Dorado TrendWatch Q3 2016

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.

TrendWatch 2.0Q3 2016

Dorado Industries655 Deep Valley Drive, Suite 125-PRolling Hills Estates, CA 90274

(310) [email protected]

www.doradoindustries.com

Random Thoughts

Digital Wallets War Over; No Winner DeclaredFrankly, we blew this one. Two years ago, TrendWatch 2.0 predicted that consumers would gravitate to digital wallets over retailer apps and we were wrong. Back then, we figured consumers would prefer open loop solutions over the closed variety and would prefer one (or two) wallets over a couple handfuls and we were wrong.As always, consumers have provided empirical evidence of our wrong-headedness by voting with their feet. Digital wallet providers like Apple, Google, and Samsung (even before it devised their novel exploding battery app) are watching their transaction growth rates decline to new lows. Meanwhile, retailers opting to embed proprietary payments apps and branded wallet apps inside their mobile shopping apps – folks like Walmart, Kohl’s, Dunkin Donuts, and CVS – are experiencing huge take-up numbers and watching the transactions tally quickly. (We’re patiently waiting for In-N-Out Burgers to release its app.)Some might see the wallet v. apps contest as a battle of wills between banks and merchants, but not TW. Rather, we see a more profound back story that deals with branding and brand-sharing, merchandising, and the value of an uninterrupted and uplifting customer experience. So, while Apple, Samsung (sorta), and Google struggle mightily to enroll consumers through bank relationships and merchants through inflated value assessments, consumers are ordering, taking, and paying with retailer applications suitesdesigned to build foot traffic and customer loyalty. In short, the branded digital wallets have been Uberized and that’s the equation factor we missed.Our apologies to all.

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EMV Migration War Over; We All LostFirst, the industry lost because EMV perpetuates the use of the card, itself a half-century old “token,” when a fingerprint or retina scan would have (and, hopefully, will one day) put a laser beam through POS fraud of all types. Second, consumers lost because issuers (read: banks) promoted the EMV migration based on its (questionable) security benefits rather than the potentially beneficial customer experience the new technology could deliver if issuers gave it a chance. Third, merchants got double dipped. There’s the initial outlay for new gear and certification (if someone would return the phone call) and let’s not forget the snow storm of chargebacks resulting from inconsistent reason codes and confused consumers. Banks and credit unions learned the hard way that, when the customer is confused or feels abused, they call the bank named on the front of the card. The biggest loser? The next round of innovation, like the aforementioned fingerprint or retina scan. It’s safe to say that when the card brands roll out the “next great thing,” be it real or fancied, there’s little chance that it will be implemented and that’s a crying shame.The Election War Is Almost Over; There Will Be A Winner (More Or Less)The next issue of TrendWatch 2.0 will publish after the election and a few days before the inauguration. For those of you heading for Canada, please leave a forwarding address or email. Those deciding to stick around in hopes that CFPB and ACA either will be improved or dismantled should be thrilled to know that, win, lose or draw, TW will continue on. From where, we’re not certain. Cuba maybe; they say the fishing there is great.Until next time; we’re off to Baja.



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Table of Contents

2016 Predictions 4TrendWatch Scorecard/Summary 62016 Payments Industry Yields 7Interesting Quarterly News That Got No Respect 8Q3 M&A/Investor Activity 16Useful Links for Quieter Companies 19Back in the Day! 20




2016 Predictions

• The Big Three – Alphabet, Apple, and Facebook – will go on an acquisition tear in the payments arena to put some distance between each other and the rest of the pack.Mar: A couple of purchases already made in virtual reality and analytics fields.Jun: More VR and augment reality buys and Microsoft is following suit.Sep: Facebook is going long with its payments-thru-messenger rap while GOOG and AAPL buy more AI assets.

• Lesser known payments schemes will begin closing up shop.Mar: Google says goodbye to their prepaid debit card offering.Jun: Coin is now part of FitBit; MCX CurrentC is MIA.Sep: Looks like everyone plans to hold on until after the October payments conference circuit – a “one last gasp” strategy.

• VC/PE interest in payments startups will diminish while traditional bankers will step in with partnership and investment deals.Mar: Q1 2016 VC/PE pools received record funding yet set a record for the smallest number of actual investments made.Jun: It’s not likely that the VC/PE folks will buck the M&A trend we see from Apple et al.Sep: Good thing that big banks are taking up the slack (more on this inside).

• Despite intrigue created by CFPB’s interest in foreign transfers, the cross-border money movement sector will heat up – new players and some M&A.Mar: Transferwise gains another $58 million in VC funds to expand globally. Meanwhile, WorldRemit raked in $45 million. More “follow the money” evidence.Jun: Two new players have acquired their way into the U.S. market.Sep: $180 million more for Payoneer suggests we’ve going to see more and more digital transfer options.

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2016 Predictions

• Banks and credit unions will throw caution to the wind and begin offering their depositors proprietary branded digital wallets to combat the zeal merchants have for steering customer loyalty.Mar: No major announcements as yet.Jun: Some minor movement but no marquee players following Chase Pay yet.Sep: We may have blown this one; merchant apps are proliferating at a torrid rate. Perhaps consumers prefer their merchants’ brands to their banks’? Heavenly days!

• In another search for scale, two established merchant services processors will merge.Mar: All quiet so far; waiting to see the Global Payments/Heartland deal close. The TransFirst/TSYS deal comes close but the buyer falls short of the “established” qualifier.Jun: Crickets. Might be an end-of-year event.Sep: A couple of small deals – if one considers a $10 billion MSP small?

• Blockchain will remain the new “glowing object on the horizon” but efforts to institutionalize it will not move the needle much in 2016.Mar: Lots of activity; BofA looking to patent apps and processing, over $1.0 billion has been invested in blockchain through new VC pools or direct plays.Jun: Huge number of small investments being made in blockchain exchanges. Lots of folks following a Roulette Wheel investment strategy – small bets made across the full field of offerings.Sep: Watch shows like Money2020 for new announcements. Credit unions are getting into “kicking the tires” mode.

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2016 Predictions

• In-app payment options (e.g., “One Click” by Amazon) will go on autopilot and become less of an “end” and more of a “means to an end.”Mar: It appears that the “steering wars” has begun with both Visa (Visa Checkout) and MasterCard (MasterPass) offering up new partnership deals with key mPOS and eCommerce retailers.Jun: Lots of announcements with delayed go-live dates. We’ll see.Sep: Hell, even Echo’s Alexa can make a payment for us while ordering concert tickets. What more proof do we need? And, PayPal and Visa Direct are playing nice together. Who would have thought?

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TrendWatch Scorecard/Summary – Q3 2016

Market & Industry Situation1 – No material offerings came forth; a pity.2 – Card-less access programs popping up everywhere.3 – Still growing despite a mediocre economic revival.4 – Besides calling for Trump to bow out, what the hell is Congress up to?5 – Someone has shut the spigot off. 6 – Even stronger Q3 earnings than last quarter.7 – Way off of prior periods and strangling new venture growth.8 – Couple more rogue hackers went to prison. Yahoo!

Industry Players To WatchPayPal: Hot on the heels of deals with Visa and MasterCard, PP could become very aggressive at the point of sale.Card Brands: The Amex decision could embolden a brand or two to take a more predatory approach? Hope not.EWS’ clearXchange: With a fresh new consumer-facing brand (Zelle), can we expect an advertising campaign to promote the name and service? Anything’s better than this election crap.Wells Fargo: The bank will survive just fine but how many more on mahogany row will start dusting off their resumes?The Retailers: Really; with all the closed loop “pay” apps being born each month, isn’t it time that a few folks meet in a smoke-filled room to create at least a quasi-open loop scheme?

5. New Venture Growth4. Legal/Regulatory Issues

1. New Payment Forms

2. ATM Restructuring3. POS Volume Trend

Low

High

High

Low

Low

High

High

Positive

Mixed

Negative

6. Earnings Announcements

7. Industry Investments

8. Payments Industry SecurityMed




2016 Payments Industry YTD Yields

Sources: Company releases, Morningstar.com, Bloomberg.com, Coinbase.2016 YTD yield excludes dividends; based on 12/31/15 and 9/30/16 closing prices.

Nice to see that claw backs are working for our basket of payments equities. The combine performance of 5 percent beat the Dow and S&P. Some holdings have a ways to go to get back to 2015 levels. Others are making hay while the sun shines. Hopefully, Brexit won’t “bankrupt the U.S.” as some pundits are saying but, any forecast for a rosy recovery in the post-election era must be design by analysts in Colorado, Washington, or Oregon. And, for our older readers, Medicare open enrollment starts in a few days and runs through December 7. You’re welcome.

Industry Player 12/31/15 9/30/16 Price r Cap Value r YTD 2016 Yield

Alliance Data Systems 276.57$ 214.53$ (62.04)$ (3,691.4)$ -22.4%American Express 69.55$ 64.04$ (5.51)$ (5,950.8)$ -7.9%Blackhawk Network Holdings 44.21$ 30.17$ (14.04)$ (734.3)$ -31.8%Cardtronics 33.65$ 44.60$ 10.95$ 445.7$ 32.5%Discover Financial Services 53.63$ 56.55$ 2.92$ 1,404.2$ 5.4%Euronet Worldwide 72.43$ 81.83$ 9.40$ 473.8$ 13.0%Fidelity National Information Services 60.56$ 77.03$ 16.47$ 3,142.5$ 27.2%First Data 16.03$ 13.16$ (2.87)$ (516.2)$ -17.9%Fiserv Inc. 91.46$ 99.47$ 8.01$ 2,038.5$ 8.8%Everi (fka GCA) 4.39$ 2.47$ (1.92)$ (148.0)$ -43.7%Jack Henry & Associates 78.06$ 85.55$ 7.49$ 628.4$ 9.6%MasterCard Worldwide 97.43$ 101.77$ 4.34$ 6,987.4$ 4.5%MoneyGram International 6.27$ 7.10$ 0.83$ 48.0$ 13.2%PayPal 36.20$ 40.97$ 4.77$ 5,819.4$ 13.2%Square 13.04$ 11.66$ (1.38)$ (451.3)$ -10.6%Total System Services 49.80$ 47.15$ (2.65)$ (869.0)$ -5.3%Western Union 17.92$ 20.82$ 2.90$ 1,649.4$ 16.2%Vantiv 47.42$ 56.27$ 8.85$ 2,194.6$ 18.7%Visa 77.55$ 82.70$ 5.15$ 4,356.4$ 6.6%

.Bitcoin Closing Price 430.05$ 606.95$ 176.90$ 41.1%




Interesting News This Quarter

Subject Source/Date Substance

iPayYou Mobile Payments Today

July

“Pay-by-Twitter” is gradually coming together, however, through no overt action on the company’s part. Instead, startups on the periphery are taking advantage of the widespread Twitter network to enable users to sling all types of tender between one another. iPayYou introduces bitcoin to the tender mix and gives recipients the option to hold the bitcoins in a iPayYou wallet, pass them along to someone else (in a financial services version of “hot potato”) or liquidate the tender for dollars. Senders need nothing more that the recipient’s Twitter handle for addressing, a decided improvement over email or a bitcoin address. Amazing what creative people can do with someone else’s catalogue of millions of users.

AlipayWeChat Pay

Jing DailySeptember

Ubiquity is a business standard we all chase, yet, few achieve. At least in the United States. In China, it’s a different story. A recent study of 5,000 households found that 99 percent of online purchases are made with mobile payment apps like Alibaba’s Alipay or Tencent’s WeChat. Emboldened by its large share and market penetration, Alipay has been introduced in Europe to accommodate travelers from China to that part of the globe. Mumbling under one’s breath about state-owned banks and a government manufactured economy doesn’t nullify the fact that, at least in one part of the world, mobile payments have captured consumers’ interest. Think it might be the high level of collaboration between retailers and the mobile payments providers or the highly refined user experience? We do. Hat tip: Josie Tong!

U.S. Mobile Payments Business IntelligenceSeptember

Compare the results of the survey conducted in China with those from a 1,000 consumer field test run by Square and the word apathy comes to mind. Less than 50 percent of users in the under-34 segment (i.e., millennials) have made an NFC payment while the older crowd posted a 26 percent experience rate. BI sees these numbers as positive and has bolstered its forecast for 2020 m-commerce. Trouble is, the high growth expectations are dependent on the older segment dying off and millennials becoming a larger share of the population pie. Some of us don’t plan on going based on a mortality table so we consider the BI 2020 forecast of m-commerce in the $500 billion range to be iffy.




Interesting News This Quarter – Continued


HeroPay PYMNTS.comSeptember

Our nation’s largest retailers may dispute this claim, but we believe the small and medium merchant segment is getting hit hardest by EMV migration. HeroPay, a Los Angeles startup led by a former Visa executive, has plans to correct this problem for EMV specifically, and merchant services processing in general. HeroPay works with SME retailers to find the most cost effective processing solution available. The HeroPay business model works on fees or commissions pay by the processor rather than the merchant and strives to produce 40 percent reductions in MSP service costs for the company’s small merchants. Hope this works; Lord knows the need is real.

False POS Declines Business Intelligence

July

Consumers have got a problem. For a variety of reasons, including EMV migration and large ticket sizes introduced through Black Friday or Cyber Monday types of events, false declines are growing. Meanwhile, the overall decline rate for recurring transactions approached 16 percent in 2015 and continues to grow this year. With our fragile consumption-based economy marching into the holiday season (which can make or break many retailers), retailers and card issuers need to get creative to prevent another spike in declines or worse, a flurry of chargebacks. Neither is good for anyone and it appears we’re doing it to ourselves.

Austin Public Transit PaybeforeOctober

Speaking of EMV, transit system riders in Austin, Texas began taking a swift kick to the nether regions on October 9 when Austin’s Capital Metro public transit operation stopped taking cards at its 20 transit fare vending machines in nine commuter rail stations. The devices will continue to accept cash (Austin in a college town; what’s cash?) Riders can use their contactless stored value cards, a smartphone app, or they may purchase passes through online or retail locations. Capital Metro decided that the $5.0 million price tag required to upgrade its kiosks for EMV wasn’t money well spent. Aw, progress.

MasterCard UK BBCSeptember

In a classic case of piling on, MasterCard UK now faces consumer litigation totaling $14.0 billion over anticompetitive card fees. Despite having already lowered its interchange rates as a result of other litigation, the new consumer legal claim seeks damages for fees charged by the card brand between 1992 and 2008. Hell, why not go back to the beginning of MasterCard time? (Historical footnote for younger readers or those who might have forgotten: Interbank Card Association and Eurocard started a strategic alliance in 1968, which effectively allowed the ICA access to the European market, and for Eurocard to be accepted on the ICA network. The Access card system from the United Kingdom joined the ICA/Eurocard alliance in 1972.) Piling on in royal fashion, we think.






Venmo Business Intelligence

July

Firms and industry pundits far smarter than Dorado Industries forecasted three years ago that P2P payments providers would gradually morph their offerings in online purchasing tools and they were right. Venmo has moved its Pay with Venmo buy button into a handful of retailers with plans announced to take the effort deep into the online merchandising domain. PayPal has pivoted Venmo to target the checkout process in hopes of reducing cart abandonments and encouraging e-tailers and others to enroll in the service. In taking this step, PayPal has put itself directly in the path of Apple Pay; may the best app developer win.

WalletronSpeedpay

Mobile Payments Today

August

Two companies hope to provide value added services to mobile wallet providers in much the same way Alipay and WeChat are reaping huge customer loyalty in China. Walletron and Speedpay have partnered to provide a bill payment functionality for Apple and Android Pay wallets. The app operates inside either OS wallet and provides a “Pay My Bill” button. Key to the partnership is the Walletron “moBills” feature which allows consumers to receive electronic bill through their smartphones. Key players in the moBills gambit are mortgage and auto finance companies along with insurers and utilities. A match made in heaven: a biller company and a payments app, what could be better?

FiservPayPalSquareVisa

Bank InnovationAugust

Q3 witnessed a number of “unique” partnerings. Compared to some others, the new relationship among Fiserv, PayPal, Square and Visa Direct is pretty tame. This step toward full interoperability in real time involves a couple of subtle twists. Visa Direct and Popmoney users will now be able to sling P2P payments between one another and PayPal Venmo users can push money for easy withdrawal to their Visa accounts in lieu of their Venmo account. Strange bedfellows? Not really, if the objective is interoperability through brand sharing. The union is very strange when one tries to figure out how the inter-unit revenues are going to be shared.

IBMThe Clearing House

FinextraSeptember

You may have to be a bit older to grasp the significance of one of the first faster payments dominos that fell recently. IBM has taken a huge step forward in real-time payments with the announcement that its Power8-based system (a 2,500 transactions per second fire-breather) has been selected by to power the TCH real-time applications provided by VocaLink. This is a major change away from x86 technThe Clearing House ology dropped by Big Blue a few years ago. If (and that’s a big one) the United States moves to real-time payments, it’s probably a good bet that participating processors will need to make a similar upgrade if interoperable systems are going to deliver consistent results and an interchangeable customer experience. Gone are the days when slow-poke servers can co-exist with race horse machines because of the inherent settlement time lag, we opine.





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Look to the right Let’s Talk Payments

September

Quick, name the three top investors in FinTech. Did you say, Citi Ventures, Goldman Sachs and JP Morgan? Smart people. Citi Ventures alone has made 43 investments totaling $1.2 billion in 33 companies. Goldman has spread $800 million around the FinTech roulette wheel and has its own patent for SETLcoin, a currency it proposes to use for securities settlement. JP Morgan, as well as Bank of America, have announced investment pools for FinTech north of $3.0 billion. Not to be out done, several major players are running incubator or accelerator units – Wells Fargo, Bank of England, Capital One and Silicon Valley Bank are just four of the dozen or so three piece suit players opting for man buns and Birkenstocks. Who knew?

Citibank Bank InnovationSeptember

Time was, we could always count on Citibank to go its own way. When most of us agreed on magnetic stripe cards for payments, Citi stuck with its “magic middle” solution (Google it). Most banks bought their ATMs from NCR or Diebold. Not Citi; it made its own. And, when P2P came along, Citi was one of the first to cut a deal with Popmoney. Well, no longer. Citibank has joined its brethren big bank owners in clearXchange to provide real-time P2P transaction to its customer base. We’re not sure if the lads at PayPal’s Venmo are quaking in their boots yet but it’s hard to discount the collective power that Citi, Chase, BofA, Wells Fargo, Capital One and US Bank bring to the P2P service. Then, again, there’s this new twist that might cause a ripple in the big bank cabal. Seems they’ve decided that a consumer-facing brand is critical to gaining faster adoption rates and have paid a bundle to brand themselves as “Zelle.” We can’t recall a time when a big bank has done well with consumer branding but, there’s always a first time, maybe.

CVS FinextraAugust

Long time MCX consortium player, CVS, has apparently jumped ship (dinghy?) and has launched CVS Pay. Like Walmart, the CVS Pay app is bundled with the company’s main mobile app which generates a barcode for scanning by the store cashier. The app does much of the work behind the scenes once CVS customers have loaded their payment card information. Sounds pretty nifty. Now, if CVS could just get its service personnel to work a little faster, we might get out of the store before the prescription expires.

Apple FinextraSeptember

Apple has granted access to Siri via its SDK causing Square and UK based Monzo to jump on board. Soon Apple’sSiri will handle Square Cash P2P payments and Monzo isn’t far behind. Makes you wonder how Siri is going to dealwith slang – does Mary really want a “tenor” or is she short of cash and needs a “tenner?” Time (and AI) will tell.





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Facebook Messenger Business InsiderSeptember

Bill Gates once announced that Microsoft planned to take a piece of every payment transaction that flowed through its OS-supported applications – and the world laughed. Now, Mark Zuckerberg may be striving for the same end state but he’s smart enough to keep his mouth shut. Facebook Messenger is running a closed beta that allows consumers to make direct purchases through chatbots operating within the messaging system. Very cool. No need to leave the FB site. Amex is using their bot to deliver balances, benefits and services in this way. Bill payment is just a click away. Add these bot-enabled features to the already present P2P function in Messenger and you’ve got a world-beater with lots of convenience. So, who needs a digital wallet? Not many, we’re guessing.

First Data Business InsiderSeptember

Problem: Apple announces that its iPhone 7 series (and probably all new Apple products) does not have an audio jack. Solution: First Data launches a Bluetooth-based mPOS reader for its Clover merchants that will accommodate mag swipe, EMV and contactless transactions. We expect to see similar offerings from Square and CardFlight shortly. Problem solved.

Kohl’s Mobile Payments Today

October

If you like Kohl’s Cash, you’ll probably use Kohl’s Pay. At least, that’s the thinking at Kohl’s as it rolls out Kohl’s Pay, yet another merchant-centric (and closed loop) payments app. Kohl’s looks like they’ve done it right by rolling in their offers, Cash, and Yes2You rewards programs for single transaction checkout. Again, the app has Walmart’s QR code look and feel (an approach we don’t favor but acknowledge to be both workable and safe) and barcode reading seems to becoming the de facto standard within the retailer vertical. Again, who needs a digital wallet? Crickets.

Android users and app developers

Business Intelligence

July

So, you’ve bitten the bullet and designed your digital wallet or app and your customers love it. Then, the hammer falls. Two thirds of your customers – those opting to use your Android application - discover that they’re among the 85 million consumers worldwide that have been sucked into the “HummingBad” malware scheme. What do you do? Abandon the wallet/app and tick off your customers or spend the dough to fix the problem and cross your fingers in hopes that the next Android vulnerability doesn’t impact your customers? None of this is theoretical, folks. 85 million devices became permanently rooted by HummingBad and it was generating $300,000 per month until it was finally shut down. Again, who needs a digital wallet that is easily corrupted?





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Digital InsightPSCU

ATM Marketplace

July

Digital Insight (an NCR asset) and PSCU, the credit union centric credit and debit card processor, claim to have found (or made) the holy grail for credit union member information reporting. The two companies can provide consolidated deposit and credit card data for members who use both companies for processing. Branded with the catchy name “Card Management Services for Digital Banking,” the service allows CU members to manage both account and card information in online and mobile banking applications. Card cancellation, lost or stolen reporting, temporary suspension all are functions available through the service. Jazzy; now, about that product name . . . .

PayPalVisa

Internet RetailerJuly

When asked to name two companies that can’t stand one another, Visa and PayPal would be good answer (assuming that the tandem set of Visa and MasterCard had already been taken.) So, imagine the surprise this July when these two combatants announced a kiss-and-makeup agreement. The pluses and minuses are pretty clear. Visa stops PayPal from steering that aggregator’s customers toward the ACH rails where Visa can’t get to them. PayPal gains more cache with retailers as it strives to become more brick and mortar friendly. PayPal no doubt gets a much lower discount rate on Visa transactions and consumers can glom onto their PP account funds faster by linking a Visa branded debit card to their PP accounts. Oh, and those charges to your deposit account that once said “PayPal” will now carry the merchant’s name; now, that’s a major benefit. Pretty good deal for Visa since MasterCard isn’t involved. Or wasn’t for all of sixty days. MasterCard and PayPal cut a similar looking deal in September. So much for exclusivity.

Green DotMasterCard

PaybeforeJuly

“Well, that system conversion went smoothly” said no IT manager or CEO, ever. So it went for MasterCardand Green Dot as 58,500 holders of Walmart’s MoneyCard could not use or activate their cards between May 16 and 20 of this year. $4.4 million in waived fees, errant transaction give-backs, and a bunch of $50 courtesy credits later, things are back to normal. Of course, a couple of under-worked legislators (Sen. Sherrod Brown and Rep. Bob Menendez) had to stick their oar in the water and chest-thump for constitutes and the local media. Guys, it’s a conversion; stuff happens. Get over it.

Staples Business Intelligence

August

Office and home goods supplier, Staples, takes another hard look at home automation (aka the Internet of Things) and backs out after being an early market entrant. Seems Staples saw that itsearly adopter status had given way to hundreds of smaller competitors with significantly better ideas and lower price points. The Staples Connect suite of Wi-Fi enabled gadgets is still around but serviced by Z-Wave Products, a much more logical source for these types of gizmos. Good move, Staples.





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Chase Pay Payments BriefingAugust

Phillips 66, the national fuel retailer, joins Starbucks and Shell Oil in accepting Chase Pay’s proprietary QR code system in its existing mobile apps. Fuel distributors bear one of the toughest burdens in meeting the EMV migration roll-out schedule and Chase Pay may help ease the burden somewhat. Phillips is another MCX merchant (like Shell) that has jumped ship. Again, who needs a digital wallet?

ATM users Payments BriefingAugust

Surcharge-free networks may be losing a bit of their advantage if the recently observed trend of declining off-us transaction fees continues. The semi-annual MoneyRates survey includes some interesting findings. First, a mere 33 percent of those surveyed actually use machines that are subject to surcharges. 44 percent of millennials would be unwilling to stop using ATMs and cash even if electronic payments could replace all cash transactions (side note from a former survey-taker: consumers don’t always tell the truth.) The average surcharge experienced by survey respondents has fallen to $2.80 while bank-assessed fees on foreign transactions have declined to $1.60. It’s not yet time for surcharge-free networks to consider another gambit; rather, something to ponder.

CULedger FinextraOctober

Blockchain technology is undergoing a feeding frenzy and no one wants to be left out. The credit union system is no exception and has formed CULedger to collaboratively address how to leverage the (theoretically) beneficial attributes it affords. CULedger is a consortium of major industry players including CUNA, Best Innovation Group, Mountain West Credit Union Association, PSCU, and others. The business plan calls for credit unions and credit union service organizations (CUSOs) to become the major funding source for R&D projects and testing. Evernym has been selected as a technology partner while Glenbrook Partners and PSCU will collaborate on a credit union-centric blockchain white paper. Reminds us of the wild and wooly days of Triple DES, PCI, EMV, and Y2K. Of course, those were real. Blockchain? The jury’s still out; for payments anyway.




M&A/Alliance Activity

Buyer/Investor Target Payments Emphasis Possible StrategyBTMU, others Coinbase Bitcoin exchange Mega Bitcoin exchange, Coinbase, has not yet entered the Japanese

market but the locals are clamoring to be part of the action. Japan’s largest bank joins other local investors for a $10.5 million kick start round. This puts BTMU in the big leagues category, joining NYSE, USAA, and BBVA, earlier Coinbase backers. Try as we might to consider Bitcoin irrelevant, big banks and savvy investors keep coming back for more.

Dead pool suretap M-payments app Suretap was an NFC m-payments app launched originally by Rogers Communications and subsequently backed by a JV of Canadian telecommunications providers. Like the American payments service, Softcard (fka Isis), suretap faced stiff headwinds from bank and FinTech offerings and has opted to get out of the game. Telco ventures in payments, a much feared theoretical competitor in the 80s and 90s, have not done well in mobile payments around the globe. The Kiwi venture, Semble, pulled the plug two weeks before suretap and the UK offering, Weve, never saw the light of day. So much for the guy in the middle being a threat to gobble up the system end points. Something to be said for sticking to one’s knitting, we guess.

Centana,Millennium Technology Value Partners

Jumio ID verification service Jumio defies the odds and raises $15 million in new funds despite being mired in an ugly bankruptcy. New owners of the Jumio assets, Centana, and an investor plunk down new funds to prove that the five year old company has a better mousetrap in online ID verification. Originally launched by Facebook cofounder, Eduardo Saverin, Jumio’s fate was muddied by governmental snooping which weakened its ability to raise additional funds. The company must be doing something right; its YoY recurring revenue grew by 66 percent during the quarter it entered bankruptcy.




M&A/Alliance Activity - Continued

Buyer/Investor Target Payments Emphasis Possible StrategyIPO Nets Nordic payments processor When can three out-perform 186? When the three are Advent International,

Bain, and a Danish pension fund. These investors paid 186 Nordic banks about $2.0 billion for their shared payments processing utility, Nets, in 2014. Less than two years later, an oversubscribed offering of 52 percent of Nets equity produced $4.5 billion in return. Nice payday for three visionaries who were able to remove the clutter caused by 186 owners and focus Nets on what’s really important - making money by providing superior service. We’ve seen this model before but it’s been quite some time.

Capital One Paribus Mobile price tracking Capital One pays an undisclosed amount for startup, Paribus, to add value to its portfolio of card offerings. Paribus has 700,000 subscribers who use the service to track price reductions in recently-purchased products. As the theory goes, merchants might be willing to price-match the purchased item after being hounded by consumers. Paribus had raised $2.0 million in VC funds and plans to tack a surcharge on successful renegotiations between consumers and merchants. Capital One’s acquisition of Paribus brings its recent tally of startup captures to six, making it the leader in 2016 in small fry FinTech tuck-ins.

TCV, Susquehanna Growth Equity, others

Payoneer Cross-border payments Old by most standards at eleven years, early cross-border player, Payoneer, grabs $180 million in new money. Proceeds will be used to fuel global growth and workforce expansion. Payoneer’s approach to B2B payments has attracted some heavy weights – Amazon, Google, and Airbnb – and hundreds of others. The company’s roots link back to the need to pay subcontractors working overseas and expanded to the full range of B2B invoicing. We wonder what Western Union and MoneyGram would think about another strategy pivot by Payoneer toward the international P2P space? Might not be pretty for the incumbents.




M&A/Alliance Activity - Continued

Buyer/Investor Target Payments Emphasis Possible StrategyMasterCard VocaLink UK payments processor In potentially another example of fewer owners outperforming the many,

MasterCard lays out $920 million for UK bank-owned processor, Vocalink. Actually, 8 percent will remain with the 13 owners because there’s a performance kicker included. VocaLink operates BACS, the ACH lookalike, the Link ATM network, and the UK Faster Payments scheme. As noted by the UK’s Payment Systems Regulator, common ownership by a number of banks is having a “negative impact on innovation and competition in the industry.” There you have it, less is more. How this transaction ultimately plays out with solutions being promulgated under the Fed’s Faster Payments Task Force is yet to be seen. Or not.

Tech Coast Angels Movocash P2P payments There’s a new P2P app coming soon and its targeted at a large segment –underbanked millennials (sounds redundant). TCA invests $1.8 million to determine if Movo’s plan to attract the segment with an app that provides personal financial management tools, prepaid card functionality (via Visa), and P2P payment options will work. Frankly, we wonder how many P2P apps and systems the country really needs but, since we don’t fit the demographic, we’ll just wait and see.

Cardtronics DirectCash Payments

ATM processor Major ATM deployer, Cardtronics, pays $460 million for DirectCash Payments, the Alberta, Canada based ATM fleet owner with holdings in Australasia, Mexico, Canada, the UK. The purchase price represents a 40+ premium over then-current market pricing. Cardtronics gets 25,000 additional ATMs and strengthens its holdings in several key existing or new markets. The acquisition increases the Cardtronics portfolio by over 10 percent. The rich get richer, they say.




Useful Links for More Information

Here are some companies that haven’t received press coverage lately but which are worth a look-see.

Company Role LinkMovocash P2P payments for millennials www.movo.cash

Payoneer International B2B payments www.payoneer.com

CULedger Credit union-centric blockchain association

www.culedger.com

The Clearing House Big bank owned payments network www.theclearinghouse.org




Back in the day!

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No trivia contest this quarter, just proof that there’s more to life than work.

Congratulations to Chuck Parsons, Network President, with First National Bank in Sioux Falls for knowing the difference between Russell Hogg of MasterCard and Dee Hock of Visa. Chuck, your gear is on its way.

Dorado TrendWatch Q3 2016

Business

Transcript of Dorado TrendWatch Q3 2016