Dorado Industries TrendWatch Payments Industry Review Q4 2013

TrendWatch 2.0 Q4 2013

Payments System Industry

Synopsis

Notice: Materials contained in this document are drawn from several media sources, and Dorado Industries is not responsible for their accuracy. Opinions expressed

herein are presented without warranty. Brand names are the trademarks of their respective service offerors.

Rats!

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Random Thoughts

WTF (II)?

WTF (I)? can be found in the Q2 2010 issue of TrendWatch

2.0 when we asked “Why The Fed” regarding Senator

Durbin’s decision to have that agency sort out the shards left

by his amendment to the Dodd-Frank bill. The Fed didn’t

want the job, was unprepared to see it through, and was/is

viewed as being BFFs with big banking. See how well that

worked out?

Today, we pose the same question about the Fed’s poorly

disguised fervor (cloaked in “whaddayathink? prose) for

moving the US banking system to “near-real-time” across the

entire origination-to-reconciliation value chain and its equally

transparent desire for playing an operational role in that future.

In its September 12, 2013 “Payments System Improvement –

Public Consultation Paper,” the Fed puts forth five “Desired

Outcomes” including collaborative problem identification and

resolution, creation of a ubiquitous electronic solution,

reduced transactional costs, greater choice in cross-border

payments, and FRB-promoted payment system security (with

ensuing high consumer confidence) – all desirable end states.

Meanwhile, the CP suggests that, while emerging payment

systems appear to meet some of the desired outcomes, because

they operate outside of the mainstream, these upstart

challengers to the status quo aren’t getting much traction (tell

that to PayPal, Starbucks, and the dozen or so mobile money

transfer guys.)

The CP also harpoons legacy systems for being sedentary,

difficult to modify, slow (particularly in international

payments), and inconsistent with emerging global standards.

2

All well and good we suppose but could it be that the origin of

the Consultation Paper is a bit less altruistic? Perhaps having

more to do with the rebuffing big Nacha banks gave to the

same-day settlement initiative in 2013 or that the UK Faster

Payments and Zapp programs put the Fed in a bad light?

So far, most of the 130 responses to the CP have been rather

benign so here’s our reply:

1. For the most part, alternative payments system routing

options are designed to avoid legacy systems, the very

ones supported by the Fed for millennia.

2. A goodly share of the cost of participating in Fed-backed

legacy systems comes from the bloated number and nature

of those that support them and the regulations they have

backed.

3. The exorbitant cost of international transfers, a process

that’s been electronified for decades, is a function of big

user-imposed rules, not the absence of technology.

4. Wouldn’t an “improved” payments system, one likely to

be run by the Fed, have the ability to ban or at least curtail

new forms of currency or transactions? Thanks, but no.

5. The CP suggests creation of new systems (“. . wire

transfer-like . . ”) or augmenting existing ones “ . .

modifying the ACH . . ” Aren’t these businesses the Fed is

already in on an almost monopolistic basis? Again, no

thanks.

Courtesy of the CP, the industry has yet another Mason-Dixon

line venue for spitting contests between “them” and “us.” So

much for collaboration. Again, WTF?

Until next time.

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Our Thoughts on the Target Breach

3

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Table of Contents

2013 Predictions and Review 5

2014 Predictions 6

TrendWatch Scorecard/Summary 8

2013 Payments Industry Yields 9

Interesting Quarterly News That Got No Respect 10

Q4 M&A/Investor Activity 15

Useful Links for More Information 23

Back in the Day 24

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2013 Predictions and Review

5

• One cloud-centric mobile payments player other than PayPal will have a break-out year; the payments industry will declare NFC DOA and

move on.

Mar: Since Google is re-gearing mobile yet again, it’s not likely to be the one.

Jun: Indeed, it looks like the wheels have come off the Google Wallet juggernaut.

Sep: Check out what Loop, Paydiant, clearXchange have been cooking up.

Dec: Hasn’t happened as yet but Google is leaning that way and the fact that O2 shut down its NFC wallet suggests we’re close.

• One or more of the non-traditional dongle-centric merchant services providers will be acquired by a mainstream POS terminal industry

leader.

Mar: Verifone’s Sail is gone, so it’s off the table. Someone else will cave.

Jun: Perhaps “acquire” is premature. “Strategic partnering” comes closer, i.e., NCR’s new relationships.

Sep: Heartland invests $20 million in Leaf, the tablet-centric startup. Not a dongle, but close enough.

Dec: Missed this one too but the Heartland investment helps; Loop’s new technology may put pressure on the dongle guys.

• Despite the fact that there are already laws preventing abusive use of electronic benefits transfer cards, the CFPB or Congress will

intervene to provide more protection.

Mar: Still waiting to see if CFPB wants to double down on casinos, strip clubs, and liquor stores.

Jun: Tick, tick, tick.

Sep: Now that the Federal shut-down has ended, we’re likely to see the release of some pent up demand on CFPB’s part.

Dec: Watch what comes out of the woodwork as Chase puts its EBT business on the block; clearly DoJ will have its say.

• One of the remaining EFT networks will change ownership.

Mar: The search for a common AID for mobile (more accurately, reaction by V/MA) will likely propel things.

Jun: New common AID, new Durbin compliance requirements, mounting merchant pressure; someone’s going to throw in the towel.

Sep: Judge Leon’s ruling may help this prediction along; the Fed’s appeal may force a carry-over to 2014.

Dec: PAVD-imposed pain is growing and the EMV stand-off with V/MA is going to force someone to blink.

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2013 Predictions

• American Express will prevail in its Department of Justice litigation.

Mar: Time remains an ally for American Express. DOJ litigation didn’t impair its efforts to gain FDIC access for its

prepaid product – Bluebird.

Jun: Supreme Court sides with AMEX and against merchants in AMEX v. Italian Colors Restaurant. Not directly

related but tangential at least.

Sep: Nothing new this quarter; hang tight, AMEX.

Dec: Soon, very soon.

• The US Postal Service will declare its pilot in gift card sales a failure and shut the program down.

Mar: After all, who buys gift cards on Saturday when USPS is delivering mail. Oh, right.

Jun: Oops. Back to Saturday delivery, so maybe dumping gift cards is the next money saver?

Sep: Holiday season is upon us – time will tell.

Dec: USPS weathered another winter storm and it will only cost consumers another 3¢. Lovely.

• Emboldened by the success of PayNet (FIS) and clearXchange (BofA, Chase, Wells), two new real-time payments

networks will emerge.

Mar: Nothing yet, but the Italian banks are pushing their own version in-country and pan-Europe. Time will tell.

Jun: Could MCX be thinking that a shift to real-time is a good way to avoid V/MC rails and fees?

Sep: Take a gander at what Zipmark is doing for B2B transactions. And clearXchange just got its first non-founder

bank. “There’s something happening here,” to quote Buffalo Springfield.

Dec: Fed’s faster payments solicitation of public comment will likely embolden a number of new players to step up

if only, for no other reason, to keep the Fed from claiming the market by fiat.

6

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2014 Predictions

• Beacons of all variety will gain considerable traction and ink. Department, mid-to-high end clothing stores, and the

hardware trade will lead the way.

• HCE will be anointed as an equal amongst the other mobile payments options – NFC, 2D barcodes, etc.

• The Target and Neiman Marcus hacks will light a fire under the US EMV rollout (for all the wrong reasons) and

one of the combatants will blink.

• MCX will announce a roll-out plan and schedule that will leave more than a few pundits confused.

• Regulation II will remain virtually unchanged.

• Regulators will take a serious look at Visa Authorized PIN Debit.

• FRB will announce plans for a pan-industry working group to sort out “US Payments System Improvement.” Won’t

happen until late in the year.

2013 Holdovers:

• One of the remaining EFT networks will change ownership.

• One or more of the non-traditional dongle-centric merchant services providers will be acquired by a mainstream

POS terminal industry leader.

7

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TrendWatch Scorecard/Summary – Q4 2013

Market & Industry Situation 1 – Money2020 showed lots of new options, even from the old guys.

2 – Bitcoin ATMs? Growing pretty quick for a near-Ponzi scheme.

3 – Good POS volume during the holiday season.

4 – Prepaid just can’t cut a break. Chase EBT deal will bring the regulators,

big time.

5 – Not a great VC quarter but a couple of interesting deals got done.

6 – 2014 was a banner earnings year. Hope it continues (but it won’t).

7 – The equipment guys are still drawing attention; payments not so much.

8 – Target and Neiman Marcus have a lot to explain.

Industry Players To Watch Loop: Having a viable alternative to new terminals can’t be bad for

merchants.

P2P Space: Everyone’s heading that way and there must be a good reason.

After all, how many bar tabs need to be settled every day?

DNA: New letterhead and website; now, how do we fix EMV?

VC and PE: After a lack-luster Q4, and swimming in funds, maybe a bit

more risk-taking?

Core Processors: Time to leverage deposit account access to speed up

payments flow? We think so.

Bitcoin: Yo-Yo like Q4 and Sacramento Kings acceptance; which could be

worse?

5. New Venture Growth

4. Legal/Regulatory Issues

1. New Payment Forms

2. ATM Restructuring

3. POS Volume Trend

Med

Med

Med

Med

High

Med

High

Positive

Mixed

Negative

6. Earnings Announcements

7. Industry Investments

8. Payments Industry Security High

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2013 Payments Industry YTD Yields

Sources: Company releases, Morningstar.com, Bloomberg.com

2013 YTD yield excludes dividends; based on 12/31/12 and 12/31/13 closing prices.

Banner year for the investment community in general and our payments equity basket did better

than the Dow and S&P. Clearly, the market doesn’t yet understand Blackhawk. 2014 has started

out in the doldrums and March will likely bring on a rash of tax sales to pay for the 2013 gains. Still,

the new year shouldn’t crater or give back too much of our gains. Holders of this basket of assets

would have seen a 53.5 percent appreciation in 2013. Something to crow about, we think.

Industry Player 12/31/2012 12/31/2013 Price r Cap Value r YTD 2013 Yield

Alliance Data Systems 144.76$ 262.93$ 118.17$ 7,031.1$ 81.6%

American Express 57.48$ 90.73$ 33.25$ 35,910.0$ 57.8%

Blackhawk Network Holdings 25.10$ 25.26$ 0.16$ 8.4$ 0.6%

Cardtronics 23.74$ 43.45$ 19.71$ 802.2$ 83.0%

Discover Financial Services 38.55$ 55.12$ 16.57$ 7,968.5$ 43.0%

Euronet Worldwide 23.60$ 47.85$ 24.25$ 1,222.2$ 102.8%

Fidelity National Information Services 34.81$ 53.68$ 18.87$ 3,600.4$ 54.2%

First Data (Future Use)

Fiserv Inc. (stock split adjusted) 79.03$ 118.10$ 39.07$ 6,091.0$ 49.4%

Global Cash Access Holdings 7.84$ 9.99$ 2.15$ 165.8$ 27.4%

Heartland Payment Systems 30.23$ 49.84$ 19.61$ 733.4$ 64.9%

Jack Henry & Associates 39.26$ 59.21$ 19.95$ 1,673.8$ 50.8%

MasterCard Worldwide 491.28$ 843.60$ 352.32$ 45,590.2$ 71.7%

MoneyGram International 13.29$ 20.78$ 7.49$ 433.4$ 56.4%

Total System Services 21.42$ 33.28$ 11.86$ 2,341.2$ 55.4%

Western Union 13.61$ 17.25$ 3.64$ 2,070.3$ 26.7%

Vantiv 20.42$ 27.94$ 7.52$ 1,864.8$ 36.8%

Visa 151.58$ 222.68$ 71.10$ 60,143.5$ 46.9%

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Interesting News This Quarter

Subject Source/Date Substance

Blackhawk/PayPal Pressers

October

Darling of the J-hook and now publicly traded Blackhawk Network has teamed up with PayPal

to insure that, once consumers have a decent choice for mobile wallets, gifts cards will soon

follow. Consumers will be able purchase e-gift cards via their PayPal accounts and use them

across Blackhawk’s sizable network of physical merchants. Trading on the persistent “folks don’t

leave their phones at home” mantra, both parties believe the new relationship will deliver the

highest in consumer convenience and gift card redemption. This, despite the fact that gift card

secondary exchanges are doing a land office business.

College Affinity Cards Consumerist

December

Who knew? Better question “who remembered?” College affinity cards have been around for

decades but haven’t received notable ink in a long while. A recent CFPB report now indicates

that in 2012 the dozen or so affinity program issuers wrote $50 million in checks to college and

university sponsors and that BofA’s FIA subsidiary cut 70 percent of the gilt. Top five schools

and their paydays include: Penn State ($2.7 million), University of Michigan ($1.8 million), USC

($1.5 million), Tennessee ($1.4 million) and Cal Berkeley ($1.3 million). The report could have

provided better fodder for analysis and comment by citing the number of cards and transactions

but then again, it’s a CFPB report.

Visa, MasterCard, American

Express

Payments Journal

January

What does one do when caught between Federal and state laws? That’s the conundrum facing the

card issuing organizations in Colorado and Washington state where recreational marijuana is now

legal despite Federal regulations to the contrary. MasterCard and American Express have

sided firmly with Federal law while Visa has tried a double sashay by stating “ . . . given the

federal government’s position and recognizing this is an evolving legal matter with different

standards applicable in different states, our local merchant acquirers are best suited to make any

determination about potential illegality.” In other words, if you’re a local merchant services

processor and you get busted, don’t waste your dime calling us.

JPMorgan Chase Bank Innovation

December

Again, “who knew?” JPMorgan Chase has renewed its 1999 patent application for payment

technology named Internet Pay Anyone (IPA) covering a program of anonymous payments

involving funds stored in a virtual lockbox. Sound like a Bitcoin to you as well? Perhaps an

infringement suit against Satoshi Nakamoto will be forthcoming.

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Interesting News This Quarter – Continued


Coin NY Times

December

Seems like some ideas are just too stubborn to die. Coin is the latest iteration of the “one-card”

approach to payment cards. Dating back to the late 1980s, the one-card approach hopes to reduce

wallet clutter by combining a consumer’s payment vehicles – debit, credit, charge, rewards, etc. – on a

single card. The early efforts were klugy at best and not easy to support given the technology available

at the time. Cards with keyboards and small screens emerged early in this millennium with MasterCard

launching its own late-to-the-party version in 2012. San Francisco startup Coin is offering its card for

sale for $105 ($55 if you pre-order) and promises that it will hold all your payment options and process

via existing swipe terminals but there’s a few gotcha issues. If the transaction fails, don’t bother calling

Coin; the problem’s on you. And the on-board battery? It’s good for only two years and not

rechargeable or replaceable. Perhaps the one-card pipedream will fade away after this round.

Qualcomm PYMNTS.com

December

Communications giant Qualcomm has entered the Beacon device footrace along side PayPal and Apple

with its Gimbal product. Like the others, Gimbal works under Bluetooth Low Energy technology to

create a one-on-one relationship between a sponsoring merchant and a consumer’s Bluetooth-enabled

smartphone. Qualcomm claims locational accuracy down to one foot both inside and outside the store.

Promoted as a “lower-cost” alternative to Apple’s iBeacon, we wonder if a race to the bottom has

already begun.

Zapp Finextra

January

The UK banking system got the industry to sit up and take notice several ago when it launched Faster

Payments, a near-real-time solution for money movement. The US took a stab at emulating Faster

Payments when Nacha promoted an opt-in same day settlement feature for its forty-year old ACH

network. Unfortunately, the votes of the Nacha governing body went the wrong way and killed the

deal. UK banking is about to change again after VocaLink invests £33 million in a new mobile

payments technology dubbed Zapp. So far, five UK banks including HSBC, first direct, Nationwide,

Santander, and Metro have signed up. Zapp is the second player attempting to create a third payments

network in the UK. Barclays’ Pingit was launched in 2012 for the same purpose. And, not to be

outdone by US payments system intrigue, Pingit has its own entanglements; first, it uses the Faster

Payments rails for fulfillment and second, it lost it’s chief technology leader to Zapp in 2013. Let the

games begin.

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Thinaire Spaces PaymentEye

January

Speaking of Mason-Dixon lines, not 24 hours after Bluetooth Low Energy beacons from PayPal and Apple

were announced, the new technology was hailed as an NFC-killer and the battle line was drawn. Fortunately,

there’s a middle ground solution named Thinaire Spaces that bundles BLE and NFC technology in the same

package. Adidas, Unilever, Sony and Bon Ton are early adopters of the mixed-channel (we abhor the

“omnichannel” misnomer currently in vogue) messaging and product promotion.

Vantiv PayBefore

And PR

Newswire

January

Merchant and card processor, Vantiv, is kicking the tires on a number of new opportunities early in 2014. In

the first deal of the year, the company and Microsoft have entered into a joint-solutions agreement to bring

“omnichannel” services to businesses in the areas of mobile POS and cloud-connected payments. This pact

enables Vantiv to move down-market to smaller merchants using hand-held devices for POS transactions and

up-market to merchants seeking tablet-based checkout services. To complement the lash-up with MSFT,

there’s another agreement with AT&T for remote and cloud access under the banners of “Vantiv Mobile

Accept” and “Vantiv Mobile Checkout.” The former offering targets field service providers while the latter

keeps the restaurant industry simmering.

RBC and Bell Canada PayBefore

January

Americans aren’t the only ones with a thirst for mobile wallets (sadly, only partially quenched so far) and

Canadians now have the opportunity to take up the service from RBC and Canadian Bell. The service was

tested last summer and is up and running on Blackberry (naturally) and Android devices including the

Samsung S3 and S4. The technology is NFC (naturally) and functions at stores with Visa’s payWave and

Interac’s Flash protocols. A companion loyalty scheme is designed to keep consumers committed to both the

wallet and the store brands supporting it. Three other Canadian banks (are there really that many?) either

have wallets in flight or under development while MasterCard launched its MasterPass solution in Canada

before bringing it to the US. Not to be left out, Rogers Communications has announced Canada’s first and

only mobile wallet provided solely by a telecommunications company. “Suretap” comes with a prepaid

MasterCard and a flock of gift cards available for download.

Debit Network Alliance Presser

December

Ten debit networks continue to press their charge for creation and oversight of an EMV debit standard. To

that end, Debit Network Alliance (DNA) has been created based on the foundations laid in 2012 by the

Secure Remote Payments Council and Chip and PIN Work Group. The group correctly argues that the one-

size-fits-all approach to EMV implementation in other parts of the world won’t work in the United States,

particularly in light of Regulation II routing constraints and recent judicial rulings. Reader organizations not

affiliated with these networks may find themselves twisting in the wind: AFFN, ATH, CO-OP, NETS, NYCE,

Presto!, PULSE, SHAZAM, and STAR.

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13


Chicago Transit

Authority

PYMNTS.com

January

NFC technology may have found its de facto niche – the Isis Jamba Juice promotion notwithstanding. The

Chicago Transit Authority plans to introduce NFC in its newest update to the Ventra fare-payment network.

Meanwhile, the New York Metropolitan Transit Authority has announced plans to investigate similar

technology as it moves forward with its earlier announced plan to phase out the MetroCard. As usual in the

transportation space, you can find Cubic technology in the background.

Reserve Bank of

Australia

Finextra

October

The Australian banking system (and RBA, its strong-willed and heavily armed regulatory body) has been

cited on numerous occasions for its progressive approach to payments handling and pricing. This Petri dish

site has led us to lower interchange rates, harpooning of “honor all cards” rules, new routing requirements,

and the notion that surcharging consumers isn’t all that bad. US academics and industry practitioners

frequently draw on RBA actions as examples of how things ought to be done in payments. We in the United

States may be in for more trouble as the RBA plans to launch a new regulatory body, the Australian Payments

Council, for the purpose of stimulating innovation in payments. Oz sure swings a lot of power for a country

with less that 25 million people and a handful of banks.

Netclearance Systems PayBefore

January

Just when you thought the last reference to beacons was behind you . . . cloud tech player Netclearance

makes your day by announcing m2BeaconPay. Despite its clunky name, the next entrant in the beacon wars

brings a lot to the table. It is network and device agnostic while not requiring NFC technology to both

communicate with in-store consumers and handle payment transactions. The added feature with

m2BeaconPay is that it also supports Wi-Fi, opening up the game quite a bit beyond Bluetooth enabled

phones.

Isis PayBefore

October

We suspect that it’s not too late to get your free Jamba Juice smoothie when you use your Isis wallet app to

make a purchase the first time. After all, the offer extends to the first one million customers and the

promotion was announced in October so what’s the rush? The Jamba Juice/Isis lash-up is part of the mobile

payments network’s national roll-out. Not a Jamba Juice fan? How about the first three drinks from a Coca

Cola vending machine being free? Katie, bar the door. Is that a deal or what?

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14


Isis PaymentsNews

November

Wells Fargo becomes the third major credit card issuer to certify its cards for inclusion in the Isis mobile

wallet app, joining early supporters American Express and JPMorgan Chase. NFC technology being what it

is, First Data has been selected to provide Trusted Service Manager duties. WFC plans to phase in the new

accessibility via an early stage pilot across the fifty or so Isis-ready smartphones and consumers will be in

business once they receive an NFC SIM card from their wireless carrier. Sprint customers need not apply.

Federal Reserve Bank Various Blogs

December

“Random Thoughts” poses the “WTF?” question and points to an imagined Mason-Dixon line regarding the

Federal Reserve Bank’s Consultation Paper on accelerated near-real-time payments in the US. A brief

review of the 130 responses has determined that they break down into four generic buckets and can be

paraphrased as: Financial Institutions: “This is going to cost us a fortune, the business case had better be

good.” Retailers: “The payments system has been controlled by financial institutions since the days of

money changers in the temple; this time, merchants should have a say.” Payments System Processors:

“Hey, we’re already doing what you want.” Trade Associations: “Whatever.”

Ripple Credit Union

Times

October

Been following what’s going on with Ripple? Ripple is an in-flight distributed payments protocol that

recently held its first developers’ conference in Las Vegas. Ripple is currency agnostic, designed to move

money instantly, reportedly prohibits chargebacks, and plans to be “virtually” free to use. Ripple uses its own

virtual currency (“XRP”) that operates similar to Bitcoin yet enables currency exchange on the fly. The

system works on the basis of a series of “market makers” that are sort of like Bitcoin miners but not quite.

Ripple market makers match up two or more parties to a foreign currency exchange and carve out the deal.

Stay tuned; venture capital guys are all over Ripple and will likely keep it healthy of at least a couple of years.

Bitcoin Various Blogs

December

Speaking of virtual currencies, December was not particularly kind to Bitcoin: China’s largest search

company stopped taking the currency and Bitcoin value dropped 13 percent. The following day, Bitcoin value

dropped by another 50 percent. Apple removed the Coinbase app from its store. South Korea said thanks, but

no thanks, and banned it. Research indicated that half of all Bitcoins are held by less than 1,000 people,

throwing everyone into a concentration risk tailspin. In the meantime, Bitcoin value has recovered to about

$850 after hitting over $1,000 near the end of the year. Quite a horse race, right?

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M&A/Alliance Activity

Buyer/Investor Target Payments Emphasis Possible Strategy

Blackhawk Network InteliSpend

Corporate Incentive Cards Now public (HAWK) Blackhawk Networks peels off $70 to

$100 million of cash to acquire InteliSpend from Maritz. The

rapidly transforming incentive industry is rushing head-long into

open loop prepaid solutions to keep corporate employees’ noses

to the grindstone, making the fit with Blackhawk, itself, quite

different than its original J-hook deployer persona, a natural.

Origin Ventures,

Illinois Ventures,

Hyde Park Venture

Partners, OCA Ventures

Iris Mobile Mobile Text Marketing Iris Mobile (not to be confused with Isis) receives Series A

funding of $3.0 million to expand its Rich Media Messaging

services for clients including IKEA, Cartier, Pink, and others.

Iris supports interactive messaging for consumer promotions

including pictures, videos, coupons, and links coupled with

back-end analytics for campaign success measurement. Like

they say, mobile isn’t about payments, its about marketing.

Digicel,

SVG ventures,

True Ventures,

Storm Ventures

Flint Mobile Mobile Payments/Marketing Right on the heels of launching its Android payments app, Flint

lands $6.0 million in Series B funding. The Flint app uses the

mobile phone camera to record card numbers, removing the

need for add-on dongles and other equipment. Focused on the

“non-countertop” merchant segment, Flint has been posting 10X

growth since launching in 2011. Like others focused on the

segment, pricing is relatively non-toxic at 1.95 percent for debit

and 2.95 for credit. Another Kodak moment for your 16-digit

PAN.

Verizon Investments Flint Mobile Mobile Payments/Marketing Not to be left out, Verizon Investments added $2.0 million to

Flint’s Series B round, raising the ante to $8.0 million. Nice

work if you can get it.

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M&A/Alliance Activity - Continued


New Player or Dead

Pool

JPMorgan

Chase

EBT and Prepaid Compared to the hacking Target suffered over two weeks in 2013, the hit

taken by Chase in December is peanuts. The bank has admitted to the

exposure of around 465,000 cardholders via a server intrusion and has

announced plans to exit the EBT, HSA, and public sector cards businesses,

pronto. Street talk indicates that Chase has been having severe service

problems with its EBT offering for awhile (“first to worst” is the common

catchphrase), so the hack is probably the final straw. Problem is that DOJ

won’t likely allow Chase to sell its business to one of the other two players

in EBT so it’s likely that we’ll see another entrant by and by.

Dead Pool O2 Mobile Wallet

Mobile Wallet O2, a prominent Euro and LATAM mobile payments player, has

announced plans to ditch its mobile wallet and has given wallet owners

until March 31st to find the door. “Things change” is the reason given. O2

has been an early and loquacious supporter of NFC technology causing its

fraternity brothers more than a bit of grief.

Valar Ventures,

Klass Capital,

Others

Granify E-commerce Analytics Granify provides SaaS processing for e-tailers in a manner designed to

reduce shopping cart abandonment through manipulation of its 5.3 billion

items database. The Granify system predicts when a shopper is about to

abort and intercedes to offer a transaction kicker (e.g., free shipping) to

encourage transaction completion. Investors provided $1.5 million in seed

funding to keep things moving along.

Brentwood

Investments,

TomorrowVentures,

Atlanticus Corp.,

Bob Turner

Mozido White Label Mobile Wallet Mozido funding grows to over $100 million with commits from investors

and receipt of the first $30 million tranche of a $70 million round. Mozido

is on tear now with service delivery in the US, Mexico, Central America,

the Middle East and Southeast Asia. Near term plans call for expansion

into India and Africa. Ric Duques, former CEO of First Data, has become

the Mozido Board Chair. Duques plans to continue the company’s run of

delivering “ . . . disruptively priced . . . .services. . .” Interesting.

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Private Placement Zwipe Biometrics Nice to know that someone is looking out for us when hackers abound.

The Zwipe Access card relies on biometrics (i.e., fingerprints and other

data) maintained on the card itself instead of on servers. $2.5 million in

new funds were raised by the private offering and another $1.0 million

came from a grant by the government of Norway. Clever name; a

company to keep an eye on. Didn’t someone else launch on-board

biometrics gizmo recently? Oh, right, Apple.

Unnamed Investors Loop Wireless Payments 90 days after moving into boot-strap mode with Kickstarter for its unique

approach to avoiding having to reterminalize the entire merchant market,

Loop receives $10 million in Series A funding and begins shipping its fobs

to earlier investors. The Loop app mimics a card present transaction using

sonics, thereby avoiding the need for retailers to gear up for on-coming

rush (dribble?) of NFC-equipped smartphones.

QED, Trilogy Equity Partners, Founders Co-Op, TomorrowVentures, Bezos Expeditions

Remitly Money Transfer Service Watch out, Western Union and Xoom, Jeff Bezos-backed Remitly has you

in its sights. VC funding grows to $10 million with a $5.5 million Series A

round at the start of the new year. Once known as BeamIt Mobile, Remitly

claims to have created a cheaper and faster way to handle trans-border

payments. The Philippines is the first target for outbound remittances.

Three day transactions (account based) are free while express transfers

(Visa/MC) take minutes and are priced between $4 and $5. Not yet

WU/Xoom-like in scale but, with Bezos in the background, who knows?

Square Evenly P2P Payments Everyone needs plumbing and a plumber so that’s why Square and

company has acquired a P2P outfit, Evenly. The start-up runs an anyone,

anywhere app that fits nicely with Square’s Wallet and Stand services.

Originally designed to enable parties to settle up bills and other expenses,

experience has shown that P2P apps can easily be morphed into full blown

remittance engines. As they say, it’s easier to buy one than make one.

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18


Innovation Endeavors, Bessamer Venture Partners, Betawords

Estimote Beacon Player There’s yet another Beacon player in town. US and Poland based

Estimote gets $3.1 million in VC funding from industry stalwarts as it

tries to crack a new field of customer communications and merchant

promotions. Estimote enters the market along with Qualcomm (clearly,

a formidable communications player) to compete with PayPal and

Apple. Pretty soon we’ll need a scorecard to keep up with the players.

A great opportunity for retailers, we continue to believe.

Andreesssen Horowitz, Union Square Ventures, Ribbit Capital

Coinbase Bitcoin Wallet Coinbase raises $25 million in additional VC funding on top of its

earlier round of $7 million. Now we’re talking serious money –

remember last year when Starbucks invested the same amount in

Square? According to the Coinbase presser, it has enticed 600,000 to

register for its wallet and expects more as Bitcoin hovers around the

$850-$1,000 range. More importantly, Coinbase claims 16,000

merchants including Khan Academy and Reddit. Bitcoin as an

investment is one thing (and maybe not all that bright) but serious

payments? That’s another deal altogether.

LifeLock Lemon Wallet Mobile Payments Identify protection disrupter, LifeLock, pays $42.6 million for Lemon

Wallet and immediately rebrands it as LifeLock Wallet. Lemon had

been gaining traction on the other wallet slingers lately, posting 3.6

million in downloads (remember the download/usage rule of 80/20).

LifeLock now couples some of its protection tools – lost wallet

service, enhanced alerts, and account monitoring with the wallet. An

interesting twist on a segment that heretofore looked to be heading

down the commodity route.

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19


Fontinalis Partners, Ecomobilite Ventures, Total, Orange, IncWell

QuickPay Parking and Payment Application

Founded in 2010, QuickPay focuses on providing automobile drivers with

access to, and paying for, parking locations. Deals with major parking lot

operators such as ABM Parking Services and others has moved QuickPay to

near the top of the heap. The investors, consisting of current and former

automobile industry executives, pooled $5.5 million in new funding to

expand product development and to build scale. Just wondering, if

QuickPay can be used to park a car, why couldn’t it be used to get it serviced

and buy new tires? Just a thought about where QuickPay might be heading.

Amazon DoubleBeam

GoPago Mobile Payments “A company’s two biggest assets are its treasure and talent,” they say. In

this case, Amazon and DoubleBeam paired up to snap up GoPago with

Amazon taking the talent (technology, too) and DoubleBeam purchasing the

POS business. Clearly, Amazon wants to get into the mobile payments

business in a big way; perhaps to support its drone delivery service?

DoubleBeam is a heads-down outfit led by former PayPal, Green Dot, and

Digital Insight executives that competes with Mozido in white label mobile

payments technology and related services.

MasterCard eServGlobal, BICS

International Mobile Money Transfer

MasterCard seeks to leverage its worldwide base of 24,000 FIs through a

joint venture with eServGlobal and BICS. Named HomeSend JV, the cartel

hopes to deliver low-cost money transfer services to consumers anywhere on

the globe and independent of the type of phone equipment used.

eServGlobal builds mobile wallet applications for 65 countries while BICS

is an international communication services provider. Looks like all the right

pieces are in place for a serious swat at some of the smaller international

remittance upstarts.

Dorado Industries



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20


Unemployment Line

Clinkle Merchant Processing Six months after banking $25 million in VC money, stealth mode

Clinkle sacks 25 percent of its staff (16) on the heels of another 30

part-timers and contractors let go earlier. Meanwhile, the high-

frequency based merchant services processor has loaded up on

former Netflix executives to handle finances, operations and

“talent.” Sounds strange; wonder what key investor Richard

Branson might be thinking?

TransCard PayPartners Payroll Card Processor TransCard went on a shopping spree in 2013 and purchased

PayPartners, a payroll and corporate card processor; HQ, a provider

of shopping mall prepaid cards, and Reloadable.com, a digital

prepaid provider. Having plans to continue the streak, TransCard

also created TransCard Ventures, a unit focused on acquiring other

prepaid managers, portfolios, talent and technology. Now, if the

regulators cooperate, there could be a nice payoff down the road; or

an implosion.

Alliance Data Systems

BrandLoyalty Customer Loyalty Systems Major transaction processor and loyalty scheme operator (e.g., Air

Canada and Virgin America), ADS, continues its global conquest in

loyalty by acquiring a majority interest in BrandLoyalty resulting in

an 8 and 10 percent uplift in revenue and EBITDA, respectively.

BrandLoyalty operates in Europe and Asia and fits well with ADS

interests in the US and LATAM.

NCR Digital Insight Home Banking Platform NCR stuns the market but acquiring Digital Insight from PE firm

Thoma Brava for $1.65 billion four short months after DI was

acquired from Intuit for about $1.0 billion. Observers on both sides

of the good deal/bad deal debate will have to wait until they see

what NCR plans to do with the asset. History might suggest that,

well, never mind.

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21


ff Venture Capital CardFlight Card Acceptance SDK CardFlight raises $1.6 million in VC funds to expand its developers

kit for brick-and-mortar retailers desiring a fully customized card

acceptance app for in-person payments. POS-in-a-box, perhaps.

Flexpoint Ford JetPay B2B Payments Relatively quiet for a decade, payments industry guru Bipin Shah

arranges for up to $40 million in funding from Flexpoint to expand

his JetPay organization. JetPay provides card acceptance

processing, payroll services and tax filing tools along with the usual

debit and credit, ACH ODFI systems, and other B2B processing.

Hard to keep a good man down, they say.

KCPB Level Mobile Payments KCPB (Kleiner Perkins) invests $5.0 million in Level on the heels of

its new Level Money offering. Level Money, an Apple App Store

app, targets millennials in search of mobile-based budgeting for both

income and expense using embedded analysis tools instead of

traditional spreadsheets.

Guggenheim Partners

CardCash Gift Card Secondary Exchange

Did you get a few gift cards over the holidays that you’re not likely

to use? CardCash operates a secondary exchange for buyers and

sellers of unwanted gift cards much like that operated by Plastic

Jungle. Guggenheim invests $6.0 million to expand the number of

accommodated cards beyond today’s 300 retailer base. Buyers can

acquire their preferred gift cards through CardCash at discounts

ranging from 10-15 percent. Sellers take a similar haircut. Try

doing that with the ugly sweater you got this year from aunt

Mildred.

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22


Lightspeed Venture Partners

SimplyTapp HCE Innovator SimplyTapp claims to have created Host Card Emulation (HCE), a

platform designed to bypass the SIM-based secure element in NFC

transactions. Lightspeed invested in the company through an

undisclosed amount of Series A money. Those following the

NFC/2D barcode/BLE battles will hear more about HCE as the

skirmishes unfold. SimplyTapp may come out a winner in the end.

Just ask merchants being asked to foot the bill for new NFC-ready

terminals.

Dorado Industries



(310) 544-1316

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Useful Links for More Information

We threw a lot of new names out again this quarter. Here’s a list of links for you to

learn more.

Company Role Link

Zapp UK mobile payments www.zapp.co.uk

Ripple Virtual currency protocol www.ripple.com

Thinaire Beacon technology www.thinaire.com

Netclearance Beacon technology www.netclearancesystems.com

DoubleBeam Mobile payments www.doublebeam.com

Alliance Data Systems Merchant and loyalty services www.alliancedata.com

Estimote Beacon technology www.estimote.com

Blackhawk Network Prepaid card distribution www.blackhawknetwork.com

Clinkle Sound based authorization systems www.clinkle.com

http://www.zapp.co.uk/

http://www.ripple.com/

http://www.thinaire.com/

http://www.netclearancesystems.com/

http://www.doublebeam.com/

http://www.alliancedata.com/

http://www.estimote.com/

http://www.blackhawknetwork.com/

http://www.clinkle.com/

Dorado Industries



(310) 544-1316

[email protected]


Back in the day!

This quarter’s contest ought to tax a few brain

cells and should really test the younger crowd.

This image is the subject in question.

1. What is it?

2. Who manufactured it?

3. When was the product launched?

4. What is the model number?

5. What was its original cost?

6. What can you buy it for today?

7. If you were a merchant would you use it in your

store today? Why or why not?

Registered ISOs need not respond.

Same rules as before. First email with the correct

answers gets wearing apparel from Dorado

Industries.

24

Economy & Finance

Dorado Industries TrendWatch Payments Industry Review Q4 2013