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Point-of-Sale Industry Technology Blog

Our Passion is Focused on the Advancement of Payment Processing and Point-of-Sale Technology

Apple’s Recent Accomplishment has nothing to do with Hardware!

Apple’s Recent Accomplishment has nothing to do with Hardware!

Apple’s Recent Accomplishment has nothing to do with Hardware!

When I started my company in 2009 on a whim, I decided to jump head first into the point-of-sale and payment processing industry.  Too naïve to understand what I was getting myself into and too stubborn to quit, I marched head on into designing a point-of-sale system (which is a glorified accounting system that accepts orders, tracks sales  and dispatches orders while also tracking employee attendance).  Little did I know just how complex it would become to integrate and certify software that can process credit and debit card transactions.  After all, I was previously involved in writing and testing software for the aerospace industry so how difficult could it possibly be to process a credit card transaction?

In fact, the credit card industry is made up of many actors including Acquiring Banks, Processors, Independent Sales Organizations, Agents, Merchant Service Providers, Gateways, Issuing Banks, Standards Councils and a new standard known as PA-DSS or Payment Application Data Security Standard.  The new standard required all merchants to use a PA-DSS validated POS software by July of 2010 or the merchant would pay heavy fines IF their system was breached.  Unfortunately, PA-DSS has never truly proven its worth.  Though it can cost around $20,000 to certify software to PA-DSS not including internal costs, it truly never addressed the problem and that problem is protecting cardholder data.  It has seemed more or less like putting lipstick on a pig.  Your auditor as well as the PCI-DSS security standards council will admit that a company can maintain 100% compliancy and still be breached.  In fact, during 2014 there have been countless high profile data breaches including PCI compliant companies such as  Target & Home Depot.  According to the Identity Theft Resource Center as of September 9th 2014, there have been 533 breaches exposing 18,721,149 credit card numbers to Identity Thief’s.  The problem is particularly troublesome in the US where less secure methods of transacting electronic payments occurs (i.e. the US lacks the implementation of Chip and PIN found in Europe).

So what does any of this have to do with Apple, a company known for innovating products from a user interface perspective?  What is it about Apple that is going to be disruptive in the electronic payments industry and how does this affect the security of your private data? 

Announced in typical Apple style with a worldwide audience watching the broken live stream on the Apple website on September 9th of 2014, Apple unveiled the iPhone 6 and their new service, Apple Pay.  Apple Pay does not store your credit card number, but instead a token.  It requires your finger print to make a transaction and you can even disable your phone if It is lost.  That stated, what Apple is doing with the iPhone is nothing earth shattering.  It uses technology that has been around for years including tokenization, fingerprint scanning and NFC or Near Field Communication.  The game changer, we believe is in Apple’s ability to negotiate partnerships and contracts as well as their marketing power and proven track record on influencing consumer trends and hence the response from Apple’s competitors in an attempt to compete.

You see, trying to innovate in the electronic payments space is a challenging proposition.  It’s not that the technology is not capable, its more so that it is difficult if not impossible to bring in all the players in the industry together on the same page.  Players that we talked about in the opening of this blog post; ISOs, MSPs, Merchants, Issuing Banks, Acquiring Banks, Processors, POS ISVs and the card brands such as Visa, MasterCard and American Express.  Trying to coordinate those actors is worse than herding cats.  It’s worse than herding cats to jump into a pond.  No person nor company has been able to build a solid momentum and consensus that would change this industry, especially in the United States until NOW.  Apple has momentum going like no other.

I run a software company in Dallas and we primarily deal with and develop Microsoft applications so I can say that I have never taken a drink from the Apple fountain of Kool-Aid®.  I just didn’t appreciate and still don’t appreciate Apple’s secrecy that leaves third party device manufacturers hanging and software vendors trying to adapt with no notice at Apples surprise events.  This time however, Apple surprised many of us with huge partnerships that were kept secret.  The cool new iPhone and watch was great to see, but their innovation in electronic payments would have been uninteresting to us without the countless partners that have already signed up to work with Apple.  Acquiring and Issuing Banks such as Bank of America, Wells Fargo,  Capital One, Chase, Citi and US Bank and others that reportedly make up 83% of the transactions in the US.  To further add momentum we learned of the merchants that they have already been working with Apple including Bloomingdales, Disney, Macy’s, McDonalds, Staples, Subway, Walgreens and Whole Foods Market.    These partnerships in this industry are unprecedented.  Forget the cool features of the watch and phone, I want to meet the people that convinced all of these major market players to join Apple’s bandwagon and join Apple’s vision, good job Tim Cook!

I too have suddenly become drunk from the Apple Kool-Aid® but I think it is due to great justification.  Apple has been able to convince major actors in the electronic payment industry to join their vision unlike any other player before.  They deserve tremendous respect and soon other companies will follow.  Paying with your phone could potentially replace the need for credit cards.  There is little doubt in my mind that Apple is a technology innovator, but don’t underestimate their influence as a trend setter and market leader.  Thank you Apple for finally changing an industry that so many others have failed move.

Turkish Payment Platform Iyzico Raises Further $1.4M

Turkey’s Iyzico, which provides a platform to let e-commerce sites and other apps easily accept online payments (and can be thought of as the ‘Stripe of Turkey’), has raised a $1.4 million series B round. The funding was led by Turkish VC 212 Invest, along with previous backers Pahicle, and Speedinvest — adding to the $1.4 million it raised just over a year ago.

Iyzico says the new capital will be used to bolster its leadership position in Turkey where U.S.-based Stripe has yet to launch (despite ongoing European expansion), but where competition does exist in the form of the Samwer brothers’ Rocket Internet, which operates Stripe clone Paymill.

How long the Turkish startup can fend off Rocket Internet and Stripe, should the latter choose to enter the region, remains to be seen. That said, there are not-insignificant regulatory hurdles to cross in Turkey, as well as local market dynamics that are specific to the region.

On that note, Iyzico cites regulations that require payment providers in Turkey to apply for a license via the Turkish Banking Regulation and Supervision Agency. Specifically, each provider needs to establish a local, compliant IT infrastructure, says the startup. That would potentially place Turkey fairly low in the priority list for any startup operating in the space, compared to European Union countries — where one license usually covers the whole of the EU — which Turkey is not.

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OpenTable Expands Mobile Payments To New York, And Soon, 20 More Cities

OpenTable, which first announced its mobile payments pilot program this February in San Francisco, is about to speed things up. The company said this morning that it’s now expanding its mobile payments service to a number of restaurants in New York and plans to introduce payments to 20 more cities before the end of 2014.

The service competes with similar efforts from a number of companies ranging from smaller startups to payment giants like PayPal, all of which have been experimenting with mobile payments tableside in restaurants for much longer. In some cases, those payments are accepted via an app installed on consumers’ smartphones, while in other cases, the business offers a tablet at the table that may also include the restaurant’s menus and promotions, or even games to play while waiting for your food.

Many restaurants have embraced the interactive tablets, such as Applebee’s, which signed a deal with E la Carte late last year for its Presto tablets. The restaurant chain said the tablets would help reduce print collateral, which had before included a number of extra menus, inserts and table caddy menus. Other startups working on their own bill tallying and splitting solutions for diners include MyCheck, Dash, Cover and TabbedOut, to name a few.

Meanwhile, larger chains like Starbucks and McDonald’s have begun tests of order-ahead technology, which also includes a bill-paying option.

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Target’s Data Breach Costs Now Total $236 Million

Target Corp. on Tuesday issued an update on its data-breach expenses for the second quarter that brings total costs to $236 million, including expenses in the first quarter and late 2013.

The Minneapolis-based retailer expects gross breach-related expenses in the second quarter to be $148 million, offset by $38 million in insurance. The numbers came in an update Target released ahead of its scheduled Aug. 20 second-quarter earnings report.

The retailer said in its financial report for the first quarter that its total breach-related expenses at the time were $88 million with $52 million covered by insurance. Target’s out-of-pocket costs from late 2013 through the first half of 2014 are $145 million, net of insurance proceeds. Target said it has $100 million in network-security insurance coverage, with a $10 million deductible.

The breach announced last December compromised 40 million payment card numbers and non-card data on 70 million customers.

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First Data Reports Improved Financials And Plans To Buy Digital Gift-Card Provider Gyft

In a busy day for First Data Corp., the leading payment processor on Wednesday reported a reduced quarterly loss and its best revenues since going private, and that it plans to buy digital gift-card services provider Gyft Inc.

Thanks to recent tech-company acquisitions and moves to improve its debt-laden balance sheet, including a $3.5 billion equity infusion, Atlanta-based First Data is now a “waterfront property,” chief executive Frank Bisignano told analysts during the company’s second-quarter earnings conference call. “We have continued revenue momentum and continued EBITDA (earnings before interest, taxes, depreciation and amortization) growth,” he said.

But when questioned, Bisignano pooh-poohed speculation that an initial public offering is imminent. Kohlberg Kravis Roberts & Co. bought First Data in 2007 for about $29 billion, and the company still has $22.6 billion in long-term borrowings. This year it expects to pay $1.72 billion in cash interest payments, although the recent equity deal will reduce future annual interest expense by about $440 million. “We’re not focused on an IPO, we’re focused on building a great company,” Bisignano said.

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The Braintree v.zero SDK

Payments gateway Braintree is making its first significant product announcement since its acquisition by PayPal last year, with the launch of a jointly developed Braintree SDK (software development kit) for developers. The new toolset is being called the “Braintree v.zero SDK” to indicate how it’s been rebuilt from the ground up, and is said to be easier and quicker to integrate within web, mobile web and native mobile applications.

Braintree previously offered SDKs for developers looking to accept payments within their applications, and this is meant to replace those earlier versions as the new Braintree experience.

While the standout feature, of course, is the inclusion of PayPal as a payment method, the new SDK has actually been built in such a way that turning on or off PayPal, as well as any future payment methods Braintree chooses to integrate, will be as simple as flipping a switch.

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In a Move That Baffles Experts And Vexes Some Users, PayPal Drops Remote Capture

With its abrupt move over the weekend to discontinue mobile remote capture of checks, PayPal Inc. has puzzled payments experts and vexed at least some users.

Some PayPal devotees took to Twitter on Sunday to post their reactions, which were generally negative. “I was told today you all won't be doing [remote deposit capture] anymore which has me switching away from PayPal,” noted one tweet. “Boo for stopping check capture!” went another post, and “It's a shame you folks are discontinuing your check capture service. It was the most convenient way to send $ to PayPal,” read yet another one.

PayPal notified users in an email Sunday that it was shutting down the service as of that date for its mobile app. It also announced it had on June 12 dropped the mobile-deposit feature from its PayPal Here mobile point-of-sale app, which is used by small merchants to process payments on smart phones. The processor adds in a statement on the matter that business users can still “record checks” in PayPal Here the same way they record cash transactions.

Both the decision and its suddenness are perplexing to some observers who follow mobile deposit capture. “I’m surprised by this move by PayPal,” says John Leekley, chief executive and founder of RemoteDepositCapture.com, an Alpharetta, Ga.-based research firm. “Remote deposit capture is one of the top reasons consumers and businesses change financial-service providers.”

PayPal sent its statement in response to a Digital Transactions News inquiry, but at the time of this posting had not responded to a request for more information about the rationale for the move. It has not released how many consumers or businesses have used the service.

In the statement, the company implies the remote-capture feature simply wasn’t getting sufficient usage. “Checks have become a less common way to pay for things and many of our customers have either fully moved away from checks or have other ways to pay,” the statement reads. “In doing this, it allows us to focus on our primary mission, creating a truly digital economy – whether shopping online, paying a friend, or using a mobile device to pay.”

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Dwolla Makes it Easier to Pay Online using Your Bank Account

Payments network Dwolla has been trying to change how money is moved around electronically, with services meant to replace traditional bank technologies, such as the days-long process of ACH transfers. But today’s announcement of a new service called Dwolla Direct is an admission of sorts that ACH transactions aren’t going away any time soon.

With Dwolla Direct, the goal is to make the sign-up process for first-time Dwolla users easier and quicker, allowing them to send a business money from their bank account, without having to first establish a Dwolla account via the company website. But then that money is moved through “whatever method is the fastest,” which, sadly, is still ACH.

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EMV Chip Based Debit and Credit Cards soon to be in More Wallets

The conversion of U.S. magnetic-stripe credit and debit cards to the Europay-MasterCard-Visa (EMV) chip card standard is about to shift into high gear, and the payments forecasters are busier than their counterparts at The Weather Channel just before a hurricane’s landfall. The EMV Migration Forum, an affiliate of the Princeton Junction, N.J.-based Smart Card Alliance trade group, on Thursday predicted more than 100 million EMV payment cards will be issued by year’s end.

Earlier this week, Aite Group LLC issued a report predicting that 25% of U.S. credit cards and 8% of debit cards will have EMV capability this year. With Americans carrying more than 1 billion general-purpose payment cards in 2013—an estimated 579 million credit cards and 597 million debit cards—Aite’s projections mean that about 157 million cards could be EMV-enabled by Dec. 31.

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Head of PayPal unit steps down to join Facebook

David Marcus, who has led eBay's fast-growing payments unit PayPal for the past two years, will step down this month to run Facebook's messaging products, the companies announced on Monday.

EBay shares fell a little more than 2 percent in trading after hours. Under Marcus, PayPal has moved more aggressively into the physical world by developing a mobile wallet for consumers as well as point-of-sale systems for retailers.

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