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Updated: Friday, August 28, 2015

ISO 20022 blazes trail to global, real-time payments

P ayments industry globalization reached a tipping point Aug. 11, 2015, when the International Organization for Standardization (ISO) and Payments UK published the first draft of ISO 20022. The harmonized set of XML messaging standards is based on a shared data dictionary and business process model designed to improve efficiencies across global payment platforms. The Federal Reserve described it as "an enabler of a single, common 'language' for global financial communications that can assist organizations in responding to evolving demands."

The universal platform was introduced by a working group of the ISO, an independent, non-governmental body that develops voluntary international standards. The 162-member organization, established in 1946 and based in Geneva, Switzerland, has published more than 19,500 standards affecting multiple industries, including technology, food safety, agriculture and healthcare.

"The new 'rule book,' based on the experience and knowledge of 50 organizations around the world, including ACI Worldwide, will allow others to successfully apply the standard in an immediate payments environment," said Barry Kislingbury, Senior Principal Solution Consultant at ACI Worldwide. "The first draft, created in just a couple of months, focuses on the messages and workflows needed in this environment and highlights a small number of gaps that the working group will need to focus on, to resolve in the short term."

Kislingbury, impressed by the committee's ability to create a working draft in record time, expects the standards to establish a foundation for "a global, interoperable, immediate payments environment" that will benefit consumers and payments industry stakeholders alike.

Increasing rationale for U.S. adoption

In October 2013, a stakeholder group comprised of the Federal Reserve Bank of New York, The Clearing House Payments Company L.L.C., NACHA – The Electronic Payments Association and the Accredited Standards Committee X9 – Financial Industry Standards Inc., began to evaluate the business case for U.S. adoption of ISO 20022. The group enlisted the aid of an independent consultant who recommended a phased approach, citing the following rationale:

Open source, open invitation

The Federal Reserve and U.S. stakeholders are developing an implementation strategy for ISO 20022 in U.S. payment transactions. The group's initial focus involves using ISO 20022 in wire transfer and automated clearing house transactions to improve end-to-end efficiency in domestic and cross-border payments.

This approach is part of a five-pronged effort described in Strategies for Improving the U.S. Payment System. The strategies include engaging stakeholders; identifying effective approaches for safe, ubiquitous and faster payments; working to advance security and reduce fraud; achieve greater end-to-end efficiency in domestic and cross-border payments; and enhance Federal Reserve Bank payments, settlement and risk management services in 2015 and beyond.

The Federal Reserve also cited numerous use cases to support its contention that upgrading to a modern, XML-based common format for payment messages can expand the knowledge base of formatting experts in the payments industry. This agency anticipates the measure will ease support of proprietary, legacy formats as seasoned format experts change jobs and retire.

Proprietary message formats can also adversely affect the speed and efficiency of wire transfers, the Fed noted. Many banks maintain mapping routines to ensure correct mapping of data for wire transfers to accommodate legacy and cross-border formats. Participating parties in inter-bank transactions may experience limited visibility into end-to-end transaction flows.

ISO 20022 payment and cash management message formats have structured messages that support real-time payment tracking and reporting that can improve processing transparency and provide customers with status updates on payment transactions.

Believing that implementing ISO 20022 standards requires an all-hands approach, The Federal Reserve is soliciting guidance from the payments industry value chain. Information about the initiative, including webinars and survey content, can be found at https://fedpaymentsimprovement.org/get-involved/iso-20022/ .


Cash growth eclipses mobile payments
Thursday, August 27, 2015

T here is no denying the mass popularity of mobile phones, especially smartphones, and the growing use of these devices for payments. A new research paper from the ATM Industry Association, however, reveals that mobile payments are doing little to displace cash payments. "In truth, cash use is more robust and mobile payments less stellar in growth than current conventional wisdom might suggest," said Mike Lee, Chief Executive Officer at ATMIA

ATMIA commissioned Tremont Capital Group to research the payments ecosystem in the United States and abroad. What the researchers discovered was that between 2009 and 2013 average yearly growth in cash overall exceeded economic yearly economic growth rates by a factor of three. "An analysis of 30 countries during [the study period] showed an average year-on-year increase over this period of cash in circulation of 8.9 percent compared to economic growth rates below 3 percent," Lee stated.

Lee added that while mobile payments are catching on, it's a slow go, with just a small fraction of in-store payments made today using mobile devices. Over the next five years, to the extent mobile payments do grab share from more traditional payment methods, it's apt to be from electronic payments, not cash, he predicted.

The ATMIA paper examined successful mobile payment programs, like Apple Pay, and the Starbucks closed-loop program. It noted, for example, that despite promising stats from Starbucks – 20 percent of sales at company-owned stores are completed using its mobile app, for example – its mobile pay program pales in comparison to Apple Pay, which claims at present 700,000 acceptance locations.

Mobile U.S.A.

While payments may not yet be a top priority, there is no denying the proliferation of smartphones has made a mark on American lifestyles. A new report from Bank of America Corp. details how important these devices are to consumers.

Nearly four in 10 (38 percent) of U.S. adults never disconnect from their smartphones, and only 7 percent shut down their devices entirely while on vacation, according to the second annual Bank of America Trends in Consumer Mobility Report.

The majority of adults (89 percent) check their smartphones at least several times a day and more than a third (36 percent) said they constantly check their phones. This growing dependency on mobile devices also is visible in the ways consumers manage their finances. More than half of those surveyed (1,000 randomly selected from throughout the country in April 2015) describe mobile or online banking as their preferred channels; less than one-third (6 percent of millennials) complete the majority of their banking transactions at branch offices. The report also revealed that among consumers using mobile banking apps, 63 percent use mobile check deposit services, and 81 percent use mobile banking alerts.

"We recognize how essential smartphones are to everyday life, and banking is no different," said Michelle Moore, Head of Digital Banking at BofA.

Mobile catching up with ATMs

Meanwhile, the American Bankers Association released survey results indicating consumers use mobile devices to access banking services almost as much as they use ATMs. The ABA hired Ipsos, an independent market research firm, to survey 1,000 adults in July on their banking preferences. This was the seventh such survey in as many years of consumers with bank accounts.

Among those surveyed this year, 32 percent said they use the Internet more than any other channel to access their banks. Branches are the preferred channel for 17 percent (down from 21 percent in 2014). ATMs are preferred by 13 percent (14 percent in 2014) and mobile access is the top choice for 12 percent of consumers surveyed this year (up from 10 percent in 2014). Seven percent of consumers told Ipsos they prefer to bank by mail, and 5 percent said they prefer telephone banking.

"Mobile banking's popularity will continue to grow as banks enhance their mobile functionality and make it easier for consumers to access their accounts anytime and anywhere," said Nessa Feddis, ABA Senior Vice President and Deputy Chief Counsel. Feddis also noted that for many consumers who don't own PCs, smartphones are their gateway to the Internet. "As consumers spend more time on their mobile devices, it's likely that more people will adopt mobile banking as their top choice going forward," she said.


Payments industry advances on 2015 Inc. 500/5000
Thursday, August 27, 2015

E stablished by Inc. magazine in 1982, the Inc. 500/5000 list is considered a bellwether of the fastest-growing privately held companies in the United States. Numerous high-ranking payment and alternative lending companies are included in the 2015. which was list released Aug. 12, 2015. Leigh Buchanan, Inc.'s Editor-at-Large noted a median year-over-year growth rate of 1,772 percent among honorees and named healthcare, financial services and technology as the most robust sectors of the U.S. economy.

"In response to a survey question, hundreds of Inc. 500 CEOs described hard lessons learned from experiences that could have killed, but ultimately strengthened, them," she wrote. "Some of those lessons involved brass tacks: how to price proposals, hedge risks, divide equity, or establish metrics."

An Inc. article titled "Fintech Finally Lifts Off" profiled WePay, a payment processor specializing in the crowdfunding vertical. "WePay (No. 62 on this year's Inc. 500 list of America's fastest-growing private companies) is profitable, and flush with a total of $75 million in investor cash," reported Senior Editor Maria Aspan. "The Redwood City, California, company is worth $220 million according to PitchBook."

Winning formula

To qualify for the top-ranking list, competing companies needed to meet certain criteria. They must:

Repeat winners, first-time qualifiers

Payment and alternative lending companies on Inc.'s 2015 list include first-time honorees and companies with improved rankings over the previous year, reflecting exponential growth in the financial services sector. Buchanan attributed industry growth to determination, risk tolerance and creativity. She said many entrepreneurs on the list had the right idea at the right time. Boca Raton, Fla.-based TouchSuite moved from 254 in the 2014 Inc. 500 to 160 in 2015, its third consecutive year on the list. TouchSuite founder and Chief Executive Officer Sam Zietz, recently named EY's 2015 Entrepreneur of the Year in Florida, reflected on his company's journey since its opening in 2004.

Zietz acknowledged TouchSuite's talented employees and their strict adherence to the company's core values, which he summarized as having a sense of urgency, a no-excuses policy and disrupting the market. "We basically empower all of our employees to make decisions and be able to react," he said. "That's the foundation that any company in any industry has to have [for] continued hyper-growth."

United Capital Source, an alternative lender established in 2011 and headquartered in New York City was ranked number 974 in the 2015 Inc. 5000, its first year of eligibility. CEO Jared Weitz has been a featured panelist and advocate in the space and is respected by peers for his industry knowledge and leadership. "I'm extremely proud of my group on the traction we've gotten in the industry in such a short time," Weitz said. "Our growth rate is indicative of the talent we have here at UCS; we look forward to even bigger growth and driving more finance opportunities to our clients in the upcoming years."

Another alternative lender and first-time qualifier, Quick Bridge Funding, based in Irvine, Calif., and established in 2011, achieved a top five ranking. Quick Bridge President Ben Gold said his company and other nonbank finance leaders identified a need for short-term working capital loans in the wake of the Great Recession. "A combination of well-versed business-to-business lending experience and strong capitalization has helped us grow fast, but not too fast," he said, adding that achieving the No. 5 position on the Inc. 500 is both an honor and incentive to "drive further excellence throughout every aspect of our business."

Growing honor roll

The growing ranks of payments and alternative lending companies that have earned a place in the Inc. 500 and 5000 lists reflect healthy growth in the financial services sector and public receptivity to a range of financial product and service offerings.

The list includes U.S. ISOs and merchant service providers such as Base Commerce (60), 360 Payment Solutions Inc. (238), Payscout Inc. (434) Glacier Payments Inc. (873), Clearent LLC (1,166), Vantage Payments (1,932), Discount Credit Card Supply (1,947), CardConnect (2,478), USA ePay (,3006), Security Card Services LLC (3,057), Reliance Star Payment Services Inc. (3,366), and Forte Payment Systems (4,466).

Among the many alternative lenders listed were Kabbage Inc. (36), Swift Capital, aka Swift Financial Corp. (64), Prosper Marketplace Inc. (86), Credibly (306), Reliant Funding (382), Open Road Lending LLC (430), Fora Financial LLC (872), CAN Capital (3,206) and Merchant Cash and Capital LLC (3,707).

Emerging technology and next-generation payment companies were also notably present in Inc. 500 and 5000 listings. Examples include Kukui Corp. (76), Cardlytics Inc. (88), Yext (220), Localytics (274), Cloud Sherpas (379), Allied Wallet Ltd. (390), Invoice Cloud Inc. (428), Chargebacks911 (665), and YapStone Inc. (2,719).


Samsung Pay to arrive Sept. 28
Thursday, August 27, 2015

T he highly anticipated launch of Samsung Pay materialized first in Korea on Aug. 20, 2015, and followed with an open beta trial for U.S. financial institutions starting Aug. 25 in advance of the nationwide rollout slated for Sept. 28. The newest entrant in the mobile-driven payments space has a unique advantage in that it facilitates both near field communication (NFC) and magnetic (mag) stripe payments.

As acquirers and merchants race to replace mag stripe POS terminals with newer Europay/MasterCard/Visa-chip enabled terminals by the Oct. 1 fraud liability shift deadline, Samsung Pay's dual approach is expected to ease the transition for countless merchants, who could take years to achieve full compliance with card brand mandates. Magnetic Secure Technology (MST) developed by LoopPay Inc. will be preloaded into the new Samsung Galaxy S6 smartphone and Note5 tablet models. MST securely pulses mag stripe data to existing mag stripe and dual-equipped POS terminals.

"The merchants, for the most part, don't really have to do anything to their POS systems to accept Samsung Pay," said Will Graylin, Global Co-General Manager for Samsung Pay and Chief Executive Officer of LoopPay. "What we do is send a tokenized version of the mag stripe transaction that includes a one-time use cryptogram inside the discretionary field (track data), and as far as the merchant is concerned, they're just sending the track data back to their processor."

Graylin described Samsung Pay as leveraging the existing rails to put out "a faster, safer bullet train with contactless payments." Using Samsung Pay, duplicate transactions, NFC and mag stripe, cannot occur simultaneously. Graylin said that depending on where the user positions the phone, a POS system equipped with NFC, for example, would search for an NFC signal to complete the transaction; likewise for MST. Whichever signal from the mobile device is detected by the POS system first is designated in the transaction.

"If this works as they have purported it will, it could easily work without a hiccup at 90 percent or more of the terminals," said Richard Crone of Crone Consulting LLC. "In that case it gives them a huge leg up for adoption of their mobile payment platform."

Light on wallet

Another key differentiator for Samsung Pay is the apparent lack of fees, at least initially. "We're not trying to take a piece of interchange," Graylin said. "That's not our model. Our business model is to become a useful tool for consumers, and then eventually a useful tool for merchants and financial institutions to better engage their customers."

Crone is not surprised that Samsung Pay, like Apple Pay, is primarily focused on mobile device sales, which makes sense from a manufacturer's perspective. "That's the initial game plan, to sell more phones," he said. "But the ultimate prize in mobile payments will be interacting with the customer before, during and after payment."

Crone also believes Samsung Pay delivers a better value proposition than Apple Pay. "Unlike Apple Pay, which extracted a pound of flesh from the issuers, requiring them to sign a contract to give Apple 15 basis points on every credit card transaction and half a cent on every debit transaction, Samsung Pay will not be extracting those same royalties and rents," he said. "Frankly, if you want to be on Apple, you have to pay to play."

Opening with strong alliances

Ahead of the launch, Samsung had already setup strategic partner alliances for Samsung Pay with the major U.S. card brands, banks and payments industry partners, including First Data Corp., Synchrony Financial and Total System Services Inc.

"The sleeping giant here is bank-branded wallets, and you'll start to see that at the end of the year," Crone said. "The big winner is Visa, MasterCard, American Express and Discover, because the account credentials will still be provisioned through their tokenization services. It's the first real major new product from Visa and MasterCard in 20 years and should be very well received by shareholders once it starts to run in earnest."

Some view Samsung Pay and other mobile entrants with a note of caution. Like mobile banking, mobile payment adoption will run its course. From a financial institution perspective, CU Wallet CEO Paul Fiore said, "When financial institutions realize that they have this trove of information about their customers, maybe turning over brand identity to a third-party company that might even disintermediate is not a good idea." He added that everyone wants to be top of wallet, especially in mobile.


Square's fee for Instant Deposit might not matter
Wednesday, August 19, 2015

S an Francisco-based Square Inc. disclosed on Aug. 15, 2015, that it launched Instant Deposit in the United States. Participating sellers can elect to pay an additional 1 percent processing fee to have credit card transactions deposited into their banks in a matter of seconds. The move follows a successful two-month beta test conducted across the United States. The test involved thousands of merchants and more than $10 million in deposits, Square noted.

A payments aggregator established in 2009, Square has striven to find ways to remove friction from merchant boarding and acquiring. The company's simplified pricing models and next-business-day funds availability have proven popular with millions of small business owners in the United States, Canada, Japan and Australia.

Small business boost

Square calls its Instant Deposit a game-changer. The feature is located in the settings section of the Square payment app. Sellers can activate it by linking their debit cards to begin receiving funds from each credit card transaction, subject to the schedule and operations of their banks. Most debit cards are supported, the company stated.

Most sellers familiar with the Square payment platform are already receiving next-business-day deposits. The new expedited deposit feature was introduced as a way to further assist small merchants for whom access to cash is critical. One such example Square mentioned is Carlos Hernandez, owner of Solex Collectors, a specialty shoe retailer based in Maryland. Hernandez, who buys and sells rare and high-end shoes, finds that immediate access to funds helps him react quickly to rare buys and invest in his growing business.

Ferne Glemby, President of CardPlus Payment Services, provided a tablet paired with a Square card reader to a not-for-profit organization's fundraising event. Patrons were able to view merchandise on the tablet and make their selections. "It was a simple, understated way to raise money for a cause," she said. "The images could be enlarged when necessary, and the emailed receipts eliminated the need for paper."

Features, followers grow

While Square initially appealed to small and micro merchants, the company reported adoption of its payment app is growing among both large and small businesses interested in "unlocking the value of every sale." Its expanded suite of services includes nonbank finance products, marketing services, a money transmittal service called Square Cash, and Caviar, a food delivery service.

The company has found that its mantra, "buying and selling things should be simple," has resonated with merchants and payments industry professionals. Sean Murray, Owner of Raharney Capital LLC, a New York-based merchant cash advance consultancy, has an active Square account, using the service on a monthly basis to accept payments. While this might surprise his payments industry friends and colleagues, Murray said that just as Uber made obtaining and paying for a taxi too easy to ignore, Square made signing up and accepting payments too easy not to try. "Earlier this year, a client wanted to pay by credit card, and I immediately shuddered at the thought of filling out stacks of contracts with a payment processor, getting locked in for a period of time, getting hit on the downgrades, paying monthly minimums, waiting days to get my funds, and wondering if I would get charged for equipment," he said. "Instead I just went to the app store on my phone, downloaded the Square App, typed in my business name and bank account, and then key entered a transaction; the funds were in my account the next day."

Murray suggested that Square's Instant Deposit option goes beyond simple convenience. ISOs that dismiss Square's slightly higher pricing model fail to note that "there's a point at which even the stingiest merchant might not care when they realize how easy something is," he said.

Routinely asked why someone with a payments industry background and connections would use Square, Murray asserted that too many of his merchants had to jump through unnecessary hoops to process payments. He said it was "so backwards," and if he had to choose between the service he used to offer to merchants and Square, he would choose Square every time. "I can't wait to try out the Instant Deposit button," he added.


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