Dorado trend watch q4 2012

TrendWatch 2.0 Q4 2012

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.

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Random Thoughts

2013: It’s a New Year, Let’s Get to Work! Just got an invitation to be considered for an invitation to a $2,500 payments conference this March because we didn’t make the A list the first time around. Could this be why its taking our industry to long to get its act together? Perhaps we’re spending too much time talking to each other about payments and not enough doing it? Last quarter we noted that there were no less that five U.S. payments conferences held in October alone; three were held on the same days in different cities. After all this navel-gazing are we any closer to rationalizing card present and CNP rates and rules as a result? Don’t think so. How about settling on a U.S. EMV implementation plan and rules set? Not close. NFC vs. SIM vs. cloud debate resolved? Nope. Remote secure payments challenge overcome? “We’re working on it.” Meanwhile, several industry mold-breakers, those not high-bound by concerns over what others say or think have just gone out and done things. Steve Streit and his Green Dot team bought a bank and are offering a mobile banking relationship with consumers that includes deposit-taking and almost zero in fees. Dwolla concluded that sending money to point B from point A was too expensive and slow and ramped up its direct link P2P system. PayPal and Google executives (some might claim they’re the same people but we’re confident that’s not true) believe “mobile” wallet is too confining and are promoting the “digital” wallet experience.

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Discover concluded it had everything to gain by striking a deal with PayPal for acceptance at physical merchant points of sale. Meanwhile, fretting, handwringing, and conferences get most of the ink and lots of water is being tread. So, for 2013, let’s agree that time, talent, and consumer trust are all wearing a little thin and agree to get some things done. Or Maybe it’s 1983 Anyone else get a sense of déjà vu a while back when Chase and PNC announced their quiet rollouts of ATMs that spit out $1 and $5 bills? Didn’t most of the original ATMs offer up a smorgasbord of denominations in the old days when fees were cheap, volumes nascent, and consumer adoption was low? So, now that fees and volumes are high, we’re heading into a new era where $3 in fees will get you $5? Sounds like an open invitation to the CFPB to us. Chase is also piloting machines that drop $1 coins in your hand – now there’s something the consumer is truly clamoring for. Merchants too. Hard to believe that we won’t be seeing Diebold vault doors like the one on the cover page anymore. 150-year old steel-bending stalwart Diebold is selling its vault door and security divisions to its long-time outsource provider, Will-Burt. Tempus fugit, they say. Until next time.



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Table of Contents

2013 Predictions 4 2012 Predictions – Final Tabulation 5 TrendWatch Scorecard/Summary 7 2012 Payments Industry Yields 8 Interesting Quarterly News That Got No Respect 9 Q4 M&A/Investor Activity 14 Useful Links for More Information 21 Back in the Day 22




2013 Predictions

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

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

• Despite the fact that there are already laws preventing abusive use of electronic benefits transfer cards, the CFPB or Congress will intervene to provide more protection.

• One of the remaining EFT networks will change ownership. • American Express will prevail in its Department of Justice litigation. • The US Postal Service will declare its pilot in gift card sales a failure and shut the program down. • Emboldened by the success of PayNet (FIS) and clearXchange (BofA, Chase, Wells), two new real-time payments

networks will emerge.




2012 Predictions – Final Tabulation

• Four new payments schemes designed to maximize mobile phone functionality while eliminating the need for retailer check out lanes will proliferate – two will be launched by merchants, two from third parties.

Mar: More entrants in the QSR, fine dining and tavern sector. Waiting on the big box guys. Late add: Intuit acquires AisleBuyer, one of the check out lane disrupters paying between $80 and $100 million.

Jun: JC Penney announces plans to eliminate its fixed site POS installations in favor of tablet and smartphone equipped roving checkout personnel.

Sep: Nordstrom equips its stores with 6,000 mobile POS devices and downsizes its checkout register footprint. WalMart executive pines for the future day when signature authentication disappears.

Dec: Maybe not four new schemes but it’s a sure bet that legacy retail registers and POS devices are heading toward museums.

• CFPB or DOJ will put the buy-here, pay-here segment for automobiles and accessories out of business. Mar: Looks like CFPB is using the shotgun approach - 10,000 notices to companies have been issued in the first six months of its

existence! Annual report was issued March 31, 2012. Worth a quick read at: http://files.consumerfinance.gov/f/201204_cfpb_ConsumerResponseAnnualReport.pdf

Jun: Perhaps payday lending is getting all the attention since there are more of these lenders than the others. Then again, maybe CFPB’s cup runneth over with credit card complaints posted by consumers.

Sep: Looks like California might lead the way toward BHPH regulation; two bills pending in Sacramento. Dec: Not yet out of business but clearly on life support.

• At least one of the top ten FIs will be merged out. Mar: Nothing yet but it’s still early. Jun: Might want to fire up the popcorn popper, this one could take a while. Sep: Looks like we’re going to whiff this one. Dec: Blown big time; sorry.

• Congress will turn its back on efforts to repeal Durbin and/or materially alter Dodd-Frank. Mar: Looks like Congress won’t have to do anything despite certain GOP candidates claiming they intend to repeal Durbin. Jun: Two words: “election year.” Might not happen until 2013, if then. Sep: Post-debate poll numbers suggest that this prediction may fall flat leading to some corrective action in 2013. Late add: for sure! Dec: Looks like we’re stuck with Regulation II as it stands for quite sometime; a pity.

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http://files.consumerfinance.gov/f/201204_cfpb_ConsumerResponseAnnualReport.pdf�




2012 Predictions – Final Tabulation

• American Express will prevail in its suit with DOJ. Mar: The longer the suit continues, the better this prediction looks. Jun: Then again, the July 13, 2012 settlement with Visa/MasterCard could put things in a cocked hat. Sep: Despite the outcome of the suit, the new “more inclusive” American Express is beginning to look interesting. Bluebird may change

a lot of things. Dec: 2013, maybe.

• By yearend, China UnionPay’s base of cardholders will be 120 percent of Visa’s. Mar: Could happen. After all, who would have thought AMEX volume would have topped MasterCard’s in 2011? Jun: WTO finds China out of compliance with reciprocity agreements, excluding other acquirers from operating there. Might change

things. Sep: CUP continues to make its cards more accepted with a third-party processing agreement with Nets, Europe’s third largest

processor. RBR report: CUP issues one-half of all new cards in the world. Dec: Winner! CUP closed out 2012 with 2.9 billion cards and surpassed MasterCard in consumer spending.

• Nokia’s partnership with Microsoft will save it from extinction. Mar: Nokia’s still in the game and swinging for the fences. Microsoft is trying mightily to make the deal work. Jun: Maybe not if Windows 8 flops. We should know soon after its release date in October. Yet, if the iPhone 5 comes out in

September, all bets are off for Nokia. Sep: Nokia is selling its headquarters building for $250 million. Microsoft might not be able to pull this off. Dec: Nokia sold 4.4 million Microsoft enabled units in Q4 2012. Unfortunately, most went for one-third the retail price potentially

leading to a cash crunch. We’ll see.

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TrendWatch Scorecard/Summary – Q4 2012

Market & Industry Situation 1 – New payments form factors now a serious part of the Consumer

Electronics Show. 2 – NCR and Diebold taking steps to transform the industry/embrace

mobile. 3 – Durbin exclusivity ban dust settles on where the transactions are;

volume still growing. 4 – 2012 election gave us all a bit of a break; clock starts again soon. 5 – Mobile start-ups still getting the funding they need. 6 – AMEX misses and starts re-tooling; others likely. 7 – VC funding up 10 percent in 2012; grew to $20.6 billion – best in four

years.

Industry Players To Watch V/MA: What happens to EMV if merchants/issuers don’t play? Square, LevelUp, and Cardfree: How will their successes impact traditional merchant services and swipe reader players? MCX: Heading out with cloud-based solutions first; NFC maybe never. Green Dot: Is it a prepaid scheme or bank? GoBank will tell the tale. Rev Worldwide: Changing the prepaid card use case catalogue one country at a time. Dwolla: Not stopping to consider the consequences of change; just changing.

5. New Venture Growth 4. Legal/Regulatory Issues

1. New Payment Forms 2. ATM Restructuring 3. POS Volume Trend

High

Med

Med

High

High

Med

High

Positive

Mixed

Negative

6. Earnings Announcements

7. Industry Investments




2012 Payments Industry YTD Yields

Sources: Company releases, Morningstar.com, Bloomberg.com 2012 YTD yield excludes dividends; based on 12/30/11 and 12/31/12 closing prices

Concerns over the fiscal cliff dampened investor enthusiasm in Q4 causing a few of our payments equities to give back some of their Q3 YTD yields but 2012 finished quite well for most of the key players in our industry. In the meantime, the Dow and S&P indices posted 5.6 and 11.7 percent gains, respectively. Things could be worse; and have been.

Industry Player 12/31/2011 12/31/2012 Price Cap Value YTD 2012 Yield

Alliance Data Systems 103.84$ 144.76$ 40.92$ 2,434.7$ 39.4%Cardtronics 27.06$ 23.74$ (3.32)$ (135.1)$ -12.3%Discover Financial Services 24.00$ 38.55$ 14.55$ 6,997.1$ 60.6%Euronet Worldwide 18.48$ 23.60$ 5.12$ 258.0$ 27.7%Fidelity National Information Services 26.59$ 34.81$ 8.22$ 1,568.4$ 30.9%First Data (Future Use)Fiserv Inc. 58.74$ 79.03$ 20.29$ 3,163.2$ 34.5%Global Cash Access Holdings 4.45$ 7.84$ 3.39$ 261.4$ 76.2%Green Dot 31.22$ 12.20$ (19.02)$ (775.1)$ -60.9%Heartland Payment Systems 24.36$ 30.23$ 5.87$ 219.5$ 24.1%Jack Henry & Associates 33.61$ 39.26$ 5.65$ 474.0$ 16.8%MasterCard Worldwide 372.82$ 491.28$ 118.46$ 15,328.7$ 31.8%NetSpend 8.11$ 11.82$ 3.71$ 325.7$ 45.7%Online Resources 2.42$ 2.27$ (0.15)$ (4.5)$ -6.2%TNS (M&A Pending) 17.72$ 20.73$ 3.01$ 75.6$ 17.0%Total System Services 19.56$ 21.42$ 1.86$ 367.2$ 9.5%Visa 101.53$ 151.58$ 50.05$ 42,337.3$ 49.3%




Interesting News This Quarter

Subject Source/Date Substance

US Bank Finextra January

US Bank encourages customers in Portland and SLC to enroll in “Go Mobile,” a pilot to test an iPhone payments trial using a DeviceFidelity developed case that incorporates NFC technology and an extra battery. Merchants with Visa’s payWave enabled terminals are unwitting participants as well. Curious that USB would select Salt Lake City, home of one of the Isis pilots to trial-balloon Go Mobile. In the meantime, another add-on technology firm, Incipio, demonstrated its own iPhone case that supports the Isis Mobile Wallet at the 2013 CES in Las Vegas.

Protean Payment Xconomy.com December

Start-up enterprise Protean Payment has plans to reduce the amount of weight we have to lug around through introduction of its Echo card. The card has an imbedded logic board that can mimic debit, credit, loyalty and even library cards. Echo’s three buttons enable users to select the card they want to use for purchases at check-out. Cardholders with smartphones receive the Echo card and a swipe dongle that is used to capture card data. The information is transferred to the card via Bluetooth. A security layer prevents the user from swiping cards which do not match the name on their photo ID (drivers license). You get all this space odyssey for a mere $100. But wait, there’s more. Protean Payment plans a Series A offering in mid-2013 enabling early adopters to be users and investors.

Citibank Payments Source December

Speaking of cards with buttons, ever wonder what happened with Citibank’s 2G card? When it was announced two years ago, Citibank said the card would enable its users to use rewards for purchases rather than credit lines. Seems 2G is still in pilot mode which suggests that it and the technology pioneered by Dynamics, Inc. won’t live to see the full light of day. Undeterred, Dynamics is still pressing the card-with-buttons button and launched its “ePlate” two-button card with UMB bank. Guess two buttons may fare better than one?

QSecure Mobile Payments Today

December

Rounding out the magic card replacement hat trick is QSecure and its IMAGO card offering. Also equipped with a smartphone dongle for direct card information input, IMAGO can store up to 100 payment, loyalty and ID cards. Card information not stored on the magnetic stripe can be input via smartphone camera. There’s even a power switch to conserve battery life and to protect the card from use by others. Heads up to those thinking about climbing on the bandwagon: there’s a patent floating around out there dating back to the late 80s that is likely to trip up one or two of these offerings.




Interesting News This Quarter – Continued


Korala Associates Limited (KAL)

Payments Source December

Back to the future time again. U.K.-based KAL offers a ‘cash-less” ATM for use by retailers. Not having to protect currency, the devices require far less security and are priced at around $4,000. Consumers use their ATM cards and PIN to request cash which comes in the form of a payment voucher. The voucher is redeemable for cash or for purchases made in the retailer’s store. KAL is testing units that permit deposits, balance inquiries and bill payments. So, two questions: If the retailer is going to dole out cash for the vouchers, where’s the currency coming from? And didn’t we see this concept back in the 80s with POS scrip? Someone might tell Catalina that its patent is being toyed with.

USAA American Banker January

Bank Transfer Day might have been an even bigger success in 2012 if everyone had adopted USAA’s latest approach. The one-branch bank with 8.4 million customers is testing a smartphone application that enables new members to set up their accounts by merely photographing a blank check from their old bank. Avoids input errors and saves a bunch to time. USAA drops an ACH debit into the system and the new account is opened and funded. Very slick so long as the normal KYC rules are met.

Regions Bank, BBVA Compass

American Banker January

Following on the heels of the University of Alabama’s drubbing of Notre Dame in the BCS title game, Regions Bank and BBVA Compass will continue to issue Crimson Tide check cards and checks commemorating the Tide’s 15th national title. Rumors that Indiana and Illinois banks plan to drop their Notre Dame themed materials are thought to be untrue.

Apple The Next Web November

Those of us waiting for the next iPhone release to incorporate NFC technology may have to wait a bit more. Apple has been awarded U.S. Patent 8,321,294 B2 for its EasyPay retailer scanning and purchasing system. Yes, that’s the one the company uses in its retail stores. Besides physical store transactions, EasyPay is wired to accommodate online purchases that are fulfilled in a brick-and-mortar location. Apple expanded EasyPay to Australia last August and Canada in November. China is the next target on the list.

Diebold CU Times January

Here’s a new entrant in the “do we really need this?” category. Diebold has released a cardless ATM that works with the accountholder’s smartphone. Here are the steps: 1) preregister the smartphone with your bank, 2) find a cardless ATM, 3) scan the ATM’s QR code, 4) enter the amount to be transferred or withdrawn, 5) receive a one-time code on the smartphone, 6) enter the code on the ATM screen, 7) take your cash. There’s a way to transfer cash to someone else but we’re running out of room here.






On Track Innovations Payments Source November

Others not wanting to wait for Apple to stuff an NFC chip in its phones but want a device-centric payments device might look at On Track Innovations and its Copni Wave solution. Copni Wave works as a dongle attached to the phone’s headphone jack and integrates with other payments applications. Once installed, the device works the same as a contactless card meaning it supports the payWave and PayPass specs. Transit and loyalty applications are supported as well.

Movaluate Payments Source November

Movaluate takes NFC functionality in another direction by introducing a programmable NFC tag. Originally designed to help consumers appraise the value of used smartphones, the tags are being tested by Target for QR code scanning in the retailer’s aisles. Payments can’t be far behind since the tags are relatively cheap and Movaluate gave the first 5,000 away for free to kick start market interest.

Inside Secure Payments Source November

A third approach to NFC implementation comes from Inside Secure. The company is pitching PicoPulse, an NFC SIM chip that works hand-in-hand with the vendor’s SecureVault software app released in October 2012. The French technology player is promoting PicoPulse to OEMs for inclusion in handsets. The company and industry observers imply (in the former case) that SIM chips may not be the ultimate NFC solution but work well as a stopgap until all smartphones are NFC equipped. Cloud proponents refer to the approach as “a throw away.”

Discover American Banker December

CEO David Nelms announces that Discover will begin to offer checking account products in Q1 2013. Nothing new here; DDA funds are the cheapest form of funding for Discover and other lenders. The first wave of promotion will be directed at Discover cardholders. Too soon to know if Nelms and company plan to open up the service to others. While there might not be a causal relationship here, the announcement was made in an earnings call. Discover missed analysts’ expectations by 6¢ in December; fortunately, the stock price has recovered from the 3 percent drubbing offered up by the investment community upon hearing the news.

CO-OP Financial Services

Presser January

CO-OP introduces Sprig, its solution for credit union members seeking a P2P solution. In its first incantation, Sprig will operate as an in-network model enabling members to exchange funds on a “me-to-me” basis. Next comes “me-to-you” and “me-to-anyone.” CO-OP is trading on its own form of connectivity, one development years ago to support shared branching, a form of retail banking unique to the credit union industry. Access is accomplished via mobile phone, tablet or PC.





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Dwolla Finextra December

Dwolla is expanding its P2P and POS services to allow Twitter users to send money through that messaging service using the Tweet handle #dwolla. Chirpify is another player in the Twitter payments game while Twippr and TwitPay are examples of short message payments road kill. Others observing Dwolla’s latest foray are using words like “experiment” and “stumbled” when debating the merits of the offering. “Why?” comes to our mind.

Credit Union credit card portfolios

R. K. Hammer December

R. K. Hammer, the California-based advisor and broker for credit card portfolios announces that sales of credit card portfolios within the credit union industry have more than tripled in 2012 compared to 2011. The company says that, for some reason, 37 transactions occurred last year compared to 10 in 2011. True, credit union portfolios are small by comparison to their high street brethren but that’s a lot of deals in a single year. Wonder what’s up?

Brink’s Company Finance.yahoo January

So, the CEO of Brink’s Company says “The introduction of Brink’s Money is our latest initiative aimed at growing our payments business.” To which we respond “What payments business?” Brink’s is offering a prepaid payroll card to U.S. employers in an agreement with NetSpend. This appears to be an effort to address the needs of the “self-banked” segment (definition to follow). All that aside, Brink’s does have a trusted name in secure transportation and money management services in the B2B space; perhaps the brand will carry into the B2C realm.

Plastic Jungle Payments Journal December

Plastic Jungle has operated its online prepaid and gift card exchange for several years. JB creates a secondary market for unwanted or unusable gift cards by bringing buyers and sellers together in a bid/ask environment. Now holders of these unwanted cards can convert them to CVS cards which can be used in any of the drug emporium’s 7,400 locations. Plastic Jungle gets a bit more notoriety while CVS gets more foot traffic. Looks like a win-win model that may be emulated by others.

Discover Payments Source November

Discover was one of the few early players in Pay By Touch, the shuttered biometrics-based authentication scheme launched in 2005 and closed in 2008. The card company continues to have faith in biometrics and is piloting a new offering by Lille, France-based Natural Security SAS. The system includes use of a contactless device that holds the cardholder’s biometric data. In addition to payments, the system may have legs in the time and attendance, building entry, and computer access segments. Yet, as the mobile wallet folks are learning, altering consumer behavior away from card swipes is not an easy task but Discover is going to give it another shot. What was it that Einstein said when defining insanity?





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Flint PR Newswire November

Flint, a 2011 start-up based in Redwood City, California, enters the dongle-less merchant services processing business by offering an app available through the Apple App Store. Businesses can convert their iPhones and other iOS gear into POS devices by scanning the customer’s credit or debit card. So, no card reader needed and no worries if the headphone jack is on the bottom of the handset. Pricing is about in the mid-range of others vying for micro and small merchant business – 1.95 percent plus 20¢ for debit and 2.95 percent plus 20¢ for credit.

QThru SpringWise December

Seattle will be the introductory market for QThru, an innovative approach to enhancing the customer shopping convenience. A downloaded app for Android and iOS phones allows consumers to scan their purchases and checkout without waiting in lines or using self-checkout kiosks. Payments are made through pre-keyed cards or accounts. The entire suite of software is free to consumers and retailers. Merchants merely pay $900 for a kiosk used to confirm purchases through a QR code on the way out the door. A $5,000 terminal complete with digital scale is also available for vegetable and gold retailers.

Bank of America All Things Digital

November

We close out this section with an entry in the “we couldn’t make this stuff up” category. Bank of America has entered the dongle-assisted merchant services business with its own smartphone device and “Mobile Pay of Demand” product. This action comes two years and $8 billion in annual payments after Square created the market. Pricing is a tad below Square (so much for promoting quality, customer service, ease of use; those sorts of value-added things BofA espouses) at 2.75 percent. To its credit, BofA charges no monthly or annual fees; just like the other guys don’t. It will take a slice of any and all couponing offers redeemed by merchants’ customers, however. Guess BofA missed the announcement by VeriFone, those folks that know the merchant and hardware segments pretty well, about its plans to dump its SAIL dongle program because, as one analyst observed, “And, certainly, late entrants, like VeriFone, didn’t have a chance.” The best part of this ploy is a quote from a ranking executive at BofA Merchant Services, “I hate to come out with a commodity product, but every bank should have one.” What? A commodity product or two? Surely not Bank of America!




M&A/Alliance Activity

Buyer/Investor Target Payments Emphasis Possible Strategy NCR uGenius

Technology Assisted ATM kiosk NCR adds to its APTRA line of interactive teller devices by

paying an undisclosed price for uGenius Technology. NCR and uGenius have been collaborating since 2011 on devices designed to provide video assistance to ATM users. As the theory goes, banks and credit unions can reduce costs and deliver more effective service using devices that deliver face-to-face human assistance. This and the Diebold effort to bring mobile access to ATMs illustrate how the industry is trying to give cash machines another life cycle.

Mozido PagoVision Payments services PagoVision provides check cashing, ACH, prepaid, and wireless services to the nation’s underbanked segment. Mozido is a white label provider of mobile payments and wallet services to all comers. Mozido has acquired PagoVision to gain closer ties to the unbanked market and to capture the 1,500 merchant relationships developed by the acquired company. The pivot point in the deal is MoneyGram; the money transfer player has relationships with both Mozido and PagoVision. Of course, terms were not disclosed. Late add: Mozido is loading up its executive team; two big hitters from CorFire just signed on.

Madison Dearborn Partners

EVO Payments International

ISO EVO is rapidly growing out of its traditional role as a U.S. ISO. By acquiring Deutsche Card Services, EVO picked off Germany and a joint venture with Banco Popular puts its flag in Spain. PowerPay is a recent U.S. acquisition. Madison Dearborn has taken a minority interest in EVO while the majority owner and chairman, Ray Sidhom, remains at the helm. Another chapter in the ISO maturation cook book.




M&A/Alliance Activity - Continued

Buyer/Investor Target Payments Emphasis Possible Strategy Andreessen Horowitz, Data Collective, IA Ventures, others

Signifyd eCommerce fraud prevention

With eCommerce retailers encountering 3.1 percent in annual fraud losses, it makes sense that companies like Signifyd would attract VC and PE money. Signifyd claims to be capable of reducing eCommerce retailer time spent reviewing transactions by 60 percent and increasing the catch rate by 20 percent. Given the hefty increase in online purchasing experienced this holiday season, we’re likely to see more start-ups targeting fraud and providing risk management dashboards.

Shikil Khan, Barry Silbert, Roger Ver

BitPay Bitcoin payments gateway BitPay is a two-person shop focused on promoting replacement of card not present debit and credit transaction with Bitcoins. The three angel investors put up $510,000 in new monies to fund a technology center in Atlanta and for hiring of new engineers. BitPay recently inked a deal with blog publisher WordPress for Bitcoin payments processing. Total transaction volume for BitPay last year was $3.0 million. Like it or not, Bitcoins are starting to jangle more loudly in cyberspace pockets.

AccountNow nFinanSe Prepaid card backend AccountNow provides direct-to-consumer GPR prepaid card programs while nFinanSe operates a prepaid card network and processing platform, making this transaction a natural fit. Not all of the current nFinanSe shareholders will celebrate a pay-off, however, since only the Series F Convertible Preferred stockholders will receive a slice of the acquisition proceeds. So the A through E and common share folks pound sand? A pity, but that’s payments.

PeopleFund BlueKite Trans-border payments BlueKite raises $1.5 million in seed funds to kick start its trans-border remittance and bill payment engine between the U.S. and Central and South America. BlueKite plans to pursue a piece of the 215 million emigrants in flight annually by providing convenient ways to remit earned monies back to family members or pay their utility bills. BlueKite asserts remitter anonymity will be maintained.




M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy

Capital One Bundle Consumer behavior tracking system

Bundle uses consumer payments transaction data to one-up review sites like Yelp by using consumer-on-merchant frequency and purchase amount data to identify preferences. Bundle will become part of Capital One Digital Labs where its management team will work along side executives from BankOns, a rewards and discounts startup acquired by ONE in early 2012.

Total Systems ProPay Micro and Direct Selling Entities merchant services

TSYS goes down-market by paying an undisclosed amount for ProPay, a Utah based specialist in micro merchant and direct selling entities. The company’s ProPay JAK™ dongle attaches to smartphones and tablets to enable payment execution. ProPay is not a Johnny-Come-Lately to payments having been around since 1997.

US Bank FSV Payment Systems

Prepaid program manager Thirteen year old FSV is being acquired by US Bank to bolster the bank’s already burgeoning play in prepaid. FSV has been led by a number of seasoned EFT professionals in the past including Jon Palmer, current chairman of the National Branded Prepaid Card Association and Tim Birk, now at Performance Benefits. US Bank stock has recovered nicely from the small thumping it took when the announcement was made.

Private investors Waspit Prepaid card platform Waspit targets the college demographic providing MasterCard branded prepaid cards and the opportunity to earn “Buzz Points” by conducting transactions (ATM, POS, P2P), reviewing retailer sites, and participating in Waspit’s social media programs. Buzz Points can be redeemed for closed-loop gift cards from participating retailers. Private investors plopped down $3.0 million to see if this romp through academia will work.





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Buyer/Investor Target Payments Emphasis

Possible Strategy

SV Angels. Others

Balanced Payments eCommerce payments enabler

Balanced (fka “PoundPay”) positions itself as the premier “payments for marketplaces” provider delivering backend payments services to Fancy, Kitchit, InstantCab and other eCommerce marketplace sites. SV Angels and other notables like Ashton Kutcher forked out $1.4 million to keep these socially-linked sites thriving.

Fung Capital USA, Allegro Venture Partners, Bee Partners, others

OrderGroove Subscription eCommerce engine

Not a young company by payments industry standards (2008), OrderGroove provides subscription eCommerce purchasing power for companies like L’Oreal, Jockey, and Grainger. Its technology allows retailers to support periodic purchases by consumers on a repeat basis. The gambit is designed to convert first time purchasers into subscribers so those new boxer shorts, diapers or vitamins will show up several times a year. This round raised $7.0 million in expansion capital.

Euronet Worldwide Pure Commerce Multicurrency acquiring Australia-based Pure Commerce specializes in multicurrency acquiring solutions for ATMs, POS terminals and online commerce. EEFT acquires Pure Commerce to broaden its “worldwide” solutions emphasis and to wedge itself into markets with large foreign card volumes. PC posted $15 million in 2012 revenues and claims a three-year CAGR of 30 percent. Multinational banks and retailers might want to consider EEFT outsourcing to avoid the whole currency conversion morass is the general line of thought.

Canaan Investors, Others

ShopKeep Tablet based POS The ShopKeep iPad POS system has expanded its list of admirers to 3,000 merchants plus partnerships with mobile payments players LevelUp, Dwolla and PayPal. In addition to POS support ,the ShopKeep system tracks inventory, employee time and attendance, and customer loyalty. Canaan invested $10 million to keep things moving.





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Buyer/Investor Target Payments Emphasis Possible Strategy NCR Retalix Merchant services software NCR pays $30 per share or $650 million (a 37 percent premium) to

acquire Retalix, a provider of software and services to 70,000 retail locations throughout 50 countries. Retalix specializes in supermarkets but also has leverage with the hospitality, travel, and finance verticals.

Siris Capital Group TNS Payments telecommunications

Siris offers $21 per share or $862 million for TNS, the long-term player in payments telecommunications and authentication. The purchase price represents a 44 percent premium to then-current share pricing. The company has had a history of being both publicly and privately owned and continues to generate positive returns and growth under both postures. Senior management will remain in place Siris says.

InComm Giftango Digital gift cards Long established prepaid card program operator InComm pays an undisclosed amount for Giftango, a Portland, Oregon-based issuer of digital gift cards. Giftango’s long suit is cyber-delivery of gift cards via email, text, Facebook and other soft means. Clients include Lowes, Borders, Amazon, Sears and all the other places people spend money. The Giftango deal comes on the heels of its purchase of Adility, a provider of online to offline commerce services and single-use couponing.

Primus Capital Funds

Cardinal Commerce Remote payments enabler Primus takes a minority position in Cardinal Commerce, the thirteen-year old company specializing in SaaS platforms for eCommerce authentication. Other Primus investments include business services companies but Cardinal is the only player focused on payments.





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Buyer/Investor Target Payments Emphasis Possible Strategy Investors like us Xoom Internet money transfer

service Internet-based international transfer service provider, Xoom, announces plans for a $50 million IPO next quarter. The company provides an alternative resource to Western Union and MoneyGram, claiming lower rates and coverage for 30 countries. Xoom is moving closer to full mobile service support with text alerts upon successful transaction execution. The company was founded in 2001 and is backed by venture firms including Sequoia Capital, New Enterprise Associates, SVB Capital, and Fidelity Ventures. Pay-back time.

MasterCard Worldwide

C-SAM Mobile wallet technology Stealthy in the U.S. but not throughout the rest of the world, C-SAM receives a minority interest investment from MasterCard. C-SAM is based in Chicago yet most of its twenty-five digital wallet programs are running in other countries. Customers include Discover, Axis Bank, Star Hub and several others. Isis and GE Money are also notable users of C-SAM’s technology.

In-Q-Tel Tyfone Mobile payments IQT, the non-profit organization that invests in companies foreseen as benefiting the U.S. government, makes a strategic investment in Tyfone, the mobile payments and handset software company based in Portland, Oregon and Bangalore, India. IQT appears to be intrigued with Tyfone’s large patent inventory, NFC expertise, and device security skills.

MacAndrews & Forbes, Hartland Financial Solutions

Transactis Bill and online payments Transactis raises $8.2 million from investors to continue to expand its list of services which already includes online payments, bill payment processing and document prep and storage. Transactis is another of those quiet firms standing ready in the background. Founded in 2001, it gets very little ink save for that which it writes.





20

Buyer/Investor Target Payments Emphasis Possible Strategy Charge Payments Trust One Payment

Services Payments ISO Two more payments ISO go the merger of equals route to gain

market scale. Transaction consideration was not disclosed so that’s all we have to say about the deal.

Jeffrey Katz Cardfree White label merchant acceptance

Jeffry Katz (Mercury Payments) and other notables in payments technology and retailing form Cardfree with $10 million of Jeffrey’s money. Cardfree enables merchants to develop their own acceptance procedures for mobile and POS transactions, order-ahead options, reporting and analytics. LevelUp is squarely in the company’s sights.




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 C-SAM Mobile wallet www.c-sam.com

QThru Mobile shopping platform www.qthru.com

Brink’s Company Secure transport; payroll cards www.brinks.com

Inside Secure NFC SIM chips www.insidesecure.com

Protean Payment Multi-function payments card www.getprotean.com

QSecure Multi-function payments card www.qsecure.com

Korala Associates Cashless ATM www.kal.com

Flint App-based merchant services www.flint.com

Plastic Jungle Online gift card exchange www.plasticjungle.com

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http://www.qthru.com/�

http://www.brinks.com/�

http://www.insidesecure.com/�

http://www.getprotean.com/�

http://www.qsecure.com/�

http://www.kal.com/�

http://www.flint.com/�

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Back in the day!

Congratulations to our Q1/Q3 2012 trivia contest winners Curtis Fish (MasterCard), Tony Ipsarides (FIS), and Jill Deniro (CO-OP). No winners in Q2. This quarter’s contest dates back to the founding of Interlink, arguably the first PIN debit network in the U.S. Five banks collaborated to form Interlink in the early 1980’s. First one to name the original Interlink owners via email wins a Dorado Industries polo. Bonus round: Same prize to the first email naming the network formed by a petroleum distributor for acceptance of ATM cards for gasoline purchases that forced the Interlink founders to get off the schneid.

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