transaction trends february 2012

TransacTiontrends

The Official Publication of the Electronic Transactions Association | February 2012

ALSO INSIDE:ETA Technology Roundtable Focuses on Connected Commerce

Are Micro-Merchants ‘Really’ Merchants?

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TransacTion trends | February 2012 3

The Official Publication of the Electronic Transactions Association Vol. 17 | No. 2

TransacTion trends

cover story

8 customer reconnaissance By Julie Ritzer Ross Mobile technology is changing the consumer experience and soon ISOs will be selling complete business management systems, of which payments are just a part. Experts in the retail, hospitality, and health-care industries offer guidance on how to create a tailored sales solution.

12 the social connection Edited by Josephine Rossi In this first of a two-part series, ETA’s Technology Committee convenes a roundtable discussion that focuses on connected commerce and its value to consumers and merchants.

FeAtUres

depArtments

4 notable Quotables People, and their comments, making headlines

5 Industry news Trends, strategies, and news in the payments business

6 Iso corner The debate over micro-merchants and risk assessment

19 specIAL serIes startup stories: Healthy solutions By John Manasso With the goal of delivering excellent customer service, products, and working environment, Meritus Payment Solutions succeeds in the health-care sector and beyond.

22 Ad Index

23 etA new member Listing

24 Industry Insider Capital Access Network’s data and know-how attract small merchants, ISOs, and more.

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19

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4 February 2012 | TransacTion trends

Electronic Transactions Association1101 16th Street NW, Suite 402Washington, DC 20036202/828.2635www.electran.org

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ETA Director, Communications & PR Thomas Goldsmith

Transaction TrendsPublishing office: Stratton Publishing & Marketing Inc.5285 Shawnee Road, Suite 510Alexandria, VA 22312703/914.9200

PublisherDebra Stratton

EditorJosephine Rossi

Contributing EditorAngela Hickman Brady

Editorial/Production AssociateChristine Umbrell

Art DirectorJanelle Welch

Contributing WritersJohn Manasso, Bryan Ochalla, and Julie Ritzer Ross

Advertising SalesSteve Schwanz or Fox Associates (800/440.0232; [email protected])

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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 © 2012 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.

Notable Quotables

“Data breaches have become a statis-tical certainty. If you look at what the public individual is concerned about, protecting personal information is actually at the same level in the scale of public social concerns as preventing crime.”

—Neira Jones, head of payment security for Barclaycard, at the Infosecurity Europe Press Conference (Techworld.com)

“…There’s a lot of confusion around the myth that EMV means ‘chip-and-PIN.’ It doesn’t in many countries, including the U.S. That’s because, in the U.S., we can rely on online processing where transactions are transmitted in real-time to the issuer for approval. With that in place, there’s no need for the offline authentication that was the genesis of chip-and-PIN.”

—Stephanie Ericksen, head of authentication product integration for Visa Inc (Visa Viewpoints Blog)

“2012 will be the year of the skimmer.”—Robert Siciliano, security expert and

McAfee consultant (BankInfoSecurity.com)


inDusTrYnews

Cynergy Data has appointed ETA Treasurer Kim Fitzsimmons as CEO. First Atlantic Com-merce company veteran Tricia Lines Hill has been appointed senior vice president for busi-ness development and marketing. VeriFone Systems Inc. announced that outdoor retailer Eastern Mountain Sports has successfully pilot-ed the VeriFone GlobalBay iPad solution in four stores and is readying a 2012 rollout. TSYS has signed a long-term agreement with Bancorp-South to process its debit card and credit card portfolios and to support card and statement production and fraud prevention services. ACI Worldwide Inc. has announced that CVS/pharmacy has deployed ACI Retail Commerce Server for check management in its 7,300 stores across the United States, enabling the retail pharmacy chain to automate and reduce the cost of check authorization.

AROUND THE HORN

While there is plenty of talk about the future of social network commerce, and some major players have made strategic investments to make sure they’re involved, consumers, so far, are very uneasy about buying through sites like Facebook or Google+.

ThreatMetrix, a cybersecurity firm, says a recent joint study with The Ponemon In-stitute, “Mobile Payments & Online Shop-ping Survey of U.S. Consumers,” revealed that 53 percent of consumers do not be-lieve Facebook storefronts are committed to protecting them from fraud. A quarter of respondents (23%) were unsure about Facebook’s fraud prevention tactics.

The survey, which looked at U.S. con-sumers who self-reported they are active users of the Internet, found that consum-ers have yet to really adopt online shop-ping habits through social networks. For example, only 32 percent of consumers surveyed have browsed a company’s Face-book page and then bought something on the company’s website. In turn, only one in five consumers indicated they have pur-chased something directly within a Face-book storefront.

Google fared somewhat better, but consumers still expressed security con-cerns about the idea of shopping through Google+.

Social Network Commerce Gets Skeptical Reception

Projected U.S. M-Commerce Sales 2010-2015

Study Finds Number of Merchants Afoul of PCI DSS Has GrownIt may be a little hard to believe, but despite a few years of PCI compliance man-dates, some high-profile data breaches, and moves afoot in Congress to impose federal standards for data breach prevention and notification, data security, and privacy pro-tection, a recent study shows many merchants continue to store unencrypted card information. Worse, the number of merchants violating PCI DSS actually increased by 8 percent in the past year.

The study was published by Orem, Utah-based SecurityMetrics, and reported that 71 percent of merchants who participated in the research were found to store unencrypted payment card data. SecurityMetrics also found more than 370 million unencrypted cards on various-sized business and home networks, with the largest amount of payment cards discovered in a single network scan at more than 96 million.

Apple trumped all e-tailing rivals in mobile shopping satisfaction during the 2011 holiday shopping season, according to ForeSee. With a mobile satisfaction score of 85, Apple eclipsed Amazon and Dell, the number two and three companies on the mobile side.

Note: includes travel and event ticket sales, but excludes digital download sales; ex-cludes sales made on tablets

118.8%

91.4%

73.1%

48.3%

$23.7

$31.0

37.8%30.8%

$3.5

$6.7

$11.6

$17.2

2010 2011 2012 2013 2014 2015

M-commerce sales

% change

INFO

GRAP

H

Source: eMarkerter.com

fast FACT


More than 10 years ago, PayPal Inc. set tongues wagging when it de-buted, with questions about the

definition of “merchant” and what entitles an entity to accept credit and debit cards. The debate continues today, complicated by new developments around underwrit-ing and compliance with the PCI Data Se-curity Standards.

“In the beginning, the merchant defi-nition piece was far less complex. Any real business that maintained a physical location and had successfully proceeded through the underwriting process, diffi-cult or not, as prescribed by the individ-ual merchant acquirer or ISO, fell into the category,” explains David Abouchar, senior director, product management and devel-opment, at ControlScan, an Atlanta-based provider of PCI compliance and security services.

PayPal added a new twist, boarding cyber-merchants and assuming the role of transaction aggregator and merchant of record for each account. PayPal allowed businesses whose small size and/or risky nature made it difficult for them to obtain a traditional merchant account.

The waters became even muddier with the advent, about three years ago, of soft-ware programs for payment acceptance on Apple iPhone devices. This created a subcategory of tiny merchants, or “micro-merchants,” to accept payments by credit and debit cards.

Another explosion of the micro- merchants occurred in 2009, when Twitter co-founder Jack Dorsey launched Square Inc. Square started targeting not just the smallest mainstream micro-merchants, such as brick-and-mortar retailers with one or two employees, but also artists, home-based entrepreneurs, farmers’ market sell-ers, and others, says COO Keith Rabois.

Square acts as an aggregator for its more than 750,000 existing and aspiring merchants. Once merchants download a free application, they can buy a dongle that plugs into the headphone jack of a

ISO COrner

Micro-Merchant MessDebate over risk and compliance rages onBy Julie Ritzer Ross

ISO COrner

smartphone or iPad, enabling the device to be used to swipe credit cards. Sixty-five percent of the businesses that use Square are mobile in some fashion, Rabois notes, and the company processes approximately $4 million worth of payments daily.

The question of whether micro- merchants created and served by entities like Square are “really” merchants has yet to be answered, Abouchar observes. It is com-plicated by the issue of how to assess risk in this subsegment and the fact that not handling and storing credit card data them-selves, instead depending on aggregators for this function, removes micro-merchants from the scope of PCI compliance.

“The aggregation makes it harder to see what is what with the merchants, for the bank card networks to monitor who is executing transactions, and to get a handle on risk,” Abouchar says. “There are no hard-and-fast practices or rules” for

facilitating either or “as to underwriting.” However, Visa and MasterCard have set

new regulations that impose a degree of limitation on aggregation. Last summer, Visa Inc. announced a rule mandating that any merchant with an annual charge volume of at least $100,000 obtain and retain its own account with an acquirer. MasterCard also has adopted a similar rule, a company spokesperson says.

Dubious About ProtectionMeanwhile, although micro-merchants who work with ISOs and acquirers, rather than PayPal or Square, clearly do submit to risk assessment and underwriting, not all of those micro-merchants are committed to data security and PCI compliance.

According to Perfect Storm of Compla-cency: The Third Annual Industry Survey of Level 4 Merchant PCI Compliance Trends, conducted by ControlScan and


Boston-based ISO/payment processor Merchant Warehouse, micro-merchants often fail to grasp the value of adhering to PCI DSS and adopting additional data security measures. Many such merchants are “stubbornly persistent” in their belief that PCI compliance will not protect their business, according to the report. Further, the report finds that 48 per-cent of the nearly 620 Level 4 merchants queried reported that they were either “unsure” of or “not at all familiar” with PCI DSS.

On the other hand, 77 percent of large Level 4 merchants (defined as those with 51 or more employees) and 64 per-cent of e-commerce merchant respondents are “very” or “somewhat” familiar with the PCI DSS. Further, 77 percent of large Level 4 merchants consider data security a high priority, and 82 percent believe PCI compliance should be mandatory.

“The results of the current survey, compared to years past, show us that education and structured PCI compli-ance programs are helping large Level 4 and e-commerce merchants make strides in PCI compliance,” says Merchant Warehouse co-CEO Henry Helgeson. However, the research also reveals that “micro-merchants are either unaware of PCI DSS or actively choose not to embrace data security or PCI DSS because they don’t understand the risks.”

Level 4 Merchants Step UpBoth Helgeson and Abouchar are encouraged by the adop-tion and serious thought large Level 4 and e-commerce merchants are putting into their security posture and ap-proach to PCI compliance, chalking these up in large part to educational efforts by the ISO and acquirer community. But they say it remains incumbent upon ISOs and acquirers to share that same education with micro-merchants, guiding them through PCI compliance by setting stronger repercus-sions for non-compliance and establishing data security as an ongoing process.

The executives add that the precise impact of such emerging technologies as point-to-point encryption and tokenization on merchants’ PCI compliance—including compliance by micro-merchants—remains to be seen. Nonetheless, it behooves ISOs and acquirers to remain abreast of developments in this space.

“These technologies hold great promise for reducing merchants’ efforts to comply with PCI DSS, while increas-ing their security posture,” ControlScan CEO Joan Herbig said in a statement when the survey results were released late last year. TT

Julie Ritzer Ross is a contributing writer to Transaction Trends. Reach her at [email protected].


[ COVER STORY ]

KE Y NOTES8 Too many ISOs fail because they wasted too much time chasing after the “wrong potential customers and not enough time gleaning an understanding of the right ones,” says one executive.

8 ISOs and acquirers need to know the factors that influence prospects’ IT acquisition, the capabilities they want to integrate with the payment processing piece, and any potential hurdles expected.

8 The health-care vertical needs highly sophisticated solutions that integrate everything from scheduling and payments to HIPAA compliance, while the hospitality and retail verticals want solutions that help them identify customers and cultivate repeat business.

Customer Reconnaissance


s the saying goes, neces-sity is the mother of in-vention. In the electron-ic payments industry, it’s also the mother of reinvention. As ISOs and

merchant acquirers transition from selling payment services alone to promoting complete business management systems of which payments are just one component, really knowing cus-tomers is critical to a successful transformation. And it’s one way

to remain viable in the face of competition from traditional and nontraditional players, including

mobile and Internet providers.

A

Health-care, hospitality, and retail verticals require even more tailored

solutions now. Here’s what you need to know to ink the deal.

By Julie Ritzer Ross

Reconnaissance


“In order to win, it is becoming necessary to engage, and that has to happen on a per-sonal level rather than based, for example, on what technology can and cannot do, or the price merchants will pay for a particular service,” says Dale Laszig, senior vice presi-dent, sales, for Castles Technology Co. Ltd. in Honesdale, Pennsylvania.

“Given a choice between an ISO whose rep habitually comes in and says, ‘I know that x is going on in your industry, and here’s how other merchants are dealing with it,’ or, ‘The competition is setting up at this loca-tion, and here’s what it may do to attract cus-tomers,’ and one whose rep talks repeatedly about ‘fantastic products’ and ‘price breaks,’ most if not all merchants will go with the first one,” adds Paul Compton, chief sales officer for EVO Platinum Services Group in Austin, Texas. “More importantly, when that first ISO or acquirer is looking for referrals or requires some other kind of boost, the merchant will bend over backwards to pro-vide it.”

Making the effort to become highly ac-quainted with merchants, rather than ap-proaching them “head on” with products and programs, lets ISOs and acquirers weed out those prospects that are a poor fit, con-tinues Compton. “Too many organizations in this industry fail, or fall very short of their potential, because they wasted too much time chasing after the wrong potential cus-tomers and not enough time gleaning an understanding of the right ones,” Compton maintains.

ISOs and acquirers can start by dumping the sales-oriented approach and instead fo-cus on learning prospective and even exist-ing customers’ overall objectives, what they are attempting to accomplish on the pay-ments side and with their businesses as a whole, how their organizations operate, and what their “pain points” are, suggests Comp-ton. “It establishes credibility, and gives you a basis for your recommendations.”

Strong Medicine for Health-Care VerticalWhile delving into these general questions will certainly put ISOs and acquirers on the road to understanding individual custom-ers, developing systems tailored to specific vertical markets also is important. ISOs and acquirers need to know the factors that in-fluence their potential clients’ information

technology (IT) acquisition, the capabilities they want to integrate with the payment processing piece, and any potential hurdles expected.

Health care is a great example. Tapping into vendor and distributor resources can yield information and support. For instance, Ingram Micro, a distributor headquartered in Santa Ana, California, is assembling a suite of vendor solutions that are being promoted as “purpose-built” for health care, along with a team of health-care-focused IT solutions pro-viders. The solutions providers will serve as part of the Ingram Micro Services Network (IMSN).Involvement in industry organiza-tions like the Healthcare Information and Management Systems Society (HIMSS) and

the Medical Group Management Association (MGMA), among other groups, can also pro-vide insight into the market.

What ISOs and acquirers will doubtless discover in their research is that merchants’ needs to improve operating efficiencies and reduce financial expenditures are leading them to adopt solutions in which payment processing is integrated with other IT sys-tems, including accounting, patient schedul-ing/registration, electronic medical records (EMR), and computerized physician order entry (CPOE), says Mary Dees, president and COO of Dallas-based Preferred Health Technology. Fewer and fewer health-care providers are settling for generic payment processing solutions and services, she says.

[ COVER STORY ]

“Merchants in the retail and hospitalitysectors... want and need to be able to mine transaction data to figure out who is patronizing them, along with what they are buying or ordering and when.”

—Dan Rogers, Plastic Jungle


Several factors are important to consid-er here, notes Dees, among them, fee col-lection. Insurance rate hikes have driven individuals and employers alike to forgo coverage entirely, or to sign up for consum-er-directed health plans (CDHPs) or high-deductible health plans (HDHPs) that allow physicians and hospitals to receive payment for their services only after patients have re-mitted their deductible. Just as significantly, providers must wait to calculate the portion of payment for which patients are respon-sible until insurers’ network discounts have been reflected. Payments are slow to arrive, with providers typically waiting 60 to 90 days or longer to receive payment for their services and often lucky to receive them at all, Dees says.

To address these issues, ISOs and acquir-ers must also consider registration/schedul-ing, accounting, EMR, and CPOE systems, and be prepared to offer applications that feature tools for determining service eligibil-ity and estimating patient costs in real time, as well as take into account patients’ remain-ing deductibles and out-of-pocket payment maximums. Such solutions also must offer real-time claims adjudication capability; “ac-count on file” functionality that automates the processing of payments for which pa-tients, rather than insurers, are responsible; and sufficient flexibility to accept payments via credit or debit card, electronic check, bank account, or tax-advantaged (“flexible spending”) account.

But there’s more: Solutions also have to consider and incorporate compliance with PCI Data Security Standards and the Health Insurance Portability and Account-ability Act (HIPAA); provisions for patient financing, including credit scoring and/or automated installment plans (i.e., configu-ration, calculation, and billing/debiting of the appropriate account on file); and elec-tronic bill presentment and payment via e-invoices, patient portals, or online bill pay. Dees also recommends that payment appli-cations promoted to health-care providers include automated customer relationship management (CRM)/messaging capability across patient collection process steps—for example, sending patients pre-visit cost estimates, notices about payments due, and payment receipt verification. Automated payment reconciliation and posting via the use of electronic payments coupled with

billing information rounds out the list.With the health-care vertical, expect to

encounter a longer sales cycle than is cus-tomary for other verticals, says Dees. Few if any deals close in less than six months, and a two-year interval from first client con-tact to signing on the dotted line is far from unusual.

Buying Into Retail SolutionsMeanwhile, merchants in the retail and hos-pitality sectors have other demands. Above all, retailers and restaurateurs are looking for solutions that help them identify customers and cultivate repeat business, says Dan Rog-ers, CFO of Plastic Jungle, a secured gift card exchange company headquartered in San Mateo, California.

“These merchants want and need to be able to mine transaction data to figure out who is patronizing them, along with what they are buying or ordering and when,” Rogers says. Seedling Solutions Inc., a now-defunct ISO Rogers co-founded, focused on delivering cloud-based business intelligence and customer marketing analysis to small business owners.

Just as health-care providers have come to favor systems wherein payment processing is tightly integrated with other solutions, re-tailers and restaurateurs—lured by the pros-pect of enhanced operating efficiencies and the potential to offer the “right” merchan-dise or fare at the right time and with suf-ficient personnel on hand—want a tight fit between payment processing and other so-lutions. Inventory management, purchasing, and time and attendance are all important elements. Retailers that conduct business online and/or through mail order, as well as in brick-and-mortar stores, want a single solution for handling payment processing in all channels, says John Mayleben, senior vice president, technology and new product development, for the Michigan Retailers As-sociation (MRA). MRA offers electronic pay-ment processing services and solutions to its member merchants through its own ISO.

Not surprisingly, alternative payment ac-ceptance solutions that run on mobile de-vices have landed hard on the retailer and restaurateur “wish list” as well. “It is impor-tant that ISOs and acquirers don’t ignore this latest development—and it isn’t just because if they do, the next guy down the street is going to grab the business,” one

source says. “It’s also because independent software vendors are themselves going in and trying to do it cheaper and better.”

On the retail side, smartphone applica-tions are the ticket—although a few forward-thinking smaller merchants are willing to experiment with accepting electronic pay-ments using tablet computers. “For our part, we are now able to use a magnetic stripe reader that slides onto merchants’ iPhones (3G). With the accompanying software, it al-lows them to process a swipe transaction, collect a digital signature, and email the re-ceipt to the customer,” Mayleben says. “They also have access to a ‘virtual’ terminal from any computer that can get them to the Inter-net in order to process other transactions—credits, voids, etc.—and run reports.”

In the hospitality realm, pay-at-the-table applications are hot now. Restaurateurs have long been hearing customer complaints about the wait for transactions to be com-pleted away from the table; pay-at-the-table solutions streamline the entire exercise, says Compton. But more importantly, the pay-at-the-table option eliminates the common fear among consumers of fraud via covert “skim-ming” of their credit or debit card numbers.

Both retailers and restaurateurs are look-ing for customer loyalty and social media bells and whistles, whether strictly to mar-ket themselves through vehicles like Face-book or to also offer deals via text messages and coupons transmitted to consumers’ mo-bile phones, Laszig says. “This has become a primary differentiating point for these play-ers.” To properly fit solutions to clients, she says, ISOs and acquirers need to query pros-pects as to “what they believe their strong points are, and play on those accordingly.”

Yet whether ISOs and acquirers are at-tempting to capitalize on opportunities in health-care, retail, hospitality, or other verti-cals, spending time to gather extensive cus-tomer knowledge should never be a finite exercise. Your clients’ businesses are evolv-ing just like yours. “Technology changes, as do industry practices,” Laszig says. “Mandates evolve. You may ‘know thy customers’ now, but unless you keep probing, you won’t completely know them later, and you just may not win the game.” TT

Julie Ritzer Ross is a contributing writer to Transaction Trends. Reach her at [email protected].

[ FEATURE ]

Social media and loyalty options are changing the merchant-customer relationship, but still have some growing pains

Edited by Josephine Rossi

SocialThe

Each year, the ETA Technology Committee convenes a group of thought leaders to participate in a roundtable discussion at the annual Strategic Leadership Forum. This past October in Chicago, the group

talked about connected commerce and its value to consumers and merchants. In this first of a two-part series, we’ll share their insights on merchants’ use of social media, data sharing among multiple parties, privacy issues, and more.

Participants included:• Sarah Owen, vice president of mobile commerce

solutions, First Data Corp., Technology Committee chair, and Roundtable Subcommittee member and moderator

• Steve Chu, business development manager, Layered Tech, and Roundtable Subcommittee chair and moderator

• Todd Ablowitz, president, Double Diamond Group• Tony Abruzzio, business development executive, Isis

Mobile Commerce• Paul Coppinger, president, Apriva • Ryan Gilbert, CEO, BillFloat • Scott Goldthwaite, SVP of product management and

marketing, Planet Payment Inc., and Roundtable Sub-committee member and moderator

• Will Graylin, CEO, ROAM Data Inc. • Doug Hardman, founder and CEO, SparkBase • Carmen Paraschiv, vice president of strategic devel-

opment, PAX Technology, and Roundtable Subcom-mittee member and moderator

• Barbara Patterson, senior business leader of emerg-ing products and innovation, Visa Inc.

• Dan Rogers, CFO, Plastic Jungle, and Roundtable Subcommittee member and moderator

• Chris Small, managing director, VendorShop • Stuart Taylor, vice president of product management,

VIVOtech • John Wiese, president and CEO, Zenius Solutions Inc.

Excerpts of the discussion follow.

Connection



Question: How do you think social media is changing the consumer shopping experience, and what is the impact on the payment industry?

Tony Abruzzio: Social media can complete-ly change the way consumers interact with merchants. Facebook knows more about me than Google. For example, it knows who my friends are, where my interests are, and where I went to school. So, it’s very easy for Facebook to market things to me, and now it has even gotten into check-in type marketing. So, now you can check in on Facebook, and it lays the platform for offers. With foursquare, in my small home town I

can go into the little Schnitzel Shack restaurant, check in, and see what the place next door has as an offer. If I go over there, check in twice, I

can get a free beer. Remember, I’m talking about a little small merchant here. So, the possibilities are pretty interesting.

Doug Hardman: For a lot of these large social media companies, getting into payments is a natu-ral extension. If the merchants aren’t interacting

SocialThe with their consumers, then it’s right for Facebook or Google or any other daily shopping site that we all visit to get into this space. So, I think it’s inevitable; it’s a matter of when. I say, in five years, this whole landscape will have changed.

John Wiese: I believe that these new media can start to bring more value to the merchant, who I think has been left out of the value chain in a lot of areas because the loop hasn’t been closed on a lot of data. They also have the potential to bring value to the consumer side. So, coupling those two things—bringing a greater value proposition to the merchant side and the consumer—I think that’s where

the potential is.

Paul Coppinger: I think that social relationship between con-sumers and merchants constitutes an entirely different kind of

relationship than the kinds of relationships we have on Facebook, Twitter, or foursquare. Those networks are trying to capture cer-

tain relationships—your family, your friends, or your fan relation-ships—they don’t capture the relationship between merchants and consumers. Will we co-opt those networks and layer our solutions for merchants on top of it? Or, will we provide something that’s en-tirely different? Maybe the first-order effort is on Facebook, but the second-order effort—the one that will better serve merchants—is something new that is specifically developed to serve merchants and consumers.

Wiese: I don’t think everyone sat down and architected a system. That’s one of the downfalls. Payments alone are an instrument for doing business. When you take the collective of all these instru-ments—closed-loop, open-loop, or whatever—and combine data, that’s where we can start bringing value to those systems and maybe even architect it. But, today, that data is not available to the payment networks as much as they’d like, I’m sure.

Todd Ablowitz: Merchants care a lot more about the shopping experience than the payment experience. So to the extent that new solutions can affect the shopping experience, that’s what matters and will drive change. But there’s been a lot of discussion about how these new players will displace ISOs and acquirers, and I don’t think that will happen as quickly as some people are saying. I feel differently about that because our marketplace moves very slowly. Merchants make different types of buying decisions than consum-ers. I just read that 55 to 60 percent of merchants are still using dial-up terminals. Merchants tend to be motivated by the bottom line, and many times they have to see tremendous value, or feel real pain, either from competition or lost customers before making changes. It’s not that the new solutions aren’t valuable, but I think it’s going to take a lot longer than a few years for a majority of merchants to adopt them. It’s going to take time for them to [understand] the value of these new solutions. In the meantime, perhaps ISOs and acquirers can find a niche within this changing model.

Hardman: We’re used to seeing [merchants] move slowly, because


it’s an upgrade from a terminal with 512K of RAM to a terminal with 2MB of RAM. How-ever, when some salesperson comes in with a cool, flashy new box and says, “All you have to do is tap here and do this,” I think that’s going to sell.

It may or may not be Facebook that gets in the payment space, but someone is going to catch this entire industry off guard. If you look at the rate at which other technology catches up, I think we’re fooling ourselves if we think that it’s not going to be something that happens very quickly. Four years ago, iPhones didn’t exist. And I bet there are 40 of them at this table right now, in one form or another. If that happened to our industry, it would be a completely different organiza-tional environment.

Wiese: I think we need to redefine what a merchant is. There’s going to be brick-and-mortar merchants, but there’s going to be lots of acceptance devices that can turn nearly everyone into a merchant, and social media is helping to spread the news and thus expand the possibilities. We’re work-ing with mobile and are the first ones to do acceptance on mobile devices for all types of transactions, not just payment. This level of mobile acceptance will vastly change the consumer shopping experience through real-time acceptance of offers and redemp-tion, amongst many new and exciting fea-tures. Mobile technologies can drive a revo-lution into the brick-and-mortar merchant and will help redefine areas of the payments landscape.

Ryan Gilbert: I think Square has single-handedly redefined who a merchant is and what a merchant is. They may be seen as a PayPal alternative, offering PayPal-like Internet payment services to the real-time environment, but it is evident how Square is transforming in-person commerce when you see how mom-and-pop store owners are able to grow from one store to five stores us-ing Square. Merchants are more willing to buy iPads and other tablets to use a Square device or Intuit’s offering than they are to buy a typically old POS system with a cash drawer. That’s really been the real change.

Payments are probably the most social thing with value that we can all do. I give you money in return for something, and a relationship based on exchange of value

for services delivered is established. And, whether or not the social graph is some-thing online or something between us all, from a merchant perspective, there’s just more efficiencies coming [from the social side]. Instead of advertising in local news-papers, you’re now talking about the cost to buy CPMs on Facebook, or spend $5,000 for a Twitter campaign.

I am on the advisory board of Square and very passionate about it. It’s exciting to see how these innovations have really changed the way people think about getting paid.

Question: How have you found success in migrating or converting merchants to a new interactive model of commerce?

Chris Small: We’re seeing a huge demand out there from merchants. It’s less about us trying to convert them and more about them actually getting some return for what they’re doing on Facebook. They still don’t understand how to turn it into sales. So, you can give them a tool where they could make sales on Facebook like we do, but the vast majority still does not understand inherently how to develop the social side of it. In social shopping, it’s very much about doing some-thing that’s exclusive, a bit different. It’s not about recreating e-commerce on Facebook. Most merchants haven’t really gotten that yet. But they will.

We also are seeing a lot of small businesses finding new channels using Facebook, and I think that’s going to affect the payments business a lot. At the moment, PayPal is the default payment option for businesses on

Facebook. But it shouldn’t be. There should be a lot of alternatives out there and a lot of payments businesses offering them.

Dan Rogers: Are you spending time edu-cating them on what this new experience would look like?

Small: Yes, but it’s a new industry. From a business point of view, you’ve got to be conscious of how you go about it, or else you spend all your time educating and no time making money. So, there needs to be a bit of a balance, but it’s something that definitely needs to be done.

Will Graylin: It seems to me that how fast or slow this issue will move depends on what channels open up. Social happens to be a new channel that’s opening up for merchants to find and keep customers. And when a new channel opens up, usu-ally there’s an opportunity for a new type of payment to be inserted. When eBay opened up, there were no alternatives that provided a better way. PayPal took advantage of that good timing and good fortune to be in the right position. Now Square is taking advan-tage of an opening because that lower half of the pyramid is not being well served.

As Facebook and other social media open up, there is a vacuum as well. Whoever goes in there and fills it—and fills it well—will probably get a nice chunk of the market, just like Square is getting that chunk of the market, and PayPal has gotten to about 17 percent of the e-commerce market.

Mobile channels definitely are opening

[ FEATURE ]

“I think it’s going to take a lot longer than a few years for a majority of mer-chants to adopt [these new solutions]. It’s going to take time for them to [un-derstand] the value of these new solu-tions. In the meantime, perhaps ISOs and acquirers can find a niche within this changing model.” —Todd Ablowitz


up right now, too, and offer different ways for merchants to interact. A lot of consumers probably don’t even realize some of things that are going to come. And I don’t think it’s for fulfilling the consumers’ needs so much as it is for fulfilling the merchants’ needs. As long as merchants find a new way to attract customers, they’re going to be the ones that dictate which products or services replace their POSs.

As a group, we’re here to service mer-chants. The more we can figure out what’s going to help them find and keep custom-ers, the better off we are. The ISOs that move slowly or don’t wake up fast enough are go-ing to get more of their lunch eaten.

Scott Goldthwaite: When merchant ac-quirers started out, they were just trying to get people to accept payment cards with the purpose to help merchants sell more products. And perhaps we’ve moved away from that, but credit cards and electronic payments help merchants sell more things faster. The further we get away from that, the more disservice we do to our industry.

Graylin: Think about all the guys who are trying to offer value-added services on U.S. terminals. I think they are trying, but some of these old terminals are not designed for value-added applications to be easily deliv-ered and integrated.

We’re in a new time and space now where people are starting to look at POS terminals and integrated applications. You’re almost forced to look at how you play with some of these value-added service providers and integrate some of their solutions into the overall delivery mechanism to merchants. But, if you think about it, merchant service providers today actually have an advantage because they interact with their merchants. If they can take advantage of that, and learn how to couple technology, then they are the incumbents.

Question: What benefits will merchants receive from connected commerce, versus conventional payments?

Hardman: We power other ISOs to pri-vate label our network or loyalty through electronic couponing or gift card transac-tions, and so on. So, we’re two steps back from the merchant, but we do talk to them. The merchants that are successful with their in-store shopping are the ones that are actu-

ally talking to customers. [For example,] we have a quilt store that’s right next to a coffee shop, and they both have a loyalty program. But the quilting store runs circles around the coffee shop because the owner con-nects with her people. She talks with them. Here is a merchant that’s spending five minutes a day to set up an email blast or a special text message campaign. She spends literally five minutes a day on this. Yet, it’s transformed her business because she has people thinking about her more often.

Another company we work with is a small little bistro. Every day at 11 a.m., [the owner] goes to the back room and sends out a text message or an email to 1,000-3,000 people about a sale on soup or the daily special. But it gets people connected and thinking about that bistro.

We beat the drum on text messaging a lot. There are very few text messages I’ve received that I haven’t looked at. That’s

the power of this little device that we all carry around in our pockets—it tells us what to do. So, if I get a text message that says, “Come into Ed’s Deli today after 2 p.m. and you’ll get an extra $5 on your reward card,” I’ll think about that and I’ll probably act on it. That’s a perfect example of small merchants connecting with their customers in a way that they couldn’t three years ago.

Sarah Owen: The idea of connecting with their consumers, obviously, is very powerful. But merchants are going to need to evolve as their consumers become more and more connected. If I’m signed up for Groupon or Living Social or any of those [kinds of daily deal services], I don’t even need to open my personal email account anymore; incentives are delivered to me via my mobile device. Merchants are going to expand how they do business to the next forms [of engage-

ment]. To truly take advantage of this idea of connection with the consumer, in order to influence consumer behavior and drive additional revenue, merchants are going to need to invest in technology that is open, secure, and scalable. Both the point of sale and all of the information that merchants have access to are going to become very powerful tools.

Hardman: I think it’s a two-pronged ap-proach and not just the terminal anymore. It’s finding a new way to interact with [cus-tomers]. Maybe it will come through as a push notification on an app, or a little badge, or a receipt message that pops out and says, “Hey, you’ve been here a lot lately. The next [coffee] is on us.” Smart merchants are go-ing to start interacting with their consum-ers not just with email blasts and text mes-sages. That’s the direct mail of today. I throw all that stuff out, and I think most people will hit the spam button. So, it’s about find-

ing creative ways to tailor offers to people [who] need the things they’re offering.

Goldthwaite: As soon as [people] get overwhelmed with information, [they] stop listening to it. [Consumers] are going to look to channels of information that are more se-lective, that provide things that are relevant. And relevancy is a very broad term; it dif-fers from consumer to consumer. Perhaps they will teach the system what’s relevant to them. But, one way or another, the chan-nel that survives is going to be the one that consistently produces the most relevant in-formation for a consumer in any particular situation. It’s not going to be an unfiltered channel, like text messaging or email. It’s go-ing to be something much more intelligent.

Barbara Patterson: I think you’re right, it is about relevancy and delivering informa-

“To truly take advantage of this ideaof connection with the consumer, in order to influence consumer behavior and drive additional revenue, merchants are going to need to invest in technology that is open, secure, and scalable.” —Sarah Owen


tion consumers want at the right time. It’s setting up an email campaign and blasting to consumers; there is an increased ability to make a personalized offer. So it’s really about focusing on the relevancy and delivering the solutions that create opportunity—a better experience for the consumer and for the merchant. Acquirers should be focused on delivering solutions to merchants that grow their customer relationships.

Hardman: I agree. But, at some point, we’re collectively as good as the data we have. As the POS systems, terminals, and merchants become smarter, I think the rel-evancy of the offers and the data [becomes more important]. But, if you’re looking at the average mom-and-pop merchants that most of this industry is servicing, they don’t have that type of data built into their in-frastructure to be able to [track and cat-egorize customers]. So, we do what we can with the data we have. We can build phenomenal tools based off of how often people come in and their anniversaries and birthdays, etc. But, until we start get-ting SKU-based data that comes back to a merchant cataloguing everything, it’s very

difficult to grab granular data for the Tier 4 merchant.

Abruzzio: To me, that’s the opportunity, though. At Isis, we’re talking to a lot of big merchants, and we’re [discovering] that we have very sophisticated merchants that un-derstand how to communicate with their customers and draw them into their stores using not-so-technical means—coupons, mailings, and so forth. They’re trying to bridge over to mobile commerce to do that.

But there are 7 million merchants in the United States, and only 250 of those are the big ones. So, there’s a huge opportunity for someone to figure out how to communicate to those [smaller] merchants that they can create the same kinds of relationships with their customers as these big guys.

Question: What do you foresee as issues with privacy, security, and a lot of different parties sharing different types of data?

Patterson: I’m going to talk about Visa and our approach and philosophy around data protection and data privacy. We know the importance of establishing trust and then

ultimately retaining it. We have a wealth of experience handling transaction information. From a digital wallet perspective, it’s about ensuring that the entity that has [consum-ers’ information] has their trust and ensures the right security protections are in place to maintain that trust. At Visa, we use multiple layers of security, utilizing the best technol-ogy in order to deliver not just a single so-lution, but a multifaceted security solution. Ultimately, our view is about safeguarding that information—how you manage it, how you store it, how you retain it. In case the con-sumer has any issues with the device—like losing it or having it stolen—we have safe-guards built in to protect that information, just as we do with Visa cards today.

Consumers are constantly being bom-barded with [requests for] information in order to transact. But consumers don’t al-ways want to share that information. As we look to the future and where we think there are opportunities, we believe that having a trusted source to hold that information then provides that mechanism for consumers to shop where they want, when they want, and how they want, without having to worry about who has their information.

[ FEATURE ]

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From Visa’s perspective, we believe that privacy and permission are paramount. We are very, very conscious of that with any product we deliver. Our commitment to consumers is to protect their information. When we ask consumers for permission to use their data, we make sure that it’s about transparency—that they know what data is being used, what it’s being used for, who’s going to get it, and how it’s going to benefit them. I think it’s really about allowing con-sumers choice.

Hardman: Let me put my consumer hat on for a second. Who owns the data? Is it the consumer? Or, is it Visa or Isis or somebody else? And who controls entry into the marketplace because they own the data? As a consumer, I want to own my data and decide who I share it with. I think a lot of barriers to entry are being raised by organizations owning the data, and some of the games that are going on in the NFC world that have to do with who owns data on customers. I think the current model needs to be turned upside down to give data ownership back to the consumer. The technology is there [to al-low] the consumer to decide who gets what and where. But there are a lot of barriers between big entities that want to hone the data for their own use.

Owen: The consumer definitely owns the data, but depending on where the data origi-nates, consumer opt-in may not be enough; you may also need merchant or financial institution permission as well. The ability to use information on this next generation of value-added services is going to be a huge opportunity for our industry, but everyone involved needs to ensure that information is only being used with the appropriate approvals.

In this environment, when consumers see value, they are more and more willing to opt-in and provide their data, or give per-mission to use the data, for services that they feel are valuable.

Hardman: Let me give you an example. So, the merchants have a SKU list, and they know a lot about consumers—what they transacted, what card they used, etc. That data could be used to a consumer’s benefit in a lot of other places, if it was available to other systems that could analyze the data [and determine] if the consumer is missing out on a particular benefit or value that can be brought to them. But that data is locked up. It’s not the electronics, it’s not the tech-nology. It’s about trust. The merchant doesn’t want to give up their data to somebody else to use it against them as a business. But the consumer is the one losing out.

[ FEATURE ]

Ablowitz: But, at the end of the day, the consumer has to technically give permis-sion, even if they don’t know they’re giv-ing permission. The last time I downloaded iPhone software, it was a 55-page user agree-ment. I didn’t read it, but the fact is that if [Apple] does things with my tracking infor-mation that are viewed socially as wrong, they get a backlash in the market. So, it’s not just what the consumer technically agrees to. It’s really what’s fair in the court of public opinion.

Patterson: Our philosophy at Visa is that it’s not just about doing what’s possible, it’s about doing what’s responsible, and that’s always the way in which we look at all of our products and services. So, it’s not good enough that, at one point, somebody said it’s okay. It’s about constantly providing trans-parency, understanding, and choice. Because if anything happens, the consumer, in the end, loses. That’s bad for everybody.

Gilbert: A lot of new regulation will be coming soon. The Consumer Financial Pro-tection Bureau will determine what’s unfair, deceptive, or abusive. That’s going to change many commercial interactions. If you’re giv-ing something of value back to the consum-er, and they’re opting in on every transaction or every occasion, then you’re probably in the clear. But, if the opposite is true, I think you’re going to face problems. There’s tre-mendous value in data; Facebook is built on the value of our data as consumers.

Those of us that deal with people’s mon-ey are held to a higher standard than those of us who don’t. That’s unfair. Those of us in the financial services ecosystem need to get our act together and work to achieve parity. I’m not saying we want to be held to Face-book standards, but maybe hold Facebook to the same standards as us. TT

Editor’s Note: Look for Part 2 of this roundtable discussion in the March issue of Transaction Trends

“I think the current model needs to be turned upside down to give data ownership back to the consumer. The technology is there [to allow] the consumer to decide who gets what and where. But there are a lot of barriers between big entities that want to hone the data for their own use.” —Doug Hardman


Startup Stories:»

Thinking he was going to be a phy-sician, Alan Kleinman majored in biochemistry at the University of California-San Diego. As an un-dergraduate, he volunteered at a

surgical intensive care trauma unit to see first-hand what it would like to be a surgeon.

“I’m intense at times,” Kleinman says. “People can tell you that.” What he learned from the volunteering experience was that he didn’t have the passion for a career as a surgeon. However, he still had a passion for health care.

Fortunately, he pursued a double major, with the other being economics. He en-rolled at UCLA to earn his MBA. Then he went to work as an investor in health-care companies. “I love health care—helping others, providing solutions,” Kleinman says. “I was working on the cutting edge of health care—disease management, medical devices, you name it.”

His career brought him to the venture capitalist fund Pacific Venture Group, which had $210 million under investment.

Today, as one of two founding principals at Meritus Payment Solutions, a fast-growing payment processor in Southern California, Kleinman puts his venture capitalist and health-care expertise to work. Meritus often targets what Kleinman refers to as “higher growth emerging markets.” Internet and e-commerce, mail and telephone orders, business-to-business, gaming, health care, and property management are among the sectors that it services.

Meritus brings focus on excellence to every aspect of the business, leveraging the principals’ health-care

and venture capital expertiseBy John Manasso

Healthy Solutions

Meritus Payment Solutions

Meritus Payment SolutionsSanta Ana, CA

Founded: 2008

Number of employees: 50

“We believe in whatever we provide— products, services— excellence is where we will be content.”

— Alan Kleinman


LET US PROFILE YOUR ISOIs your company a successful ISO? Let us tell your story. Email [email protected] for more information.

“Wow” FactorKleinman and Hiep Tran, a consultant with whom Kleinman crossed paths during his business career, founded Meritus in mid-2008. When the company became fully operational in January 2009, it had eight employees.

Kleinman and Tran’s concept was built on three pillars: to deliver the best in peo-ple, technology, and products and services. Kleinman wanted the company to establish a “wow” factor.

“The word meritus is the Latin word for excellence,” he says. “We believe in what-ever we provide—products, services—ex-cellence is where we will be content. We want to have exceptional customer service. Product enhancement is all important.”

Based on that model, the company has built itself up to 50 employees today and in October 2011 the Orange County Business

Startup Stories:» Meritus Payment Solutions

Journal ranked it fourth among its fastest-growing private companies, as Meritus’ rev-enues grew 700 percent between June 30, 2009, and June 30, 2011.

Within the last year, Meritus has moved to hire a director of operations, a marketing coordinator, and another person to oversee human resources. In hiring those individu-als, Meritus was looking for people who brought an entrepreneurial side—people who could “wear multiple hats” and adapt to fast changes, says Kleinman. “People who are smarter and better than us.”

Among those hires is Dan Eddy, a 37-year-old veteran of the payments industry who spent five years with First Data, where he focused on product and data stability for both merchants and vendors. After leaving First Data, Eddy became a consultant, where he worked with start-up ISOs much small-er than Meritus. He also spent some time

at iPayment, an ISO with several hundred employees based in Southern California. He joined Meritus in March 2011. Eddy says he hopes that Meritus becomes the final stop of his career.

“Really, it’s about growing and being an industry leader,” Eddy says of the company. “It definitely seems like this is a place for that long haul. We’re in a building stage. I tell people, ‘Just pretend like you have an opportunity to be that person in five years who’s running that organization because this is definitely ground-floor time.’ The growth potential in the long term is what attracted me.”

The two principals, Kleinman and Tran, were integral in Eddy’s decision to join Meritus. With his experience, he knows that small ISOs live and die by the decisions that the people running them make. “The way our principals think, they have taken a lot of pieces of what successful organiza-tions have done and implemented them, and they look for the pieces that didn’t work so well and have steered clear of those,” Eddy says. “I’ve seen the full spectrum of that. In a smaller place, it’s much easier to apply what you know.”

Scaling to the Next LevelWhile Meritus was not founded with ven-ture capitalist money, despite Kleinman’s background, Kleinman has brought that “VC” mindset. “We think strategically, and I operate our business not entirely in that fashion but to some extent,” Kleinman says. “That’s been very helpful to us: our methodi-cal growth, our planning. We have monthly meetings, weekly operational meetings—all these things large companies have. We hold people accountable.”

Prior to founding Meritus, Kleinman’s lone foray into the payments industry came during a short stint as senior vice president/CFO/COO of National Merchant Center. Dur-ing his tenure, the ISO’s processing volume rose from $150 million to more than $1 bil-lion. Part of what eased his jump to the pay-ments industry was an experience during his

WORDSTOTHEWISEMeritus Co-Founder Alan Kleinman comes from the venture capitalist industry, so his primary advice regards strategy. “First, I would say define your strategy and why you’re doing what you’re doing. Second, stay focused with that strategy. My partner (Hiep Tran) keeps me aligned a lot. We complement each other in so many ways. I always look at all these opportunities. To be the best at what you do, you’ve got to stay focused.”

Director of Operations Dan Eddy is a former consultant and a five-year veteran of First Data. One of his fortés is in retention. “Don’t let retention happen [only] when the merchant wants to close their account. Retention is the process of keeping the account from the time they sign on the dotted line, not when they sign on the cancelation form. ISOs bend over backwards when they receive the cancelation letter. The goal of retention is that it never gets to that point. You have to stay sticky and retention will take care of itself.”

The quality of people is essential, maintains Kleinman. “We are just as successful as the people we surround ourselves with. How many ISOs our size (50 employees) have a human resources person? How you interact with (employees), how you lead them, is critical, and that will correlate with your success. You can see it with us. We started with a concept and a couple of people. Almost every single person we started with is still with us today.”


investing career when he was involved in a similar business in a different industry. He worked with companies that served as the back-end of large, non-major medical insur-ance companies. The large insurance compa-nies marketed the products, but Kleinman helped the partners behind the scenes to perform many of the functions, such as claim management and data entry.

“It was all about optimizing that opera-tion,” Kleinman says. “We applied some of the methodology in how we operate our operation. We don’t have data entry in In-dia and customer service in the Midwest, but you can apply some of those same principles to a business. If you look at the different segments of the operation and the operational flow, it’s very similar.”

Meritus also makes technology a top priority, building some products with its own information technology department. Owing to business strategy, Kleinman elected not to reveal the size of the de-partment other than to say that it is large enough for the company to be certified by the PCI Security Standards Council.

“What we think is core and critical, we tend to build ourselves,” he says.

One of the products that Kleinman cites is a new one called Customer XP. Among numerous other uses, Customer XP facili-tates repeat billing, gathers new data di-rectly from customers while storing data securely using industry best practices, makes refunds and credits easier, and pro-vides customer search capabilities.

“That’s all part of our growth,” Klein-man says. “We feel like now we’re ready to kind of get out there. Our operations are in great shape. We’re looking to scale to the next level. We’re trying methodi-cally to do it.”TT

John Manasso is a contributing writer to Transaction Trends. Reach him at [email protected].

Director of Operations Dan Eddy and Principal Hiep Tran review Meritus growth trends from 2011 to expand in 2012.

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Network Merchants Inc. 2 1-800-617-4850 www.mni.com

Pax Technology 17 877-859-0099 [email protected]

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etA 2012 BOArd OF direCtOrsOFFICERS

PRESIDENTEddie Myers

President & COOPayment Processing Inc.

PRESIDENT-ELECTRoy Banks

CEOACCELERATED Payment Technologies Inc.

TREASURERKim Fitzsimmons

CEOCynergy Data

SECRETARYDebra Rossi

Executive Vice President Merchant Payment Solutions

Wells Fargo Bank

IMMEDIATE PAST-PRESIDENTRick Pylant

Chairman & CEOStrategic Payment Systems Inc.

DIRECTORSTodd Ablowitz

PresidentDouble Diamond Group

Robert BaldwinPresident & CFO

Heartland Payment Systems Inc.

Gregory CohenPresident

Moneris Solutions

Gary GoodrichCEO

ProPay Inc.

Chuck HarrisPresidentNetSpend

Chris HylenGeneral Manager & Vice President

Intuit

Diana MehochkoDMM Consulting

Mike PassillaPresident & CEO

Elavon

Jeff RosenblattPresident

EVO Merchant Services

Kurt StrawheckerManaging Director

The Strawhecker Group

ADVISORY COUNCILEddie Davis

Senior Director, Distribution PartnersPayPal

Will GraylinCEO

ROAM Data Inc.

Joan HerbigCEO

ControlScan

Kevin JonesPresidentSignaPay

Tom WimsettJ&T Ventures

EX-OFFICIOPamela Furneaux

Interim CEOElectronic Transactions Association

Jan EstepPresident & CEO

NACHA

Steve CarnevaleGroup Head—U.S. Market Development,

Emerging Verticals and Acceptance Development

MasterCard Worldwide

Sameer Govil Head of Acceptance Solutions

Global AcceptanceVisa Inc.

Ron ShultzVice President

American Express

Gerry WagnerVice President

Discover Financial Services

LEGAL COUNSELDave Goch

Attorney at LawWebster, Chamberlain & Bean



Actum ProcessingAustin, TX480/677-0555www.actumprocessing.comContact: Vinny Lipari

American Merchants Inc.Studio City, CAContact: Jumesh Walia

Merchant Cash GroupGainesville, FL866/610-6569www.merchantcashgroup.comContact: Robert Bunn

MetroBPSHolbrook, NY800/942-7970www.metrobps.comContact: Allen Munier

AAmonte Inc.Palm Desert, CA760/776-4888www.aamonte.comContact: Leroy Anderson

Adility Inc.San Francisco, CA415/666-2580www.adility.comContact: Thomas Cornelius

Global Legal Resources Inc.Carlsbad, CA888/846-8901Contact: Christopher Dryden

VersaPay CorporationHuntington, NY631/897-1284Contact: Todd Whiton

The Electronic Transactions Association is pleased to welcome the following companies to its membership. To inquire about a membership with ETA, please contact Del Baker Robertson, director of membership and mar-keting, at [email protected]. For a complete list of ETA member companies, go to www.electran.org/members.

[ NEW MEMBERS ]

But you don’t have to miss one issue of the latest news and information affecting your electronic payments business and career… Sign-up for the FREE all-new digital edition, launching next month!

Email [email protected] today!

describing what Capital Access network does—which is provide, through its subsidiaries, work-ing capital to small and mid-sized businesses—is

pretty easy. explaining how the scarsdale, new York-based company accomplishes that task is not so simple.

the backbone of Capital Access network’s business—the technology platform it provides to its subsidiaries, Ad-vanceMe and newLogic Business Loans, as well as various

third parties—is supported by the mountain of data it has collected and analyzed from small and medium merchants since it first opened its doors in 1998.

“the data that we have access to is pretty vast,” says Mark Lorimer, Capital Access network’s chief mar-keting officer, adding that the com-pany’s data stacks “include literally hundreds of millions of pieces of data on small businesses, specifically on small businesses that have taken a working capital advance.”

that’s because the Capital Ac-cess network collects data from its clients “every day, every time a mer-chant batches out,” he adds.

All of that information is then combined and re-combined with the data the company has collected over the last 12 years from more than 90,000 transactions. “We collect over 90 risk indicators associated with every single one of the businesses that we engage with, and then we track those 90 indicators against every single payment we get,” Lorimer says.

Capital Access network uses the data to create profiles that the company turns to while looking at businesses that are applying for working capital. “it allows us to break that business down into its constituent risk indicators, re- combine it along the most likely profile, and then risk-score that profile,” Lorimer explains.

that knowledge of the data and the history behind the data has helped make Capital Access network—and, especially, the daily remittance platform it provides to AdvanceMe (which provides the working capital to busi-ness owners) and newLogic (which provides commercial

INduStRy InsIder

Data Mining for DollarsUsing masses of data, Capital Access Network helps small and medium merchants acquire working capital

By Bryan Ochalla

loans)—attractive to merchants and other small businesses, as well as isOs, merchant-level salespeople (MLss), and pro-cessors, too.

“they know that we’re going to provide their custom-ers with working capital that helps them grow or expand their business, or that helps them stabilize their business,” Lorimer says.

there are several other reasons isOs, MLss, and proces-sors have decided to become resellers of Capital Access network’s working capital products (through AdvanceMe and newLogic), according to Lorimer:

“the first is our knowledge of merchants and our history of serving them. it is critically important as an isO or MLs or processor that if you’re going to introduce one of your merchants to a finance product, you have to be sure you’re not going to do them any harm.” in other words, you have to be sure that the merchant is going to be treated with kid gloves and is never going to be given more capital than it can safely handle.

A second reason, says Lorimer, is that business owners who take advantage of Capital Access network’s working capital products tend to be relatively long-term and lucra-tive customers for isOs, MLss, and processors. “You’re resell-ing these products for financial reasons, for commission, right? Well, 75 percent of our customers renew with us, and they tend to renew for two more consecutive transactions,” which means lots of potential income from commissions.

A third reason is it can be a great prospecting tool for isOs. “this gives isOs something else to talk [with potential clients] about besides just the price of processing.” One of Lorimer’s colleagues puts it this way: “instead of going into a business and saying, ‘i can save you a few basis points today,’ we can go into a business and say, ‘Can i get you $30,000 today?’”

And then there’s Capital Access network’s “staying power,” as Lorimer calls it. “We’ve been around for a long time, we’re extremely well capitalized, and we’re going to continue to be around in the coming years to pay your com-mission. We think that’s a real and valid concern, especially today, when the isO and processing business is getting tougher, not easier.” TT

Bryan Ochalla is a contributing writer to transaction trends. Reach him at [email protected].

“Seventy-five percent of our customers renew with us, and they tend to renew for two more consecu-tive transactions.”—Mark Lorimer

24 January 2012 | TransacTion trends

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