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Wednesday, November 25, 2015

SF City Attorney declares AmEx pricing illegal

A spate of litigious activities against payment card pricing models underscores deepening hostilities among regulatory agencies, retailers and payment card brands. In 2014, the United States Department of Justice and 17 state attorneys general successfully challenged American Express Co.'s pricing and acceptance policies. The lawsuit accused AmEx of setting prices too high and prohibiting enrolled merchants from encouraging AmEx cardholders to use other, less expensive forms of payment at the POS.

A judge in the Eastern District Court of New York ruled in favor of the plaintiffs in February 2015, following a seven-week trial. Plaintiffs included Arizona, Connecticut, Idaho, Illinois, Iowa, Maryland, Michigan, Missouri, Montana, Nebraska, New Hampshire, Ohio, Rhode Island, Tennessee, Texas, Utah and Vermont. U.S. Attorney General Eric Holder praised the decision, setting the stage for further state-level actions against the company's alleged illegal fee structure.

"By recognizing that American Express's rules harm competition, the court vindicates the promise of robust marketplaces that is enshrined in our antitrust laws," Holder stated. "With this achievement, we are sending an unambiguous message that the Department of Justice is prepared to litigate any case, no matter how complex, in its pursuit of justice and protection for the American people."

Party over or just begun?

In response to the court's unambiguous message, San Francisco City Attorney Dennis Herrera filed a statewide action Nov. 6, 2015. People of the State of California, ex rel. Dennis Herrera v. American Express Company et al., alleges that AmEx fees violate California's Unfair Competition Law. It seeks financial remuneration of up to $2,500 per transaction to merchants who chose to accept AmEx-branded payment card products at their establishments, despite the company's readily available published fee and pricing policies.

"The party is over for American Express, and the bill is coming due in California," Herrera said in a well-publicized statement, which critics suggested is inflammatory and unbefitting a public official. "The federal court ruling earlier this year merely confirms what millions of retailers, economists and U.S. Justice Department officials have known for years: American Express has rigged the game. They shook down merchants, stifled competition, and shifted costs for their extravagant member perks to even cash-paying consumers. It's unfair, it's illegal, and—under state law—it warrants tough penalties and restitution for California's merchants."

Payments analysts have also questioned Herrera's motives for the lawsuit, suggesting that his tone belies a certain degree of opportunism in what may likely be a victimless crime. "American Express has consistently positioned itself as an optional, premium brand," said David True, a former AmEx employee and current Managing Director at Broadly Curious Advisors, a payment consultancy based in New York City. "I don't understand why they're beating up on AmEx; there has never been a case of forcing merchants to accept The Card; card acceptance doesn't hurt smaller merchants, and large retailers have the option to negotiate their rates."

Noblesse oblige

In the previous, precedent-setting case against AmEx, plaintiffs took issue with "anti-steering rules" that effectively block merchants from using competition to keep credit card interchange costs down. Separate rulings against Visa Inc. and MasterCard Worldwide in 2014 prohibit the card networks from setting rules and practices that discourage competition, while allowing merchants to freely "steer" transactions to other networks in an effort to reduce transaction costs.

AmEx had little to say about the San Francisco City Attorney's actions, other than to disclose plans to defend vigorously against the allegations and its belief that the suit has no merit, according to a company spokesman. Supporters expect the card brand to rise to the occasion and conduct itself with dignity throughout the proceedings. Additional details related to the case can be found on the San Francisco City Attorney's website at .

The Green Sheet Inc. will close for the Thanksgiving holiday at the end of business on Wed., Nov. 25, and reopen Mon., Nov. 30, at which time we will resume posting all the latest payments industry news.

Square after the IPO
Monday, November 23, 2015

O n Nov. 19, 2015, Square Inc. debuted on the New York Stock Exchange under the ticker symbol "SQ," trading at $11.20 per share before closing the day at $13.07 and raising about $243 million. Square initially set its IPO price at $11 to $13, but institutional investors bargained for $9 per share as the valuation of the company slipped from $6 billion in recent months to $2.9 billion before the opening bell.

Square joined the ranks of recent "unicorn" IPOs, defined as technology-based companies valued at $1 billion or more by public or private market investors. Square, like others in this category, has yet to turn a profit. During the first nine months of 2015, Square posted $131.5 million in losses, up from $117 million over the same period in 2014.

A number of analysts expressed disappointment but not surprise over Square's lackluster performance on Wall Street. "Over the past few days we have seen a spike, but that's typical in a lot of these IPOs where they'll spike over the first couple days or even over the first few weeks, and then we really start seeing it destabilize or decline on that front," said Jared Drieling, Business Intelligence Manager for The Strawhecker Group.

The days of over-valuating companies in advance of IPO may be numbered. "I think the overall theme here is the valuations are starting to become more based off reality," Drieling said. "The issue with Square now becoming a public traded stock is that Square has traditionally been a technology-related company that was born out of Dorsey and Twitter, and it viewed the world from a social, transparent perspective."

But the lack of focus on profitability by Square to date diametrically opposes how shareholders view the world. "Obviously, capitalists and investors don't necessarily want to be socially useful, they want to make money," he said. "There is pressure not only from a competitive standpoint, but from Square's product just being another option in this field."

One among many

The mobile payment dongle device that set Square apart initially and was offered freely to micro- and small-merchants based on an open rate structure has not been a profitable model. Square has also faced stiff competition from entrenched players, and ROAM Data preceded Square in launching a secure payment device for everyday merchants.

Over time Square has layered in additional POS products and services, including capital funding. But for Square to become profitable, Drieling believes the company will need to further diversify and move upstream to midsize and large merchants where it has struggled, citing as an example the dissolution of Starbucks' relationship with Square.

Another problem for Square has been the U.S. migration to Europay, MasterCard and Visa chip-card payments, which Square has been slow to implement. "Their magstripe readers they were giving away for free were cheap to make, but EMV card readers are not simple or cheap to manufacture," Drieling said.

On November 23, Square launched a new contactless and chip card reader to a group of 100 local businesses nationwide. According to Square, the new reader connects with Square Stand or a mobile device, and pairs with Square's free POS app. This time the device is not free. The new Square Reader is priced at $49 apiece. And now investors will closely watch as each new offering from Square wends its way into the marketplace.

NFC Forum urges EMV, NFC upgrades
Friday, November 20, 2015

S tudies conducted in the wake of the Oct. 1, 2015, Europay, MasterCard and Visa (EMV) liability shift indicate U.S. retailers have been slow to adopt chip card technology, particularly in the small to midsize business sector. The NFC Forum published a white paper Nov. 17, 2015, geared for merchants and aimed at educating them on the benefits associated with EMV card acceptance, which was mandated by the major card brands.

U.S. Retailers: Why You're Not as Ready as You Think for Today's Retail Payments Migration, co-authored by Matthew Bright and Frank Tekampe, makes a case for upgrading to both EMV and near field communication (NFC) technologies. Merchants who are not EMV compliant are liable for fraudulent charges; they may also miss valuable opportunities to connect with customers in the increasingly omnichannel retail environment, the authors stated.

"First, the payment process is one of the final consumer touchpoints prior to use of the purchased product," the authors wrote, adding that loyalty account data, redemption of coupons and other promotional offers have made transactions more complex. "Second, more and more consumers are choosing to pay with their smartphones."

mPOS trends

New York-based eMarketer Inc. estimates mobile payments will reach $8.71 billion in 2015, with consumers spending an average of $376 a year via mobile devices. The firm also predicts a 210 percent increase in 2016, with $27.05 billion total spend, approximately $721.47 per person.

NFC advocates expect the ease and speed of proximity payments to accelerate smart card adoption in the United States. Ben Yaniv Chechik, Vice President Product at New York-based Zooz, said he expects payments by smartphone and wearable technology to increase exponentially. "Early adopters are already paying with wearables," he said. "These items that consumers use every day, such as gloves and glasses, have embedded chips that enable seamless mobile payments."

NFC Forum report co-author Bright added, "Migrating from mag stripe to chip is a chore; the ability to process smartphone payments is an opportunity." He described a recent visit to a neighborhood grocer who complained of longer wait times in the lanes due to extended EMV transaction times. The merchant thanked him for using Android Pay, claiming it saved him up to 15 seconds, and expressed the hope that more consumers will adopt this payment method.

Holiday demands

Consumers are also seeing the benefits of proximity payments. Allentown, Penn.-based payment processor Harbortouch surveyed 5,000 adults and reported that four times as many survey respondents cared more about transaction speed than security. Harbortouch Chief Executive Officer Jared Isaacman said this sentiment may pose challenges to retailers during busy holiday times. "On average, it takes between seven to 10 seconds to pay using a chip card versus two to three seconds to pay using a traditional swipe credit card," he said. "While seemingly small, during busy times like the holidays, these increased processing times could add up quickly."

Isaacman recommended implementing mobile payment and line-busting options in brick-and-mortar stores to improve POS transaction speeds throughout the peak shopping season.

Fraud prevention

Despite consumers' apparent overall lack of concern about payment security, a recent study by LexisNexis found that fraud cost U.S. retailers $32 billion in 2014, a 38 percent increase over the previous year. The NFC white paper recommends upgrading to mandated payment technologies. "By accepting only magnetic stripe cards, retailers expose themselves to unexpected costs that could make the difference between profit and loss," the authors wrote. "These retailers urgently need to upgrade their POS terminals to accept next-generation payment options, and their upgraded hardware should enable both EMV chip and NFC contactless technology."

The authors claim that EMV and NFC technologies help retailers protect against threats while increasing digital consumer engagement via smartphones, smart watches, and NFC-enabled mobile devices. "Retailers can upgrade to NFC now to get the chip card and the smartphone payment capabilities at once, with one combined upgrade," the authors wrote.

The NFC Forum, a nonprofit industry association established in 2004, is focused on advancing the use of NFC technology by developing specifications, ensuring interoperability among devices and services and educating the market about NFC. A free copy of the white paper is available at .

LG says move over Apple, Samsung, Google
Thursday, November 19, 2015

K orea-based smartphone manufacturer LG Electronics Inc. is entering the crowded mobile payments arena. The company broke the news in a Nov. 18, 2015, update to its Facebook page. The solution, dubbed LG Pay, is expected to launch in December.

LG will join a field populated by established competitors Apple Pay, Samsung Pay and Android Pay through an alliance with Korean card brands Shinhan Card Co. Ltd. and KB Kookmin Card Co. Ltd. LG's Facebook post features a picture of top executives from all three partnering companies: Juno Cho, President and Chief Executive Officer of LG; Wi Sung-ho, CEO of Shinhan Card; and Kim Duk-soo, CEO of KB Kookmin Card.

Following Samsung Pay's lead, LG Pay will launch initially in Korea. Some observers have said it will likely follow Samsung to the United States, as well, since it has trademarked the product name in both countries. Samsung is reportedly entering new markets in the first quarter of 2016 that include China, Spain and the United Kingdom. There is no word yet on what LG's expansion plans might be.

Open Mobile Summit taps innovative minds
Wednesday, November 18, 2015

L eaders from the mobile ecosystem met in San Francisco for the Open Mobile Summit on Nov. 9 and 10, 2015. More than 90 product and marketing experts shared insights on the challenges and opportunities of moving to a mobile-first world and how the full potential of mobile apps could be unleashed through advanced machine learning.

In opening comments, Altimeter Group Principal Analyst Brian Solis described the mobile-only customer experience as a series of micro moments, where each must be useful in order for customers to take the next step. Unlike other channels, in the mobile "egosystem" we are the center of our universe, and the "have it now" expectations of mobile consumers must be addressed in mobile-forward company strategies, he said.

Google Ventures General Partner Rich Miner discussed financially focused investment in early-stage American and European startups. "When you're looking at the formation of tech ecosystems to invest in, you want to see availability of capital," he said. "You want to see seasoned entrepreneurs from great universities and repeat entrepreneurs to be coaches and mentors."

Miner noted that London, Stockholm and Berlin are innovation hotbeds and that today's tech innovators are more grounded than those involved in the tech bubble early in this century. He added that the speed of software and hardware innovation coming from startups could outpace that from slower adapting mobile behemoths. He believes that from a venture capital perspective, the combination of these capabilities with the cloud will transform smart devices with machine intelligence operating in the background.

Omnichannel explorers

Adam Marchick, co-founder and Chief Executive Officer of mobile automation software provider Kahuna, emphasized that apps can act a catalyst for omnichannel opportunity. As merchants integrate new channels, consistency at every touch point, whether digital or in-person, will be reflected in merchant vendor choices.

Panelist Joe Megibow, Chief Digital Officer at American Eagle Outfitters described his experience in launching mobile chat at a time when few service providers offered it. "On day one, we were getting about 40 percent of our chats through mobile, and the chats were every bit as long as online," he said. "They were talking to people like they talked to human beings in stores."

Mixpanel co-founder Tim Trefren, whose firm specializes in advanced analytics, stressed the importance of data in validating company vision. He said rapid iterations by those who adopt a data-driven approach can accelerate sales by as much as 30 to 50 percent, and gave as an example highly targeted push notifications to consumer groups.

Cheetah Mobile Senior Vice President of Worldwide Sales Djamel Agaoua said the right message delivered at the right moment can increase mobile customer engagement by a factor of three to five times. MoEngage Inc., a company whose platform focuses on helping mobile apps figure out how to personalize push notifications, revealed how personalized smart triggers can lead consumers to add to shopping carts online and increase engagement.

Other panelists with mobile app experience noted the importance of testing specific use case scenarios before full-scale launch of new apps. Several panelists described how contextual differences on small screen mobile devices lead to their containing less content than PC screens. This is even more applicable to wearable devices where scrollable infographics or bite-sized content can effectively engage customers.

Afternoon sessions on day one focused on mobile products that pack a punch and mobile marketing to close the physical-to-digital gap. Panelists covered mobile-first versus mobile only, omnichannel readiness, building apps at scale, evolving apps, context aware customer engagement and more.

Machine learning 101

On day two of the summit Kevin Weil, Senior Vice President at Twitter Inc. described how changing the social network's star, indicating a "favorite," to a heart, indicating a "like," increased overall engagement on the social platform by 6 percent. He also described other features in the pipeline that will add value and build brand awareness. Facebook Inc. Head of Commerce Product Marketing Kelly Graziadel described how the company is adding tools that optimize commerce-driven experiences.

Mark Rolston, founder and Chief Creative of Argodesign, explored how "invisible and super-smart computing" will reshape our personal and professional lives. He later joined executives from Google Inc., Kayak and Kony Inc. in a panel discussion on machine-learning algorithms and how they will ultimately support human decision making in deeper ways.

Skyhook Wireless Inc. Vice President of Product David Bairstow offered a game plan for retaining mobile app users in a world where over 50 million apps are downloaded daily, yet one in four are abandoned within 24 hours. He said dynamic apps can layer data sources with location to deliver relevant user experiences.

In discussing trends with exhibitors, which included Appboy, Amplitude Mobile Analytics, Apptimize, CA Technologies, Cheetah Mobile, Crittercism, Flybits, Kahuna, Kony, Leanplum, Localytics, Mixpanel, MoEngage and Skyhook Wireless, many saw great potential in creating context-as-a-service capabilities and developing automated platforms that enable rich targeting and personalization to enhance retention, all supported by analytics.

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