Small Merchants, Global Audience How the Payments Industry Can Help Small Shops Become International Marketplaces

September/October 2018 www.isoandagent.com

Small merchants, global audience How the payments industry can help small shops become international marketplaces

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002_ISO091018_001 2 9/12/2018 2:05:14 PM Contents

08 Small merchants, global audience How the payments industry can help small shops become international marketplaces.

Technology Technology Technology 03 12 17 Costco takes only a slice of the Google Pay stands firmly How Zillow is changing the market Apple Pay wallet on shaky shoulders for digital rent payments The warehouse store finally accepts The journey from Google Wallet to Zillow is far from the first company to Apple Pay, but in a restrictive way that Google Pay was long and complicated try to modernize rent payments. But its consumers may not expect. — and that’s a good thing. entry to the market raises the stakes.

Regulation Security Payments 06 14 18 Cannabis processors fight How new mPOS hacks made Trump’s policies threaten payments, a complex war hardware vendors safer but with little effect Cryptocurrency may be a solution to the A widely publicized hack of one’s hard- Trump’s administration has threatened challenges of handling pot payments — ware should be a bad thing, right? It can remittances, mergers and partnerships. but it invites a new wave of regulatory also be a catalyst for change. But overall the payments industry has headaches. endured. Payments 16 The battle over big-dollar remittances Several companies are allowing higher limits for transfers in key markets.

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001_ISO091018 1 9/12/2018 11:50:44 AM Editor’s View

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1 STATE STREET PLAZA, 27TH FLOOR NEW YORK, NY 10004 • (212) 803-8200 EDITOR Daniel Wolfe Going global 212-803-8397 [email protected] CONTRIBUTING EDITOR David Heun ART DIRECTOR Robin Henriquez Small merchants have a big opportunity, and ISOs and GROUP EDITORIAL DIRECTOR, BANKING Richard Melville agents can help them on this path. [email protected] VP, RESEARCH Dana Jackson The internet long ago enabled the free exchange SALES MANAGER, ADVERTISING Philip Redgate of ideas and culture around the world, but the flow of 212-803-8543 [email protected] money was still very much restricted.

EXECUTIVE DIRECTOR, CONTENT OPERATIONS AND That’s changing as new technologies and initiatives CREATIVE SERVICES Michael Chu make it possible for even the smallest shops to sell their MARKETING MANAGER wares across the globe. The same trends are making Deborah Vanderlinder FULFILLMENT MANAGER it easier for international travelers to use their famil- Christopher Onyekaba iar payment products in unfamiliar countries, such as CUSTOMER SERVICE 212-803-8500 Alipay users who venture to the U.S. from China. [email protected] But merchants can’t tap into this trend without the right technology and support. Countries still have their own distinct regulations and currencies, meaning there is still a need for someone to handle these complexities. This presents an opportunity for ISOs and agents to deepen their relationships with their merchant clients by serving as a guide to these newly available markets. And as technologies like blockchain and faster payments develop, more of CHIEF EXECUTIVE OFFICER ��Gemma Postlethwaite these markets will open up and more merchants will want access to a global CHIEF FINANCIAL OFFICER ��Sean Kron EVP & CHIEF CONTENT OFFICER ��David Longobardi audience. CHIEF SUBSCRIPTION OFFICER �� Allison Adams SVP, CONFERENCES & EVENTS �� John DelMauro SVP, HUMAN RESOURCES �� Ying Wong —Daniel Wolfe

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002_ISO091018 2 9/12/2018 11:51:13 AM TECHNOLOGY Mobile Wallets

customers at the checkout point also translates to more money in Costco’s pocket, so adding contactless and mobile payment is an advantage, according to Crone. “EMV checkout is painful and slow, and Costco wants to find any way around that, first through activating contactless for the Near Field Communication-enabled Citi Costco co-branded cards, and now by riding the coattails of Apple Pay and others,” Crone said. Contactless cards are ubiquitous outside the U.S., with mass merchant adoption in Australia, the U.K. and across most European markets. Up to 20% of all transactions are contactless in most of these regions, according to a Costco takes only a slice report from A.T. Kearney. U.S. issuers were late to the contactless card movement because of a of Apple Pay false early start a decade ago when Costco’s acceptance of Apple Pay doesn’t give it the full terminals weren’t ready. Afterward, range of cards supported by Apple’s mobile wallet. in the rush to meet the October 2015 EMV liability shift, most issuers skipped adding contactless technology because By Kate Fitzgerald there was still no critical mass of NFC- ready terminals. Along with activating contactless Costco rolled out the Costco Any- Costco’s U.S. gas pumps are de- payments at its store terminals, Costco where Visa card in mid-2016, equipping signed accept contactless payments, has opened its checkout lines to Apple the entire 7 million-plus credit card but that feature is not yet live. The Pay, Samsung Pay and Google Pay. But portfolio is with EMV contactless tech- chip-card liability shift goes into effect there’s a catch. nology. For about two years, Costco for U.S. gasoline merchants in October Costco confirms it still accepts only co-branded credit card users were un- 2020 and many are working to recon- Visa credit cards at its stores, including able to use the feature at Costco stores figure their pumps. through digital wallets, as part of the until the terminals went live this month. Citi was the first U.S. issuer to deal it struck with Citigroup when it It’s no coincidence that Costco has commit to a fully contactless credit split with longtime cobranded credit opened Apple Pay and others along card portfolio, embedding the latest card partner American Express in 2015. with contactless card payment at its generation of EMV contactless in all of Because Apple Pay and the other terminals, said Richard Crone, CEO of the Costco cards. wallet apps are digital form factors for Crone Consulting LLC. EMV contactless card payments are existing cards, the merchant sets the “Cobranded card deals include spe- accepted at a few major merchants, parameters on which cards to accept, cific interchange pricing, and Costco is including McDonald’s and Walgreens. and Citi’s deal with Costco specifically getting that pricing from Citi and theo- Most older contactless-enabled narrows acceptance to Visa. The same retically on Visa cards, so Costco wants terminals, including unattended vend- restriction does not apply to debit cards to stick to that plan,” Crone said. ing machines, do not recognize EMV accepted at Costco. But time saved by speeding up contactless cards. ISO

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003_ISO091018 3 9/12/2018 11:51:25 AM REGULATION Pot payments

na legislatively rather than through a ballot initiative. The company is already active in California and Arizona. While state laws vex legal cannabis payment providers, cryptocurrency regulations are also a challenge, given the volatility of rulemaking. In late July, the Financial Action Task Forcepublished a report that contained recommenda- tions for risk mitigation in cryptocurrency. Alt Thirty Six hopes this provides clarity to ease regulations for cryptocurrency. Alt Thirty Six recently entered into a partnership with CannTrade to support the cryptocurrency Dash for cannabis payments. The blockchain technology allows real-time payments that take less than one second, cutting the expo- sure to rapidly changing cryptocurrency valuations. “FATF published reports with the Cannabis processors aim to help financial institutions fight cryptocurrency money laundering and terrorist financing,” Ramirez said. Alt fight a complex war Thirty Six’s goal is go above and be- The companies that want to process cannabis payments yond current regulations, or to evolve its compliance protocols as new guidelines are also confronting crypto regulations. and laws develop. “In fact, many law enforcement and state governments By John Adams frequently propose rules, bills and acts to regulate cryptocurrency financial State laws on marijuana are confusing “The medical and recreational institutions, which often causes confu- and constantly changing, as are the cannabis industry is relatively new with sion.” laws governing the cryptocurrency many gray areas in terms of regulation,” Cryptocurrency can work as a that’s a possible solution to reduce said Ken Ramirez, co-founder and CEO cannabis payment alternative, but it is dispensaries’ reliance on cash. of Alt Thirty Six, a Tempe, Ariz.-based a heavy compliance lift on the federal Many cannabis sellers have trouble payments platform for the canna- level as well. getting a bank account or acquirer bis industry. “These gray areas and Cannabis is still illegal under federal relationship due to their conflicted legal different regulations within each state law and cryptocurrency regulations status at the state and federal levels. can cause confusion, but also promote are, to be kind, confusing. The federal Despite their category’s regulatory innovation.” government has taken a more permis- complexity — or perhaps motivated by Alt Thirty Six is applying for money sive stance recently, with prior foes of it — a new breed of merchant acquirers transfer licenses in Oregon, Nevada and legal cannabis such as former U.S. Rep is slicing through the thick government Colorado and is considering an appli- John Boehneractually investing in the red tape to process cannabis payments, cation in Vermont, which recently be- industry. one state at a time. came the first state to legalize marijua- As the legal cannabis market

4 ISO&AGENT September/October 2018

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005_ISO091018 5 9/12/2018 2:05:16 PM Regulation | Pot payments

expands, it has taken on the chal- rency and the legal status for cannabis sumer and businesses will adopt it.” lenges of more traditional merchant as a product. And CanPay Tuesday By working within guidelines that acquiring, such as CRM and inventory announced it has launched its payment appear to be ever-shifting, CanPay management around seasonal spikes platform to 115 retailers in New York, developed a closed-loop debit network such as the 4/20 “weed holiday” before Pennsylvania, New Hampshire, Massa- for cannabis stores, and is live in 17 shedding the rudimentary compliance chusetts, Maine, Maryland and Florida, states and Puerto Rico. challenges such as figuring out where placing CanPay in 16 states plus Puerto CanPay works with approximate- cannabis is legal as a product. Rico. It plans to enter Rhode Island, ly 25 banks to create a private debit “The federal government can still New Jersey and Vermont sometime this network and uses ACH transactions to apply its regulations, such as CFPB year. process the payments, not the Visa and rules, as the cryptocurrency is likely to CanPay’s model is different, using Mastercard rails. fall under prepaid regulations,” said a closed-loop network of about two The CanPay purchasing experience Tim Sloane, vice president of payments dozen banks to support debit payments resembles that of using the Starbucks innovation at Mercator Advisory Group, for legal cannabis. This makes compli- or Dunkin’ Donuts app — the app uses adding compliance with the Bank ance easier because dispensaries in its a one-time token and PIN, and a QR Secrecy Act could also be in play. “It network must be in a regulatory-ap- code that the cashier scans from the would probably be wiser to identify the proved cannabis banking program, said smartphone’s screen. regulations that would be the easiest Dustin Eide, CEO CanPay, adding there “We want to provide a stable and to comply with and then address all are some complications since not all transparent payment alternative for re- aspects of them, such as a prepaid states allow in-store, e-commerce and tailers to be able to offer to their retail closed loop or restricted authorization delivery for cannabis. customers,” Eide said. “It’s seamless, network.” CanPay also avoids blockchain and just like a Starbucks experience.” Alt Thirty Six isn’t alone. Tokes uses other emerging payment models to It is hard not to draw similarities a blockchain to manage compliance keep things simple for users, Eide said. between CanPay Debit and popular for the entire cannabis supply chain, “The more traditional service we can mobile apps from the likes of PayPal, anticipating risks beyond cryptocur- provide, the more likely it is that con- Venmo and Starbucks in terms of how they operate. When CanPay customers sign up for the service they are verified with standard know-your-customer procedures and are asked to download an app. But like Alt Thirty Six and Tokes, the goal is to reduce cash payments and other regulatory workarounds that are risky for merchants and consumers. “Cash is definitely still a major form of payment in the industry because of the banking issues that cannabis companies face,” Ramirez said. “There are many ‘reverse ATM’ platforms out there that use round- about methods to enable customers to use their debit/credit cards to make purchases,” Ramirez said. “However, many customers have been burned by these companies because they often lack proper licensing and are working through loopholes.” ISO

6 ISO&AGENT September/October 2018

006_ISO091018 6 9/12/2018 11:51:22 AM Merchants need a countertop payment solution made for the modern consumer—one that is purposefully designed, lightning fast, and secured from end to end. The V200c Plus checks every box. It also accepts all payment options, from EMV to contactless, and is equipped with an interactive interface that supports third-party apps.

007_ISO091018 7 9/12/2018 2:05:19 PM Small merchants, global audience How the payments industry can help small shops become international marketplaces.

International e-commerce is booming these days and so too are the opportunities—and challenges—for payments players. Within the past decade or so, a growing number of payments platforms Ihas targeted international e-commerce transactions, and with good reason. Research firm Forrester predicts that cross-border e-commerce will outpace domestic growth, with a compound annual growth rate of 17 percent between 2017 and 2022, compared with 12 percent for overall B2C ecommerce. Today, many payments providers that focus on international e-commerce are trying to do more than simply process transactions. They are focusing on solving the various pain points for merchants that make international e-commerce especially difficult. These include significant decline rates for cross-border credit card transactions, a high occurrence of fraud and increasingly burdensome tax requirements. At the same time, payments providers are also running up against an increasing number of challenges, including slews of complex local regulations and the need to build appropriate scale.

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008_ISO091018 8 9/12/2018 11:51:16 AM Technology | Internet of things Small merchants, global audience How the payments industry can help small shops become international marketplaces. By Cheryl Winokur Munk

International e-commerce is booming To compete effectively, many pay- e-commerce, given that the fraud rate these days and so too are the opportu- ments providers are adding ancillary for international orders is around 1.5 nities—and challenges—for payments services beyond just processing. These times higher than domestic purchases, players. include regulatory compliance, tax according to a 2016 report from Cyber- Within the past decade or so, a compliance, shopper support, charge- Source, a unit of Visa. growing number of payments platforms back and refund management and “There’s plenty of opportunity for Ihas targeted international e-commerce fraud detection analysis, payments others to get into this,” said Dangel- transactions, and with good reason. professionals say. maier, who contracts with a third-party Research firm Forrester predicts that “I think most processors and pay- provider for the company’s fraud detec- cross-border e-commerce will outpace ments providers are looking for ways tion services. domestic growth, with a compound to add value to merchants outside of One sticking point for would-be en- annual growth rate of 17 percent be- just payments,” said Erich Litch, chief trants is that while a payments provider tween 2017 and 2022, compared with 12 revenue officer at 2Checkout, a global may be well-versed at fighting fraud percent for overall B2C ecommerce. e-commerce and payment platform in the U.S., replicating those services Today, many payments providers that allows companies to accept online in other countries isn’t so easy. For that focus on international e-commerce and mobile payments from buyers instance, in certain countries the tools are trying to do more than simply worldwide, with localized payment available to ensure people are who process transactions. They are focus- options. “Anything processors can do to they claim to be may not be as sophis- ing on solving the various pain points do that is going to be a very important ticated, Dangelmaier said. for merchants that make international area,” he said. Another problem payments provid- e-commerce especially difficult. These ers are increasingly trying to solve is the include significant decline rates for Global pain points difficulty merchants have with approval cross-border credit card transactions, a Fraud prevention is one area some rates for international credit card trans- high occurrence of fraud and increas- payments providers are focusing on to actions, according to Igal Rotem, chief ingly burdensome tax requirements. At deepen relationships with international executive of Credorax, a full-service the same time, payments providers are e-commerce merchants, according to acquiring bank specializing in e-com- also running up against an increasing Ralph Dangelmaier, chief executive of merce payments and services. number of challenges, including slews BlueSnap, an online payment platform. Many banks—issuers or acquir- of complex local regulations and the Having stellar fraud protection is ers—will decline cross-border trans- need to build appropriate scale. particularly pertinent to international actions for fear of fraud. So while an

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e-commerce merchant in the U.S. who “Anything that processors can do to One region at a time commerce trends, Visa and Mastercard solely does business domestically might simplify the transactions for merchants Because of all the complexities, it’s continue to dominate among payment expect that around 98 percent of the is an interesting area,” he said. not feasible for payments companies methods, accounting for 68 percent of transactions are approved, Rotem The consultative approach to specialize in every country. Instead, global online sales; followed by PayPal estimates that about 30 percent to 35 Some payments companies, like In- payments companies should seek to be at 19 percent and American Express at percent of cross-border transactions genico, consult with merchants to help strong in a few markets and not try to 7 percent. are denied at the first attempt; denial them find the best approach for their be all things to all people. “Specializa- But certain countries show stronger rates are even higher in less developed business. For some this might mean set- tion is key,” said Leija of Ingenico. preferences for local payment methods. areas of the world. ting up a legal entity within the region Accordingly, some payments pro- For example, as a merchant, you can’t “This is a very, very big number,” said where they want to expand. viders are finding success by focusing operate in the Netherlands and not Rotem, whose company was founded to This offers advantages for payment on one or two international markets for accept iDEAL, said Jochen Kaempfer, a help merchants improve their approval cost acceptance, but there are addi- e-commerce, while others are targeting principal at A.T. Kearney who focuses rates. “This is where the pain is and this tional costs and complexities as well. more niche markets around the globe. on banking and payments. To sell in is where the opportunity is.” The rules and regulations are different dLocal, for example, focuses on Mexico, you need to accept payments Tax management is another area for each type of payment, said Joe Lei- emerging markets. The company, through OXXO, whereas in China, the where payments providers are in- ja, general manager for North America whose biggest market is Brazil, is big payment method is Alipay and in creasingly seeking to help merchants. at Ingenico ePayments, the online and continually broadening its global reach. Brazil, people tend to use local credit Traditionally, payments processors mobile commerce unit of Paris-based In mid-August, dLocal announced the cards. didn’t get involved at all in taxes. That’s terminal manufacturer Ingenico Group. expansion of its payments platform For payments companies that are because in the past, most online trans- A merchant can’t just put up a to the Middle East and North Africa, very focused on the U.S., it can be a actions weren’t taxed. But little by little, website and expect to sell all over the starting with Egypt and Morocco. These shock to realize that cards aren’t the countries realized they were missing out world. “It takes more knowledge and areas are both considered high growth primary method of payment in many on sales revenue, and they are starting expertise now to expand globally,” he opportunities based on factors such as countries, Kaempfer said. to crack down. said. regulatory reform, technology advance- Argentina, for instance, recently Certainly, payments providers that ments and demographics. In Egypt, for What about crypto? instituted a local tax on e-commerce do work in various markets around the example, a population of mostly young One challenge for payments providers transactions and other countries are world need to have a local expertise shoppers (50 percent under age 30) is is the proliferation of new payment weighing the possibility, said Eric Chris- and understanding of the requirements driving the transition to online shopping methods. If you want to maximize sales, tensen, group vice president of com- in each region. For example, there’s and payments, according to dLocal. you have to support those payment merce business infrastructure at Digital PSD2 and GDPR in Europe; and in “These nascent markets offer incred- methods across the world and you need River, a global provider of e-commerce many markets, payments providers ible growth opportunities for innovative, to support lots of different currencies, solutions and the merchant of record have to have a physical presence to do trail-blazing companies,” said Sebastian said Litch of 2Checkout. for major online brands. business. Kanovich, the company’s chief execu- One area to watch is how payments If efforts in countries that tax inter- “Regulations can vary quite wide- tive, in a press release announcing its companies will deal with the world national e-commerce are successful, ly from one market to the next,” and expansion. of cryptocurrencies for international more countries are likely to develop it’s important for payments providers “While there are market barriers, e-commerce, said Brandon Spear, tax schemes of their own, Christensen to get these things right, said Casey many cross-border e-commerce oppor- president of MSTS, a global B2B pay- said. “The local governments want their Bullock, general manager of global en- tunities are emerging in both Egypt and ment and credit solutions provider that share of those cross-border transac- terprise e-commerce for North America Morocco where governments are mak- specializes in commercial transaction tions,” he said. at Worldpay. “The fines that are tied to ing efforts to improve financial inclusion management. There are some online This trend signals a growth opportu- these things can be massive.” through digital banking supported by merchants who accept cryptocurren- nity for payments providers. As a result It’s also not always easy for a pay- payments solutions,” he said. cies currently, but there hasn’t yet been of various new regulations, there more ments processor to start doing business Certainly, payments providers need widespread adoption. “There’s still a of a need to for payments companies in another country. For example, it took to acutely understand how customers little uncertainty about how this is all to help merchants with tax-related is- Worldpay five years to get its credit want to pay in the various markets they going to play out,” he says. sues such as proper withholding and re- card acquiring license in Japan in a are in. For example, it’s still unclear how porting in accordance with a particular long and complicated process. “Markets According to 2Checkout’s first quar- respective governments will regulate region’s rules, said Litch of 2Checkout. aren’t cookie cutter,” he said. ter 2018 benchmark report on digital cryptocurrency, whether the underly-

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010_ISO091018 10 9/12/2018 11:51:18 AM One region at a time commerce trends, Visa and Mastercard ing technology can keep up with large and sellers working together directly, Because of all the complexities, it’s continue to dominate among payment number of payments and whether there but that’s changed as the marketplace not feasible for payments companies methods, accounting for 68 percent of will be enough liquidity to make them a business model has evolved, said Hy- to specialize in every country. Instead, global online sales; followed by PayPal viable payment option for international perwallet’s Ting. payments companies should seek to be at 19 percent and American Express at e-commerce transactions, he said. Even “The fact that there are all these strong in a few markets and not try to 7 percent. so, Spear predicts cryptocurrency will people who are earning really small be all things to all people. “Specializa- But certain countries show stronger eventually become a viable option for amounts of money and need to be paid tion is key,” said Leija of Ingenico. preferences for local payment methods. international e-commerce transactions. is a new phenomenon. It didn’t exist Accordingly, some payments pro- For example, as a merchant, you can’t “It’s just a question of time before it 20 years ago,” he said. With thousands viders are finding success by focusing operate in the Netherlands and not ends up happening,” Spear predicts. and thousands of individuals buy- on one or two international markets for accept iDEAL, said Jochen Kaempfer, a The importance of scale ing and selling, modern marketplace e-commerce, while others are targeting principal at A.T. Kearney who focuses It can be very difficult for start-up payments require technology and scale, more niche markets around the globe. on banking and payments. To sell in payment companies to simply jump he said. A lot of the banks are now dLocal, for example, focuses on Mexico, you need to accept payments into the global e-commerce market. providing more of the infrastructure emerging markets. The company, through OXXO, whereas in China, the A lot of companies don’t realize how to move the money, but leaving the whose biggest market is Brazil, is big payment method is Alipay and in much scale it takes to work globally, details to innovators to handle the user continually broadening its global reach. Brazil, people tend to use local credit saud Michael Ting, senior vice presi- experience, he said. In mid-August, dLocal announced the cards. dent of global markets at Hyperwallet, There are even opportunities for ISOs expansion of its payments platform For payments companies that are a facilitator of cross-border payments to win business in the burgeoning space to the Middle East and North Africa, very focused on the U.S., it can be a and payouts for sellers on online mar- of international e-commerce. starting with Egypt and Morocco. These shock to realize that cards aren’t the ketplaces. (PayPal recently inked a deal Many startup merchants can areas are both considered high growth primary method of payment in many to buy the company; the transaction is bypass ISOs by working with a global opportunities based on factors such as countries, Kaempfer said. expected to close in the fourth quarter.) payments company that deals with regulatory reform, technology advance- Consider, for instance, the prospect cross-border e-commerce. But there are ments and demographics. In Egypt, for What about crypto? of different tax laws in every region. also brick and mortar merchants that example, a population of mostly young One challenge for payments providers This could make it even more challeng- want to sell their wares online to people shoppers (50 percent under age 30) is is the proliferation of new payment ing for new and existing processors to in other countries. ISOs have an oppor- driving the transition to online shopping methods. If you want to maximize sales, do business in multiple countries, saud tunity to forge partnerships to help their and payments, according to dLocal. you have to support those payment Christensen of Digital River. Companies merchants do this—and maintain and “These nascent markets offer incred- methods across the world and you need may need to hire local experts in each enhance that merchant relationship in ible growth opportunities for innovative, to support lots of different currencies, of the jurisdictions, or outsource to a the process, said Conal Cunningham, trail-blazing companies,” said Sebastian said Litch of 2Checkout. third party. Either option has to be built general manager at Inovio Payments, Kanovich, the company’s chief execu- One area to watch is how payments into a payment company’s economics. a global payment gateway provider tive, in a press release announcing its companies will deal with the world whose parent company is North Ameri- expansion. of cryptocurrencies for international Other opportunities for payments can Bancard. “While there are market barriers, e-commerce, said Brandon Spear, providers and ISOs While many merchants are interest- many cross-border e-commerce oppor- president of MSTS, a global B2B pay- Another trend that is changing the ed in selling their wares online globally, tunities are emerging in both Egypt and ment and credit solutions provider that landscape for payments companies is a typical ISO won’t have the connec- Morocco where governments are mak- specializes in commercial transaction the proliferation of online marketplaces. tions to allow them to do that. His com- ing efforts to improve financial inclusion management. There are some online The growth of these marketplac- pany partners with several acquirers through digital banking supported by merchants who accept cryptocurren- es—and the desire for sellers to peddle and ISOs to allow their merchants to payments solutions,” he said. cies currently, but there hasn’t yet been their wares internationally—also means sell their good internationally online. Certainly, payments providers need widespread adoption. “There’s still a multiple opportunities for payments “ISOs don’t have to be out of this to acutely understand how customers little uncertainty about how this is all companies on both sides of the busi- race. They can compete, but they have want to pay in the various markets they going to play out,” he says. ness—payments collection and the to get out of their comfort zone and are in. For example, it’s still unclear how disbursement of mass payments. find some partners to help them deliver According to 2Checkout’s first quar- respective governments will regulate Payouts used handled solely by what the marketplace is demanding,” ter 2018 benchmark report on digital cryptocurrency, whether the underly- banks, when it was individual buyers Cunningham said. ISO

isoandagent.com September/October 2018 ISO&AGENT 11

011_ISO091018 11 9/12/2018 11:51:19 AM TECHNOLOGY Mobile Wallets

a consumer could use Google Wallet only with a Citi card on a Sprint mobile phone. Getting traction was difficult at best and near-impossible at worst. “And the secure element meant the hardware manufacturer had to partic- ipate, but if we hadn’t gone through that, we wouldn’t have moved to host card emulation, which got rid of a lot of the hardware dependencies,” Connors said. The payments industry wouldn’t have moved as quickly to tokenization of mobile payments without seeing what Google was dealing with during its ini- tial wallet experiment, Connors added. “You have to start somewhere, and it’s the iterations, I think, that have made Google Pay what it is today.” Google Pay stands firm Google also didn’t hesitate in estab- lishing Near Field Communication as its connection between the consumer on shaky shoulders device and the POS. It was a technol- The rocky journey from Google Wallet to Google Pay ogy that the short-lived Softcard and, ultimately made the final product stronger. eventually, Apple Pay would also adopt, reinforcing what Google had in play at its starting gate. By David Heun All mobile wallet providers have taken a similar path “to reach their unique Did it take Google seven years to boarding passes. value adds,” Connors acknowledged, perfect its mobile wallet, or did Google “The different evolutions of Google’s but it was especially vital for Google Wallet’s tough launch guide today’s payments ventures are well document- as a pioneer in the field to learn about Google Pay? ed, but I would venture to say that what it would take to keep mobile pay- Google can’t underestimate the we wouldn’t be where we are today” ments on an upward trajectory. importance of its maiden voyage with without Google Wallet, Connors said at Google Pay is a significantly differ- Google Wallet and the lessons the the annual Mobile Payments Confer- ent look than what the search-engine company learned in being one of the ence. “Any time you are trying to do company deployed about 15 years ago first to offer payments through cell- something new, it is difficult, but this is to get e-commerce merchants engaged phones in the U.S., said Jack Connors, a multisided market.” with customers and receiving online manager of merchant global partner- To make Google Wallet work, it payments. ships at Google. needed to get the technology to work “We have always viewed ourselves In the past year, Google has re- on smartphones and at point of sale as an enabler for merchants,” Connors branded Android Pay as Google Pay, terminals, obtain bank support, ne- said. “If you wanted to sell something, expanded into other markets, became a gotiate access to the secure element you could advertise on Google.com, payment option through the Safari and of a handset to store credentials, and and the consumer would go to the mer- Chrome browsers, and gained some educate merchants on acceptance and chant website and, hopefully, fill out a adoption as a mobile pay method for consumers on its operation. web form with their name, address and transit cards and storing tickets and That was a handful in 2011. Initially, credit card credentials.” ISO

12 ISO&AGENT September/October 2018

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013_ISO091018 13 9/12/2018 2:05:15 PM SECURITY Security | Point of sale Point of sale

ic stripe and remote attacks such as that less than 0.22% of SumUp’s current denial of service. Square did not provide transactions involve the magnetic stripe an executive for an interview, but on cards. SumUp says it has “success- confirmed it has dropped Miura M010 fully” removed any possibility of such an readers in favor of contactless and chip attempt at fraud in the future. card readers. Miura did not return a The type of attack typically depends request for comment. on the ultimate goal of the attacker. In a statement, Square said the For example, a cyber-criminal might M010 was offered as a stopgap, adding send an arbitrary command to the Square accelerated plans to drop mPOS system as part of a larger so- support for the M010 and transfer to cial-engineering attack that is aimed a free Square reader for contactless at getting the cardholder to run their and chip.”It’s important to note that transaction again through a less secure this is not a vulnerability in any Square channel. hardware or software, and we have no Whereas by tampering with trans- indication that any Square sellers have action amounts, hackers could make been impacted by it.” a $5 transaction at point-of-sale look PayPal would not comment beyond like a $50 transaction to the cardhold- a statement saying: “Security is a top er’s issuing bank. RCE exploits allow priority at PayPal and we recognize the attackers to access the device memory, How new mPOS hacks important role that researchers and effectively turning a mPOS reader into our user community play in helping to a mobile skimmer from which they make vendors safer keep PayPal secure. PayPal’s systems can electronically collect cardholders’ were not impacted and our teams have account information. Newly exposed mPOS vulnerabilities put vendors on the remediated the issues raised by the “Normally, a [customer] goes into spot to patch things up. researcher.” a business and interacts with the iZettle, a Stockholm-based mPOS payment terminal directly, or hands By John Adams and Karen Epper Hoffman company that PayPal is in the process their card to the merchant,” researcher of buying, provided a similar response: Leigh-Anne Galloway said during her After researchers exposed how problems comes as billions in invest- “Security is paramount to iZettle. The Black Hat presentation. “The transac- hackable mobile point of sale systems ments flow through the mobile point of issue flagged to us by the researcher tion goes to the merchant acquirer, are, vendors quickly shored up their sale industry. is resolved, and the iZettle service and that talks to the issuer. … But with defenses — while also blaming some Mobile point of sale terminals have its community remain unaffected... the mPOS [transaction], there is no vulnerabilities on payment methods been a lifeline for micromercants and At iZettle, we comply with the highest relationship directly with the merchant they characterize as outdated. small businesses for most of the cat- security standards in our industry. We acquirer.” Merchants “work with the iZettle, PayPal, SumUp, and Square egory’s existence, but the companies perform thorough security checks of mPOS provider, who may or may not all countered researchers’ contention of behind this technology are taking on every merchant who wishes to use the be assessing security risk.” security vulnerabilities via unattributed debt or shelling out billions of dollars iZettle service.” The researchers partly place the statements saying they have fixed the in acquisitions to diversify services and Like PayPal and iZettle, SumUp also blame on lower prices for mobile point vulnerability in question and minimized reach a larger range of retailers. There’s issued an unattributed statement: “Su- of sale hardware, which are offered at the scope of any threat. also security pressure on the industry, mUp can confirm that there has never less than $100 for some models, affect- Researchers from Positive Tech- since PCI scope reduction is part of the been any fraud attempted through its ing the level of security that is put into nologies demonstrated at the recent appeal for mobile point of sale hard- terminals using the magnetic stripe- the devices. Black Hat conference ways to hack ware. based method outlined in this report.” “Commonly the manufacturer and seven mobile point of sale readers from The researchers demonstrated SumUp added more detail, saying the vendor of the mobile point of sale Square, SumUp, PayPal and IZettle, vulnerabilities that allow man-in-the- the “magnetic stripe” trick uses an terminal are separate.” said Leigh-Anne which PayPal expects to own by the middle attacks, fake code, the ability obsolete technology that relies on Galloway, the cybersecurity resilience third quarter. The contention of security to alter transaction values via magnet- signatures rather than PINs. It noted lead for Positive Technologies. “With an

14 ISO&AGENT September/October 2018 isoandagent.com

014_ISO091018 14 9/12/2018 11:50:59 AM SECURITY Security | Point of sale

ic stripe and remote attacks such as that less than 0.22% of SumUp’s current outside provider, there’s less consider- into a card skimmer; shortly thereafter, denial of service. Square did not provide transactions involve the magnetic stripe ation for the ecosystem.” Square received an investment from an executive for an interview, but on cards. SumUp says it has “success- There’s also a compliance factor, in Visa and began talking openly about confirmed it has dropped Miura M010 fully” removed any possibility of such an that companies rarely do more than plans to add encryption. readers in favor of contactless and chip attempt at fraud in the future. protect their systems beyond what’s But there is some good news, since card readers. Miura did not return a The type of attack typically depends required, Galloway said. unlike retailer data breaches over the request for comment. on the ultimate goal of the attacker. Square manufactures its own hard- past few years, it wasn’t real crooks In a statement, Square said the For example, a cyber-criminal might ware, softening the risk, according to exploiting vulnerabilities in mobile point M010 was offered as a stopgap, adding send an arbitrary command to the Galloway (Square confirmed it manu- of sale systems. Square accelerated plans to drop mPOS system as part of a larger so- factures its hardware in-house). “If you “Mobile point of sale certainly has support for the M010 and transfer to cial-engineering attack that is aimed manufacture your own product, there’s seen its share of security challenges a free Square reader for contactless at getting the cardholder to run their more of a holistic consistency across over the years, which is not surprising and chip.”It’s important to note that transaction again through a less secure the board,” Galloway said. given the pace of innovation here,” said this is not a vulnerability in any Square channel. Square faced similar allegations dat- Julie Conroy, a research director at Aite hardware or software, and we have no Whereas by tampering with trans- ing back to when its only product was Group. indication that any Square sellers have action amounts, hackers could make a small magstripe reader that plugged “I think what you have to keep in been impacted by it.” a $5 transaction at point-of-sale look into the audio jack of a smartphone. mind is that the Black Hat revelations PayPal would not comment beyond like a $50 transaction to the cardhold- The rival terminal maker Verifone were mostly based on lab exercises— a statement saying: “Security is a top er’s issuing bank. RCE exploits allow demonstrated how a rogue application we haven’t seen a lot of these exploits priority at PayPal and we recognize the attackers to access the device memory, paired with Square’s device could turn it in the wild yet.” ISO important role that researchers and effectively turning a mPOS reader into our user community play in helping to a mobile skimmer from which they keep PayPal secure. PayPal’s systems can electronically collect cardholders’ were not impacted and our teams have account information. remediated the issues raised by the “Normally, a [customer] goes into researcher.” a business and interacts with the iZettle, a Stockholm-based mPOS payment terminal directly, or hands company that PayPal is in the process their card to the merchant,” researcher of buying, provided a similar response: Leigh-Anne Galloway said during her “Security is paramount to iZettle. The Black Hat presentation. “The transac- issue flagged to us by the researcher tion goes to the merchant acquirer, is resolved, and the iZettle service and that talks to the issuer. … But with its community remain unaffected... the mPOS [transaction], there is no At iZettle, we comply with the highest relationship directly with the merchant security standards in our industry. We acquirer.” Merchants “work with the perform thorough security checks of mPOS provider, who may or may not every merchant who wishes to use the be assessing security risk.” iZettle service.” The researchers partly place the Like PayPal and iZettle, SumUp also blame on lower prices for mobile point issued an unattributed statement: “Su- of sale hardware, which are offered at mUp can confirm that there has never less than $100 for some models, affect- been any fraud attempted through its ing the level of security that is put into terminals using the magnetic stripe- the devices. based method outlined in this report.” “Commonly the manufacturer and SumUp added more detail, saying the vendor of the mobile point of sale the “magnetic stripe” trick uses an terminal are separate.” said Leigh-Anne obsolete technology that relies on Galloway, the cybersecurity resilience signatures rather than PINs. It noted lead for Positive Technologies. “With an

isoandagent.com September/October 2018 ISO&AGENT 15

015_ISO091018 15 9/12/2018 11:51:01 AM PAYMENTS Cross border

wants to defend it market share. “We launched our service in India in February 2015 in order to help India’s hard-working overseas community have a secure, fast, and affordable way to send money back home,” said Josh Hug, co-founder and COO of Remitly. “As a part of that mission, we’ve launched an industry-first same day $30k send limit to ensure our customers are able to send more when they need to.” It should be noted that for consumers to access these higher daily transaction limits, remittance companies are required by law to collect critical KYC information. These enable companies to identify consumers, cross-check against appropriate Treasury SDN and OFAC lists as well as provide the neces- sary government reporting. The battle over big- There are two major trends that are shaping the remittance industry, dollar remittances prompting companies such as Xoom, Remitly, and even Ant Financial — More companies are raising the dollar limit for cross-bor- which tried to purchase MoneyGram der transfers in key markets. last year — to build or consolidate their market share positions. By Michael Moeser First, the payment volume of remittances is on the rise. According to In the combative U.S.-to-India remit- transmitter license just this March, and the World Bank, the volume of global tance corridor, Seattle-based Remitly TransferWise, which cut its fees last No- remittances is expected to reach $642 just raised its game by increasing its vember in response to the heating up billion in 2018, up from $613 billion in daily transfer limits to $30,000 and of global competition. Both companies 2017 which is almost 5% growth. The hiring a Bollywood actor, R. Madhavan, are based in London. single largest recipient country in 2017 as its brand ambassador. “The market is competitive and was India which took in $69 billion, Remitly’s moves are clearly in providers compete on not just price followed by China ($64 billion), the Phil- response to the growing competitive but brand trust, ease of use, transfer ippines ($33 billion) and then Mexico pressure being placed in a key U.S. amounts and transaction speed” noted ($31 billion). outbound corridor. On June 4th Xoom Sarah Grotta, director, debit and alter- The second major factor is that the (a unit of PayPal) increased its daily native products of Mercator. market remittances being sent from transfer limit to $25,000 to 50 countries The U.S.-to-India remittance corridor the U.S. are going through a digital including India, Canada, the U.K. and represents an almost $11 billion annual transformation and very likely globally the Philippines. payment flow according to the Pew as well. Using mobile phones to send Additional pressure comes from Research Group. This makes it the third money cross-border provides con- digital cross-border specialists that largest U.S. outbound remittance corri- sumers with not only convenience, but have made significant inroads to the dor after Mexico and China. also allows recipients greater ease to U.S. market. These include WorldRemit, The U.S. to India corridor has been choose how they want the funds to be which received its New York money very successful for Remitly, which likely disbursed. ISO

16 ISO&AGENT September/October 2018

016_ISO091018 16 9/12/2018 11:50:55 AM TECHNOLOGY Rent payments

and shared economy marketplaces including brands such as HomeAway and VRBO. In May, YapStone launched Kigo Marketplace with Kigo, a unit of RealPage, to provide a platform for vacation rental listings. To fuel its expansion efforts, Yap- Stone has been very active in raising funds. In February 2018, YapStone com- pleted its latest funding round, which was led by Premji Invest and raised $71 million. “It’s all for M&A, as acquisitions are clearly part of our roadmap. I probably spend 50% of my time evaluating companies and opportunities,” said Tom Villante, co-founder, chairman and CEO of YapStone. This year’s round, which was its Zillow’s effect on digital Series C, followed a string of successful fundraising and debt placements which rent payments provided over $186 million in capital according to Crunchbase, which tracks As Zillow enters the market for digital rent payments, funding of private startups. Investors existing providers must adapt to its presence. include Accel Partners, Mastercard, and Meritech Capital Partners. Debt By Michael Moeser financing came from Comerica Bank and Bregal Sagemount in an earlier As the digital rent market attracts new The other major challenge is frag- debt round in 2015. entrants like Zillow, mainstays like Cozy mentation. Of the roughly 44 million YapStone expects to generate $350 and YapStone are pressured to diversify rental units currently available, Zahnd million in revenue for 2018, which is sev- and seek new audiences for their digital estimates that up to 75% are owner/open-fold increase in the last seven years, payments technologies. erators who have 20 rental units or less, added Villante. Zillow is a formidable opponent — making it difficult for vendors to build YapStone partnered recently with the company claims 35 million renters scale. “The small landlords invent their PPRO Group, a cross-border e-payment visit its websites and mobile apps own way of working … As an industry, specialist to help it provide alterna- each month in search of a home or we have barely scratched the surface in tive payment methods (APMs) local apartment — and it’s far from the only the U.S., which is probably why Zillow to the various marketplaces serviced challenge that niche providers face. has entered,” Zahnd said. by YapStone. Essentially this will allow Not only is the digital rent check Cozy’s solution to this problem is to YapStone customers to be able to market getting more crowded, it’s faced bundle payments with tools such as access dozens of APMs from around the with other big challenges. tenant screening, lease capture and world, including iDEAL (Netherlands) “The real estate industry is one of the maintenance management. and SOFORT (Germany). last big industries to come online,” said As for YapStone, its growth strategy This effort is critical to YapStone’s Gino Zahnd, founder and CEO of Cozy. now puts it on a collision course with geographic growth — in many coun- According to the Federal Reserve, 80% payment processing powerhouses tries, consumers may prefer to use a of rent is still paid by cash, check or such as Stripe, Adyen and PayPal. It bank transfer method, direct debit, or money order. now targets the travel, vacation, rental other method, Villante added. ISO

isoandagent.com September/October 2018 ISO&AGENT 17

017_ISO091018 17 9/12/2018 11:50:48 AM PAYMENTS Regulation

Trump’s policies threaten payments, but with little effect President Trump has put policies in place that threaten the payments industry, but have seldom changed the course of the market.

By John Adams

Since his 2016 campaign, Donald Trump been relatively muted, and Maas’ wish development. has loomed over the international pay- is probably just that. The tie between the Iran deal and ments system with a series of threats This recent development in Germany payments, as Haas sees it, is European that are proving increasingly empty. does not involve anything Trump has countries won’t be able to provide the While it remains to be seen if Ger- said or promised directly; generally, he economic incentives to Iranian com- man Foreign Minister Heiko Maas’ call has had little to say about the Europe- panies—particularly Iranian banks—if for an independent payment system an payments market. European companies and banks face to save the Iranian nuclear deal will Maas contends in an open letter that punishment from the U.S. for doing actually happen, the potential severity independent European payment rails business with Iran. of such a move joins a growing list of can save the Iran nuclear deal. Trump “In this situation, it is of strategic Trump-era potential casualties includ- in May broke with European allies by importance that we clearly tell Wash- ing remittance bans, foreign technology saying the U.S. would pull out of the ington [that we] want to work together. worker visa shutoffs, canceled mergers 2015 Iranian deal, in which economic But we will not let you act on our heads and choked fintech collaboration. sanctions would be lifted on Iran in [and] over our heads,” Maas wrote, All that said, the impact to date has exchange for concessions on nuclear according to a translation. “That is why

18 ISO&AGENT September/October 2018

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019_ISO091018 19 9/12/2018 2:15:35 PM Payments | Regulation

it is essential that we strengthen Euro- pean autonomy by setting up payment channels independent of the U.S., cre- ating a European Monetary Fund and building an independent Swift system.” How that would happen is unclear, as is the impact on the global economy, the burgeoning cross-border payments market, gig economy payrolls and the card networks. Maas himself says the “devil is in a thousand details.” It wouldn’t be the first dramatic change to payments that was signaled by Trump’s rhetoric but never came to be. Trump’s plan to strong-arm Mexico to pay for his border wall originally hinged on shutting off remittance corri- dors. That didn’t happen. Ant Financial’s bid to acquire U.S.-based Moneygram fell apart under regulatory pressure. Other possible impacts of Trump’s proposals on payments volume, such as India, where government-driven de- Chancellor Angela Merkel, a member of as a crackdown on technology worker monetization has sparked a huge move the same political party as Maas, said visas, or tariffs on Chinese goods, have toward digital payments, or China, she was opposed to an independent yet to fully materialize. where government support for outside payment system. Companies that process interna- payment processors is a moving target The concept of a distinct European tional payments for contract workers that’s kept Visa and Mastercard from payment system has some political have noticed an uptick in volume that developing business inside China. traction in the European Union over the corresponds with possible changes to The underlying payments technol- years, though it’s not been successful, visas. ogy for cross-border payments is also according to Eric Grover, a principal at The payments industry’s most no- improving. Intrepid Ventures. table casualty of the current political JPMorgan Chase has acquired The Monnet Project, for example, environment in the U.S. is likely the WePay (a Redwood City, Calif.-based included about two dozen European scuttled Ant/Moneygram acquisition, company unrelated to WeChat) to banks that would have provided a though even in that case Ant has found support small businesses that sell Pan-European alternative to Master- large market in the U.S. in supporting online internationally, while emerging card and Visa. The project failed in travel payments for Chinese tourists technology such as blockchainmakes 2013 over regulatory uncertainty and and temporary residents. it easier and less costly to process the concerns over the sustainability. Travelers from China provide the frequent small transactions that are “If Maas were simply urging the largest source of international tourist part of e-commerce. formation of a new payment system to spending in the U.S., with more than While the Maas plan has some increase competition that would be a a decade of double digit growth. comparison to Russia’s independent formidable challenge, but I’d applaud Travel and tourism exports account for Mir payment system set up in response it,” Grover said, adding the concept of nearly two-thirds of all U.S. exports to to Western sanctions as a way to dilute a distinct European payment system is China. Chinese tourism is a particularly the market share of Visa and Master- borne more out of resentment toward important source of revenue for large card, the Russian market is not nearly the U.S. “The supranational EU at its U.S. cities such as Los Angeles and New as intertwined with the U.S. as the heart, however, is a political project.” York. European market. The challenge for any Swift rival These impacts fall far short of the Within hours of Maas’ declaration would be to achieve critical mass — politically driven moves elsewhere, such of payments independence, German and relevance, Grover said. ISO

20 ISO&AGENT September/October 2018

020_ISO091018 20 9/12/2018 11:50:42 AM

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021_ISO091018 21 9/12/2018 2:05:19 PM ISO&Agent Magazine Print Ad Specs_Oulined.indd 1 20/08/2018 17:22 SECURITY Digital payments

new messages and more data movement,” Mesquita said. Chicago-based UL brought its security testing and certification expertise to the payments landscape four years ago when seeking to boost tokenization, EMV chip cards and industry security standards. “Our company has a strong brand when it comes to power certification in a physical world,” Mesquita said. “In looking at different things in different domains, we are also moving into this digital space.” The work UL is doing with 3-D Secure testing and advancement represents “just one piece in a big puzzle” that shows the company understands the important of a future digital commerce, Mesquita added.

Vini Mesquita, UL’s global product manager for the Identity Management & Security unit. “Security for payments or any kind of transaction is a way to reinforce our mission, whether it is payments or other How 3-D Secure helps domains, and we are definitely moving into the data space,” he said. Digital commerce will call for UL get into payments more standards-based certification Underwriters Laboratories sees the new version of 3-D as consumer devices are used more and more to facilitate both payments Secure as a platform for its expansion into payments. and authentication, said Julie Conroy, research director and fraud expert with By David Heun Boston-based Aite Group. “Right now, there is quite a bit of With the advent of 3-D Secure 2.0, can scale to the merchants’ needs. chaos on the edges of payments, with Underwriters Laboratories sees the The opportunity for UL is to sepa- so many different types of devices, from e-commerce security standard as rate the baggage of the 3-D Secure smartphones to Alexa, being used to a launching pad for the company’s name from the advancements of its 2.0 initiate transactions and authentica- advancement in the digital payments revision. tion,” Conroy said. “There is a bit of a world. “The brands and payments service gap from a standards and certification In working with the card networks’ providers will have to spend some time perspective, and I could see a role for EMVCo standards body, UL is helping on the educational side to explain that an entity like UL there.” push merchant adoption of 3-D Secure 3-D Secure 2.0, even though it has the UL has been down the EMV road 2.0 through its upgraded Self-Test same name as the previous version, is a before, partnering with payment Platform to test and approve elements completely new technology,” said Vini processors at the time of the U.S. chip of the new security tool. The platform Mesquita, UL’s global product manager card migration in 2015 to speed up the helps merchants implement 3-D Secure for the Identity Management & Security testing and certification process for more quickly by testing the automation unit. merchants to accept the new technolo- process, ensuring it is user friendly and “There are new transaction flows, gy at the point of sale. ISO

22 ISO&AGENT September/October 2018

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