TransacTion trends

The Official Publication of the Electronic Transactions Association

| August 2011

get social
E-commerce opportunities go beyond coupons and discounts
ALSO INSIDE:
Compliance Apathy and Fraud Prevention Tips for Improving Your Brand Online

ISOs and merchants

TransacTion trends
The Official Publication of the Electronic Transactions Association Vol. 16 | No. 8

cov e r s tory

10 Isos and Merchants

Get social
By Julie Ritzer Ross From Facebook payment apps to partnerships with American Express, companies are expanding their social media presence and cashing in on this growing market.

10

Fe AtUres

14 Getting Merchants to care

By Bryan Ochalla Before verifying compliance or validating security of e-commerce websites and mobile apps, payments companies need merchants to buy into fraud prevention.

18

startup stories: Payment Alliance International

sPec IAL s erIes

14

By John Manasso Since its founding six years ago, ETAs 2011 ISO of the Year has made data connections in 18,000 convenience stores and became the largest ATM deployer in North America.

d e PArtM e nts

4 6
6

Presidents Message
Insights from ETAs elected leader

22 24

Ad Index Industry Insider

eProcessing Networks suite of solutions keeps it simple, secure, and competitive

Industry news

Trends, strategies, and news in the payments business

Iso corner

Experts tips on improving SEO and online brand management

TransacTion trends | August 2011 3

Electronic Transactions Association 1101 16th Street NW, Suite 402 Washington, DC 20036 202/828.2635 www.electran.org ETA Chief Executive Officer Carla Balakgie ETA Director, Communications & PR Thomas Goldsmith Transaction Trends Publishing office: Stratton Publishing & Marketing Inc. 5285 Shawnee Road, Suite 510 Alexandria, VA 22312 703/914.9200 Publisher Debra Stratton Editor Josephine Rossi Contributing Editor Angela Hickman Brady Editorial/Production Assistant Teresa Tobat Art Director Janelle Welch Contributing Writers Douglas R. Kelly, John Manasso, Bryan Ochalla, Julie Ritzer Ross Advertising Sales Steve Schwanz or Fox Associates (800/440.0232; [email protected]) Fox Associates Offices Chicago 312/644.3888 Atlanta 770/977.3225 Los Angeles 805/522.0501
Editorial Policy:
The Electronic Transactions Association, founded in 1990, is a not-for-profit organization representing entities who provide transaction services between merchants and settlement banks and others involved in the electronic transactions industry. Our purpose is to provide leadership in the industry through education, advocacy, and the exchange of information. The magazine acts as a moderator without approving, disapproving, or guaranteeing the validity or accuracy of any data, claim, or opinion appearing under a byline or obtained or quoted from an acknowledged source. The opinions expressed do not necessarily reflect the official view of the Electronic Transactions Association. Also, appearance of advertisements and new product or service information does not constitute an endorsement of products or services featured by the Association. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided and disseminated with the understanding that the publisher is not engaged in rendering legal or other professional services. If legal advice and other expert assistance are required, the services of a competent professional should be sought. Transaction Trends (ISSN 1939-1595) is the official publication, published monthly, of the Electronic Transactions Association, 1101 16th St. N.W., Suite 402, Washington, DC 20036; 800/695-5509 or 202/828-2635; 202/828-2639 fax. Postage paid at Pittsburgh, Pennsylvania, and additional mailing offices. POSTMASTER: Send address changes to the address noted above. Copyright 2011 The Electronic Transactions Association. All Rights Reserved, including World Rights and Electronic Rights. No part of this publication may be reproduced without permission from the publisher, nor may any part of this publication be reproduced, stored in a retrieval system, or copied by mechanical photocopying, recording, or other means, now or hereafter invented, without permission of the publisher. Nonmembers, government agencies, $150 per year; single copy, $20. Subscriptions are available for 12-month periods only, at the quoted rates.

Presidents Message

Big News from ETA

New York 212/725.2106 Detroit 248/626.0511 Phoenix 480/538.5021

nless you happen to live in a deep dark cave, youve probably noticed the buzz about mobile payments, in all its forms. Depending on who you talk to, mobile is either right around the corner or a few years away; merchants are gearing up right and left, or skeptical; consumers are blas or eager to pay with their smartphones. All of which may be true. Its probably safe to assume that mobile acceptancethe ability to accept card payments by smartphonehas some momentum behind it but beyond that, the picture gets pretty murky. Its also true that for those who want to profit from mobile, its critical to understand whats happening and where the opportunities can be found. To that end, ETA has decided to organize its first Mobile Commerce Summit, where we will bring together many of the people and companies who are making mobile commerce happen, in all its various incarnations.As Im writing this, the details are still coming together. The event will be Tuesday, October 25, at the Palmer House in Chicago. Thats the day before the main part of ETAs Strategic Leadership Forum takes place in the same location. Of course, there are plenty of mobile payments conferences going on this yearit is a hot topic after all. And several are going to be held in Chicago. But what makes ETAs Mobile Commerce Summit unique is that the focus will be on you, ETAs members and supporters: what you need to know, and who you need to know. Put the Mobile Summit on your calendar. Its something you cant afford to miss. Two big milestones for 2011 arrive this month. By the time you read this message, the online application to take the Certified Payments Professional exam will be accessible through ETAs website at www.electran.org/cpp. The program has received a tremendous amount of support, both from those who are likely candidates for the credential and from the companies that employ them (or will.) One concern about CPP that comes up frequently, is how merchants will learn about the existence of CPPs and the value of having a CPP as their merchant service provider. That requires an educational campaign, and you can be sure that ETA will begin that effort once the first CPPs have successfully passed their examination. Its exciting and satisfying to see the investment that ETA has put into CPP begin to bear fruit, and the launch of the application process this month is the first of what will be a series of milestones for the program throughout the remainder of 2011. The second milestone this month is the opening of registration for the 2011 Strategic Leadership Forum. Ill have more to say about that next month, but for now, I just want to remind you that SLF will be October 25-27, at the Palmer House in Chicago, and you can keep an eye on SLF-related developments at www. electran.org/slf11.The 2011 Forum will cover all the important topics, from technology and the economy to government regulation and legislation and, as always, with the forward-looking perspective that makes SLF unique. I look forward to seeing you at SLF and the Mobile Commerce Summit.

Sincerely, Rick Pylant Rick Pylant is President of ETA and Chairman & CEO of Strategic Processing Systems Inc.

4 August 2011 | TransacTion trends

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inDusTrYnews
Discretionary Spending Plummets, Credit Increases

Payments Professionals Sound Off on Interchange, Technology

Although debit interchange regulation is a concern, acquirers dont expect it to significantly affect the industry, according to a survey of 20 acquiring stakeholders about critical industry issues. Highlights from the Aite Group report, Merchant Acquiring, an Update: Mobile Payments, Interchange, and EMV, include: Fifty percent of respondents see debit interchange regulation as a benefit for innovation in payments, and they expect legislation to encourage industry players to be creative and offer new value or products. However, 20 percent believe the regulation is a detriment because it lowers revenues, which will slow development among banks and card networks. Sixty percent are neutral about the impact of the debit card interchange regulation on mobile POS providers. Only 10 percent expect mobile POS providers to be negatively affected by the regulation, while 20 percent believe they will benefit from it. Eighty percent agree that mobile POS solutions will dramatically increase the number of businesses accepting cards in the next three to five years. Fifty-five percent of the respondents agree with the statement,Visas effort to build a digital wallet and compete with PayPal will succeed in the coming decade. Fifty percent of the respondents believe the United States will officially start a migration toward EMV in the next few years. However, 45 percent believe the United States will leapfrog past EMV and embrace mobile payments directly.

Consumer spending slowed in May as high unemployment raised caution about the economic recovery, according to First Datas May 2011 SpendTrend report. Year-over-year dollar volume growth slowed to 6.6 percent, the lowest in 2011. Transaction growth was 5.1 percent, the slowest growth rate throughout the past 12 months. Inflation, higher gas prices, and the unemployment rate caused lower- to middle-income shoppers to decrease discretionary spending. The report also showed that higher-end consumers are utilizing credit and paying off the balances, while lower-end consumers are turning to credit to cover everyday expenses. As a result, the credit card dollar volume growth of 8.8 percent surpassed that of both PIN and signature debit. General merchandise stores continued to perform well as consumers searched for bargains. The hotel segment saw its strongest growth since January as the travel industry continued to bounce back. Growth at gasoline stations slowed slightly as gas prices peaked in early May before subsiding later in the month.

Fast Fact

info graph
Credit, Debit Card Payments by Transaction Value*

PayPal projects it will process $3 billion in mobile payments this year.

Source: PayPal

Signature Debit PIN Debit General Purpose Prepaid Private-label Prepaid EBT Prepaid

2006 15.7 9.4 0.3 1.9 1.1

2009 23.4 14.5 1.3 2.7 2.0

*Note: Numbers are in billions. Source: 2010 Federal Reserve Payments Study

6 August 2011 | TransacTion trends

ISO COrner

The ABCs of Online Marketing

By Bryan Ochalla

Proper SEO and SERMA practices help ISOs maintain their digital presence and competitive edge

n an industry awash with acronyms, ISOs and acquirers should be adding two more to their glossary of marketing tools: SEO and SERMA. SEO, or search engine optimization, is an acronym that most companies are familiar with. Its much less likely theyve heard of or had experience with SERMA, or search engine reputation management, according to Kathy Tuite, senior vice president of marketing at TransFirst in Dallas, and Peggy Olson, founder and principal of Phoenixbased Strategic Marketing. I think that [SERMA] is not even on the radar for most acquirers or ISOs, unless theyre one of the bigger players, says Olson. Thats a problem, she says, because both SERMA and SEO can help ISOs establish and even amplify their digital presence.

SEO Success Strategies

SEO helps an ISO improve its digital presence by raising website visibility via organic, or unpaid, search results.To achieve this improved visibility, Olson shares the following pieces of advice: 1. Compose title tags. These are HTML elements that describe the topic or theme of websites and online documents. Be sure to use keywords that are important to your businesss website and the content it provides.Thats what the bots, spiders, and screen readers [that the search engines employ] look for and how they categorize data, Olson says. 2. Create keyword phrases for your sites pages. Like title tags, keyword phrases describe the content of a site or page and help attract bots, spiders, and screen readers.Theyre one-line sentences that contain a number of keywords, Olson says.So, if somebody types [into a search engine] something like,low-cost payment vendors, and you have ABC ISO is a leading, low-cost payment processor as your keyword phrase, you would probably pop up in the search results. 8 August 2011 | TransacTion trends

3. Produce unique content. Not only will it help improve your sites organic ranking, says Olson, but it will help your company and its offerings stand out from the crowd. You can bolster both of those results by regularly refreshing and adding to that content. 4. Link to related sites and vice versa. Out-bound and in-bound links also attract bots, spiders, and screen readersand, as a result, potential clients and customers. Olson suggests linking to the sites of groups like the ETA and the PCI Security Standards Council. Also consider linking to your own social media sites, sites where you post press releases, and the sites of gateways, processors and vendors with which youve partnered. Dont forget to ask the administrators of the sites to which you link to return the favor. As important as all of these tips are when attempting to optimize your site for search engines, its just as important to keep in mind that the SEO process is complicated and requires a lot of attention, effort, and time, says Olson. Thankfully, she adds, third-party providers can assist ISOs that dont have the manpower needed to keep an eye on things. Most of them will do so at a cost, of course, but theyre experts in SEO and theyll make sure your site is always up to date.

SERMA Assistance
ISOs and acquirers looking for outside assistance with SERMA, however, are more likely to find it from a piece of software rather than a human, says Tuite. Whereas SEO is about optimizing your website to attract and retain customers, SERMA is about monitoring your brand online for the same reasons. Companies that engage in SERMA watch whats being said online about the company itself as well as key employees, products, and services. People are out there talking about you and your company at all times, Tuite adds, and if youre not paying attention to it you cant leverage it or respond to it. Its especially important for ISOs to be aware of the negative or false remarks being said about their companies and offerings, she adds, as steps can be taken to proactively address such commentary. Unfortunately, a lot of companies dont understand how to do that, nor do many of them have any idea as to how much it could hurt their brand to respond to negativity regarding their brand or their products or services in the wrong way. When responding to online negativity, Tuite advises against addressing any problem or situation online.Do everything you can to proactively address it directly with the other partyoffline, if at all possible, she notes.

Sometimes this approach will prompt customers to remove their negative commentor at least update it.They may go in and say something like,This did happen, but TransFirst contacted me about it and this is how they resolved it. Thats often the exception, not the rule, however, so Tuite suggests that, rather than obsess about such seemingly permanent posts, you should do what you can to get more positive comments posted about your companyto push those negative ones down. Patience and commitment also are virtues in the SERMA world. Both can be tough for smaller companies that dont have the staff or resources needed to stay on top of it. But bigger ISOs and payment companies can have a hard time seeing the tangible benefits associated with SERMA, Tuite says.I prefer to go in the other direction, though: Its very easy to see how negative online comments or posts or reviews can impact a company.

People are out there talking about you and your company at all times, and if youre not paying attention to it you cant leverage it or respond to it.
Kathy Tuite, TransFirst

The good news is that SERMA doesnt have to be expensive. Tuite says that the free-to-use Google Alerts, while simple,can help quite a bit, especially if youre really small. That said, Google Alerts is reactive, not proactive, because not everything gets picked up by Google Alerts,Tuite warns.As such, she suggests that ISOs that can afford

to spend a little money should look at tools like Radian6 or Scout Labs, both of which will give you a far more comprehensive look at whats being said about you online. Before moving ahead with any SERMA project, both Olson and Tuite suggest creating a social media policy that specifies who in the company will address or respond to online comments, posts, and reviews as well as when and how responses will happen.These policies should also clearly state that staffers cannot establish pages on Facebook, LinkedIn, or any other social media site on behalf of the company without the companys permission. Its important that all of this is put in place for your agents, too, adds Tuite.Otherwise, you may have people who arent direct employees of your company representing your brand online. TT Bryan Ochalla is a contributing writer to Transaction Trends. Reach him at [email protected].

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TransacTion trends | August 2011 9

[ COVER STORY]

ISOs and Merchants

While the biggest partys still on Facebook, e-commerce opportunities emerge on other social networking platforms
n recent years, social media has infiltrated nearly every facet of consumers lives.The latest payment components now go well beyond just offering deals and discounts. The past 18 months or so have brought a variety of unique solutions to the table, and there really doesnt seem to be an end in sight, says Sarah Owen, vice president, personalized marketing and loyalty, at Atlanta-based ISO/MSP First Data Corp. and chairman of the ETAs Technology Committee.While maturity is three to five years out, the concept as a whole is here to stay, and the market will continue to grow.

By Julie Ritzer Ross

In mid-June, First Data wrapped up a successful sweepstakes promotion on Facebook designed to spark interest in eGift Social. During each of the four weeks ending in June, the processor awarded 10 $10 eGifts to Dairy Queen and two $50 eGifts each to Sephora, Kmart, f.y.e., or Joes Crab Shack, plus a grand prize of a $200 Sears eGift card.Winners received two eGifts apieceone for themselves and one for a Facebook friend. First Data considers the e-gifting solution the most viable platform for moving into the social payments sector, counting on merchants being more comfortable with it than with other e-commerce social networking solutions.Given ISOs experience on the gift card side,it should be a great first social payments step for them as well, says Owen. Verifone, last May, launched PAYMEDIA, a turnkey solution that builds on its PAYware Connect intelligent gateway services to integrate traditional payment services with nontraditional payment-enabled media and services that accommodate consumer mobile phones. A VeriShield Total Protect component provides an end-to-end encryption and tokenization solution to alleviate PCI compliance issues.With PAYMEDIA, ISOs, acquirers, and other resellersin addition to equipping merchants with an intelligent checkout capability that integrates traditional payment with discounts, rewards, and couponsare able to connect merchants with online payment-oriented and social media services that are in increased demand, says Scott Henry, director of product marketing.

Heres whats happening:

First Data made its initial foray into the social payments space in mid-2010 with the rollout of its eGift Social application for Facebook that lets consumers instantly send a specific gift (ice cream, burger, milkshake, makeup, etc.) or virtual gift card to a Facebook friend. Ice cream chain Cold Stone Creamery was the first merchant to sign up in June 2010. Since then, another 10 have joined, including Kmart, Sears, Sephora, Boston Market, Burger King, and others. Users can add personal messages and then proceed through a secure checkout. Recipients get a Facebook message that they have received a gift, along with an account number and redemption instructions. Owen expects several more merchants to sign on before the end of 2011.

10 August 2011 | TransacTion trends

Get Social
KEY NOTES
8
First Data considers the e-gifting solution the most viable platform for moving into the social payments sector, counting on merchants comfort level with Facebook. Location-based services like Foursquare are undertaking sophisticated e-commerce strategies.

8 8

Solutions that facilitate group payments, like WePay, have seen significant activity lately.

[ COVER STORY]
ProPay, an ISO based in Lehi, Utah,won the 2011 ETA Technology Showcase Challenge at the annual meeting for its ProPay Link (formerly known as Zumogo) social mobile payment (m-payment) platform. ProPay Link lets merchants and individuals interact with each other (ask/ respond to questions, solicit/provide feedback, or otherwise engage in social contact) and place or accept orders, via iPhone or Android devices. Merchants access, handle, and monitor chats, payment requests, and completed transactions through the main screen of a merchant console. Customer payment information is stored in ProPays secure payment processing facility, meaning that no payment information need be transmitted by merchants to complete the transaction.The merchant console also lets businesses track pending and completed transactions and sort by register, store, or individual server. While the storage of payment data within the payment processing facility, rather than in the ProPay Link business payment system, will help spark merchant and consumer adoption of the platform, the fact that it allows for real-time communication between all parties is equally important, say company execs.If social payments are to be truly and successfully monetized and adopted, the social piece must occur in real time, says Bryce Thacker, executive vice president, sales and marketing.That is the where consumers see the true value. At presstime, ProPay had already begun to sign up merchants and was expecting to have enabled more than 100,000 retail, foodservice, and other establishments representing about half of the companys portfolio of active merchantsfor ProPay Link by the end of the summer of 2011. Payvment Inc., an e-commerce service provider headquartered in San Francisco, recently established a Facebook-based Shopping Mall that houses approximately 60,000 e-stores. Such merchants range in size from individuals selling hobby wares to such major brands as West Coast Choppers and Hooked on Phonics. Users can browse all of these stores and products without leaving the Shopping Mall. Before us, people would have to shop directly on a retailers Facebook page, but we saw problems with this early on, says 12 August 2011 | TransacTion trends

One in every six visits to an Internet site is a stop on Facebook, and Americans spend more than twice the amount of time on the social networking site than they do on the Webs top 500 retail websites.
Payvment CEO Christian Taylor. If a merchant was new, or not a household name or brand, how were its products going to get discovered? Just because a merchant adds e-commerce to its Facebook page doesnt mean customers will come. Aggregating all participating merchants under a single social networking roof makes it easier for merchants to be found by consumers seeking them out. For instance, if a Facebook member types the word socks into the solutions search tool, the names of all Payvment merchants that sell socks will come up. Users can search for specific stores as well.Shoppers can also post comments about and reviews of individual stores and items.

Karen Webster, Market Platform Dynamics

social networking site than they do on the Webs top 500 retail websites. Nonetheless, say Webster and other sources, several issues must be sorted out before e-commerce on Facebook becomes mainstream. Notably, Webster questions whether Facebook will introduce its own payments scheme outside of virtual goods; insist upon Facebook Credits as the currency for conducting all transactions on the platform, as is now the case with its games; and charge a 30 percent toll on the way out. She points out that discussions of commerce on Facebook usually start with what consumers want, but merchants desires will need to be fulfilled as well if they are to be convinced that transacting business on the social network will lead to incremental sales rather than the destruction of their margins.

More to Come
Meanwhile, a few trailblazing retailers, JCPenney among them, have configured their Facebook fan pages to allow for direct e-commerce, and Walmart has kicked off a Facebook-enabled e-commerce application that draws consumers in with games and gimmicks. Some industry experts contend that this is only the tip of the iceberg as far as the marriage of Facebook and e-commerce is concerned. Facebook will become an important social commerce channel, says Karen Webster, president of Market Platform Dynamics, a Chicago-based consulting firm that assists companies in finding, implementing, and monetizing innovation. The stats back it up, she says. For instance, one in every six visits to an Internet site is a stop on Facebook, and Americans spend more than twice the amount of time on the

Other Social Venues

But no matter the degree to which it becomes, as one source puts it, e- and mcommerce-ized, Facebook will almost certainly have competitorsand ISOs and merchants, equally wide open paths for getting with the social payments programas location-based services undertake more sophisticated strategies in this realm. In late June, Foursquare Labs of New York announced that it had inked a national deal with American Express to offer discounts to cardholders when they check in (broadcast via social network that they have arrived) at certain shops or restaurants. Initially,American Express is offering deals at Sports Authority and clothing retailer H&M, as well as at a few select

restaurants in New York City. The rollout of such offers follows a test run this past March at the South by Southwest music and technology conference, said American Express Vice Chairman Edward P. Gilligan in a statement. Participants in that program spent an average of 20 percent more than the cardholders who didnt have access to the special deals, Gilligan noted. Foursquare users have long received awards in the form of coupons and digital merit badges, but targeted, more substantial dealsand payment optionsmay bring the service and others like it further into the mainstream, analysts assert.For instance, spending $50 at Sports Authority nets consumers a $20 reward. Some of the other services have a limited potential because the offers are small and very general, so the redemption rates arent that high, observes Vishal Jain, a mobile services analyst based in the London office of The 451 Group.A young woman, for example, might be bombarded with deals for mens clothes. But partnerships like the American Express alliance will appeal to merchants and consumers because they are going to people who will actually take advantage of them.

Dwolla, a developer of online and mobile cash systems headquartered in Des Moines, Iowa, has created what Founder/ CEO Ben Milne deems the nations first location-based mobile payment technology. It lets users pay merchants, as well as their peers, with a map tool embedded in the app.The transaction fee is 25 cents. Several months ago, Dwolla launched an app for sending and receiving money through Twitter and Facebook. Dwolla has several distribution partners that do not service merchants directly, including The Members Group and the Veridian Group, both based in Des Moines. However, Milne sees Dwolla Spots as a good match for ISOs and merchants. Not only is Dwolla Spots an opportunity for consumers to combine mobile payments with geo-location status; it is also promotable as a new advertising and revenue generator for retailers, which can now offer promotions to patrons who are in store or nearby, he claims. WePay, a system developed by the Palo Alto, California-based company of the same name, facilitates group paymentsan area thats seen significant activity lately. It lets

multiple individuals collect money online for events, fundraisers, parties, clubs, and fantasy sports leagues, and then transmit it to the appropriate merchant.WePay recently integrated its Sell Tickets app into Facebook, thereby allowing users to sell tickets to Facebook events.A Collect Money feature lets users collect money from members of any Facebook Group. WePay is currently looking at a way to embed a donation collection capability within Facebook,which would open doors for charitable organizations to accept donations from their Facebook pages, says WePay Co-Founder/CEO Bill Clerico.The company also is considering a way to bring the social payments capability tomom-and-popmerchants,quite conceivably through the ISO channel. Although there are some ISOsand merchants, toothat perceive social payments as a passing fad, the truth is, it is catching on much as the sites themselves started to do a few years ago. Its hard to know how it will shake out, but its not going away. TT Julie Ritzer Ross is a contributing writer to Transaction Trends. Reach her at [email protected].

TransacTion trends | August 2011 13

[ FEATURE]

Getting Merchants to

14 August 2011 | TransacTion trends

care

By Bryan Ochalla

lthough compliance and fraud prevention issues need attentionverification of merchant compliance, validation of e-commerce websites, and security of new payment apps, among thema more basic problem has to be solved first. Merchants havent really bought into security. After working with really large merchants, really small merchants, and everybody in between, its my impression that none of them really want to do all of this security stuff, says Gary Glover, director of security assessment at Security Metrics in Orem, Utah.If they can get out of it, many of them will do just that. And, he adds, If their merchant bank isnt pushing [PCI compliance], theyre basically not caring about it. Such attitudes arent limited to the payments space, Glover says. Thats how all low-margin businesses in the U.S. and around the world operate.They think,Well, if nobodys telling me to do it, Im not going to do it. If their bank isnt worried about them and isnt prodding, most of them arent going to say, Hey, we should be spending money on this, agrees James Paul, senior

Although compliance and fraud prevention issues require attention, convincing merchants to commit time and money to security remains the biggest challenge
vice president of professional services at Chicago-based Trustwave. So much of what we see in PCI are folks who are validating not because they want to validate, but because they have to.Thats not to say these folks dont care about protecting consumer data, nor does it mean that these organizations are saying, Were just going to roll the dice on whether we have card fraud or not. That said, Paul suggests theres a fair bit of denial out there, and a lot of the folks were working with would love not to be working with us because they see PCI validation as something they have to do and not something thats core to their business. Glover agrees, adding that most merchants are just doing what capitalism forces them to do. Theyre doing what they feel makes financial sense.In his experience, a number of merchants are still asking themselves, What does becoming compliant and secure buy me? and the industrys answer of,You wont get fined for not being compliant, isnt convincing them to change their ways.It doesnt help that some banks fine their merchants for noncompliance and some dont. It also doesnt help that a certain percentage of merchants still dont know or understand the basics of PCI compliance and fraud prevention. Glover shares an experience he and his colleagues had with a merchant a few years ago. We were asked to come in and do a Level 1 merchant audit on a small merchant because they had been compromised and had lost [a large amount of] credit card numbers. Shortly after we started working with them they asked us,What is PCI? Weve never heard of it before.Where were we supposed to have heard of this? A more recent encounter with his neighbor suggests to Glover that although todays merchants are, by and large, more aware of PCI compliance and fraud prevention than they were four or five years ago, the industry still has a ways to go.I asked him about PCI recently and he said, Yeah, Ive heard about that. He only knew the barest of details about it, though. So its clear to me that although people are hearing about it, Im not sure they know all they need to know.

20, Not 256

Making merchants more aware of PCI compliance and fraud prevention doesnt ensure theyre going to follow through.Thats especially true when it comes to smaller merchants, Glover says. Its tough to ask a Level 4 merchant to answer 256 questions about the security of their data. You know some of them look at their questionnaire and say,Forget it, Im going to answer yes to every one of the questions because I dont know what theyre talking about and I dont have the time to deal with all of this. One way to solve the problem, Glover suggests, could be to base the compliance requirements for, say, a Level 4 merchant on the top 20 forensic problems related to such merchants,and then make sure they can handle those 20 things. It certainly would be easier than asking them to handle 256 things. Another possible solution: Force merTransacTion trends | August 2011 15

KEY NOTES
8
Many merchants will undergo PCI validation not because they want to, but because they have to. They dont see it as core to their business, and the fact that only some banks fine merchants for noncompliance isnt helping. The methods used five or six years ago to validate an e-commerce site barely scratch the surface of whats acceptable today, so the security methods you employ today will likely barely scratch the surface of acceptable security in the next few years. Fraud prevention related to mobile payments is rapidly changing as well. The big problem? You dont always know what else is running on your phone when youre making a payment.

[ FEATURE]
chants to pass a really expensive assessment, he says.And if they dont pass it, or if they say they dont want to do it or they cant afford it? Well, they can go do something else. Or, he adds, the payments industry could start selling PCI or security insurance to merchants.I think some [merchants] would respond to that by saying,Thats a good way to do it! I like insurance payments, I know exactly what they are, and we wouldnt have to hire people to take care of this business. The problem, of course, is that two years down the road, when the CEO or department manager or whoever has to reduce costs, they might look at that $1,000-amonth payment, or whatever it would be, and try to get rid of it. Still, I think one way to solve this problem could be to make everybody buy really expensive insurance and then make it so the only way they can get out of it is to certify and prove that theyre secure.

Merchant education = priceless

Epic Processing isnt one of those merchant acquirers or banks that lets its clients flounder when it comes to dealing with PCI compliance and fraud prevention. We do a lot that we feel goes above and beyond the initial education that takes place when you sell an account, says Stephanie OConnor, vice president of the Boulder, Colorado-based company. Why doesnt every acquirer do that? Well, no one wants to work for free, and I think theres this idea out there that if you give out free information, you dont have any value, answers OConnor. I disagree with that, but I think thats at least partially responsible for why merchants dont always ask and acquirers and ISOs dont always offer assistance in this area. Epic Processing sends out, via email, quarterly broadcasts that cover various topics and trends. The company also schedules quarterly phone calls with merchants who process a certain amount of transactions. As happy as she as her colleagues at Epic Processing are to help merchants with fraud prevention, OConnor cautions that they arent QSAs and, as such, there are times when we have to pass them on to someone else, someone who is an expert in this area. You can only do as much as you can in terms of educating and prodding merchants to become compliant, she adds. Thankfully, we dont have any real issues with adoption at this point. A recent review of the companys approximately 1,300 merchants resulted in the assessment of just 23 noncompliance fees. Like most merchant acquirers, Epic Processing doesnt enjoy assessing these kinds of fees, but we do itif they dont complete their SAQ or if they dont do their quarterly scanbecause we feel a real liability, shares OConnor, who has had to deal with four breaches in the last year and a half. I can still remember how I felt getting each one of those calls and how I felt when I had to call the processor and tell them about it, she says. I tell that story to any of our merchants who think they dont have a budget to put security measures in place or dont feel like they have the bandwidth to put in a security policy.

Tech and Other Solutions

So what about those other often-overlooked aspects of compliance and fraud prevention, like verification of merchant compliance, validation of ecommerce websites, and security of new payment apps? Verification of merchant compliance is especially critical for those who serve smaller merchants, says Glover.Most of the 5 million or so merchants in this country dont have IT departments, he says.Most of them work with service providers and expect them to make sure theyre secure and compliant. So their compliance tends to depend on someone else, which can be dangerous if the service provider isnt actually securing its clients. Merchant banks could help improve such situations by intervening. They should gather that data and ask their merchants,Who are you using as a service provider? And if that provider isnt compliant or refuses to become compliant, the [merchants who use that service provider] need to go find another one, explains Glover. Merchant banks would do well to step up in other ways, too, he adds. Not only should they be telling [their merchants] that they have to be compliant, but they should be helping them understand what theyre supposed to do [to become compli16 August 2011 | TransacTion trends

ant] and who they can or should contact if they need additional assistance. Validation of e-commerce websites is another important topic for those serving merchants (smaller ones, especially).Thankfully, things in this area have evolved quite a bit in the last few years.In the past, you would have looked for the little lock [in the corner of your browser], Paul says, to ensure that an e-commerce site was secure. Today, you really want to see the bar turn green, which tells you if youre on an e-commerce site with an extended validation SSL certificate.That is meaningful because it tells you that this merchant

has made a commitment to security. But it doesnt bulletproof them by any stretch. Dont expect the extended validation SSL certificate to be the go-to symbol of e-commerce security for long.Just like the attacks [on e-commerce sites] get more sophisticated all the time, the measures and the controls used to prevent and protect against them get more sophisticated, too, Paul says. So, just like the things you might have done five or six years ago to validate an e-commerce site barely scratch the surface of whats acceptable today, the methods you use today will likely barely scratch the surface compared to something that

comes along in the next few years. The security of mobile payment apps is another area in which controls and protection measures are rapidly changing. Cell phones have so many functions: You can call people on them, you can text people on them, you can send people files on them.And on top of that, you can install all sorts of apps on them, says Glover. The latter is what is causing all sorts of problemsor could cause all sorts of problemswithin the payments space, he adds, because not only can that payment app you just downloaded and installed read credit card data, but your phones other apps can read that data, tooat least potentially. As an example, Glover suggests someone could create a flashlight app that isnt intended to function only as a flashlight; rather, its also intended to listen to everything else happening on the phone. To me, thats the number one danger associated with all of these mobile payment apps: You just dont know what else is running on your phone. For instance, there may a vulnerability in the instant messaging app that Im using that would allow someone to attack my phone. Im not saying something like this is out there at

Just like the attacks [on e-commerce sites] get more sophisticated all the time, the measures and the controls used to prevent and protect against them get more sophisticated, too.
the moment, but it could be and most of us wouldnt know anything about it. A possible solution would be to encrypt payment and other personal information and data at swipe.If you do that,its basically game over. Let the guy who wants that data have itit will take him 30,000 years to decrypt it. Unfortunately, encrypting at swipe doesnt appear to be a be-all-end-all solution either. What if the swipe doesnt work? Glover asks.What is the merchant going to do then? The most likely answer is that theyll type in the number on the keypad or use the touchscreenand then

James Paul, Trustwave

youre back to worrying about apps that could be key-mapping or otherwise stealing that data. If providers of such apps can keep users from entering data manually or get them to use some sort of attachable keypad that allows the provider to control the data that comes out of it, though,I think encrypting at swipe could make these things a whole lot more secure, Glover says. TT Bryan Ochalla is a contributing writer to Transaction Trends. Reach him at [email protected].

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Startup Stories:

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ISO Finds Its Renaissance

PAI, ETAs 2011 ISO of the Year, unites industry veterans to capitalize on payments rebirth
By John Manasso

onna Embry hasnt said this to her husband Shhhh!but working for Payment Alliance International (PAI) is so much fun, she might put off retirement until shes 100 years old. Perhaps thats one of reasons the innovative, sixyear-old company was named the Electronic Transactions Associations 2011 ISO of the Year. I say that I enjoy this too much, says Embry, the companys senior vice president for strategic development, who has more than 40 years in the industry and whose husband is retired and trying to nudge her in that direction.Im learning something every day. Theres so much opportunity to do things. When CEO John Leehy elected to jump back into the ISO business with other members of the companys senior management team and founded Louisville, Kentucky-based PAI, he did so because he thought it was such an exciting time to work in the industry. When you look at the payments business, there are so many changes coming at this industry that, from our perspective, we really believe its the Renaissance period, at least for those who want to grab a hold of it and do something with it, says Leehy. Spend half an hour on the phone with the charismatic Leehy even if he happens to be in Billings, Montana, and you are halfway across the countryand its easy to see why others would want to work with and for him. Prior to co-founding PAI, Leehy was CEO of Confluent Technologies, an Internet and data-processing company. He recruited Executive Vice President and COO Greg Sahrmann to come with him; the two were veterans of several ventures together. Executive Vice President and Chief Marketing Officer Bill Blakey was another co-founder. Explaining why 2005 was ripe for the new venture, Leehy says, Every time an industry like ours sees a new technology come out or a new style of retailing emerges or some piece of legislative 18 August 2011 | TransacTion trends

Payment Alliance International

Louisville, KY Founded: 2005 Portfolio size: 24,000+ bankcard merchant accounts Transaction volume: $4.1 billion+ (bankcard only)

chaos comes out of [the federal government in Washington, D.C.], its an opportunity to create an advantage. If everything stays the sameand this is true of all businessthen the past winners who have been there will continue on and theyll be the future winners. But thats not really how business works and certainly not how the payment industry works. So when we looked at the business, we really concluded that it was an excellent time to get back in the business, he continues. Leehy and his partners knew that some of the industry changes would make some in the business question sticking with it.Thats not an easy call for an organization and thats really whats going to be required.

Building the Underbanked

One of the companys strengths is that its the largest ATM deployer in North America, with more than 50,000 locations. But its not only size or scale that has made PAI successful; its what it does with those ATMs. We have, for example, 18,000 convenience stores, Leehy says. So as a company, I can continue to deliver pay-at-the-pump, pay-at-

the-counter. I can continue to deliver cashdistributing ATMs at those locations, or I could step back and say,Look, what do we really have? Those ATMs represent strong company relations, distribution channels, and data connections to 18,000 convenience stores, which is really the banking center of the underbanked. So for us not to leverage that footprint with things like branding, merchandising, digital-couponing, prepaid solutions, its just a great place for us to be, Leehy says. Part of the story of PAIs quick ascent also is a story of acquisitions. One of Leehy and Sahrmanns previous ventures was a venture capital firm, Resource Alliance Partners, which sought to provide both capital and management expertise to startup ecommerce and technology companies with high-growth potential. Perhaps as a result, they had access to capital when they wanted to grow after founding PAI. One of PAIs early backers was the private equity firm Inverness Management LLC. (Inverness website states that in 2005 it invested $40 million in the acquisition

of Electronic Data Resources from private investors, forming the Payment Alliance platform investment, and that between 2006 and 2010, it invested an additional $23 million to help PAI complete nine acquisitions in the ATM and merchant processing space.) Along the way,Wells Fargo and ING also were instrumental in backing PAIs growth strategies. One acquisition that has helped PAI was that of Comdata Processing Systems in January 2010. According to PAIs press release at the time, the acquisition helped the company add 5,000 merchant locations throughout the United States and more than 50 independent sales organizations. That acquisition also brought PAI about 15 new team members, says Leehy, some of whom he had worked with in his days at Financial Alliance from 1991 to 1995 when that company was one of the nations fastest growing transaction processing companies. And they just rock, he says.There was a little cleanup to be done on the portfolio, as it might have been under-invested in during maybe the prior year or two. But it really didnt take long for it to hum. It ended

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up being just a terrific acquisition.We have been really fortunate to be able to find those kinds of acquisitions where you can add size and mass and buying power and also teammates.

Nurturing Leadership
Leehy and his teams deep experience in the industry and personal knowledge of many of the employees with whom he has worked have been integral in the companys rise.Among those key employees is Embry. We have in my opinion one of the very, very best leaders in industry in that regard, and thats Donna Embry, he says. Donna

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Startup Stories:

Payment Alliance International

Embry is just a long-time payments pro. She just sees things that no one else sees. So when we think about how to jump ahead and where to move to where the pucks going to be, Donna, whos the vice president of strategic development for us, shes just been spectacular at mapping out strategy that makes sense and one that makes sense in the market and one that we have a chance of executing. Embry, who received the Midwestern Acquirers Associations Lifetime Achievement Award for Payment Industry Professionals in 2009, is a fascinating story herself in that she has been in the business from virtually its birth to the present. A native of Louisville, she attended the University of Louisville and worked nights at Citizens Fidelity Bank in the department that processed checks. Upon completion of her degree in languagesshe studied Italian, German, Russian, and French, with a minor in philosophyshe brazenly told her boss that she was done working nights and wanted to begin working days. Scrutinizing her degree, the man noticed that she knew languages and since computer programming was written in languages, she was given a test to enter that department. She was given 30 minutes to complete a 150-question test and 100 percent was required to pass. The questions were simple, she says, but with a few minutes left in the exam, she realized she had too many questions left to finish in the allotted time.Then she looked up and noticed a pattern emerging in the bubble sheet and simply repeated the patterns in the answer key. She passed. She said the exam served as an aptitude test designed to gauge her ability to recognize the forest for the trees. Shes employed that problem-solving ability ever since. Leehy has given her a white board and free rein to develop products as she and her group see fit, says Embry. Among the types of products that she and her group have worked on developing is one that uses smartphones to have mobile payment processing capabilities for merchants who sell guns.A relationship with the National Rifle Association (NRA) has provided the company access to the NRAs many thousands of members. The key is to watch consumer behavior and to work hard to give consumers what they want, says Embry. She was once involved in an in-depth U.S.Treasury Department study of consumer behavior that concluded that consumers take about a generation, 20 years, for people to fully adopt a new payment instrument. Its a great team to work with, Embry says of PAI.We are, I believe, so well positioned because we serve banks, we understand banks, and we can make banks successful. We have our market partners and our retailers. And to me, were almost in a perfect storm here where were able to serve all of those constituents and make them all successful. Sounds like enough to get one to put off retirement. For a few years. TT John Manasso is a contributing writer to Transaction Trends. Reach him at [email protected]. 20 August 2011 | TransacTion trends

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Industry InsIder

A Simple Plan
eProcessing Network focuses on secure e-commerce transactions at competitive rates
By Bryan Ochalla

hen eProcessing network LLC opened its doors in Houston in 1996, the word e-commerce was still working its way into the lexicon, and Founder/President steve sotis was looking to take advantage of the evolving market by processing secure e-commerce transactions at competitive rates. Fifteen years later, sotis and his colleagues at eProcessing network continue to focus on that seemingly simple goal, although their methods have evolved over time.

From Basic to Robust

today, for instance, the company offers its secure, real-time transaction processing services as a Platformas-a-service, says Bruce shirey, the companys head of business development. Four components mainly comprise that solution: E-commerce: The company offers the secure eProcessing network Payment Gateway and ePnCart product, an integrated shopping cart designed to help merchants increase sales to valuable, hard-earned, online shoppers. Bruce Shirey Mobile: The ePNMobile solution supports the latest technologies for the Android, BlackBerry, and iOs (iPhone, iPad, and iPod) platforms. Other cell phone hardware and technologies are also supported, shirey says, but these three platforms represent the current runaway market opportunity. Online retail POS:This is a key technology moving forward, because [it] allows the small-to-medium enterprise or merchant to build an la carte POs system and use the internet to process the transactions safely [and] securely, says shirey. specifically, eProcessing networks gateway helps merchants process their in-store POs transactions securely and through a number of different devices, including magstripe readers, combination magstripe/MICR readers, and combination magstripe (universal change) readers and printers. Also, the companys network mitigates the security risks that many of the localized POs systems have been facing with respect to PCi compliance and system breaches. Recurring payments: Merchants interested in selling merchandise in installments or offering products and services on a subscription or membership basis can use the

Technology definitely has allowed us to enrich our services and solutions.

ePnrecur solution, which allows merchants to specify how often and how many times to repeat an approved transaction.this works well for apartment rent billing, fundraisers, private school tuition, and more, says shirey. Other key components of eProcessing networks suite of solutions are ePNInventory Management, which allows merchants to manage a perpetual inventory with minimal investment of time and money, ePnPlugin, which supports several versions of QuickBooks and which bridges the gap between disparate merchant systems such as the cash register, the PC, and the POs terminal, and the companys recently launched ePnBillPay product.the latter allows businesses that send anywhere from hundreds to thousands of invoices a month to enter and store their billing data on the companys secure network, send invoices to clients, and track payments, shirey says. technology definitely has allowed us to enrich our services and solutions, shirey says. And i think thats really where eProcessing networks strengths are: to keep enriching the basic level of services so they become a more robust solution.

Friend to Medium Merchants

Processing secure ecommerce transactions at competitive rates isnt sotis only goal for the company. the founder decided early on that the companys main offering would always be a gateway, a straight-up switch.Also, the company would never compete with his reseller channel.Although some gateways go in and begin competing with their resellers by writing merchant accounts themselves, [sotis] never wanted to do that, says shirey. it keeps things neutral and creates a level of trust, says shirey.Our resellers know that if they bring a merchant to us, its not going to be interfered with, its not going to get poached.that reseller channel has also become a really good medium for us to understand what the market is looking for, he adds. it all goes back to another goal of the company: to round out a merchants lifeespecially if that merchant is of the small-to-medium variety.We want to help them achieve parity with the really big guys, the ones who can afford to install large, expensive systems, shirey says.Our solution may not always have all of the bells and whistles, but its definitely going to help them get to where they want to go. TT Bryan Ochalla is a contributing writer to transaction trends. Reach him at [email protected].

24 August 2011 | TransacTion trends

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