Dorado Industries TrendWatch 2.0 Q2 Payments Industry Review

TrendWatch 2.0 Q2 2014

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.

Dorado Industries

655 Deep Valley Drive, Suite 125-P

Rolling Hills Estates, CA 90274

(310) 544-1316

[email protected]

www.doradoindustries.com

Random Thoughts

Fire(works) and Ice(bergs)

We often expect version 2.0 of the payments ecosphere to

deliver 4th of July shock and awe results and are

disappointed when we realize that our sector’s evolution

more closely resembles ice freezing (or freezing ice for the

northern brethren). Sure, there have been some industry

sparklers recently – Square’s democratization of the

merchant services gambit and adoption of the smartphone

for remote deposit capture are two “safe and sane”

examples. Truth is, the number of Roman candle

eruptions witnessed over the past two decades (okay, one,

if you’re that young) hardly moves the proverbial needle

when compared to other advances in access, convenience,

and overwhelming customer experience found in high tech

and retailing.

Yet, there some ice crystals starting to form, suggesting

that we’re on the cusp of some serious change. Sam’s

Club is rolling out EMV terminals. MCX is rumored to be

in alpha mode joint with a fistful of Walmart stores. Isis

(despite becoming an unfortunate externality because of its

name) is actually gaining transaction volume with retailers

that offer real merchandise rather than public

transportation. Retailers (Macy’s, American Airlines, and

Walgreens being the first) are showing their support for

BLE technology by rolling out beacons at a rapid clip

(whether consumers will turn off their Bluetooth devices

upon store entry is another question.) Target is cleaning

up its REDcard act by adding a brand, a chip, and the

EMV spec.

2

Meanwhile, VC investment in Bitcoin startups reflects a 2014

run rate of $250 million. And, the bulk of these funds are

going toward making digital currencies easier to use and safer.

Fortunately, there’s always room for more in the payments

pool. Three social media icons have launched what they

expect to be payments cherry bombs: Facebook has added a

“Buy” button for products advertised on the site; Twitter has

acquired CardSpring so that merchants can offer and fulfill

discounts through tweets; and Snapchat has filed trademarks to

protect its intent to enable users to send funds between one

another or purchase goods through its app, like Venmo.

Whether fireworks or icebergs, examples of three new crystals

forming in our block-of-ice payments ecosystem.

The reference to ice freezing is designed to remind us all that,

just like a Minnesota lake, the new payments system may

appear soupy most of the time, but can become rock-hard in

the blink of an eye. At that point, Payments 3.0 begins.

Sorry for being tardy again

this quarter; some things are

just more important than

payments (but not many.)

Until next time.

Dorado Industries



(310) 544-1316

[email protected]

www.doradoindustries.com 3

Table of Contents

2014 Predictions 4

TrendWatch Scorecard/Summary 6

2013 Payments Industry Yields 7

Interesting Quarterly News That Got No Respect 8

Q4 M&A/Investor Activity 14

Useful Links for More Information 22

Back in the Day 23

Dorado Industries



(310) 544-1316

[email protected]


2014 Predictions

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

stores, and the hardware trade will lead the way.

Mar: Lots of new and old players joining the fray; so far, no privacy complaints.

Jun: Still no privacy issue complaints from customers at American Airlines; bag fee bitches, yes.

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

Mar: V/MA have fallen into line. Waiting to see what the real NFC bigots have to say. Isis? Not sure yet.

Jun: Popular press has picked up HCE, a good sign for the industry.

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

and one of the combatants will blink.

• Mar: Was it the breaches or the unified front put up by DNA? Anyway, things are moving haltingly ahead.

Jun: Target REDcard to get chips and PINs plus a MasterCard logo. Sam’s Club rolling out EMV terminals.

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

Mar: [Sound of crickets] Come on, guys.

Jun: MCX selects Walmart and a few stores to alpha test? A start, perhaps.

• Regulation II will remain virtually unchanged.

Mar: Nothing wrong with a favorable Appellate Court ruling every now and then. Merchants were probably hosed

but time will tell on the routing rule front.

Jun: Retailers have until August 21 to appeal to the Supreme Court. Curious what the Sups will do with this hot

potato.

4

Dorado Industries



(310) 544-1316

[email protected]


2014 Predictions

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

Mar: This one’s a stretch but someone ought to take a look-see at its effects on PIN debit networks.

Jun: Lots of EFT traffic redirected by VAPD, but no uproar yet.

• FRB will announce plans for a pan-industry working group to sort out the “US Payments System Improvement”

initiative. Won’t happen until late in the year.

Mar: May not happen at all based on the highly PC-packed responses filed by 200 respondents – “yes, but have

you thought about . . . .”

Jun: Done. Three years or so will tell the tale (government work, after all.)

• Apple will enter the payments industry in a big way.

Mar: January patent for NFC-compliant WiFi/Bluetooth in-store payments suggests a move is underway.

Jun: AAPL payments launch in Japan doesn’t count. Perhaps waiting for iPhone 6 and iOS 8. Late third quarter

seems to be the launch timeframe.

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.

5

Dorado Industries



(310) 544-1316

[email protected]


TrendWatch Scorecard/Summary – Q2 2014

Market & Industry Situation 1 – Watches and wearables.

2 – Cardless access and Bitcoin devices – down the rabbit hole again.

3 – Looks like debit users believe the recovery is in full tilt.

4 – CFPB snooping around mobile but nothing serious yet.

5 – Still slow except in specialty sectors – restaurants gaining attention.

6 – Payments sector doing better than the Dow but not very strong.

7 – Watches and wearables.

8 – Nothing major but still troublesome.

Industry Players To Watch Apple: Japanese launch is 2D, a hint about later this year?

Hospitality Sector: Getting cluttered with the addition of Cover to the mix.

NACS et. al: August 21 is the Supreme Court submission deadline.

Enough horses to get it done?

VC: VC gamblers made $13 billion in wagers this quarter but precise little

found its way into payments save for Bitcoin startups.

Ripple: Tough to lose 65 percent of value and remain viable.

Loop Pay: A viable alternative to EMV for consumers and merchants. No

new POS hardware needed and safe for consumers to carry and use.

5. New Venture Growth

4. Legal/Regulatory Issues

1. New Payment Forms

2. ATM Restructuring

3. POS Volume Trend

Med

Med

Med

Low

Low

Med

Med

Positive

Mixed

Negative

6. Earnings Announcements

7. Industry Investments

8. Payments Industry Security Med

Dorado Industries



(310) 544-1316

[email protected]


2014 Payments Industry YTD Yields

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

2014 YTD yield excludes dividends; based on 12/31/13 and 6/30/14 closing prices.

Have to love a mild Q2 market recovery despite warnings coming from the wire houses that a 10-15

percent adjustment is likely to hit in August. Not sure why the big cap payments players aren’t

getting much respect in 2014 – off election year maybe. Meanwhile the Dow and S&P continue to

limp along at 1.5 and 6.0 percent, respectively. Not great, but better than passbook savings rates

(where’s Reg. Q when we need it?)

Industry Player 12/31/2013 6/30/2014 Price r Cap Value r YTD 2014 Yield

Alliance Data Systems 262.93$ 281.25$ 18.32$ 1,090.0$ 7.0%

American Express 90.73$ 94.87$ 4.14$ 4,471.2$ 4.6%

Blackhawk Network Holdings 25.26$ 28.22$ 2.96$ 154.8$ 11.7%

Cardtronics 43.45$ 34.08$ (9.37)$ (381.4)$ -21.6%

Discover Financial Services 55.12$ 61.98$ 6.86$ 3,299.0$ 12.4%

Euronet Worldwide 47.85$ 48.24$ 0.39$ 19.7$ 0.8%

Fidelity National Information Services 53.68$ 54.74$ 1.06$ 202.2$ 2.0%

First Data (Future Use)

Fiserv Inc. 59.05$ 60.32$ 1.27$ 323.2$ 2.2%

Global Cash Access Holdings 9.99$ 8.90$ (1.09)$ (84.0)$ -10.9%

Heartland Payment Systems 49.84$ 41.21$ (8.63)$ (322.8)$ -17.3%

Jack Henry & Associates 59.21$ 59.43$ 0.22$ 18.5$ 0.4%

MasterCard Worldwide 84.36$ 73.47$ (10.89)$ (17,532.9)$ -12.9%

MoneyGram International 20.78$ 14.73$ (6.05)$ (350.1)$ -29.1%

Total System Services 33.28$ 31.41$ (1.87)$ (369.1)$ -5.6%

Western Union 17.25$ 17.34$ 0.09$ 51.2$ 0.5%

Vantiv 27.94$ 33.62$ 5.68$ 1,408.5$ 20.3%

Visa 222.68$ 210.71$ (11.97)$ (10,125.4)$ -5.4%

Bitcoin Closing Price 747.6$ 638.0$ (109.56)$ -14.7%

Dorado Industries



(310) 544-1316

[email protected]


Interesting News This Quarter

Subject Source/Date Substance

The Members Group Finextra

July

Credit union card processor, The Members Group, has launched a payments app for Google Glass.

Dubbed “See2Pay,” the app tells wearers when they are near retail locations that accept Dwolla for

payment (TMG is a Dwolla investor.) Based on the Google Mirror API, See2Pay completes a

purchase transaction with a mere swipe on the Glass stem. Great wow factor; practicality will come

along later maybe.

Bank of America Various

June

Bank of America’s consumer mobility report reveals some interesting trends. The top three

functions used by the 1,000 consumers polled include: check balances/statement (81%), transfer

funds between accounts (49%), and pay bills (48%). Oddly, sending money to friends and others

rates a minor 11%. So what’s all the fuss over P2P and mobile payments again?

Greenhouse Payment

Solutions

Presser

May

A key challenge faced by vendors of legal recreational and medicinal marijuana is that of finding a

processor to handle the purchase transactions and a bank to keep the money warm (“baked,” if you

will.) A new JV between Advanced Content Services, SinglePoint and Greenhouse Payment

Solutions is designed to remedy this problem through its venture branded GreenStar Payment

Solutions. Naturally, the venture is headquartered in Colorado.

Ripple Finextra

May

Ripple, one of the many digital currencies in flight, suffers a significant valuation loss as one of its

founders announce plans to liquidate his nine billion XRP holdings. Twenty-four hours after the

announcement, the XRP price dropped by 65 percent. Some may scoff at the need for regulatory

agencies like the Fed, OCC, and SEC but few would argue that a 65 percent dilution in value in one

day is tough to swallow. The cryptocurrency industry is maturing rapidly but absent some form of

regulation, its not likely to replace the greenback anytime soon, we opine.

Russian Payment System Various

April

Russian President Vladimir Putin has it out for Visa and MasterCard. Not only has he mandated

that the card brands put up $3.30+ billion, or two days worth of purchase postings, to “promote

consumer safety” but the lower house of the Federal Assembly has tasked the Central Bank of

Russia with building a new national payments card to compete with Visa and MasterCard. All this,

in retaliation for US sanctions against four Russian banks over the Ukraine annexation. Ah, the

world of geopolitics and payments. Used to be such a simple business.

Dorado Industries



(310) 544-1316

[email protected]


Interesting News This Quarter – Continued


Quippi PayBefore

May

Never under estimate man’s ability to find an arbitrage play. Quippi, a San Diego-based startup,

seeks to remove “punitive” levels of fees from the money transfer sector by substituting gift cards for

currency. Users purchase gift cards equipped with PINs either online or through physical locations

for use by friends and relatives in Mexico. Cards can be purchased in the U.S. from 7-Eleven, ACE

Cash Express, and Family Dollar Stores and can be redeemed at more than 3,400 merchants in Mexico

including Office Depot, Farmacias Benavides, Farma Todo, and Opticas Devlyn. Based on Pew

Research data, Quippi users can dodge money transfer fees which run as high as 7.0 percent. Buena

suerte, Quippi!

JPMorgan Chase PYMNTS.com

May

JPMorgan Chase is shuttering its nine-year old Blink contactless program as part of its re-branding

of certain card portfolios from MasterCard to Visa. That, and the fact that few merchants actually

took Blink and even fewer consumers used it. Casual observers may recall that the current head of

Visa is former Chase executive Charlie Scharf. There, the dots are connected.

PayPal Business Insider

April

Payments aggregator, PayPal, is taking another zig in its plan for payments domination with a test

program involving a “wearable wallet.” The approach is dependent upon beacons arrayed throughout

merchant stores and (currently) Samsung mobile devices to avoid traditional checkout processes.

PayPal is still promoting its “pay with face” gizmo so the user’s image appeals on the checkout POS

device courtesy of the smartphone or Gear Fit wrist band. Beats paying at Home Depot with a

telephone number and a PIN, we suppose.

Heritage Bank (AU) PaymentEye

April

Speaking of wearables, Australian FI Heritage Bank has jumped on the relatively small bandwagon

initiated by local tailor MJ Bale and ad agency Whybin\TBWA and now offer a “payweave” suit that

enables small tender size transactions through the flick of the coat sleeve. The machine washable

wool (naturally) material is embedded with a payments chip and an antenna. Twelve units have been

ordered and made so far and one of them is for sale on eBay. Okay, parade over, next topic.

Dorado Industries



(310) 544-1316

[email protected]




Target PaymentsNews

May

Target announces plans to convert its entire REDcard and co-branded credit card portfolios to MasterCard

chip-and-PIN. Moreover, the company has accelerated its deployment schedule for EMV readers in all 1,800

stores by September, 2014, six months ahead of schedule. Logically, the REDcard chip-and-PIN rollout will

be undertaken early 2015. Its not likely that Target will the only retailer making the move to EMV.

Mobile Wallets in

general

Various Mobile Wallets are being launched by retailers at a torrid pace. That’s good for the payments industry (we

think) but bad for those writing about it. For the most part, the new offerings look pretty much the same with

subtle differences added based on the sort of retailer involved. So, rather than deluge TrendWatch 2.0 readers

with a series of re-hashed pabulum about pre-orders, line-jumping, and digital receipts, here are some of the

newcomers: SeaWorld, Tim Horton, Hesburger (Finland, but excellent food), McDonald’s and Burger King.

Of course, when exceptional offerings arise, a deeper review will be conducted.

MasterCard PYMNTS.com

May

We’ll get email over this rant. At long last, at least one payments leader has come forth and done the right

thing. MasterCard plans to extend its zero-liability policy to PIN debit transactions effective in October

2014. It has always seemed illogical that a “safer” transaction type would come with a penalty to users when

they become victims of shoulder surfing, data breaches, or video surveillance episodes. Clearly, the old

“well, the user knows his PIN” dodge to avoid liability doesn’t work anymore. Nice move, MasterCard. Now

about this “chip-and-signature” gambit floating about the EMV world . . . . .

Prepaid Bitcoin PaymentEye

May

So, when is a reward not a reward? When the reward comes with fluctuating value and there’s almost no

place to redeem it? Sounds about right. Prepaid Bitcoin is a program that enables employers or others to

load from $1 to $500 worth of Bitcoins on a prepaid card for use as rewards or incentive fulfillments. Cards

can be personalized with company logos and (get this) expiration dates. The scheme is being promoted as an

effective tool for event giveaways, loyalty rewards, corporate gifts, and rebates. Sounds like a stretch to us.

Dorado Industries



(310) 544-1316

[email protected]



11


Expedia Money Beat

June

Big online travel site, Expedia, joins others in the travel industry – CheapAir.com being notable – in

accepting Bitcoins for hotel bookings with an eye to expanding digital currency usage as volume warrants. It

is unlikely that Expedia will want to take the currency exchange risk so there’s likely to be an intermediary

like Coinbase involved in the transaction flow somewhere (read: added costs.)

Isis Mobile

Commerce Daily

June

At long last, Isis, has something to talk about relative to transaction volume. Toys R Us announces that it has

experienced 23,000 Isis wallet transactions within the first 90 days of becoming an Isis merchant. Potentially

adding to its volume are the Isis activation numbers (20,000 per day) and broader adoption of Host Card

Emulation, a “softer” approach to Near Field Communications technology. While still a long way from

ubiquity and winning the mobile wallet war, Isis (and its $200 million plus in funding) remains a force to be

reckoned with.

MCX Payments Journal

June

Meanwhile, Isis competitor MCX, the consortium of many of the nation’s top merchants, is reported by a

Jeffries analyst to be in a limited pilot engagement with a few Walmart stores. If true, and successful, the

payments industry may be about to witness an interesting battle between FI issuers and retailers over any

number of issues: the cost of payment acceptance, the role of card company operating rules and pricing,

disparate technologies, and ownership of the resulting transaction and customer data. Assuming there’s

nothing worthy of binge-viewing on Netflix in 2015, this colossal event should be worth the price of

admission.

Bancorp Bank Digital

Transactions

June

Prepaid card enabler, Bancorp Bank, has signed a consent order issued by the FDIC. Most of the restrictions

involve the Bank Secrecy Act and limit the bank’s ability to enroll new sales ISOs and merchants. It has been

speculated that Magic Johnson’s Magic Card and Suze Orman’s Approved card – both now being orderly

liquidated – may have been victims of the consent agreement. It is unclear at this point if the agreement is the

result of findings generated under the Federal government’s Operation Choke Point, an attempt to cut off

questionable third parties from using the banking system to gain access to depositor records and card

accounts. Stay tuned; this cannot be good for the prepaid card industry.

CO-OP Financial

Services

CU Times

May

CO-OP announces an agreement with FIS that enables the credit union EFT network to link its SPRIG P2P

services with the third party processor’s PayNet real time network. The new relationship adds “pay anyone”

to the SPRIG features and puts CO-OP members on equal footing with consumers in other countries where

real time payments are prevalent. An unanswered question is whether or not SPRIG might morph into an

alternative payments POS option along the lines of MCX or Dwolla. Interesting possibility.

Dorado Industries



(310) 544-1316

[email protected]



12


PNC Payments Source

June

Although a bit late to the micro-merchant sector led by Square and others, PNC has launched Pogo, a new

tool for payment acceptance by merchants, particularly those in the lower sales size tiers. Like the others,

Pogo attaches to mobile devices and utilizes an application to handle payments. Pogo is being promoted for

its faster payment schedule (next-day access) for those retailers having a PNC account. Other matters of

micro-merchant hygiene, digital receipts and 24/7 customer support are also present.

Ransomware Finextra

June

The ubiquity of mobile phones and the lax attitude most consumers have about their use and security has led

to the inevitable – financial malware and ransomware that attacks banking apps. The most virulent form, an

app named Spyeng, is Russian by birth and searches a user’s phone for banking applications. It then locks the

screen with the familiar FBI warning and demands $200 in the form of a Green Dot MoneyPak payment.

Spyeng and others are tough little buggers to get rid of particularly if the phone hasn’t been rooted. The FBI

has been able to dislodge the Cryptolocker and Gameover Zeus Trojans that befuddled PC users over the past

18 months. It may take just as long to kill this new form of device infection. A word to the wise.

LevelUp Finextra

June

Apple’s iBeacon devices will be made available to all LevelUp merchants shortly. This wholesale approach

to promotion of merchant-customer communication has the potential of fostering more iBeacon installations

than the direct approach undertaken by Macy’s and Walgreens. Early results have been stunning.

Participating merchants have experienced a 22 percent increase in customer spend. Activity among formerly

inactive LevelUp consumers has increased by 63 percent. Again, a word to the wise, or those on the fence.

iBeacon and Beacon will inextricably change the retailing industry and has the potential to shift the balance of

loyalty among consumers.

Visa Finextra

July

Two years following its launch, Visa has replaced Visa.me with Visa Checkout. Online shoppers at sites

operated by Neiman Marcus, Pizza Hut, Staples, United Airlines, and others will see an extra button at

checkout for use of the new service. So far, 180 financial institutions have opted in. Visa and its gaggle of

proponents are promoting the security aspects of the new program while some industry pundits are suggesting

that the game of transaction steering and top-of-wallet has been stepped up a bit.

Dorado Industries



(310) 544-1316

[email protected]



13


Stripe Bank Innovation

May

Payment processor Stripe enters the money transfer business at low cost. Stripe charges 25¢ per transaction

and processes money transfers to customer debit cards is one-to-two days. This service works in parallel with

the processor’s R/T and account number transfer service which has proven to be problematic in some

markets. While Stripe continues to promote is global currency support, including digital and fiat, the new

debit card remittance service works only with U.S. Visa and MasterCard branded cards.

Uber PYMNTS.com

June

All the hand-wringing over digital currencies like Bitcoin has led to many overlooking the shadow currencies

accumulated by airlines and card companies. American Express has begun flexing its muscle in the

alternative payments realm by enabling cardholders to use their Membership Rewards for trips made in Uber

vehicles. Not interested in using the points and prefer to pay with your Amex card? That’s good for 2x in

point accumulation. Winner, winner, either way.

Bitcoin Various Tired of Bitcoin? Us too. So here’s a group shot of three new ripples in the Bitcoin pond (pardon the pun.)

QuickCoin has offered a beta application that enables users to send cryptocurrency to their Facebook friends.

Next, we have Xapo with its Bitcoin debit card. Xapo relies on Bitstamp to exchange user Bitcoin values for

real money. Finally, Circle has exited stealth mode to bring Bitcoin use to the common man. Circle focuses

on Bitcoin as a transaction medium rather than a store of value. Hence, it offers free storage and remittance

services through its newly established exchange. Circle is a registered Money Transmitter under U.S. law and

maintains the reserves required in that certification. Deposits are also insured at no cost to the owner. Sounds

a bit like a bank, doesn’t it?

NACS, et. al. PayBefore

July

The National Association of Convenience Stores and others have received another extension of time for filing

its appeal of the U.S. Appeals Court ruling in favor of the Fed regarding debit card interchange limits.

Originally extended until July 21, the plaintiffs now have until August 21, 2014 to file with the Sups.

Ondot Finextra

April

Ondot, a California startup company, has broken its silence and has launched its CardControl app.

CardControl is marketed to FIs rather than consumers and enables mobile phone users to control usage of

their debit and credit cards. Cards can be turned off or on based on a set of preferences including location,

merchant type, transaction type, and spending caps. Other bells and whistles include push alerts for balances,

fraudulent events, and periodic spending. Worth a look-see for card issuers seeking to add value to their card

portfolios.

Dorado Industries



(310) 544-1316

[email protected]


M&A/Alliance Activity

Buyer/Investor Target Payments Emphasis Possible Strategy

CheckAlt Diebold ERAS Check 21 processing In a hat tip to the inevitable demise of checks, Diebold elects to

sell its Check 21 processing unit to CheckAlt, a company that

believes it has a better endgame strategy than others in the

dwindling field of check electronification for community banks

and credit unions. Terms were undisclosed but were probably

on the light side.

Chicago Growth

Partners, Trident

Capital

2Checkout eCommerce processor Fifteen year old 2Checkout raises $60 million in new funding to

expand upon its base of 22,000 merchants worldwide.

2Checkout operates in 126 countries, settles in 26 currencies,

communicates in 15 languages. Quasi-unique aspects of the

2Checkout offering include free merchant services accounts and

fixed rate pricing.

Dead pool TSYS Japan Card processing After nearly fifteen years of trying, TSYS has dumped its 54

percent interest in GP Net and is exiting the Japanese market

despite having made inroads with Toyota Finance, Sony

Finance, and others. Just not enough volume, it seems. A new

company will take over the existing processing contracts while

Visa is acquiring all the equity of GP Net. Tough market,

Japan.

Vantiv Mercury

Payments

Systems

Merchant services Funny what a little money and new management can do for you.

When Midwest Payments System (now Vantiv) was a wholly

owned subsidiary of 5th 3rd Bank, it was a so-so processor and a

sleepy ATM driver. Post its PE investment by Bain and Advent

and a subsequent IPO, Vantiv has become a world-beater.

Vantiv paid $1.65 billion for Mercury. Mercury majority

owner Silver Lake made a goodly 2.8x return on its 2010

investment. Money, the root of all good things.

Dorado Industries



(310) 544-1316

[email protected]


M&A/Alliance Activity - Continued


Index Ventures Bitpay Bitcoin exchange Bitpay, one of the newer Bitcoin exchanges, raises $30 million in new

funds, lending itself to a valuation of $160 million. The company claims

to have settled $100 million in transactions in 2013 (you do the valuation

math). Bitpay pricing is somewhat unique; it charges $30 or $300 per

month for transactions totaling $30,000 and $100,000, respectively. An

enterprise level is also available for heavy hitters willing to spend 1.0

percent on transactions. Bitpay had raised $2.7 million in an earlier round

making it the most highly funded exchange to date. More evidence that,

at least the investment community is convinced Bitcoin has legs.

Gemalto Shoreline, Source One Direct

Payment card personalization

Fully believing that EMV is finally coming to the United States,

Amsterdam-based Gemalto acquires two U.S. -based card personalization

companies for an undisclosed amount. The company believes that the

investments will aid it in capturing market share as banks and credit

unions transition their card portfolios to the new (assertedly safer)

technology. Payments system historians will recall that Gemalto was

formed through merger of Gemplus and Axalto, itself a spin-out from

Schlumberger. Younger readers won’t care.

Dead pool Square Wallet Digital wallet After three years of trying in a market populated with no less than 200

wallets, Square pulls the plug on Square Wallet and zigs to the left toward

the order-ahead segment. Square Order enables users to order from

Square merchants – primarily coffee shops and cafes – and pick up their

goods upon arrival. Square continues to do well on the acquiring side but

struggles to keep consumer interest high.

Dorado Industries



(310) 544-1316

[email protected]




Technology

Crossover Ventures

Swagbucks Loyalty scheme Swagbucks, perhaps the ultimate in merchant funded rewards, scores $60

million in new funding. The company has been offering free gift cards

from Amazon, Walmart, Starbucks, Target, PayPal and others since 2008.

Its 100 million members earn these premiums ($66 million so far) for web

searching, shopping, online entertainment, surveys and gaming activities

leading to enhanced vendor relationships with motivated consumers.

Spark Capital, Max Levchin, Union Square Ventures, First Round Capital

Sift Fraud detection system Well it’s about (real) time. Sift eschews the traditional rules-based fraud

detection approach in favor of “sifting” through data streams across a

whole network of merchant input. (Nothing new here – SCAN and Card

Alert Services started multi-merchant or issuer fraud reviews in the 1990s.)

Sift claims that its systems maintain a false positive performance of 5 to 7

percent compared to rules systems that run 50 percent or higher. And, Sift

runs in real-time. Spark and others invest $18 million on top of earlier

funding of $5.0 million.

Intuit Check (formerly Page One)

Bill payment app Intuit expands its efforts in consumer payments management by acquiring

bill payment app, Check ,for $360 million. Acquiring the app fills a hole

in Mint, the personal financial management system acquired by Intuit tin

2009. This, and other transactions expected shortly, are designed to shore

up the collapse that occurred when Intuit sold its Digital Insight asset one

year ago.

To be determined Nordstrom Private label credit card portfolio

If it happens, the poorly kept secret that Nordstrom is looking for a buyer

for its $2.0 billion private credit card portfolio would become the third

such transaction in two years. Capital One bought the HSBC store-

branded asset in 2012 and Toronto Dominion now owns the $5.9 billion

portfolio created by Target. We’ve seen this pendulum swing before; it’ll

swing again when these sellers re-initiate their programs in a few years.

Dorado Industries



(310) 544-1316

[email protected]



17


Dead pool Approved and Magic Cards

Prepaid card schemes Suze Orman and Magic Johnson announced that their prepaid card

programs – Approved and Magic Card – will be shut down soon and

remaining balances will be sent to users by check (ironic, no?) Some

industry observers contend that both cards are victims of the recent

announcement by Bancorp Bank that it has entered into a agreement

with regulators over capitalization requirements. Interestingly, Ms.

Orman had invested $1.0 million of her own money in the Approved

card. Both offerings included social benefit as attributes. Approved

worked with credit bureaus to help establish a credit history while the

Magic Card was tied to the Mojo saving account plan to help accumulate

wealth for the underserved market.

KKR, Others

First Data Data processing First Data executives have struggled since the company’s LBO in 2007.

The company’s balance sheet reflects $22.5 billion in debt which carries

a junk rating. KKR and others have raised $3.5 billion in equity to ease

the burden somewhat – about $375 million in interest carry has been

eliminated. Hopefully, First Data will be able to invest these extra funds

in increased competitiveness and product development. The industry

needs FDC to be a strong competitor for balance and options.

SBT Venture Capital

Moven Financial services Mobile-only financial services provider, Moven, raises $8.0 million to

go with the $4.0 million initially raised when founded in 2011.

Launched by anti-branch maven, Brett King, the enterprise relies on

CBW Bank, a Kansas banking powerhouse to keep app users’ money

warm and safe. The app allows users to link the Moven account with

external accounts to provide a full view of their financial goings-on. No

figures yet on the number of Moven users but readers might recall that

Simple, a similar cabal of banking services, was snatched up for $117

million awhile back. Don’t be surprised if, well, don’t be surprised.

Dorado Industries



(310) 544-1316

[email protected]



18


Andreessen Horowitz

Instacart Grocery delivery Seems like a decade ago (actually, it was) that the grocery delivery segment

crashed leaving only Peapod, an Ahold subsidiary, in it wake. Really late-

comers include Amazon Fresh, FreshDirect, and Google. Instacart is a San

Francisco based grocery delivery firm that operates without an inventory.

Instead ,drivers visit Whole Foods, Costco, Safeway, and other local grocers

immediately after orders are placed and deliver the marked-up goodies in

exchange for either a delivery fee or an annual subscription. A-H has

invested $44 million to keep the pursuit of instant gratification alive for

foodies everywhere. Wonder how well Instacart will do in Colorado and

Washington state?

Thayer Street Partners

Shopkeep Merchant terminals Shopkeep, the iPad, iPhone, and iPod Touch-based merchant terminal

systems company, raises $25 million in its third round of funding with the

funds earmarked for foreign expansion. Shopkeep emphasizes the back

office plumbing necessary to keep track of inventory, time and attendance,

and customer value-added services like coupons and rebates. Transaction

processing is left to other third parties who, like Shopkeep, emphasize the

under $1.0 million in sales segment. Shopkeep, like competitors Leaf and

Square, continue to bedevil the entrenched players like NCR and Micros (so

why did Oracle pay $5.3 billion for Micros again?)

MasterCard ElectraCard Services

Transaction processing MasterCard moves its share in ElectraCard from 12.5 percent to 100 percent

in a transaction announced with no terms discussed. The card brand

continues to expand its global positioning strategy and picks up

ElectraCard’s payment processing business with banks, retailers and telcos

in 25 countries. Similar strategy as that used by UnionPay except

MasterCard is using hard currency rather than partnerships.

Dorado Industries



(310) 544-1316

[email protected]



19


Pritzker Group Venture Capital, others

Swipely Merchant analytics and loyalty

Startup Swipely raises $20 million from new and returning investors

to up its capitalization to over $40 million. The company uses its

analytics to build customer loyalty independent of payment types

and POS equipment. Addition tools promote CRM, measure staff

performance, mix and match menu selections based on each

customer type and monitor social media reviews. Sounds like a

good addition to bank teller systems.

Ping An Group (China)

Payoneer Global funds movement Payoneer, a long-time favorite of TrendWatch 2.0, receives an

undisclosed amount of investment from Ping An, a Chinese

insurance company with banking and investment arms. Payoneer

works with employers to disburse funds to far-flung contract and

permanent workers around the world (200 countries and virtually all

currencies.)

Oracle Micros POS systems Oracle pays $5.3 billion for Micros, the hotel, restaurant, and retail

segment leader in POS equipment and software. Seems Oracle is

interested in these verticals and hopes to use Micros for pull-through

business development opportunities. Time will tell if Oracle will

resist the temptation to fiddle with the Micros success formula (says

a veteran of the AT&T acquisition of NCR and its near ruination.)

Dorado Industries



(310) 544-1316

[email protected]



20


Redpoint Ventures, Bitcoin Opportunity Corporation, A-Grade Investments.

BitGo Bitcoin security Ashton Kutcher and others believe Bitcoin theft or loss could

impede acceptance of the digital currency as a mainstay currency

and have invested $12.0 million in BitGo, a British security

platform. Operating somewhat like VeriSign and it certificate

authority that helped spawn safe e-commerce, BitGo provides

assurance that the Bitcoin presenter is actually the owner. The

added protection comes through use of a layered approach to key

management similar to the dual key process found in safe deposit

boxes. Now, if folks would just forget the Mt. Gox fiasco and the

recent Fed auction of Bitcoins taken from a drug cartel, digital

currency might have a chance of surviving.

QuickPay Nautical Technologies

Parking lot payments Privacy freaks won’t like this one. QuickPay seeks to become the

“Uber of parking.” The already successful parking lot management

and payments company acquires Nautical Technologies, a firm that

offers vehicle license plate recognition systems. When fully

integrated and installed, customers drive up to the lot and their plate

is scanned. When leaving, the reverse occurs and the customers

credit or debit card is charged for the appropriate parking toll. No

ticket to lose, no card-in-the-damn-slot-that-is-too-low/high-to-

reach, and no attendants. Then again, your plate, entry and exit

times, and location have been recorded for all time.

Battery Ventures Vaurum Digital currency trading BV puts up $4.0 million to help launch yet another digital currency

trading exchange. Vaurum claims to be easier to use and appealing

to both the casual digital currency user as well as institutional

investors. Plans call for a white-label version of the system for use

by others wishing to jump on the cryptocurrency band wagon.

Dorado Industries



(310) 544-1316

[email protected]



21


Spark Capital Cover Restaurant payments app The restaurant payments field dominated by TabbedOut and

LevelUp just got a bit more crowded with the success of Cover, a

New York and now San Francisco-centric enterprise. Spark Capital

antes up $5.5 million to fund market growth beyond the 90 NYC

and 25 SF restaurants currently on the system. Patrons can use the

app to pre-order, check-in, and settle-up. An earlier seed money

round put $1.5 million in the Cover coffers. Bon appetite!

Octopus Investments

Elliptic Bitcoin vault Hedge funds, law firms, and investment funds aren’t likely to keep

their digital currencies under the mattress. Elliptic, a UK startup

saw a niche and is attempting to fill it by offering to store owners’

cryptographic keys in a safe place, that is, offline servers in a safe

location. Just another indicator to the point made two years ago; to

be successful, digital currencies require high-level, high-volume

players and these guys take security very seriously. Octopus feels

the same way and has ponied up $2.0 million to make sure that the

safe storage place stays that way.

Khosla Ventures Plastiq Alternative payments scheme

Currently playing only in Canada, Plastiq enables users to make

payments to virtually anyone via a credit card regardless of merchant

acceptance. Tuition, income taxes, and utilities are likely uses of the

application. Khosla – key investors in Square, Stripe, and Boku –

leads a Series B round for $10 million; funds are targeted for

expansion in Canada and entry into the United States.

Dorado Industries



(310) 544-1316

[email protected]


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

The Members Group Debit/credit card processor www.themembersgroup.com

Ripple Cybercurrency system www.ripple.com

Ondot Card protection system www.ondotsystems.com

2Checkout eCommerce processor www.2checkout.com

Swagbucks Loyalty scheme www.swagbucks.com

Sift Online card/transaction security www.securitysift.com

Moven Financial services provider www.moven.com

Instacart Grocery goods delivery www.instacart.com

Swipely Merchant analytics and loyalty www.swipely.com

http://www.themembersgroup.com/

http://www.ripple.com/

http://www.ondotsystems.com/

http://www.2checkout.com/

http://www.swagbucks.com/

http://www.securitysift.com/

http://www.moven.com/

http://www.instacart.com/

http://www.swipely.com/

Dorado Industries



(310) 544-1316

[email protected]


Back in the day!

23

Discerning readers may have spotted a reference to “Reg. Q” a few pages back. One of the

challenges associated with rapidly becoming fossilized is that the audience gets younger and

sometimes misses the history behind clever quips. So, this quarter’s contest comes in the form of a

multiple choice question: “What is, or was, Regulation Q?”

A. A Federal Reserve Board regulation enacted in 1933 and revoked in 2011.

B. A regulation that banned the payment of interest on demand deposit accounts and capped the rate

of interest payable on savings, CDs, and NOW accounts.

C. A causal factor in the use of branch expansion, account opening freebies (toasters), and bundled

loan rates for competitive purposes.

D. A causal factor in the creation of non-bank money market funds.

E. All the above.

Too easy, so here’s a couple more:

1. What is a NOW account and in what year did Congress make them legal in all 50 states?

2. What Congressional Act repealed the last remaining elements of Regulation Q?

Not sure what this quarter’s prize goody might be, but the first correct email takes home the bacon.

Dorado Industries TrendWatch 2.0 Q2 Payments Industry Review

Economy & Finance