Updated: Tuesday, September 1, 2015
Rumored Worldpay grab shakes payments industry
P ayments industry stakeholders have noted Ingenico Group's bid to acquire Worldpay Ltd., reported by Reuters on Aug. 28, 2015. The POS vendor's offer would value Worldpay at $9.2 billion (or 6 billion British pounds).
The merger, if successful, would follow Ingenico's January 2015 acquisition of ROAM Data Inc. ROAM's mobile commerce platform, now part of Ingenico Mobile Solutions, helped Ingenico expand its North American footprint. In a similar fashion, analysts expect Worldpay, the dominant merchant acquirer in Europe and the United Kingdom with a strong presence in the United States, to enhance Ingenico's global holdings.
Ingenico, a payment technology company established in 1985 and based in Paris, deploys approximately 30 percent of global POS devices. The Nilson Report placed the company's valuation at $8.34 billion, with an 18 percent annual growth rate. Ingenico Chairman and Chief Executive Officer Phillipe Lazare said Ingenico aims to be "the trusted third party in the retailer-consumer relationship." Some analysts have said it is unclear how adding an acquiring processor to its portfolio of companies would help the manufacturer maintain trust within its global distribution channel.
Ingenico joins Wirecard, CVC, Blackstone and Hellman & Friedman in the crowded field of bidders for Worldpay. Reuters reported that Wirecard bid $9.4 billion for the privately held company. WorldPay was purchased in 2002 by Royal Bank of Scotland (RBS) during an acquisition phase that included Lynk, TrustMarque International, Bibit and Cardsave. RBS later sold Worldpay to private equity firms Advent and Bain in 2010.
Processor neutrality, a vaunted tradition
Payments industry consultant Todd Ablowitz, President of Double Diamond Group LLC, led a LinkedIn discussion on Ingenico's potential acquisition of Worldpay. He questioned what kind of impact the merger, if successful, would have on the payments ecosystem. "Changes are definitely afoot and worlds are colliding," he wrote. "Will other acquirers balk at buying [Ingenico's] devices?"
Ablowitz went on to question if Verifone Inc., the second-largest POS equipment manufacturer, would follow suit by adding a payment processor to its product mix or take the high road by maintaining a posture of processor neutrality.
Verifone, which owns an estimated 51.5 percent market share of POS terminals worldwide, has experimented with recurring payment models in the past. SAIL, a mobile payments processing platform was discontinued in 2012. V-Connect, a subscription-based wireless gateway launched in 2004, was abandoned several years later. Both projects met with ire from the ISO and acquirer community, many of whom believe transaction fees and subscription-based services are the exclusive province of merchant acquirers.
Respondents to Ablowitz's LinkedIn discussion predicted an Ingenico-Worldpay merger would have dire consequences for Ingenico and an upside for emerging OEM brands such as Dejavoo Systems and PAX. "Buy stock in Dejavoo and [PAX]," stated Joe Garza, co-founder of Illinois-based Blackline Partners. "The Ingenico line will be dropped by many."
Terrence Lim, Director of Business Development at Cynoware Electronics Inc. in Nanjing, China wrote, "I expect Ingenico will lose a lot of the channel partners as it is never wise to compete with your customers."
Mony Zenou, who is the founder, President and CEO of I-POS Systems (the parent company of Dejavoo Systems) sees potential opportunities for incumbent POS manufacturers Dejavoo and PAX if the as-yet-unsubstantiated merger goes forward. Zenou stated that he and his team have repeatedly warned ISOs about the potential hazards of working with POS providers that become competitors. He expects Verifone to align with a payment processor if Ingenico buys Worldpay, which in his view, would "only accelerate the adoption of reliable alternative OEMs."
Privately held versus publicly traded
While Worldpay has reportedly planned an initial public offering, a majority of bidders would like to see the processor remain a private entity. Sources say that remaining private could potentially help the company achieve a higher valuation and freedom from quarterly performance objectives commonly associated with building shareholder value.
If Worldpay were to be acquired by Ingenico, it would become a division of a public company that has been listed on the Paris stock exchange since 1985 and regularly outperforming the market index. The Ingenico product line of POS devices has played a prominent role in the deployment of Europay MasterCard and Visa (EMV)-enabled devices across the United States as merchants have prepared to meet the October 2015 EMV liability shift.
"Payment is the universal, definitive and decisive element in the purchase act," Lazare wrote, adding that Ingenico has made significant contributions to the payments industry over the past 30 years. "We provide smart, trusted and secure solutions to empower commerce across all channels: in-store, online and on mobile."
Soon it may be possible for merchants to "accept any means of payment, from credit cards to alternative payment methods, be it in store, on line or on mobile," without ever having to leave Ingenico's footprint, he added.
ISO 20022 blazes trail to global, real-time payments
Friday, August 28, 2015
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:
- Global momentum: Large U.S. corporations and banks are adopting ISO 20022, a trend that is expected to continue.
- Global competition: Compatible message formats enables the United States to maintain parity with other global markets and establish the U.S. dollar as a global currency.
- Cost savings: Standardized message formats enable consolidation of payment platforms at banks and corporations, which could drive down costs.
- Improved efficiencies: Standardized message formats can significantly reduce the number of changes required to bring new products and services to a global market.
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.
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."
To qualify for the top-ranking list, competing companies needed to meet certain criteria. They must:
- Be U.S.-based
- Be privately held
- Have been established and revenue-generating by March 31, 2011
- Be for-profit and independent, not a division or subsidiary, as of Dec. 31, 2014
- Have reported revenue of at least $100,000 in 2011 and $2 million in 2014
- Have provided an up-to-date employee count
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.
View prior breaking news