FOR 43 YEARS, THE LEADING PUBLICATION COVERING PAYMENT SYSTEMS WORLDWIDE MAY 2014 / ISSUE 1041

MERCHANT PROCESSING FEES IN THE U.S. Credit, debit, and prepaid general purpose and private label cards Purchase Transactions generated $4.765 trillion in payments for goods and services in 2013. U.S. merchants paid $71.44 billion in processing fees at Merchants Worldwide > see p. 12 by Type of Card 2CHECKOUT’S GLOBAL PAYMENT SERVICES Market Shares in 2013

A full suite of services for online merchants interested in selling Visa Visa MasterCard MasterCard worldwide is the expertise of 2Checkout, formed in 1999. Online Debit Credit Credit Debit sellers in 196 countries are linked to 2Checkout, which operates both 38.3% 22.1% 14.4% 12.4% > see p. 8 CORTEX MOBILE WALLET UnionPay UnionPay American Credit Debit Express Mobile wallet technology available from start-up Cortex MCP is 4.1% 3.8% 3.7% designed to include risk management, analytics, and storage and verification of credentials. It aims to be more secure than both JCB Diners > see p. 12 Shares from Int’l Club KREDITECH ONLINE CREDIT DECISIONS 50 2005–2018 1.1% 0.1% 42.3 Kreditech’s machine-learning algorithms analyze data available on 38.7 39.3 the Internet about consumers and use it to make fast credit decisions 40 for microloans. Since opening for business 20 months ago, the 33.4 > see p. 6 30 26.3 SEQUENT HCE SOFTWARE FOR SBERBANK 22.7 20.9 20.1 Russia’s largest payment card issuer expects to have 3 million host 17.9 20 card emulation (HCE)-enabled Android smartphones making 14.9 13.7 contactless payments by 2017. Sberbank, Russia’s largest savings 8.9 9.7 > see p. 6 10 6.4 2.7 3.9 SECOND 50 LARGEST U.S. ISSUERS 8.5

Turn to page 11 for issuers of Visa and MasterCard debit cards ‘05‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18 (including prepaid cards) in the U.S. ranked 51-100 based on dollar © 2014 The Nilson Report volume spent at merchants (consumer and commercial) in 2013. > see p. 11 CARD TRANSACTIONS PROJECTED CORP. INVESTMENTS & ACQUISITIONS — APRIL 2014 cards accounted for 38.26% of 168.86 billion Turn to page 7 for a list of 52 acquisitions and corporate financing transactions generated at merchants worldwide last deals that occurred in April of 2014. year by all Visa, MasterCard, , Prior issues: 1,039, 1,037, 1,036 UnionPay, JCB, and Diners Club credit, debit, and > see p. 7 > see p. 5

INSIDE 2 – 4 Fast Facts 9 1Q Card Results in U.S. CHARTS 5 Purchase Transactions Worldwide 5 Card Debt Sales in 2013 10 Visa/MasterCard in Russia 5 Top Buyers of Debt 7 – 8 ID using Mobile Phones 10 G2 Web Services 9 U.S. General Purpose Cards 1Q 8 – 9 First Data Litigation 12 U.S. Merchant Card Fees

© HSN Consultants, Inc. 2014 THE NILSON REPORT VISIT US ONLINE AT WWW.NILSONREPORT.COM FAST FACTS BLUESNAP has integrated into its payment gateway cloud-based soft- INGO MONEY now offers a software development kit that finan- ware from Avalara that handles compliance requirements for sales cial institutions and prepaid card issuers can use to integrate tax, VAT, and other transactional taxes. Jeff Coppolo is Head of Global Ingo's mobile account funding services into mobile apps to pro- Business Development at BlueSnap, (781) 577-6638, vide their customers with instant to check funds after [email protected], www.bluesnap.com. Marshal Kushniruk deposit via iOS and Android devices. Drew Edwards is CEO, is EVP Global Business Development at Avalara, (206) 826-4900, (678) 736-7000, [email protected], www.ingomoney.com. [email protected], www.avalara.com. GLOBAL PAYMENTS will provide payment processing services to CARDTEK, provider of EMV-compliant card management software for Reynolds and Reynolds, which provides software, services, and forms issuers and acquirers, has opened its North American headquarters to automobile dealerships. Global Payments technology will be inte- in Chicago. Gokhan Inonu is President USA, (847) 376-8367, grated with Reynolds' management system platforms and software. [email protected], www.cardtek.com. Eddie Myers is President at Global Payments Integrated Solutions Division, (510) 795-4928, [email protected], VISA INC. has joined the FIDO Alliance and has been appointed to its www.globalpaymentsinc.com. Board of Directors. Visa Europe will join the alliance as a sponsor member. FIDO Alliance, which stands for Fast Identity Online, works to VERIFI'S Premier Revenue Recovery Service has new develop specifications for authentication technologies such as capabilities including Fast-Trak integration, which reduces the need fingerprint, eye and iris scans, and voice and facial recognition for involvement of IT staff. The service now also covers both Card Not biometrics, as well as to support existing standards for trusted Present and Card Present transactions for all major payment brands as platform modules, USB security tokens, embedded secure elements, well as PayPal. Tony Wootton is CRO, (323) 655-5789, tony.wootton@ smart cards, Bluetooth Low Energy, and Near Field Communications. verifi.com, www.verifi.com. Michael Barrett is President at the FIDO Alliance, (831) 479-1888, [email protected], www.fidoalliance.org. DEBIT MARKET SHARE CLARIFICATION. In the Top 50 U.S. Debit Card Issuers article in Issue #1,039 (page 9), the market shares of the 5 largest issuers based on combined signature and PIN volume SAVE (including prepaid) accounted for 38.02% of the U.S. industry's general FEATURED CONFERENCE purpose debit card purchase volume in 2013, down from 39.41% one Subscribers to The Nilson Report will receive a $300 discount. $300 year before. This is based on the debit card industry total purchase volume of $2.130 trillion in 2013 and $1.977 trillion in 2012, not the VIRTUAL AND DIGITAL CURRENCY totals for the top 50. The top 10 issuers accounted for 46.20% of the CONFERENCE 2014 industry total in 2013, down from 47.16% in 2012.

Two-Day Conference SAVE June 24-25, 2014 FEATURED CONFERENCE Subscribers to The Nilson Report will receive a 20% discount. The InterContinental Chicago Magnificent Mile 20% Chicago, Illinois MPOS WORLD 2014 Topics include: the puzzle surrounding digital and virtual currencies: clarifying the various definitions for these types of Two-Day Conference currencies and how they affect your business and compliance June 24-25, 2014 efforts, Bitcoin case study: analysis of the virtual currency that The Kap Europa has paved the way for all others, the developing federal legal Frankfurt, and regulatory framework governing the digital and virtual currency landscape, BSA/AML considerations for digital and Topics include: mPOS ecosystem, perspectives, business virtual currencies, the investment perspective on digital and models, merchant innovations, mPOS adoption – lessons virtual currencies, and the international digital and virtual learned, regulation, compliance, and legal requirements, currency landscape: assessing the evolving legal and business evolution of mPOS for micro and small merchants, impact on environments in key foreign markets. Speakers represent: traditional payments, POS and card acquiring, Big Data, apps, Blackhawk Network, Gliph, TechFreedom, Federal Trade and technologies, future of POS, and mobile POS. Speakers Commission, CitiFX, Unidos Financial Services, U.S. Securities represent: MasterCard, PayPal, Fashion Flash, Visa Europe, and Exchange Commission, The Bitcoin Foundation, PayPal, Gastrofix, Ingenico, Forrester Research, Payleven, SumUp, Criminal Division U.S. Department of Justice, Circle Internet iZettle, orderbird, Yapital, VeriFone, AirPOS, Vodafone, Intuit, Financial, and more. Cost is $2,095. (Use code TNR300.) Revel Systems, JUSP, Spire Payments, Wirecard, Shopkeep, and Conference links at www.nilsonreport.com Contact Nicole O’Neill at ACI, (212) 352-3220 x5257, n.oneill@ more. Cost is $1,370. (Use code NRMPOS2014.) Contact David

americanconference.com. Register at Conference links at www.nilsonreport.com Vesely at Empiria Group, 421 (245) 248-931, david.vesely@ www.americanconference.com/virtualcurrency. empiriagroup.eu. Register at www.mpos-world.com.

2 VISIT US ONLINE AT WWW.NILSONREPORT.COM Order Back Issues / Preview Upcoming Conferences / View Newsletter Archive FAST FACTS LOOPPAY now offers a free LoopWallet app for Android handsets at the EFAWATEERCOM is a new electronic bill presentment and payment Google Play Store. The Loop fob device can be used by consumers to system in Jordan that enables consumers to receive and pay bills store all of their payment cards on their phones and pay at almost all electronically through Internet banking, ATMs, kiosks, mobile, and brick and mortar locations. It costs $39. Gregory Lewis is President at point-of-sale terminals. The system is operated by Emerging Markets Loop, (678) 641-6074, [email protected], www.looppay.com. Payments and Madfoo3atCom for Electronic Payments under the auspice of the Central Bank of Jordan. Hassan Mayassi is CEO YIFTEE is a mobile app, Web service, and API that lets consumers and Merchant Acquiring Service at EMP Jordan, (962) 7952-88886, businesses send gifts to colleagues, clients, friends, and family via [email protected], www.emp-group.com. Maha Al-Bahou is email, text, and Facebook. Recipients pick up their gifts using their Executive Manager, Payment Systems & Domestic Banking at Central smartphones at participating merchants. Yiftee has become Clearent’s Bank of Jordan, (962) 7990-59767, [email protected], digital gift voucher delivery tool. Ed Alba is AVP, Marketing at www.cbj.gov.jo. Nasser Saleh is CEO at MFEP, (962) 7766-00999, Clearent, (678) 524-3561, [email protected], www.clearent.com. [email protected], www.madfoo3at.com. Lori Laub is Co-Founder at Yiftee, (650) 564-4438, [email protected], www.yiftee.com. ICP GROUP, a provider of payment processing services for more than 120,000 POS terminals in 7 European countries, will offer merchants WELLS FARGO'S Propel 365 American Express brand credit mobile point-of-sale services through a partnership with payworks. card offers cardholders triple rewards points on domestic gas Mike Weller is Head of Sales at ICP, 49 (69) 24432-62750, purchases and double points on domestic restaurant charges. [email protected], www.icp-companies.eu. Cardholders can also earn an extra 10%, 25%, or 50% on their Christian Deger is CEO at payworks, 49 (89) 4161-58400, rewards points by maintaining a qualifying Wells Fargo check- [email protected], www.payworksmobile.com. ing or or a PMA package. William Stredwick is SVP, Global Network Partnerships, North America at American PEOPLES TRUST in Canada is issuing a prepaid MasterCard product Express, (212) 640-9527, [email protected], for users of the suretap wallet available from mobile network operator www.americanexpress.com. Beverly Anderson is Head of Rogers. InComm is providing a network of reload locations for users Consumer Financial Services Group at Wells Fargo, to top up the MasterCard account. John Pals is COO at Peoples Card (415) 222-3344, [email protected], Services, (604) 694-6216, [email protected], www.wellsfargo.com. www.peoplescardservices.com. Karen Budahazy is VP and General Manager, Canada at InComm, (905) 286-5560, kbudahazy@ CITI'S Commercial Cards division has added Brazil to the 65 other incomm.com, www.incomm.com. countries operating on its proprietary global platform. The platform supports local issuance and creation of commercial card products. Citi EVO PAYMENTS and PAY.ON have formed a technology partnership issues commercial cards in over 100 countries. Manish Kohli is Head, to provide an easy interface for payment card acceptance and process- Global Commercial Cards, (212) 816-7061, [email protected], ing to small and medium-sized merchants in Germany, Austria, and the www.citimanager.com. . EVO will provide acquiring and processing. PAY.ON will provide the technology for quick merchant operability. LIGHTSPEED'S 2014 U.S. Credit Card Benchmark Study is a 160-page Wolfgang Berner is VP, Product & Integration at PAY.ON, report based on feedback from 60,000 survey participants. Topics 49 (89) 45230-306, [email protected], www.payon.com. include credit card ownership by product (Chase Freedom, Citi Mark Spangenberg is European COO at EVO, 49 (69) 9593-28840, AAdvantage, Capital One Venture, etc.) with data on more than 120 [email protected], www.evopayments.eu. products, competitive cardholder profiles (age, income, credit score, broken down by issuer and product), wallet inventory, and competitive cross-ownership (competing cards owned by consumers with cards by MANAGEMENT CHANGES issuer and product). For more information contact Greg Flemming, SVP at Lightspeed Research, (617) 912-2805, gflemming@ lightspeedresearch.com, www.lightspeedresearch.com. Paul Todd has been appointed Senior Executive Vice President and Chief Financial Officer effective July 1, 2014, at TSYS, (706) 649-4261, PULSE will license MasterCard's common application identifier for EMV [email protected]. Kevin Race as been appointed CFO at Bank of card transaction routing. Judith McGuire is EVP, Product Management America Merchant Services, (212) 515-0179, kevin.race@ at PULSE, (832) 214-0165, [email protected], bankofamericamerchant.com. Nancy Anne Barnhart has been www.pulsenetwork.com. Carolyn Balfany is Group Head, U.S. Product appointed Chief Information Officer at JetPay Payment Services, Delivery at MasterCard, (636) 772-6613, carolyn_balfany@ (972) 503-8900, [email protected]. William Keenan has been .com, www.mastercard.com. appointed Chairman and CEO at Pango Financial, (302) 543-8550, DIGITAL RIVER WORLD PAYMENTS now offers small and medium- [email protected]. Nate Wigle has been appointed sized businesses, commerce providers, system integrators, and devel- Vice President of Sales and Marketing at MyECheck, (916) 284-6424, opers in the U.K., turnkey access to payment card processing for Visa, [email protected]. Rick Slavin has been appointed Vice MasterCard, and cards in euros and pound sterling. President, Technology at CarePayment, (503) 419-3500, rick.slavin@ Souheil Badran is SVP and General Manager at Digital River, carepayment.com. (952) 225-3736, [email protected], www.digitalriver.com.

© HSN Consultants, Inc. 2014 THE NILSON REPORT MAY 2014 / ISSUE 1041 / THE NILSON REPORT 3 FAST FACTS MASTERCARD will buy the ElectraCard Services subsidiary of OPENWAY, a provider of payment processing and omnichannel banking Opus Software Solutions in a transaction expected to close software, has worked with 2can, an acquirer of mobile payments in next month. Terms of the agreement were not disclosed. ECS Russia, to achieve EMV Level 1 and Level 2 as well as PCI DSS provides card management software for ATM, POS, Internet, certification for Android and iOS mobile devices used as POS termi- and mobile channels. Vicky Bindra is President, Asia/Pacific, nals. 2can is a trademark of Smartfin. Nikolai Zhmurenko is General Middle East and Africa at MasterCard, (65) 6390-6031, Director at Smartfin, 7 (916) 571-7045, [email protected], [email protected], www.mastercard.com. www.2can.ru. Anton Kolomiets is Director at OpenWay, Ramesh Mangawade is Chairman at Opus, 91 (20) 6627-2100, 7 (812) 324-4898, [email protected], [email protected], www.opussoft.com. www.openwaygroup.com.

MAHINDRA COMVIVA has become a member of GlobalPlatform, the GLOBALCOLLECT will be the payment service provider for recurring organization that standardizes the management of applications on and one-time card payments to Presto, a streaming media service in secure chip technology. Kevin Gillick is Executive Director at . Matthew Rainbow is Country Manager Sales, Australia and GlobalPlatform, (952) 445-5094, [email protected], at GlobalCollect, 61 (400) 188-409, matthew.rainbow@ www.globalplatform.org. Srinivas Nidugondi is Head of Mobile globalcollect.com, www.globalcollect.com. Financial Solutions at Mahindra Comviva, 91 (80) 4340-1913, [email protected], THE GIFT & LOYALTY COMPANY is the new name for Contis www.mahindracomviva.com. Group's prepaid card and loyalty programs. Dannie McDonald is Managing Director at The Gift & Loyalty Company, 44 (175) 669-3558, TSYS will provide credit card account processing and related services [email protected], www.giftandloyaltyco.com. for the Virgin Money portfolio in the U.K. Virgin Money is launching its own credit card business following the purchase of $1.60 billion CT-PAYMENT, a Canada-based payment card processor, will develop in credit card receivables from MBNA. Michele Greene is Director of a custom payment application for Ria Financial, an affiliate of Euronet Banking at Virgin Money, 44 (124) 489-3806, michele.greene@ Worldwide. Denis Robert is CEO at CT-Payment, (514) 316-8293, virginmoney.com, www.virginmoney.com. Kelley Knutson is EVP, [email protected], www.ct-payment.com. International Services at TSYS, 44 (190) 456-2001, kknutson@ tsys.com, www.tsys.com. CORNÈR BANK'S Cornèrcard payment card division will issue Diners Club cards in Switzerland starting next month. Alessandro Seralvo is BKM and REDSYS, digital wallet providers in Turkey and Spain respec- Director at Cornèrcard, 41 (91) 800-5567, alessandro.seralvo@ tively, will make e-commerce transactions interoperable between their cornercard.ch, www.cornercard.ch. Eduardo Tobon is President at merchants and cardholders. The iupay wallet, managed by Redsys, Diners Club Int'l, (224) 405-3126, [email protected], will open more than 12,000 of its merchants to BKM Express cardhold- www.dinersclub.com. ers. Iupay cardholders will be able to shop online at BKM Express merchants, which currently number 600. Soner Canko is CEO at BKM, COMPASS has achieved Payment Application Data Security 90 (212) 350-7900, [email protected], www.bkm.com.tr. Standard Version 2.0 certification for its TranzWare Card Management Jesús Verde is President at Redsys, 34 (91) 346-5300, product suite. Alexandra Kochergina is Head of Partnership Bureau, [email protected], www.iupay.com and www.redsys.es. 7 (3519) 260-000, [email protected], www.compassplus.com. CONFERENCES & SEMINARS

CARDWARE 2014: PAYMENT AND DIGITAL ID INSIGHTS: June LOYALTY CANADA 2014: July 23-24, 2014. Toronto, Canada. 17-18, 2014. The Marriott Gateway on the Falls, Niagara Falls, Ontario, Estimated attendance: capacity is limited at 90. Cost for the two- Canada. Estimated attendance: 350. Cost for the two-day conference is day conference is $2,795. Subscribers to The Nilson Report will

$1,450 (ACT Canada members and retailers receive substantial discounts). receive a $200 discount. Contact Robin Yegelwel at Contact ACT Canada, (905) 426-6360, [email protected]. Register at Marcus Evans, (312) 894-6306, [email protected]. www.actcda.com/calendar/act-canada-events/cardware2014. Register at http://bit.ly/1pg1aCW.

5TH CONGRESS: CARDS & PAYMENTS 2014: July 8-10, 2014. 4TH HEALTHCARE PAYMENTS INNOVATIONS 2014 The HCTA – Hotel de Convencoes de Talatona, Luanda, Angola. (HCPI): July 28-29, 2014 in Omni Parker House, Boston, Estimated attendance: 50+. Cost for the one-day congress (July 9) is Massachusetts. Estimated attendance: 150. Cost for the three- $1,999, seminar 1 (July 8) is $1,599, seminar 2 (July 10) is $1,599. day conference ranges from $995 to $1,395. Subscribers to Conference links at Conference links at

www.nilsonreport.com Subscribers to The Nilson Report will receive a 20% discount. The Nilson Report will receive a $300 discount. (Use code: (Use code 20%NILSON.) Contact Silene Silva at iiR Angola, NILSON300.) Contact Kathleen Daffner at SSN, (203) 209-0520, 34 (91) 700-4340, [email protected]. Register at [email protected]. Register at www.iirangola.com/Producto/default.asp?IdProducto=3680. www.hcpaymentsinnovations.com.

4 VISIT US ONLINE AT WWW.NILSONREPORT.COM Order Back Issues / Preview Upcoming Conferences / View Newsletter Archive CARD TRANSACTIONS PROJECTED from page 1... prepaid cards. However, that share transactions combined are credit and debit card purchase was a decline of 101 basis points projected to reach 164.08 billion transactions are projected to reach from 2012. in 2018. 51.57 billion. MasterCard credit cards American Express credit cards 70 Purchase Transactions at accounted for 14.43% of all accounted for 3.75% of purchase 60 Merchants Worldwide purchases last year, down 45 basis transactions in 2013, down 16 50 (Billion) points. Debit cards 40 accounted for 12.40%, UnionPay card transactions 2012 30 up 45 basis points. will reach 51.57 billion by 2018. 2013 20 Combined MasterCard 10 credit and debit card transactions are projected to reach basis points. In 2018, purchase Visa Visa MC MC Amex UP UP JCB Diners 76.67 billion in 2018. transactions are projected to reach Debit Credit Credit Debit Credit Credit Debit Credit Credit Last year UnionPay credit cards 10.34 billion. Note: UP is UnionPay. ©2014 The Nilson Report generated 4.06% of purchase JCB credit cards accounted for Visa credit cards generated transactions, up 89 basis points, 1.12% of purchases last year, up 22.09% of last year’s purchase and UnionPay debit cards 7 basis points. In 2018, purchase transactions, down 71 basis points. accounted for 3.80%, up 94 basis transactions are projected to reach Credit and debit card purchase points. In 2018, UnionPay brand 3.61 billion.

CREDIT CARD DEBT SALES IN 2013

Credit card debt sold to third-party buyers after Precision Recovery Analytics going out of business, being charged off by issuers in the U.S. plunged by Asta Funding discontinuing purchases of credit card 46.5% to $18.92 billion in 2013. Only two years debt, and Asset Acceptance agreeing to be acquired before, sales of charged-off debt sold directly by by Encore Capital. issuers topped $51 billion. Last year only two Prior issues: 1,019, 992, 969, 946, 921, 914 companies purchased more debt than they had the prior year. The negative publicity Top Buyers of Credit Card Debt 2013 generated by what is routinely Direct(1) Total(2) referred to in the general press as Rank Buyer (mil.) Change (mil.) Change predatory and abusive collection 1. Sherman Financial Group $4,298.7 –52.6% $6,230.0 –45.2% practices on the part of some 2. Portfolio Recovery $3,959.5 –26.7% $7,860.1 18.1% debt buyers has devastated what 3. SquareTwo Financial $3,000.0 –11.8% $3,000.0 –25.0% was once a robust industry. Most 4. Encore Capital $2,820.0 –63.8% $71,300.0 285.4% major credit card issuers are not 5. Ophrys $2,815.0 2.0% $3,860.0 19.5% willing to risk the possibility of 6. Unifund $650.0 –38.4% $1,400.0 32.7% 7. Fourscore $400.8 –45.3% $1,145.0 –26.5% reputational damage through 8. JH Capital Group $244.3 –41.5% $542.4 –21.2% association. 9. Oliphant Financial $244.0 54.4% $263.0 –27.1% Efforts by the Consumer 10. Atlantic Credit & Finance $145.6 –55.8% $414.3 –14.1% Financial Protection Bureau and 11. eCast $115.1 –76.1% $445.7 –55.0% state attorneys general to curb 12. Crown Asset Management $59.9 –39.3% $235.4 –7.0% collection practices, which began 13. Absolute Resolutions $51.9 –72.1% $342.1 –22.1% in 2012, continued to impact the Other(3) $110.2 –88.4% $1,000.7 –37.0% industry last year. Debt buyers also TOTAL $18,915.0 –46.5% $98,038.7 75.6% faced the high cost of buying the (1) Debt bought directly from card issuers. (2) Total purchases of all types of debt. debt that was available for sale. (3) Includes Accounts Retrievable, Asset Recovery, and more. These factors contributed to © 2014 The Nilson Report

© HSN Consultants, Inc. 2014 THE NILSON REPORT MAY 2014 / ISSUE 1041 / THE NILSON REPORT 5 KREDITECH ONLINE CREDIT DECISIONS from page 1... company has processed 1 million comes from a credit line provided taxes, Web pages viewed, cookies, applications from consumers by Kreos Capital. devices being used, and many in Poland, the Czech Republic, Kreditech uses its technology in more. Kreditech takes all available Spain, Australia, Mexico, and markets where established lenders data and runs it through an Russia, and has funded 250,000 either have no access to traditional algorithm to see if a pattern is credit bureau data, which is based suggested. on a consumer’s prior history with Kreditech is headquartered credit, or where bureau data is too in Hamburg, Germany. It hires limited to generate a score using nationals from the countries in conventional, predictive statistical which it operates to manage all totaling $75 million. The analysis. Because loans have generated more than lenders don’t have 10,000 data points are $25 million in net cash flow. By competing products analyzed in an approved . year-end, when three new markets in the markets where are opened, Kreditech expects Kreditech operates, its issued loans to have reached $100 margins are very good. online marketing efforts in their million. Web data analyzed by home countries. Kreditech has The company says that 10,000 Kreditech can be used to help received $25 million in venture data points are analyzed in an with fraud protection including funding and debt capital. It is approved loan. The decision to buyer identification as well as to preparing for a Series B funding approve or deny a loan takes only supplement traditional predictive round. seconds. Funds from an approved scoring. Data reviewed includes Sebastian Diemer is CEO at loan can be sent to a borrower’s computer and phone location, Kreditech in Hamburg, Germany, bank within five a buyer’s shopping pattern, 49 (40) 6059-0560, sebastian@ minutes. Funding for the loans residence where the buyer files kreditech.com, www.kreditech.com.

SEQUENT HCE SOFTWARE FOR SBERBANK from page 1... bank, is also the largest merchant acquirer in the country with a 45% market share. Currently merchants it supports have deployed 20,000 POS terminals with contactless readers capable of handling payments from NFC-enabled phones. The bank (and other top acquirers in Russia) plan on a business case that makes sense to most large card promoting contactless payments at all new merchant issuers to justify partnerships. locations added to their networks. Fewer than 50% Issuers can add HCE to the mobile banking app they already deploy, leveraging the existing Issuers can add HCE to their authorization and verification credentials. Security in existing mobile banking app. the cloud is handled through advanced tokenization. Security in the handset is provided by middleware. In addition to Sberbank, which made an equity of the merchants in Russia have a card-reading POS investment in Sequent in 2013, other customers of terminal. Sequent include CIBC and Rogers in Canada, Sprint Host card emulation involves the storing of in the U.S., and Trüb in Switzerland. payment card details in the cloud instead of secure Those customers use Sequent’s over-the-air (OTA) element (SE) hardware in a mobile phone. Issuers issuance service to embedded secure elements. worldwide recognize that HCE is not as secure as Its HCE software operates on the same platform. having card details protected by an embedded secure Sequent clients could use HCE or SE technology element. However, few mobile network operators for different portfolios or geographics. Sequent has who control access to embedded SEs have presented received Visa certification for its OTA service. Neither

6 VISIT US ONLINE AT WWW.NILSONREPORT.COM Order Back Issues / Preview Upcoming Conferences / View Newsletter Archive Visa nor MasterCard has yet certified any HCE [email protected], www.sberbank.ru. technology. David Brudnicki is Chief Technology Officer at Sequent Mircea Mihaescu is Managing Director at Sberbank Software in Mountain View, California, (650) 262-0351, Digital Ventures in Moscow, Russia, 7 (495) 957-5155, [email protected], www.sequent.com.

IDENTIFICATION VALIDATION USING MOBILE PHONES

Financial institutions can use requirements. Applicants can services can expedite the account technology from IDchecker to also submit a photograph of opening process by several days let consumers open an account themselves, which IDchecker will versus waiting for delivery of online by sending a photograph match against the photo of a government identification on the identification ... can automatically approve document such as a driver’s license document. from the camera of a smartphone When ID documents card-not-present transactions. or computer. IDchecker algorithms do not include an automatically validate the address, IDchecker can validate corroborating documents by a characters on the document to a utility bill that includes that postal service. satisfy Know Your Customer information. Combining these > see p. 8

Payment Industry Acquisitions & Investments April 2014 Amount Amount Company Buyer/Investor (mil.) Country Company Buyer/Investor (mil.) Country 2Checkout Series A1 $60.0 U.S. Nautical Technologies QuickPay2 * U.S. Altius Plus Spire Payments2 * Romania Nelson, Watson & Assoc. CBE2 * U.S. Asia Pacific Card Sys. Datasonic2 * Malaysia Net Element convertible note19 $11.2 U.S. Buzz Points Series D3 $19.0 U.S. Netagio GoldMoney20 * Jersey Centrel SIX4 * Luxembourg Ondot Systems undisclosed equity round9 $18.0 U.S. Closely Series A5 $3.0 U.S. Pinpoint MasterCard2 * Australia CMSI FIS2 * U.S. Pioneer Credit IPO21 $40.0 Australia Cobre Bem Technologia Worldpay2 * Brazil PriorityOne Conquest Agri22 * Australia Currency Cloud Series B6 $10.0 U.S. Procurify seed funding23 $1.2 Canada Digital Persona Cross Match2 * U.S. Prypto IPO * Ireland Electronic FraudSource Warburg Pincus2 * U.S. Shell Fuel Cards Fleetcor24 * Germany Express Technology Dejavoo Systems2 * Canada ShopKeep POS Series C25 $25.0 U.S. freee Series B7 $8.0 Japan Signifyd seed financing9 $2.2 U.S. FundBox Series A8 $17.5 U.S. Social Finance Series C26 $80.0 U.S. GlobeSherpa debt financing round9 $0.8 U.S. Springstone Financial LendingClub2 $140.0 U.S. GP Net Visa10 * Japan Square debt financing round27 $200.0 U.S. Grove Capital Encore Capital2 * U.K. TangoCard undisclosed equity round28 $3.3 U.S. Harlands Debitsuccess2 * U.K. Tele-Works Paymentus2 * U.S. Hundsun Zhejiang Finance Credit11 $532.0 China Transaction Labs CurvePay2 * U.S. Hybrid Paytech private placement12 $1.5 Canada Travel Club Aimia29 * Spain Identiv line of credit13 $20.0 U.S. TSYS Japan TSYS30 * Japan InOne Nayax2 * U.S. Witt Merchant Serv. Intrix Technology2 * U.S. Jameson Bank Assoc. Foreign Exchange14 * U.K. *Terms not disclosed. (1) Led by Chicago Growth Partners. (2) Acquisition. (3) Investors included . (4) Acquired the remaining 50% of Centrel it did not already own. (5) Led by 15 Karmasphere FICO * U.S. Grotech Ventures. (6) From Atlas Venture and others. (7) Led by Infinity Venture Partners. (8) Led by LendingClub debt & equity16 $115.0 U.S. Khosla Ventures. (9) Undisclosed investors. (10) Acquired all equity it did not already own. (11) Purchased 20% stake. (12) Buyers not identified. (13) From Opus Bank. (14) Purchased the LendUp credit debt facility17 $50.0 U.S. bank’s foreign exchange and payments businesses. (15) Purchased the company’s Big Data analytics 2 technology. (16) From T. Rowe Price, Wellington Mgmt., and others. (17) From Victory Park Capital. MCS Software Heartland Pay. Sys. * U.S. (18) From seven investors. (19) Investor Cayman Invest will get 15% of outstanding shares. Metaforic Inside Secure2 $11.6 France (20) Spinoff of digital currency unit. (21) Announced. (22) Reverse takeover to gain stock listing. (23) Led by Nexus Venture Partners. (24) Acquired part of the portfolios. (25) Led by Thayer Street Mi-Pay AimShell $5.7 U.K. Partners. (26) Led by Discovery Capital. (27) Led by Goldman Sachs. (28) Led by Allegro Venture 18 Partners. (29) Purchased 25% stake. (30) Divestiture of card processing to local investors. Mozido Series A $13.4 U.S. © 2014 The Nilson Report

© HSN Consultants, Inc. 2014 THE NILSON REPORT MAY 2014 / ISSUE 1041 / THE NILSON REPORT 7 IDENTIFICATION VALIDATION USING MOBILE PHONES from page 7 In addition to fraud fighting IDchecker to help open online algorithms. It returns a yes/no and risk management, the savings accounts. Card- score to clients. Yes scores include technology helps mitigate not-present merchants can a number suggesting the degree of abandonment by applicants who automatically approve orders accuracy of the consumer’s data. don’t want to execute data entry that would be handled by manual Michael Hagen is CEO at IDchecker online, as well as opening cross- review. Inc. in San Francisco, California, border business opportunities. IDchecker validates a (415) 441-2141, michael@idchecker. Banks in the U.K. use document using its own com, www.idchecker.com.

2CHECKOUT’S GLOBAL PAYMENT SERVICES from page 1...

as an independent sales organization (ISO) partners including Shopify and Brinks. and a payment service provider (PSP). Merchants can access 2Checkout’s For small and midsized customers platform using an API or either of 2Checkout is a PSP. For larger merchants two hosted service models. Those it is an ISO. In both cases the merchants using a hosted service minimize PCI integrate with 2Checkout, which then forwards requirements and the concurrent costs transaction data to their acquirer for because they do not store card data. authorization and settlement. The platform supports 26 currencies A majority of 2Checkout’s 50,000 and operates in 15 languages. merchants and a majority of its transaction 2Checkout, which has received $60 million in private equity funding in two tranches ...has received $60 million in since the fourth quarter of 2012 from Chicago Growth Partners and Trident Capital, is headquartered in private equity funding. Columbus, Ohio. It has an operations office in Ireland and will open two new operations and sales offices volume is in Europe, Asia, Latin America, Russia, outside the U.S. by year-end. and the Middle East. Half of those merchants sell Kevin Gallagher is Senior VP, Business Development physical goods. The other half of its merchants either at 2Checkout in Columbus, Ohio, (678) 493-8853, sell digital goods or use the 2Checkout platform for [email protected], www.2checkout.com. recurring billing. In addition to its direct sales force, Prior issues: 1,033, 1,004, 986, 877 merchants come to 2Checkout through channel

FIRST DATA/SECURITYMETRICS LITIGATION

First Data, the largest U.S. SecurityMetrics, a third party advertising and unfair business acquirer, saw an opportunity to specialist whose services First practices by SecurityMetrics after Data had been promoting terminating the vendor’s services. to merchants and ISOs that SecurityMetrics use First Data for processing counterclaimed, alleging First support. The relationship Data violated the Lanham Act, between First Data and which prohibits false advertising, SecurityMetrics quickly and the Sherman Act, an earn revenue beginning in 2012 deteriorated to the point where antitrust statute that prohibits with PCI Rapid Comply, a PCI First Data brought litigation anticompetitive activities. compliance service for merchants. against SecurityMetrics in Among other things, Going to market with an in- October of 2012 in federal court SecurityMetrics claimed that First house PCI compliance service in Baltimore, Maryland, alleging Data violated the Lanham Act by meant ending a relationship with it faced a campaign of false using “PCI” to describe its PCI

8 VISIT US ONLINE AT WWW.NILSONREPORT.COM Order Back Issues / Preview Upcoming Conferences / View Newsletter Archive compliance service despite its lack of certification by Bennett ruled that SecurityMetrics had sufficiently the PCI Standards Council, which SecurityMetrics stated its claims and allowed the litigation process to argued amounted to a false endorsement. It also continue. alleged that First Data’s pricing for PCI Rapid Comply Since April of this year the litigation has been in the discovery phase, an expensive process that calls The lawsuit has been in federal for both parties to produce documents related to the court in Baltimore since Oct. 2012. facts of the case. Processors and acquirers looking to offer PCI compliance services directly from in-house resources amounted to an illegal “tying” arrangement because need to monitor this case. it bundled the security service with other processing Consulting services related to this issue are services and allowed fees paid to First Data to count available from the law firm of Arnall Golden Gregory. towards ISO billing minimums, while denying that Edward Marshall is Co-Chair of the Payments Practice benefit to third party providers. at Arnall Golden Gregory LLP in Atlanta, Georgia, (404) When First Data sought dismissal of 873-8536, [email protected], www.agg.com. SecurityMetrics’ counterclaims, Judge Richard

FIRST QUARTER CARD RESULTS – U.S.

Visa, MasterCard, American Visa was up 10.6%, MasterCard cash volume was 3.59%. One year Express, and Discover brand up 8.1%, American Express up earlier it was 3.70%. consumer and commercial credit, 6.1%, and Discover debit, and prepaid cards issued in up 3.9%. Credit card purchase volume the U.S. generated $1.030 trillion Credit card cash of $595.03 billion grew by 8.5%. in purchase volume in the first volume of $22.15 quarter of 2014, up 8.1% over the billion from balance same period in 2013. transfers, ATMs, over the counter, Debit and prepaid card Credit card purchase volume and paper checks increased 5.2%. purchase volume of $435.42 of $595.03 billion grew by 8.5%. As a percentage of total volume, billion increased 7.5%. MasterCard debit and UY prepaid card spending was U.S. General Purpose Cards 1Q 2014 vs. 1Q 2013 up 9.6%. Visa debit and prepaid card spending Dollar Volume (bil.) Purch. Trans. increased 6.7%. Brand Total Chg. Purchases Chg. Cash Chg. (bil.) Chg. Credit cards generated Visa Credit $281.26 10.2% $269.32 10.6% $11.94 1.4% 3.15 10.7% 35.5% of all purchase American Express Credit $159.20 6.1% $158.15 6.1% $1.05 6.1% 1.03 5.0% transactions at merchants, MasterCard Credit $144.52 8.1% $137.78 8.1% $6.74 8.1% 1.51 5.1% up from 35.4%. Purchase Discover Credit $32.20 4.8% $29.78 3.9% $2.42 17.9% 0.46 4.3% transactions using Visa credit cards accounted CREDIT CARD TOTALS $617.18 8.3% $595.03 8.5% $22.15 5.2% 6.16 7.8% for 51.15% of all credit Visa Debit & Prepaid $408.42 6.4% $305.32 6.7% $103.10 5.5% 7.99 6.3% card transactions, up 135 MasterCard Debit & Prepaid $174.43 9.0% $130.10 9.6% $44.33 7.3% 3.21 9.8% basis points over 2013. MasterCard purchase DEBIT CARD TOTALS $582.85 7.1% $435.42 7.5% $147.43 6.0% 11.20 7.2% transactions held a 24.55% CREDIT & DEBIT TOTALS $1,200.03 7.8% $1,030.45 8.1% $169.58 5.9% 17.35 7.4% share, down 64 basis Visa Totals $689.68 7.9% $574.64 8.5% $115.04 5.0% 11.13 7.5% points. American Express’s market share of all credit MasterCard Totals $318.95 8.6% $267.88 8.8% $51.07 7.4% 4.72 8.2% card transactions was VISA & MC TOTALS $1,008.63 8.1% $842.52 8.6% $166.11 5.8% 15.85 7.7% 16.81%, down 45 basis Includes all consumer and commercial credit, debit, and prepaid cards. American Express and Discover include business points, and Discover’s from third-party issuers. Figures include PIN-based debit figures for Visa (Interlink) and MasterCard to match their 7.49% share was down 25 reporting. © 2014 The Nilson Report basis points.

© HSN Consultants, Inc. 2014 THE NILSON REPORT MAY 2014 / ISSUE 1041 / THE NILSON REPORT 9 VISA/MASTERCARD IN RUSSIA

When service to four Russian centers will take Russia’s currency. banks was suspended by Visa and more than a year. And establishing MasterCard in response to U.S. Revenues bilateral sanctions over Russia’s annexation earned from relationships with business in Russia acquirers worldwide accounted for slightly to accept locally issued more than 2% of MasterCard’s cards would take years and be very worldwide total last year. About expensive. 15% of revenues from Russia Ilya Riaby is General Director for came from switching domestic Russia at MasterCard in Moscow, of Crimea, Russian lawmakers transactions. At Visa, business in Russia, 7 (495) 937-7710, ilya_ passed legislation that would Russia accounted for slightly less [email protected], www. require Visa and MasterCard to than 2% of total revenues last year. mastercard.com. deposit several hundred million A majority of revenues in dollars at the Central Bank of Russia came from cross- Building the data centers Russia as collateral as a hedge border transactions. will take more than a year. against any future similar action. Visa and MasterCard Now Visa and MasterCard are combined account for in discussions with Russian more than 85% of card payments Andrew Torre is General Director authorities to create domestic in Russia. While building a for Russia at Visa in Foster City, payment card settlement centers Russian national payment card California, (650) 432-1088, atorre@ in Russia. By doing so, they will settlement system is an option, visa.com, www.visa.com. not be obligated to fund collateral problems exist. Restrictions exist Prior issue: 1,039 deposits. Building those data on the convertibility of the ruble,

G2 WEB SERVICES

Helping acquirers understand what merchants are doing online and in brick-and-mortar locations has been the guidelines related to monitoring their business of G2 Web Services since 2004. merchants and third-party processors to see The company has 300 customers in 50 countries that if they are in turn monitoring their customers as use its business intelligence and analytics platform to required by Know Your Customer regulations. monitor 3 million merchants monthly. Due diligence on prospective merchants is G2 maintains a history on 29 million merchants available, including profiles of risk history, shopping worldwide. It identifies those cited for fraud, cart security, their Web host, and any other third- for violations or near violations of card network party vendor they use, and can be provided within 24 regulations, and for violations of a country’s hours or less. The company’s KYC Governor service, which ...maintains a development center in delivers OCC, FDIC, Electronic Transactions Argentina and a sales office in Australia. Association, and card network requirements for monitoring U.S. merchants, can be deployed anywhere in the world. More than 40% of merchants commerce regulations. It also determines if they monitored by G2 are outside the U.S., where are selling something that acquirers do not want to the company is headquartered. It maintains a be associated with. Owners of businesses are also development center in Buenos Aires, Argentina, and reviewed for their online reputations. offices in London, Shanghai, and Sydney. U.S. banks are given assistance in meeting Office Ed Barton is President at G2 Web Services in Bellevue, of the Comptroller of the Currency (OCC) and Washington, (425) 749-4040 x249, [email protected], Federal Deposit Insurance Corporation (FDIC) www.g2webservices.com.

10 VISIT US ONLINE AT WWW.NILSONREPORT.COM Order Back Issues / Preview Upcoming Conferences / View Newsletter Archive Second 50 Largest Debit Card Issuers in the U.S. 2013

TOTAL DEBIT & PREPAID SIGNATURE PIN PREPAID ‘13 ‘12 Purchase Vol. Trans. Cards Purch. Vol. Purch. Vol. Purch. Vol. Cards Issuer, Brands Issued Rank Rank (mil.) Chg. (mil.) (000) (mil.) Chg. (mil.) Chg. (mil.) Chg. (000) Randolph Brooks FCU MC 51 56 $3,049.5 16% 83.8 383 $1,734.4 19% $1,313.2 13% $1.8 251% 32 Synovus Bank V 52 48 $3,033.3 3% 73.7 722 $2,011.1 –5% $1,006.9 21% $15.2 221% 9 BancorpSouth MC 53 51 $2,920.0 4% 74.4 352 $1,487.2 7% $1,431.2 2% $1.6 293% 3 FirstBank (Colo.) V 54 52 $2,858.7 2% 78.7 449 $2,691.3 2% $167.4 1% — — — SchoolsFirst FCU MC 55 57 $2,807.9 11% 76.9 512 $1,539.0 13% $1,268.9 8% — — — Webster Bank V 56 55 $2,797.0 5% 59.5 1,172 $1,186.5 1% $987.5 2% $622.9 20% 729 FirstMerit Bank MC/V 57 58 $2,614.7 9% 69.8 640 $2,023.1 6% $585.1 21% $6.5 –43% 38 Alaska USA FCU V 58 60 $2,541.3 8% 56.7 280 $1,392.0 10% $1,149.3 6% — — — Desert Schools FCU V 59 59 $2,521.4 7% 68.9 275 $1,722.9 27% $798.4 –20% <$0.1 –80% — Central Trust Bank MC 60 61 $2,349.8 3% 71.9 698 $1,044.7 11% $866.0 4% $439.1 –15% 375 First Nat’l Nebraska V 61 62 $2,326.0 5% 62.6 415 $1,741.2 5% $584.8 5% — — — Mountain America CU V 62 64 $2,166.7 3% 52.5 330 $1,082.1 4% $1,084.6 2% — — — Bank of Hawaii V 63 63 $2,132.2 0% 42.3 579 $1,560.1 0% $572.1 0% — — — Susquehanna Bank V 64 67 $2,112.5 6% 48.8 359 $1,413.9 6% $697.1 4% $1.6 6% 39 Old National Bank V 65 65 $2,100.0 3% 55.6 410 $1,349.0 4% $747.6 3% $3.4 1% 130 San Diego County CU V 66 68 $2,004.1 17% 41.6 296 $1,019.3 28% $984.3 7% $0.4 4771% 2 Security Service FCU MC 67 66 $1,996.2 0% 54.3 451 $1,910.9 9% $85.3 –66% — — — Redstone FCU V/MC 68 83 $1,833.5 55% 50.4 214 $1,069.1 127% $763.7 8% $0.7 2% 5 Trustmark Nat’l Bank MC 69 71 $1,789.9 22% 47.2 312 $938.8 19% $851.2 24% — — — First Tech FCU V 70 70 $1,544.5 3% 41.2 267 $763.7 4% $780.8 3% — — — Delta Community CU V 71 76 $1,526.7 17% 42.1 203 $1,604.5 18% $462.2 14% — — — First Hawaiian Bank MC 72 69 $1,522.1 2% 31.5 344 $925.5 0% $596.6 4% — — — BancFirst V/MC 73 75 $1,485.7 10% 38.6 162 $1,282.3 8% $200.2 26% $3.2 –5% 8 University FCU V 74 73 $1,454.2 4% 43.4 126 $1,027.4 4% $426.8 2% — — — Northwest Savings Bank V 75 74 $1,409.0 3% 38.0 266 $824.6 4% $584.4 2% — — — Space Coast CU (1) V 76 72 $1,379.7 –2% 35.3 253 $1,379.4 –4% — — $0.3 –38% 3 IberiaBank V 77 80 $1,338.5 11% 31.6 158 $827.2 10% $511.3 11% — — — Ent FCU V 78 79 $1,309.9 8% 34.2 157 $781.1 11% $528.0 5% $0.7 1% 6 First Midwest Bank MC 79 78 $1,293.6 6% 32.5 176 $788.2 7% $505.4 4% — — — ESL FCU V 80 82 $1,291.8 7% 35.8 256 $1,001.1 12% $289.2 –6% $1.5 –12% 13 Patelco CU V 81 85 $1,239.9 7% 28.3 281 $592.5 12% $610.7 4% $36.7 –1% 51 American Savings Bank V 82 81 $1,218.6 1% 28.7 213 $711.4 2% $507.2 1% — — — Arizona FCU V 83 77 $1,209.3 –2% 34.2 139 $649.2 1% $560.1 –6% — — — Municipal CU V 84 90 $1,165.5 12% 26.0 138 $677.5 15% $487.9 10% — — — Wescom CU V 85 84 $1,131.6 –3% 30.0 201 $560.6 5% $570.0 –10% $1.0 2% 8 Virginia CU V/MC 86 98 $1,115.1 20% 34.1 186 $792.8 37% $322.4 –9% — — — E*Trade Bank V 87 86 $1,109.1 1% 25.7 304 $560.1 1% $549.0 0% — — — ADP FCU V/MC 88 127 $1,087.9 72% 46.2 903 — — — — $1,087.9 72% 903 Fulton Financial V 89 87 $1,078.2 1% 29.5 309 $673.4 1% $404.8 1% — — — First Federal S&L (S.C.) V 90 88 $1,073.7 1% 27.3 134 $607.7 2% $466.0 –1% — — — Hudson Valley FCU V 91 130 $1,073.2 79% 18.4 135 $737.6 44% $335.6 286% <$0.1 –97% <1 PSECU V 92 102 $1,073.0 19% 31.9 383 $1,073.0 19% — — — — — First Financial Bank (Ind.) V 93 89 $1,063.0 2% 33.9 84 $278.4 4% $784.6 2% — — — Members 1st FCU V 94 97 $1,041.2 11% 28.9 228 $773.6 11% $264.3 11% $3.3 12% 43 Grow Financial FCU V 95 93 $1,038.9 2% 32.9 139 $412.9 4% $626.0 1% — — — Teachers CU MC 96 91 $1,037.3 1% 53.7 187 $792.9 1% $244.4 1% — — — Sterling Bank V 97 94 $1,016.3 2% 24.1 186 $547.4 2% $468.9 2% — — — SAFE CU (Calif.) V 98 99 $1,007.3 9% 26.3 126 $471.0 13% $535.5 5% $0.8 >999% <1 GTE Financial MC 99 92 $996.7 –2% 26.4 220 $683.5 6% $313.2 –16% — — — CEFCU V 100 101 $970.4 5% 27.9 187 $637.4 20% $331.7 –14% $1.3 9% 32 Includes both consumer & commercial cards. (1) PIN figures included with signature. © 2014 The Nilson Report

© HSN Consultants, Inc. 2014 THE NILSON REPORT MAY 2014 / ISSUE 1041 / THE NILSON REPORT 11 © 2014 HSN Consultants, Inc. THE NILSON REPORT All Rights Reserved. Reproducing or allowing reproduction or dissemination of any portion of this newsletter in any manner for any purpose is strictly prohibited and may violate the intellectual property rights of HSN Consultants, Inc. dba The Nilson Report.

MERCHANT PROCESSING FEES IN THE U.S. from page 1... including interchange to handle that business. One year before Debit cards settled on the Visa, merchants paid $66.60 billion to MasterCard, and EFT system U.S. Merchant Card Fees 2013 accept $4.419 trillion in purchase networks generated $2.131 trillion volume. in purchase volume in 2013, Fees Purchase Weighted The weighted average of fees as and accounted for 44.72% of all Type (bil.) Vol. (bil.) Average a percentage of purchase volume purchases last year. These cards V/MC credit $35.56 $1,638.67 2.17% from Visa and MasterCard generated 22.16% of the total fees American Express $15.01 $633.29 2.37% credit, debit, and prepaid cards, paid by merchants. V/MC debit $12.75 $1,677.58 0.76% American Express credit and Merchants pay processing fees PIN debit $3.08 $453.09 0.68% prepaid cards, Discover credit, in return for credit risk, fraud Private label $2.63 $235.19 1.12% debit, and prepaid cards, EFT liability, network services, and Discover $2.40 $127.11 1.89% system PIN-based debit cards, value-added services provided by and private label credit and debit acquirers of card transactions. Total $71.44 $4,764.93 1.50% cards was 1.50%. The weighted Prior issues: 1,022, 983, 944, 936, © 2014 The Nilson Report average was 1.51% in 2012. 877, 862, 833

CORTEX MOBILE WALLET from page 1... host card emulation of Near Field tokenized transactions. Communication (NFC) and standard Controls can be added to card accounts tokenization technologies, while using the Cortex mobile wallet including providing similar functionality. merchant category, geolocation, For point-of-sale purchases the purchase amount cap, velocity Cortex platform emulates tokenization restrictions, and more. by adding a 16-digit alphanumeric The controls can also support the number to a 4-digit alphanumeric PIN system’s analytics capabilities, which include selected by the cardholder. All 20 characters cardholder opt-in for value-added offers pushed are combined only in by merchants. the Cortex system when Over time the Cortex linked to the valid card mobile commerce platform will account. In the consumer’s mobile phone, only the support multiple credentials — driver’s license, loyalty 16-digit number exists. It has no value to a hacker. program, etc. — with verification confirmed by the third parties tied to the credential. ... conforms to the recently Cortex was formed in 2012. The intellectual property and product development have been released EMVCo specifications. funded by angels. A Series A funding round will soon be announced with proceeds aimed at taking the Cortex MCP has filed for intellectual property technology to market. rights for its system, which relies on the discretionary The company sees QR code-based payments as data field on Track 1 of a magnetic-stripe card to likely for the first tests of its platform later this year. trigger POS terminals to seek an authorization Robert Stringer is Head of Business Development at request from Cortex’s server. The system conforms Cortex MCP in Cambridge, Massachusetts, (617) 359- to the recently released EMVCo specifications for 9831, [email protected], www.cortexmcp.com.

David Robertson, Publisher May 30, 2014

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