures basic mobile security, easily fail through simple attacks. I certifies no hidden malware is ready to witnessed such an attack, and here’s A hacker can replay that copied audio capture cards, guarantees no two apps how it happened. to another smartphone with the same run at the same time during a trans- Apps have behind-the-scenes settings brand of mobile POS, and it will deposit action and confirms the smartphone you may not know about. For example, another $20 into that open account. hasn’t been jailbroken. my Skype geo-locates my position. My Because that mPOS brand’s hardware Why the extra security? Besides Music app connects to the internet, even recognizes the same encryption key, the example of the hacked dongle, if a when it’s not open. My mobile point of no decryption is needed to process a hacker gets his hands on just one set sale app listens to my phone’s audio port second (or third, or fourth, or fifth) of encryption/decryption keys, he has to receive credit card data. fraudlent transaction. access to all mobile POS cardholder At the recent DefCon hacker confer- My merchants aren’t dumb enough data for that POS version. Mobile-us- ence, an encrypted mPOS was hacked in to download a hacking app, you might ing merchants around the world could less than 20 minutes, thanks to a behind- tell yourself. Aren’t they? Hackers are be vulnerable. Using technology that the-scenes app setting. smart enough to input hacking code into exists today, the best scenario includes The hack happened like this. Many the latest and most popular apps and encrypted hardware in partnership with mPOS dongles communicate with a smart- force the settings to listen to the audio software-based mobile security. ISO phone through the audio port, ‘hear’ each port. An innocent-looking app could hold card as a millisecond of encrypted audio malicious card-stealing intentions. and then transfer those encrypted audio Last July, studies by McAfee and randon enson is a ecurity etrics blips to an app for processing. Juniper found that mobile malware had P P A. Reach him at partners@ Attackers created an app that listens increased an incredible 614% in a year’s securitymetrics.com.
8 ISO&AGENT April 2014
084_ISOApr14 1 3/17/2014 5:46:00 PM TE NO OG MOBILE
Breaking Down Barriers ach mobile wallet used to have its own interoperability traits but ost ard mulation is changing that. ANIE O E
ntil recently, mobile wallets three years ago. Google Wallet has cut through some could count on getting at That said, the current batch of offers of that friction. And since the shopper least some boost from still has room for improvement. Google already has the phone in hand to use exclusivity. If you were Offers, which was launched alongside the loyalty card, the simplest course of on Sprint, you could use Google Wallet, does not require users action is to keep the phone out to pay. UGoogle Wallet but not Isis. If you were on to pay with Google Wallet. Isis has put Isis’ issuing partners are trying to AT&T, Verizon or T-Mobile, you could out some aggressive offers, such as sav- encourage recurring transactions by use Isis but not Google Wallet. If you ings on AT&T phone accessories or free providing a hefty reward. It’s a proven had an iPhone, you could use neither, drinks at launch partner Jamba Juice, but tactic—in 2004, Citigroup offered a free but you had your pick of software-based it has relatively few offers overall. iPod mini to new customers on the condi- mobile wallets such as LevelUp and the Both mobile wallet providers have tak- tion that they make regular bill payments Starbucks card. en steps to address those pain points. online. At the time, the iPod mini was in With the introduction of Host Card Google Wallet recently began noti- such short supply that even Apple stores Emulation and other workarounds, those fying consumers when they are near a had trouble keeping them in stock. barriers have been blown away. Google store for which they linked a loyalty card New Citi customers could also choose Wallet is now on all carriers’ handsets to the Google Wallet app. It also made to receive $200 in cash, the same amount that run the latest version of its Android it easier to link reward cards by using Amex is offering to Isis users today. operating system. Isis has even made it the phone’s camera to scan them. Citi’s strategy seemed eeb-savvy and to the iPhone with its Cashwrap sleeve, Isis’ mobile wallet has launched pro- attracted f online-only customers. After which adds the missing NFC hardware motions tied to its card issuing partners. it began the promotions, 40% of Citi’s for contactless payments. Customers who link a Wells Fargo card online applications came from people One of the few success stories in mobile to the Isis wallet can get 20% of their living beyond the reach of its 1,000 payments, the Starbucks card, works be- purchases refunded as statement credits branches, the bank said in 2004. cause of its rewards, which CEO Howard for up to $100 per month. They also get Consumers respond to hefty incen- Schultz has characterized as a “currency” a $20 credit just for linking the card. tives, but Citi was urging along a transi- with untapped potential. A similar offer from American Ex- tion to online banking that was already Other mobile wallet providers are press provides 20% back on purchases well under way. The case for mobile trying to tap the same vein by improv- made with a linked Amex Serve prepaid payments is not as clear. ing their loyalty systems, but it’s a account, for up to $200 in credit. Today, consumers still do not think delicate balancing act. If loyalty is not Are those moves enough to get con- of mobile payments as a compelling well integrated, there’s no incentive sumers to forget their plastic cards? In alternative to cash and cards. In a con- for consumers to pick a mobile wallet Google’s case, maybe. Retailers report sumer survey published in September by over cash and plastic cards. But if the that it sometimes takes coaxing to get Phoenix Marketing International, only mobile wallet provider is too aggres- consumers to pull out their loyalty cards 20% of respondents showed significant sive about its loyalty program, it runs when making a purchase. By enabling interest in mobile wallets, despite 70% the risk of scaring off its merchant the loyalty card to pop up automatically of respondents showing awareness of partners, as happened to Bling Nation before the shopper even enters the store, the technology. ISO
JTPBOEBHFOUDPN April 2014 ISO&AGENT 8
085_ISOApr14 1 3/19/2014 3:42:46 PM 038_ISOFeb14 19 2/11/2014 5:30:14 PM A I
A anada ...... nternational erchant Processing P Portal...... 5 www.actcda.com cardware olutions ...... www.posportal.com 1 5 www.impsgroup.com 1 5 1 1 5 Priority Payment ystems ...... 55 Apriva ...... prioritypaymentsystems.com apriva.com pos entral nc ...... isoandagent www.ioucentral.com 5 1 5 Aschettino truhs P ...... 1 uali ...... www.aschettinostruhs.com iPayment ...... www.openthebigdoors.com 1 1 5 www.ipaymentinc.com 5 1 1 5 51 Autho rans igital arketing ...... 11 Retail apital ...... 1 www.Autho rans igital.com iPayment ...... utsert www.retailcapital.com partners 1 www.ipaymentinc.com 1 51 inancial ervices nc...... age Payment olutions ...... 1 www.chfs.us Agent Advertising 51 1 55 pportunities...... 5 [email protected] age Payment olutions ...... 1 ash all ...... 1 1 5 5 5 www.cashcallbusiness.com 5 5 eaf ...... ecure uy...... 5 www.leaf.me payments securebuycommerce.com entral Payment ...... 1 1 1 11 511 5 www.cpay.com 1 1 inancial ank ...... pindle nc...... 15 www.mb nancial.com 1 P po ...... 5 5 5 www.cnpe po.com trategic usiness onsulting 1 1 erchants hoice roup ...... 5 Payment olutions...... 5 www. eroadvertisingleadsystem.com urvePay ...... 1 www.mcpscorp.com isoagent curvepay.com 5 1 1 uper unding...... o ido...... supergfunding.com lectronic erchant ystems...... www.mo ido.com sales 1 emsagent.com 1 5 ynapse ateway...... 1 ational erchants Association ...... 1 www.synapsegateway.com eProcessing etwork...... 1 proagentpartner.com eprocessingnetwork.com 5 he unding ree ...... 1 www.thefundingtreeus.com etwork erchants ...... 51 5 pson America nc...... www.nmi.com pos.epson.com nancial 1 5 nited erchant ervices...... www.upsolution.com uptab ederated Payments...... utsert orth American ancard ...... 55 5 1 www.gofederated.com gonab.com formula 1 5 1 1 1 A ePay...... http resellers.usaepay.com arbortouch ...... 5 orth American ancard ...... utsert 1 www.isoprogram.com gonab.com dttablet 1 1 1 1 5 5 elocity unding ...... 5 www.velocityfunding.com ntegrated Reporting PA echnologies...... 1 55 s imple...... 1 www.pa .us www.iriscrm.com 1 5 eri one...... www.verifone.com P ompliance...... 5 ntegrity Payment ystems...... 5 www.gotpci.com eri one...... over ip 5 www.verifone.com
JTPBOEBHFOUDPN April 2014 ISO&AGENT 8
087_ISOApr14 1 3/19/2014 3:02:23 PM Parting Shot A A IAN A
these matters case-by-case. In addition, Federal Court Reins In Marketing the court ordered that the third-party claims companies send a letter to each Of Swipe-Fee Settlement Firms merchant they had already signed up that would be approved by counsel for the plaintiffs and would allow merchants to opt out of the claim-filing services if the merchants felt they were misled. T E EN ING SETT E ENT O T E ISA want to make sure you are included in However, the court did allow attor- and MasterCard class action interchange the class as a merchant, go to the official neys representing the third-party claims swipe-fee case has spawned a new type of court-approved website and provide your filling companies to provide input on the company—the third-party claims filing name and contact information. wording of the disclosure. Specially, company. As with most new ventures, The counsel for the plaintiffs also the court ordered the parties to draft controversy is arising. In fact, the court noted that third-party recovery firms a disclosure to place on solicitatations and counsel for the plaintiffs in the case allege in their marketing that merchants that would contain the following: have tried to modify the marketing would have a difficult time determin- • A statement that says claims forms activities of these new players. ing how much they should receive in are not yet available. Visa and MasterCard have created the settlement. However, that appears • A statement making clear the a pool of billions of dollars to distribute contrary to the anticipated procedure, class members need not sign up for to merchants in the class. Companies which seems to indicate the claims form a third-party service to participate in have been organized to help merchants will determine the settlement amount monetary relief and explaining that no- navigate that process and assist them in cost assistance will be available from the filing forms for their share of the settle- class administrator and class counsel The court has made clear ment. These companies are perfectly it will not tolerate false or during the claims-filing period. legal and the court has acknowledged misleading statements by • Information directing class mem- that. The issue is that some of the compa- third-party recovery firms bers to the Court-approved website for nies have been marketing their services to plaintiffs in the additional information. class-action swipe-fee in ways that counsel for the plaintiffs Counsel for the class has submitted lawsuit against MasterCard find objectionable. and Visa. their proposed disclosure to the court for Late last year, counsel for the plaintiffs approval. The disclosure may also form began sending third-party claims filing the basis for the letter to merchants that companies letters objecting to their mar- and provide it to the merchants. Counsel have signed up for the service. keting techniques. One objection was that for the plaintiffs state it “expects that The third-party claims filing compa- some of the companies made statements for the vast majority of the merchants, nies may have to submit their solicita- like “you have to register to be included” the process will be easy, with a claim tions to the court before being allowed or otherwise inferred that the merchant form provided that the merchants can to file claims. The court has made clear must take action now or lose the right simply sign off on and return.” that it “intends to permanently enjoin to any part of the settlement. Papers filed with the court ask it to any entities that have made false or However, as in most class action address the marketing of the third-party misleading communications to class settlements, counsel for the plaintiffs claims filing companies. As a result, in members from involvement of any kind usually get most of the information about an order filed Dec. 20, the court “deter- in claims-processing services with who is part of the class from the defen- mined that certain solicitations of class respect to this case.” ISO dants. During the discovery process, members regarding third-party claims the plaintiffs’ counsel requests informa- filing services has been misleading” and tion that enables them to identify class ordered disclosures to merchants when Paul A. Rianda has provided legal participants, including their addresses. they are solicited. The court indicated advice to the bankcard industry for So most of the people that have a claim it hoped this would “prevent” further more than 15 years. Reach him at will be identified in that manner. If you issues instead of having to address [email protected].
88 ISO&AGENT April 2014
088_ISOApr14 1 3/17/2014 9:55:38 AM VX 675
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C3_ISOApr14 4 3/18/2014 2:34:23 PM C4_ISOApr14 5 3/18/2014 2:34:42 PM