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Updated: Friday, April 17, 2015

Gravity Payments resets minimum wage

A s demonstrators staged “tax day protests” across the United States demanding higher pay, Gravity Payments dramatically increased its staff’s salaries, making headlines around the world. The ISO's Chief Executive Officer, Dan Price, revealed April 14, 2015, in a televised meeting that the company would pay a minimum salary of $70,000 to all employees. The plan, effective immediately, allots incremental raises over a three year period.

“Starting today, everybody in the company that makes under $50,000 a year is automatically going to make the greater of $50,000 a year or $5,000 more than you’re making today," Price said.

In examples provided, a $48,000 salary would be raised to $53,000; $43,000 and below would be increased to $50,000. Price noted that minimum salaries would be raised to $60,000 in December 2016, and $70,000 in December 2017, a number that Price stated he is “really happy about.”

A leap forward for Seattle

Gravity Payments, established in 2004, has a merchant portfolio of approximately 12,000 merchants with $6.5 billion in 2014 transaction volume. The company is headquartered in Seattle, where a minimum wage of $15 an hour became law on April 1. The trend toward a mandatory minimum hourly wage, fueled by nationwide protests and lobbying efforts, is expected to continue in major U.S. markets.

Seattle Mayor Edward B. Murray established the Income Inequality Advisory Committee (IIAC) when he assumed office in January 2013. With Co-Chairs David Rolf, President of SEIU 775MW and Howard Wright, founder and CEO of the Seattle Hospitality Group, the committee aims to address issues related to employee compensation in the Seattle business community.

Murray shared the IIAC’s vision and objectives in its inaugural meeting. “We can boost the earnings of low-wage workers in a meaningful way and increase the economic activity of the region that comes with greater spending power,” he said, adding that these accomplishments are possible without harming employees or eliminating jobs.

A broad economic agenda

The IIAC reached its goal of raising Seattle’s minimum wage; its three year program of scalable increases formed the basis for Gravity Payment’s wage increase plan.

Other key initiatives in the IIAC’s broad economic agenda include:

Balancing risk with profit, happiness

Price acknowledged that the plan involves risk but reaffirmed his commitment to bridge the pay scale gap between C-suite executives and rank-and-file workers. He voluntarily cut his $1 million salary to $70,000, which combined with approximately 75 percent of the company’s projected profits, will help fund the company-wide pay raise. He plans to keep his new minimum wage “until our profit goes back up to where it [was] before we made this policy change.”

In addition to measuring profit margins, Price and his human resources team will monitor the less tangible but, in their view, equally important employee happiness meter. Price’s inspiration for creating a $70,000 baseline salary was based on an article he had recently read concerning emotional well-being.

The article, "High income improves evaluation of life but not emotional well-being," by psychologists Angus Deaton and Daniel Kahneman, shared results of a Gallup survey of 4,500 U.S. residents in 2008 and 2009 and later published in a National Academy of Sciences newsletter. The authors found that pay raises considerably impact emotional health and well-being.

“[W]e confirm the contribution of higher income to improving individuals’ life evaluation, even among those who are already well off," the author wrote. However, they also found the effects of income on the emotional dimension of well-being "satiate fully" at an annual income of $75,000. In addition, the authors noted that the principle was proven only in workers earning annual salaries of up to $75,000.

The principle's implementation had a discernible effect on April 14 at Gravity Payments, where the average salary is $48,000. After a few moments of stunned silence, employees erupted into cheers and gave Price a standing ovation.


New EMV migration aid, preference for chip and PIN
Wednesday, April 15, 2015

A s the chip card fraud liability shift deadline looms, support for the U.S. EMV (Europay, MasterCard and Visa) migration has grown, and merchant debates on how to become EMV (Europay, MasterCard and Visa) compliant have brought to the fore the need to demystify EMV implementation and best practices. One such effort, released April 1, 2015, is the EMV Minimum Requirements Matrix.

The spreadsheet, produced by the EMV Migration Forum, has separate sections for U.S. issuers, merchants, acquirers, processors and vendors. Designed to be used as a baseline and starting point, the document illustrates how payments industry stakeholders contribute to EMV adoption and their respective roles in day-to-day procedures.

The EMV Migration Forum is a cross-industry body focused on supporting EMV adoption. Its 175 member organizations include payment and debit card networks, financial institutions, merchants, processors, acquirers, and payments industry vendors and associations. Randy Vanderhoof, Director of the EMV Migration Forum and Executive Director of the Smart Card Alliance, called the minimum requirements document a timely response to numerous issuer and merchant requests for guidance in meeting the Oct. 1 liability shift deadline.

Acquirers harmonize disparate network approaches

Card brands and networks participating in the U.S. EMV rollout include Accel from Fiserv Inc., American Express Co., Armed Forces Financial Network, China UnionPay, Discover Financial Services and its Pulse network, Vantiv LLC's Jeanie Network, MasterCard Worldwide, New York Currency Exchange, Shazam Inc., First Data Corp.'s Star network, and Visa Inc. Each network interprets chip card implementation, deployment timing, and pricing in accordance with its own technology, business model, and organizational structure.

Itai Sela, Chief Executive Officer of Atlanta-based B2 USA, called the EMV Minimum Requirements Matrix a major step forward in simplifying EMV implementation and presenting the necessary steps for EMV deployment. He described the guide as a useful baseline for issuers while noting some variance and nuances in best practices among card brands and networks, reinforcing the need for merchants to work closely with their acquirers.

"Merchants need to follow their acquirers' best practice, which harmonize all of the card brand and network requirements in their respective guides," he said. He added that many U.S. acquirers have produced their own extensive documentation with precise details that remove the guess work from implementing and sustaining EMV minimum requirements in the United States.

Instructions for reading instructions

The Minimum Requirements Matrix spreadsheet is organized into seven sections, including an introduction, chip card reader requirements for individual payment card networks and a glossary. Each section is further defined with columns for payment card and device requirements, with checkmarks that indicate how each attribute applies to the various payment networks.

Matt Getzelman, Director of PCI Practice at Colorado-based Coalfire Systems Inc., acknowledged that even pared down EMV minimum requirements can be overwhelming to merchants. "The spreadsheet might initially look like a stereo instruction guide to most merchants," he said, noting that varying approaches by card brands to risk management, security breaches and EMVCo configurations may present challenges during the implementation phase.

Getzelman also emphasized that acquirers, unlike card brands, have direct relationships with merchants. "Merchants need to rely on their acquirer relationships for interpretive guidance of EMV minimum requirements instead of trying to decipher the EMVCo spreadsheet," he said.

Growing numbers see chip and PIN as key deterrent

A study released March 25 by The Association for Financial Professionals, a global society of finance executives based in Washington, DC, revealed that 92 percent of finance professionals surveyed believe that EMV technology will mitigate much of the high-profile payment card fraud that has roiled the U.S. market in recent years.

A majority of survey respondents advocated chip and PIN over chip and signature. AFP President and CEO Jim Kaitz noted this as a "call to action for card vendors." The 11th annual AFP survey was underwritten by J.P. Morgan, and 741 senior level corporate treasury and finance executives participated in it.

The report stated that checks "remain the most-often targeted payment method by those committing fraud attacks. Credit/debit cards are the second most frequent target of payments fraud." Results also indicate that survey respondents "firmly believe" EMV-enabled credit and debit cards will be effective in reducing POS fraud and revealed that 61 percent of survey respondents reported that chip and PIN validation will be "most effective" in preventing credit and debit card fraud.

"EMV is starting to hit its stride, and we are seeing a significant uptick in customer requests for updated technology to meet the October liability shift deadline," said Ian Drysdale, Executive Vice President of North American Sales and Business Development at Atlanta-based Elavon Inc. He added that Elavon works with merchants during every phase of EMV implementation, counseling its customers on the "importance of adopting a layered approach to security, such as encryption and tokenization, to further provide the best cardholder data security available."


Singtel, Trustwave merger to focus on global digital security
Wednesday, April 15, 2015

S ingapore Telecommunications Ltd. and its subsidiary companies (Singtel), with main operations in Singapore and Australia, stated on April 7, 2015, it intends to acquire Trustwave Holdings Inc., a Chicago-based information security company.

The deal, worth an estimated $810 million and expected to close in three to six months, is the latest in a series of technology acquisitions by the telcom conglomerate, which has over 500 million subscribers in 25 countries and provides a range of fixed, mobile, data, internet, television and information and communications technology services. Payments analysts view the move as consistent with the company's far-reaching security and digital technology strategies.

Trustwave is the newest addition to Singtel's digital portfolio, which includes the following recent acquisitions: $321 million for cross-channel digital marketing firm Amobee, $235 million for cross-channel digital marketer Adconion, and $150 million for advanced data analytics company Kontera.

"We aspire to be a global player in cyber security," said Singtel Group Chief Executive Officer Chua Sock Koong, attributing the company's digital and security business growth to organic forces and "strategic partnerships with global technology leaders."

Following the Trustwave announcement, Singtel shared its strategy for building out Amobee, Adconio, and Kontera business divisions, which Koong described as "key growth areas" for the company's "unique telco assets." Additionally, the company mentioned internal promotions of senior executives to manage finance, mergers and acquisitions, and Singtel's expanding digital portfolio.

Trustwave to retain autonomy

Koong expects the combined capabilities of Singtel and Trustwave to increase both companies' market share of cloud-based and cybersecurity services by delivering next-generation managed services to business owners worldwide. While complete terms of the deal have not been released, Singtel will reportedly take a 98 percent equity stake in Trustwave, which will continue to function as an autonomous business unit when the merger is complete; it will also maintain its existing offices in Chicago while participating with Singtel in global initiatives.

Trustwave has a subscriber base of more than 3 million in 96 countries, including 10 leading U.S. payments acquirers. The company provides automated, enterprise-level threat, vulnerability and compliance management systems.

"We are excited to join Singtel and to leverage its global presence and resources to accelerate worldwide adoption of our security solutions," said Trustwave Chairman, CEO and President Robert J. McCullen, who called the partnership an unparalleled opportunity to combine Singtel's information and communications solutions with Trustwave's managed services platform.

"Singtel is the perfect partner for us as we continue to help businesses fight cybercrime, protect data and reduce security risk," he added.

Trustwave's global footprint includes five security operations centers located in Chicago, Denver and Minneapolis in the United States; Manila in the Philippines; and Warsaw, Poland. The company hosts TrustKeeper, a cloud-based portal security and compliance service, and operates Trustwave SpiderLabs, a threat research division. It also has numerous patented security technologies.

Parallel growth continues

The managed services sector has grown exponentially, especially in the United States, where business owners spent approximately $14 billion on such services in 2014. Increasing numbers of acquirers, merchants and ISOs rely on subscription-based security services to stay apace with the evolving threat landscape.

The 2014 Gartner Information Security Forecast report predicted continuing growth in managed services with up to $24 billion in spend by 2018. Payments analysts expect managed security best practice combined with U.S. chip card adoption to mitigate online and in-store payment card fraud.

In an internal letter released to Singtel employees, Bill Chang, CEO of Singapore Telecom Group Enterprise stated that Singtel will leverage Trustwave technologies and deep talent to meet global demand for always-on managed security services. Chang positioned Trustwave solutions as scalable, cost-effective deterrents to "frequent and persistent cyber security breaches for enterprises and governments, which can be deployed quickly against real-time and complex cyber threats."

In addition, Chang wrote, "Following the acquisition, Singtel will have access to more than 1,000 security professionals with expertise in deep forensics, research and development capabilities, seven Security Operations Centers and nine engineering centers around the world." He added that Trustwave's cyber security capabilities will enhance and protect Singtel's expanding line of global, cloud-based information and communications technologies.


CFPB sues ISOs, acquirer over client scams
Wednesday, April 15, 2015

T he Consumer Financial Protection Bureau wants ISOs and acquirers to be more circumspect about their clients. To that end, the federal consumer watchdog agency revealed on April 8, 2015, it is taking down a bogus debt-collection operation. It also named four merchant services companies as co-defendants in a civil suit it filed in a federal court in Georgia.

This appears to be the first time the CFPB has come down directly on payment processing companies. And it doesn’t bode well, according to industry attorney Adam Atlas. “This case poses challenging questions for all processors and ISOs as well,” he said.

Global Payments Inc., Pathfinder Payment Solutions Inc., Frontline Processing Corp. and Electronic Merchant Systems are alleged to have facilitated a massive scheme to collect bogus debts from unwitting consumers by acquiring and processing the associated card payments. Frontline is an ISO headquartered in Bozeman, Mont. Pathfinder and EMS, which are also ISOs, are headquartered in Columbia, Md., and Cleveland, Ohio, respectively. Global is a top five acquirer and processor with headquarters in Atlanta.

“Our lawsuit asserts that consumers were harassed, threatened and deceived as part of a reprehensible scheme to collect debt that was not even owed,” said CFPB Director Richard Cordray in announcing the case. “We are taking action against the many parties that allegedly contributed to this phantom debt collection operation. The ringleaders of the scheme, the telemarketing company that broadcast millions of robo-calls, and the companies that processed the payments should all be held accountable for taking advantage of vulnerable consumers.”

The CFPB requested that the court impose civil penalties and awards; it also wants the debt collectors to be shut down permanently.

Missed or ignored red flags

The CFPB’s complaint was filed in U.S. District Court for the Northern District of Georgia, in Atlanta, in March and unsealed April 8. It alleges violations of the Fair Debt Collection Practices Act and the Consumer Financial Protection Act, by a group of individuals and businesses that threatened, harassed and deceived consumers into paying phantom debts. A preliminary injunction also was imposed to halt further activities by the lead defendants – Marcus Brown and Mohan Bagga – and various businesses they controlled, and to freeze their assets.

Brown and Bagga, using fictitious business names and the assistance of several associates, are said to have tricked consumers into believing the debts were legitimate because the collectors had their personal information (such as Social Security numbers and dates of birth). That information, it turns out, had been purchased from debt brokers and lead generators.

The two lead defendants are alleged to have hired a telemarketing firm, Global Connect, to broadcast robo-calls to millions of consumers alleging each had engaged in check fraud and threatening them unless their debt was settled, by credit or debit card. Threats used against the victims included arrest, wage garnishment and “financial restraining orders.”

The CFPB asserts the card transactions were submitted for processing and settled using the four named payments companies despite numerous red flags indicating illegal conduct, including consumer disputes describing the scheme and difficulties contacting the debt collectors.

“The Payment Processors facilitated the Debt Collectors large-scale fraud by enabling the Debt Collectors to accept payment by consumers’ bank cards when the Payment Processors knew, or should have known, that the Debt Collectors were engage in unlawful conduct,” the complaint stated.

It also cited specific instances in which underwriting and risk monitoring were lacking and/or disregarded at Global and the three ISOs. The complaint alleges, for example, that the debt collection companies were known to be factoring payments and had chargeback rates of 30 percent or higher, yet the firms continued to accept and process card payments from them.

A new standard of conduct?

Atlas said it appears the CFPB is taking a harder line on standards of conduct for ISOs and acquirers than did the Federal Trade Commission, which came down on ISOs several years ago regarding disclosures provided to merchants. (The CFPB assumed the FTC’s jurisdiction over the industry under the Dodd-Frank Act.)

“Here the CFPB is basically asking the processor to take responsibility for the acts of its merchants,” Atlas said. “This breaks with long-standing custom in the industry. Until now, absent complicity in wrongdoing, processors were not held responsible for the acts of their merchants.” He added that the CFPB’s action could “contribute to high risk processing going underground or off-shore where there are fewer remedies for all concerned.”


Researchers find 86 percent fraud in chargebacks
Wednesday, April 15, 2015

G lobal Risk Technologies, a chargeback remediation company based in Dublin, Ireland, with a subsidiary in Clearwater, Fla., published a white paper examining "friendly fraud," a growing challenge for e-commerce merchants in both the United States and Europe.

The company's findings show that approximately 86 percent of chargebacks are fraudulent, and many consumers bypass merchants to directly file complaints with card issuing banks. According to a recent study by Visa Inc., this type of fraud is growing at approximately 41 percent per year, costing merchants and card brands billions of dollars in lost revenue.

The hidden costs of free

"Friendly fraud is an inappropriate name for this most unfriendly form of deception," said Global Risk Technologies Chief Information Officer Monica Eaton-Cardone, who called the practice a "learned behavior."

She acknowledged that most consumers don't intentionally try to get something for nothing the first time they initiate a dispute with a payment card issuer. However, Global Risk Technologies' study found that after a relatively frictionless chargeback experience, a majority of consumers become serial offenders, filing new complaints in fewer than 90 days after their first successful chargeback.

"Many consumers don't understand how much they harm themselves with the high costs of chargebacks," Eaton-Cardone stated. She cited Amazon restocking fees and higher membership dues among subscription billers and payment card brands as examples of hidden costs and higher prices resulting from chargebacks.

Consumer culture of opportunism

"Many consumers see chargebacks as a victimless crime," Eaton-Cardone said, adding that many consumers view online merchants as nameless, faceless places that sent them a product they didn't like. She credited impersonal relationships between customers and e-commerce retailers as a leading excuse for card-not-present chargebacks.

Eaton-Cardone noted additional justifications for chargebacks, such as "I'm a victim of overspending" and "I don't feel that guilty because my bank has stolen so much from me in fees." She views a recent epidemic of high-profile security breaches combined with merchant and card brand efforts to keep customers happy as contributing to a culture of opportunism.

Tony Wootton, Senior Vice President and Chief Revenue Officer at Los Angeles-based Verifi Inc., said consumers have become savvier at managing their payment card accounts. He noted that as people become more familiar with going online to look at credit card activity, they can dispute a charge in real-time, sometimes before they even receive their credit card statements.

Wootton also cited indecipherable descriptors as a leading cause of cardholder initiated inquiries. "I don't even recognize 25 percent of [legitimate] charges when I quickly glance at a descriptor," he said, noting that consumers either don't recognize charges on their billing statements or may realize that they forgot to cancel a recurring subscription. Wootton called subscription merchants "the most abused," with a disproportionately higher percentage of chargebacks than all other categories in Verifi's merchant base.

Contributing factors to chargebacks

Wootton attributed an overall increase in all types of card-not-present fraud in the United States to the growing adoption of the EMV (Europay, MasterCard and Visa) standard, which has been found to thwart card-present fraud and cause a shift of criminal activity and "friendly fraud" to more vulnerable online transactions.

The Global Risk Technologies study cited three contributing factors to card-not-present fraud in Europe:

  1. Merchants who are unable to tackle the problem effectively
  2. Consumers who wouldn't consider themselves fraudsters are carrying out fraudulent activity
  3. Card schemes are unwilling to properly address the fraud"

In defense of card brands' tendency to quickly approve consumer disputes and inquiries, Wootton described chargebacks as "resource-intensive," requiring someone to evaluate each incident and determine its viability. As a result, many issuers will quickly approve a chargeback rather than open an investigation.

Remedies and recommended actions

Eaton-Cardone said that reducing friendly fraud will improve the payments ecosystem, help merchants grow their businesses and remove liabilities. Global Risk Technologies' survey included a recommended list of actions to promote a culture of accountability among consumers and help merchants challenge chargebacks:

A free copy of the Global Risk Technologies friendly fraud white paper is available at http://bit.ly/grtffwp.


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