Updated: Friday, February 27, 2015
Google, Softcard open doors, close Windows
G oogle Inc.’s acquisition of Softcard, announced Feb. 23, 2015, ended four years of competition between the two companies’ mobile wallet divisions. Payments analysts expect Softcard’s intellectual properties to add value to Google Wallet and level the mobile wallet playing field.
Softcard, formed in 2010 by mobile networks AT&T Mobility, T-Mobile USA, and Verizon Wireless under the name Isis, marked a strategic shift for the competing cellular networks. Chief Executive Officer Michael Abbott described the venture as a four-sided market that included consumers, merchants, parent companies and mobile network carriers. The coalition of arch competitors was formed to compete against Google Wallet, an Android app initially launched on the Sprint network using Nexus 6 phones.
Consumers can use the multifunctional Google Wallet app to make in-app and in-store purchases and money transfers. Google Wallet is compatible with near field communication (NFC)-enabled and older POS devices. For years, Google Wallet was only available on the Sprint network while being effectively blocked by the coalition of carriers that supported Softcard. Today, Google Wallet is available on any carrier network and NFC-enabled Android device running 4.4 KitKat or higher.
After competing for five years, the merger of former rivals Google and Softcard opens a new chapter in the mobile wallet wars. Google stated its plans to deploy a new version of Android Pay in its new phones beginning in May 2015. The improved mobile payment scheme and preloaded phone app is expected to strengthen competition with Apple Pay, CurrentC, PayPal, and other leading mobile payments schemes.
Softcard’s auspicious beginnings
Jim Stapleton, Chief Sales Officer at Softcard, presented a video at the 2011 Smart Card Alliance Mobile and Transit Payments Summit that showed a consumer tapping a mobile wallet in a coffee shop, store and subway turnstile. Stapleton gave five reasons why consumers were ready to use mobile wallets: convenience, freedom from carrying cash, use of mobile coupons, choice of coupons/points/ redemption, and improved loyalty rewards.
Citing statistics from a Forrester Research, MarketResearch.com and Oliver Wyman joint survey, Stapleton said that 58 percent of all consumers polled said they would use a mobile wallet in mass transit. He went on to predict that mobile payments would grow from $5.2 billion in 2009 to $56.7 billion in 2015. Allowing for delays in deployment and adoption, this forecast is consistent with projections from digital marketing agency eMarketer, which expects mobile wallet commerce to top $60 billion in 2017.
Softcard deployment challenges
In September 2014, shortly after renaming the company Softcard to distance itself from the terrorist group ISIS, the company was dealt another blow when Apple Pay entered the market, effectively locking Softcard out of Apple iPhones. Unlike Softcard, Apple Pay’s launch was a marketing triumph, as the app was widely available throughout the United States on the day it was released. Apple Pay’s ease of use, unlike Softcard and other mobile wallets, requires fewer strokes to activate the app and make payments.
Payment analysts noted continuing delays at Softcard followed by the January 2015 work force reduction that affected 60 employees and led to speculation that Softcard would either be acquired or have to close its doors.
Google, Softcard identify path forward
In conjunction with consolidating their mobile app and footprint, Google and Softcard stated the Softcard app would no longer be available on Windows phones. This news may have little impact on consumers, since the app was only released in November 2014. Additionally, Microsoft plans to launch its own branded mobile payments solution, Wallet Hub, in the near future.
In the FAQ section of its website, Softcard advised current users to continue using their Softcard apps at the 275,000 locations across the United States where it is accepted. “Google has acquired some technology and intellectual property from Softcard and we encourage our Android users to download Google wallet,” Softcard stated. “In the near future, the Softcard app will shut down and all wallets will be terminated. A specific termination date will be provided soon.”
EMV, interchange concern ATM deployers
Friday, February 27, 2015
W ith EMV (Europay, MasterCard and Visa) implementation deadlines looming in the United States, efforts to facilitate the transition from mag-stripe to EMV technology have intensified among all affected parties, including ATM deployers, which have a longer time to become EMV-compliant than most merchant sectors. And how to enhance the consumer self-service ATM experience while also addressing EMV and interchange issues was a major focus at the annual ATM Industry Association convention held Feb. 17 through 19 in Las Vegas.
While generally receptive to implementing EMV, independent ATM deployers (IADs) who attended the ATMIA conference expressed growing frustration with “shrinking” interchange pricing that has negatively affected their bottom lines. George Sarantopoulos, Director of Marketing at Brooklyn-based Access One ATM Inc., even described the relationship between card brands and IADs as dysfunctional.
"The card brands are asking [IADs] to invest even more in our ATMs while they want to pay us less," he said. "The IADs have built up this incredible network of ATMs throughout the country where everybody has easy access to cash 24/7/365. And now that the job is done and the card brands no longer need us, we’re being subjected to a double threat of decreasing interchange margins and increased costs if we don't upgrade to EMV." He predicted current economic trends could push many IADs out of the ATM industry unless they can organize as an industry and innovate their way “out of this quandary.”
Providing a different perspective, MasterCard Worldwide Group Head Leland S. Englebardt, who spoke at the conference, said he expects EMV deployment by the U.S. ATM channel to dramatically reduce counterfeit fraud rates. Englebardt leads MasterCard’s global switching platforms for credit, debit, and prepaid products, which account for 34 billion transactions annually in 150 currencies and 210 countries and territories that use MasterCard, Maestro and Cirrus-branded cards.
Survey shows mixed bag for EMV adoption
On Jan. 15, 2015, Kahuna ATM Solutions stated in a blog post that the “number one, single largest legislative-regulatory item that poses a threat to IADs is the cost to upgrade terminals to EMV, according to the 2015 US IAD Survey, co-sponsored by ATMIA and Kahuna ATM Solutions. The number one competitive threat is declining transactions. Other issues that topped the list include shrinking interchange, the implications of EMV liability shifts, ATM saturation, account closures due to Operation Choke Point and ways to increase revenue.”
In all, 109 IADs participated in the ATM channel EMV readiness survey conducted in late 2014. "This survey made it clear that IADs are still unclear on the true impact of the liability shift for ATMs that are not EMV-ready by October 2016," said Bryan Bauer, Kahuna Vice President and General Manager. "We have an enormous task as an industry to figure out exactly what that impact is through real, meaningful data, and then educating IADs on those implications of not upgrading."
Survey results also revealed that only 50 percent of ATM operators expect to be EMV-ready by the October 2016 liability shift deadline set forth for the ATM sector by MasterCard; Visa Inc. set October 2017 as its deadline for the ATM sphere. Following are further highlights from the survey (percentages are rounded off):
- 80 percent of respondents have purchased at least some EMV upgrade components
- 75 percent of U.S.-based IAD respondents said they are purchasing EMV-ready ATMs
- 50 percent said they are already placing ATMs with EMV-capable card readers in the field
- 50 percent of respondents cited EMV operational expenses as a top concern
- 49 percent said reductions in interchange could negatively impact the ATM industry
- 31 percent cited anti-money laundering rules as a top concern for the ATM industry
- 12 percent said they are currently developing contactless or mobile strategies for ATMs
According to ATMIA, disparity between IADs and larger financial institutions was evident in certain portions of the survey. Only 49 percent of IADs said they were confident they had the necessary software from processors and other transaction partners to upgrade to EMV, whereas about 80 percent of FIs with more than 1,000 ATMs in deployment expressed confidence they had the requisite tools to become EMV-ready.
Pushing forward with technology
"Much of the current discussion surrounding the new 'omnichannel' banking and payment environments is tied very closely to customer experience – giving the customer the ability to seamlessly interact with multiple channels in the process of completing a single transaction," stated Daved Tente, Executive Director at ATMIA USA.
Total System Services Inc. Senior Director of Payment Solutions Sarah Hartman stated in a recent interview with the Smart Card Alliance that factors like global interoperability of EMV-enabled cards, the ability to verify and authenticate EMV-card users, and other applications, such as mass transit and data management capabilities linked to card usage, will drive EMV implementation in the United States and create measurable benefits for IADs and others vested in the technology.
In the meantime, education could prove pivotal for buy-in from all parties. "One of the most critical aspects for a smooth migration to EMV technology is education of the consumer," Tente said. "The consumer experience at an EMV-capable ATM is going to be radically different for most, and there may be some quirky situations that crop up during the transition period."
While working to resolve the near-term challenges of EMV adoption and changing interchange pricing structures, IADs appear to be guardedly optimistic they will be able to build sustainable relationships with card brands that justify their investments in the hardware platforms needed to enhance and protect the consumer self-service experience.
AmEx to appeal court ruling on merchant steering
Monday, February 23, 2015
A merican Express co.'s anti-steering rules have long been a stick in the craw of card-accepting merchants, and anti-trust attorneys at the U.S. Department of Justice. On Feb. 19, 2015, a U.S. District Court judge weighed in, ruling that AmEx's take-it-or-leave it policy amounts to "an unlawful restraint on trade."
AmEx, however, isn't budging on its position. Within hours of the decision being handed down the card company said it was readying an appeal. "We believe that freedom of choice and fair competition are worth defending," the company said in a statement following the court's decision. "We look forward to presenting our case to the appellate court, and believe we should prevail on appeal."
A long-term battle
The court decision follows disclosures by AmEx that its long-standing partnerships with Costco Wholesale Corp. and JetBlue Airways Corp. were on the rocks. The company's stock price took an immediate hit, falling 2 percent the day the court ruling was issued.
The legal dispute over AmEx's anti-steering rule dates back to 2010, when the Justice Department and the attorneys general for seven states filed suit against AmEx. They argued that the company's rule against merchants steering customers toward lower-cost payment options was anti-competitive and a bad deal for consumers.
Faced with the prospect of similar legal action back in 2010, MasterCard Worldwide and Visa Inc. scuttled similar rules. As a result, merchants are now free to steer customers away from using those two card brands with discounts for cash, rebates and other perks.
AmEx no threat to MasterCard, Visa
AmEx balked at the prospect of settling the case and took it to court instead. The card company insisted that the nearly 54 million cards it has placed in U.S. consumers' wallets are too few for it to be deemed a competitive threat to MasterCard and Visa. (Combined, MasterCard and Visa cards in Americans' wallets are estimated to total about 460 million.)
Forcing AmEx to ditch its anti-steering rule "would harm competition by further entrenching the two dominant payment networks, Visa and MasterCard," the company stated in a press release about the court ruling. "Only a small percentage of Visa and MasterCard holders carry American Express cards. By contrast, most American Express Card Members carry a competing card in their wallet. Today's decision means merchants would be able to steer customers to use Visa and MasterCard, while it would be virtually impossible to steer away from them."
U.S District Court Judge Nicholas G. Garaufis rejected AmEx's arguments in a 150-page decision. "American Express's merchant restraints harm inter-brand competition," he wrote. "Steering is a lynchpin to inter-network competition on the basis of price. Without the ability to induce merchants to shift share in response to pricing differentials, a credit card company like Discover cannot increase sales or gain market share by offering merchants a more attractive price than its competitors."
Not surprisingly, merchants cheered the District Court decision. They seemed emboldened by it also, and hinted that this would not end their ongoing campaign to force changes in the cost of card acceptance.
"Today's ruling is one step forward to bringing badly needed competition and transparency to the entire credit card industry," the Merchants Payments Coalition said in a statement. "Merchants across the country are thankful to the U.S. Department of Justice and to the judiciary for recognizing the anti-competitive nature of American Express' rules and are hopeful that other steps will be taken to stop similar unfair practices of the other card companies who set outrageous fees behind closed doors for their real customers, the banks issuing the cards."
Massive hack siphons nearly $1 billion from banks worldwide
Friday, February 20, 2015
I t's being billed as the largest data heist in the history of banking. And it may not yet be over. Reports published recently in various media outlets revealed that at least 100 banks in 30 countries were hit with malware that resulted in hundreds of millions of dollars in losses. However, no banks have yet revealed whether they were hit. The reports were based on information released by Kaspersky, a Russian-based security firm.
Kaspersky said it was called in to investigate possible network breaches after ATMs in Kiev began dispensing cash at seemingly random times throughout the day. Kaspersky said it can't be sure, but based on experiences of its clients, it said it expects losses at the defrauded banks to exceed $1 billon.
Most of the banks hit by the attack were located in Russia, although banks in the United States, Europe and Japan also were hit, according to Kaspersky. The group of attackers is believed to have penetrated the banks' internal systems with Word documents attachment to phishing emails. Once there, they allegedly placed malware that enabled them to record daily transfers and bookkeeping routines on the infected networks.
Eventually, members of the group used that information to impersonate bank officers, transferring millions of dollars at a time into dummy accounts at other institutions and dispensing large sums of cash through ATMs. In an apparent attempt to escape easy notice, the gang limited transfers to $10 million.
Security experts believe the attacks – orchestrated by a group dubbed the Carbanak Cybergang, named for the malware it used – should serve as a wake-up call to banks and other enterprises. Long-trusted detection technologies are no match for sophisticated web-born malware.
Indeed, The Challenge of Preventing Browser-Borne Malware, a study conducted by Ponemon Institute LLC and released on Feb. 2 by Spikes Security Inc., suggested web-born malware is the fastest growing data security threat to enterprises. Internal systems at as many as 75 percent of large firms Spikes recently surveyed have been infected, the security firm said. Companies surveyed averaged 51 breaches apiece in just 12 months, at a cost of about $62,000 per breach.
Banks urged to be more proactive, less reactive
"With attacks like this easily evading detection, this attack serves as a stark reminder that it is unwise to shift the focus from prevention solely onto reactive things like information sharing," said Branden Spikes, the firm's Chief Executive Officer and founder. His comments refer, in part, to a message delivered last week by the White House calling for greater information sharing between banks and other enterprises to combat cyberattacks.
At a Feb. 13 summit that drew more than 1,000 executives, government officials and technology heavyweights to Palo Alto, Calif., President Barack Obama officially laid out the federal government's cybersecurity game plan going forward. That plan includes proposed new laws that would facilitate greater information sharing and work efforts between and within the public and private sector to combat cyber threats.
"Grappling with how government protects the American people from adverse events, while at the same time making sure the government itself is not abusing its capabilities is hard," the President told the group. And he likened the Internet to the Wild, Wild West.
Although no banks have spoken publicly about the news or whether they were hit by the Carbanak Cybergang, some published reports have pointed to several large money center banks as places where dummy accounts were set up to receive fraudulent wire transfers.
John Gunn, Vice President of Vasco Data Security International, warned that large banks are not the only targets of malware attacks. Headquartered in Chicago, Vasco specializes in authentication and e-signature security. "It's worth remembering that local banks and credit unions are also targets because they have weaker defenses than large banks," Gunn said. "As the largest institutions spend more and increase their defenses even further, hackers will be forced to move down the food chain."
Costco, JetBlue disengaged with AmEx
Wednesday, February 18, 2015
A merican Express Co.'s rapid-fire break-ups in February 2015 with co-branded payment card partners Costco Wholesale Corp. and JetBlue Airways Corp. led to sharp declines in the company's blue chip stock. However, a number of financial analysts stated they expect AmEx to recover from these temporary partnership setbacks.
Costco and JetBlue are high-profile, publicly held brands. Seattle-based Costco, established in 1983, has 671 member-only locations worldwide. JetBlue, known for discounted airfares, was established in 1998 with headquarters in Long Island City, New York, and is expanding by adding U.S. destinations to its roster.
Both Costco and JetBlue AmEx card products have been offering unique value propositions to cardholders. Costco cardholders currently pay a single annual fee for both the AmEx card and Costco membership while getting discounts and rebates both inside and outside of Costco stores. JetBlue cardholders who make purchases using JetBlue cobranded cards earn airline miles that never expire.
AmEx, Wall Street remain optimistic
AmEx share prices are down approximately 15 percent in 2015 after posting a 52-week high of 96.24 in July 2014. As investors debate whether to buy, hold or sell the stock, both internal and external forecasts remain favorable.
"While we expect the negative impact on earnings and revenue growth in 2015 and 2016, we remain confident in our ability to achieve our 12 percent to 15 percent EPS growth target over the moderate to long-term," said AmEx Chairman and Chief Executive Kenneth I. Chenault during a conference call after the breakup with Costco.
Yahoo blogger J. C. Parets, founder and President of Eagle Bay Capital LLC, advised shareholders to stay the course. “From a risk management perspective, which to us is the most important thing, the risk levels are very well-defined,” Parets wrote. “This skews the risk/reward very much in favor of the bulls.”
Costco, JetBlue forming new partnerships
The Feb. 12 news of the AmEx-Costco split had been expected after Canada's Costco severed ties with AmEx in 2014. Canadian cardholders used AmEx cards at Costco warehouses and gas stations until midnight Dec. 31, 2014, when all American Express Platinum Cash Rebate cards expired, and Costco e-commerce and brick-and-mortar locations stopped accepting AmEx payment card products. Canada Costco is now in partnership with MasterCard Worldwide and card issuer Capital One Financial Corp.
American consumers are expected to follow suit, using their TrueEarnings cards until midnight March 31, 2016, when the co-branded cards expire. TrueEarnings card benefits include a 3 percent rebate on gasoline purchases, up to $4,000 each year (1 percent thereafter); 2 percent cash back on restaurant purchases; 2 percent cash back for travel; and 1 percent cash back for all other TrueEarnings card purchases.
The U.S. relationship between AmEx and Costco endured for 16 years, giving AmEx an exclusive at Costco locations across the United States, where only cash, checks, debit cards and AmEx-branded card products were accepted. Costco is exploring new card brand partnerships for its U.S. stores.
JetBlue disclosed on Feb. 17 that is has established a new partnership with Barclay's PLC and MasterCard. Industry analysts see this as part of a wholesale makeover of the company that includes a new chief executive officer, changes to its aircraft such as adding more seats to its fleet of Airbus A320 jets, and new airfare and baggage fee policies, for example, lower fares for travelers who don’t check bags.
Incoming CEO Robin Hayes, who had served as Chief Commercial Officer at JetBlue since 2008, was promoted to President in 2014.
Price sensitivity a major factor
AmEx cardholder discussion boards lit up with reactions regarding the demise of the popular credit card products. Minutes after AmEx revealed news of its separation from Costco on Feb. 12, cardholder Manthu wrote, "I had predicted about this several months ago on this forum, based on what happened in Canada. There too the new contract went from Amex to Capital One. I joined Amex only because of Costco, but I will be happy to retain my membership if Amex issues a replacement product with no annual fee and a product that is competitive in the current market situation."
On Feb. 17, cardholder imcllc posted, "With Costco and JetBlue cutting ties with Amex, I wonder if the yearly Amex membership fees will be relaxed to gain new customers, and/or waived on certain cards for the current customers?"
Echoing cardholder and retailer sentiments, Bob Nelson, AmEx Vice President of Investor Relations, attributed the nonrenewal to economics and failure to agree on mutually advantageous partnership arrangements."[E]verything comes down to cost and saving money for our members,” he added.
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