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CARD Act, OD fees gone,
  Dodd- Frank- Durbin.
  Lord, what more could go
  wrong? Wait, is that my
  mobile phone placing a
  butt call order on
  Amazon?




                                                                      TrendWatch 2.0
                                                                                                                              Q4 2011
                            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.
Random Thoughts
     When it rains, it pours. Why?                                         Abandonment of MC/V rails comes in second and players
     It looks like we’re in for another run of alternative payment         like Dwolla and Nacha’s Secure Value Payments system are
     providers offering merchant and issuer value propositions             aggressive enrolling issuers and merchants in an effort to
     designed to tempt consumers away from traditional payments            avoid traditional payments pricing models.
     brands, rails, and pricing. We’ve seen this at least twice            Unique market vertical focus applied by startups TabbedOut
     before. Ten years ago, payments got caught up in the dot-com          and Rail targets special problems in the leisure and hospitality
     frenzy and about a half-decade back tokens, bracelets, and tags       verticals by promoting the notion that “one size does not fit
     were attempting to irradiate consumers as they eschewed their         all.”
     leather wallets in favor the bright glowing object of                 The fourth driver, elimination of check out lines and POS
     contactless payments.                                                 lanes, seems to be getting the most traction of all. By
     Both of these waves crashed for a variety of reasons and a lot        leveraging mobile phone GPS, on-board camera and scanner
     of us were caught short. We think that having a framework for         technology, and aggregated product data, companies like
     the drivers behind the current wave in alternative payments           AisleBuyer, ShopSavvy, and Australia’s QkR are empowering
     might help us assess the long-term value they bring and their         consumers both shop and buy without dealing without cashiers
     probability of being successful in their own right and                or POS devices, two of retailers’ biggest expense categories.
     contributors to FI, retailer and network bottom lines.
                                                                           How many of these offerings will
     Avoidance of the cost of PCI compliance is the first                  succeed is probably unknowable. Yet, if
     framework driver, one that impacts all parties to the payments        the drivers in our framework prove to be
     system. Most mobile applications that leverage NFC                    sound, we could see newcomers take the
     technology and imbedded Secure Elements target PCI                    place of those that fade and perhaps one
     compliance cost avoidance by purporting to deliver a more             day we will no longer be burdened by
     secure transaction. Narrate’s ultrasonic application for POS                                                                    SOPA
                                                                           PCI, outdated pricing models, retailer
     transactions claims to be incapable of being skimmed or               queues, and check out systems that
     sniffed. Merchant PCI compliance costs can exceeds tens of            expose us to fraud. In the meantime,
     millions of dollars for larger retailers making the driver a          non-mainstream retailers may final
     significant long term player.                                         receive some attention from the
                                                                           payments industry.
Dorado Industries                                                                                                                         (310) 544-1316
655 Deep Valley Drive, Suite 125-P                                                                                      jmacallister@doradoindustries.com
                                                                       2
Rolling Hills Estates, CA 90274                                                                                                  www.doradoindustries.com
Table of Contents


                          2011 Predictions/Results                              4
                          2012 Predictions                                      6
                          TrendWatch Scorecard/Summary                          7
                          2011 Payments Industry Yields                         8
                          Interesting Quarterly News That Got No Respect        9
                          New Names to Watch                                   13
                          Q2 M&A/Investor Activity                             14
                          Useful Links for More Information                    20
                          Back in the Day                                      21




Dorado Industries                                                                            (310) 544-1316
655 Deep Valley Drive, Suite 125-P                                         jmacallister@doradoindustries.com
                                                            3
Rolling Hills Estates, CA 90274                                                     www.doradoindustries.com
2011 Predictions and Review

     •      Despite good efforts to the contrary and Visa’s plan to support dual interchange schedules, exempt debit card
            issuers will suffer major product profitability declines as a consequence of Durbin.
              Mar. Won’t know until the end the year. Sit tight.
              Jun. Fed’s final rules changed things somewhat by raising the floor and putting the industry on notice that big brother will be watching.
              Sep. Already happening as networks lop off 15-20 basis points here and there while kicking up the small ticket fees. Nobody happy.
              Dec. Merchant group sues the Fed for not doing its job correctly. If successful, the game really is over.
     •      A major retailer will take first-mover action to propel mobile payments out of its holding pattern in cottage industry
            land – doesn’t include early players McDonald’s, Starbucks, Coca Cola, or Jack in the Box.
              Mar. Major retailers at the Alternative Payments Systems Innovation conference stated that they wanted lower costs, shorter lines,
              strong security, dial tone reliability, easy implementation, and low maintenance in mobile payments. A tall order; might not happen this
              year.
              Jun. Now that the Fed has reneged on its first Durbin offer, it’s likely that retailers will move on with mobile.
              Sep. Press releases popping all the time with this or that retailer joining Google or Isis. No full-blown movement yet.
              Dec. Does the Home Depot/PayPal lash-up count? We think so.
     •      Isis, the mobile payments consortium, will launch to a lukewarm response.
              Mar. Didn’t see any skyrockets when Isis announced its 2012 (really?) transportation pilot in Salt Lake City.
              Jun. Yet another change of direction announced – entering Austin market for pilots. We see the term “flip-flop” being used a lot.
              Sep. Isis may actually get stronger through its “heads or tails” approach. Google launch delay has allowed time for others to re-think.
              Dec. Guess we’ll just have to wait for the Salt Lake City light rail/bus experiment to launch in 2012.
     •      Major retailer profits will grow in the second half of 2011 but we will not be able to cite Durbin as the reason. (And,
            if the issue is raised, the MPC will brush it off.)
              Mar. Waiting to see what happens in Q3 and Q4.
              Jun. Fed Chairman poured cold water on this prediction.
              Sep. Heartland’s “Durbin Dollars” report is pretty clever and suggests that the money is flowing in already. Where it’s going isn’t clear.
              Dec. Several articles and a survey stating that consumers have yet to see better pricing as a result of Durbin. Same results as surveys
              conducted in Australia. Shouldn’t come as a surprise – 1) major retailers are accountable to shareholders just like banks and 2) product
              pricing is a function of cost, value and competition; there’s never been a direct causal relationship between lower costs and lower
              prices.




Dorado Industries                                                                                                                                     (310) 544-1316
655 Deep Valley Drive, Suite 125-P                                                                                                  jmacallister@doradoindustries.com
                                                                              4
Rolling Hills Estates, CA 90274                                                                                                              www.doradoindustries.com
2011 Predictions


     •      Having lost the pricing advantage between their products and POS debit, two providers of alternative payments
            schemes will fold or sell out cheap.
              Mar. Again tied to the Fed’s final rules – which won’t be ready by April 21 as required. Nice.
              Jun. Three on a match! FaceCash and Bling Nation shut down to “re-think” their business models. Tempo is both in a ditch and
              liquidating.
              Sep. Game over.
              Dec. Yet new alternative forms of payment keep popping up. 2012 will see a new crop of upstarts and startups.
     •      Starbucks will selectively open use of its proprietary prepaid card to retail partners. Target, with its 1,000 in-store
            coffee facilities, might be first.
              Mar. Nothing yet but it’s going to happen!
              Jun. Still waiting; come on guys, it’s the next logical step.
              Sep. Guys must be using too much of their decaf product. This is a slam dunk, Starbucks! If Facebook can do it with Credits, so can
              you.
              Dec. Guess we missed this one. In the meantime, buyers of new Blackberry phones can no longer rely on Starbucks for 2D app
              support. Bummer!




Dorado Industries                                                                                                                                 (310) 544-1316
655 Deep Valley Drive, Suite 125-P                                                                                              jmacallister@doradoindustries.com
                                                                            5
Rolling Hills Estates, CA 90274                                                                                                          www.doradoindustries.com
2012 Predictions

     •      Four new payments schemes designed to maximize mobile phone functionality while eliminating
            the need for retailer check out lanes will proliferate – two will be launched by merchants, two from
            third parties.
     •      CFPB or DOJ will put the buy-here, pay-here segment for automobiles and accessories out of
            business.
     •      At least one of the top ten FIs will be merged out.
     •      Congress will turn its back on efforts to repeal Durbin and/or materially alter Dodd-Frank.
     •      American Express will prevail in its suit with DOJ.
     •      By yearend, China UnionPay’s base of cardholders will be 120 percent of Visa’s.
     •      Nokia’s partnership with Microsoft will save it from extinction.




Dorado Industries                                                                                                   (310) 544-1316
655 Deep Valley Drive, Suite 125-P                                                                jmacallister@doradoindustries.com
                                                           6
Rolling Hills Estates, CA 90274                                                                            www.doradoindustries.com
TrendWatch Scorecard/Summary – Q4 2011
                                                               Industry Players To Watch
                                                               The Fed: The regulator needs to take the suit filed by NRF, FMI, and
                                                               NACS as serious as a heart attack.
                                                               Congress: New legislation designed to overturn Durbin is well funded and
                                                               could prevail as the road to the 2012 elections straightens out.
                                                    Positive   CFPB: Not six hours after being anointed by President Obama, Richard
                                                               Cordray sent out thousands of emails soliciting guidance on which evil-
                                                    Mixed
                                                               doing mole the agency should whack first. Looks like student loans may
                                                    Negative   top the list but payments can’t be far behind.
                                                               Apple: Its sheath of patents surrounding Siri contains veiled as well as
Med                          1. New Payment Forms              none-too- subtle references to ATMs, e-commerce, and in-store shopping.
                                                               But we expected that from Apple, right?
Low                          2. ATM Restructuring              Payments Networks of All Types: With the Durbin exclusivity ban kick-in
                                                               date rapidly approaching, you’ve got to wonder how large the checks being
High                         3. POS Volume Trend               written to FIs and merchants to lock up volume must be.
                                                               New Technology in Payments: Spurred by a desire to avoid PCI, the
High                         4. Legal/Regulatory Issues        hoped-for demise of check out lanes, and simple “shiny objectives in the
                                                               East” strategies, new payment forms are lining up with retailer verticals.
Mixed                        5. Prepaid Card Growth
                                                               Market & Industry Situation
Med                          6. Earnings Announcements         1 – The niche players are working the edges hard to avoid irrelevance.
                                                               2 – No one seems to have followed Cardtronics’ lead last quarter.
Low                          7. Industry Investments           3 – Holiday purchasing exceeded expectations and pumped up card volume.
                                                               4 – Folks just can’t get over the fiasco left by Durbin; expect more litigation.
                                                               5 – Several bankers like the notion of GPR as an option for younger
                                                                   demographics. Let’s see if CFPB or FTC get wind of it.
                                                               6 – Early advisories suggest better times are ahead for a few; most will be
                                                                   flat.
                                                               7 – Everyone is planning on waiting to see how well the Facebook IPO goes
                                                                   we think.
Dorado Industries                                                                                                                       (310) 544-1316
655 Deep Valley Drive, Suite 125-P                                                                                    jmacallister@doradoindustries.com
                                                               7
Rolling Hills Estates, CA 90274                                                                                                www.doradoindustries.com
2011 Payments Industry YTD Yields
        Another great quarter for our basket of payments industry equities! While the S&P began and
        ended the year at 1,257+/- for a zero percent annual return and the Dow struggled to post a 6.0
        percent 2011 gain, this payments sector shopping cart added $6.0 billion in cap value before
        considering Visa and MasterCard gains.




                          Industry Player                12/31/2010         12/30/2011         Price        Cap Value      YTD 2011 Yield

            Alliance Data Systems                    $          71.03   $         103.84   $        32.81    $    1,952.2              46.2%
            Cardtronics                              $          17.70   $          27.06   $         9.36    $      381.0              52.9%
            Discover Financial Services              $          16.68   $          24.00   $         7.32    $    3,520.2              43.9%
            Euronet Worldwide                        $          17.44   $          18.48   $         1.04    $       52.4               6.0%
            Fidelity National Information Services   $          27.39   $          26.59   $        (0.80)   $     (152.6)             -2.9%
            First Data (Future Use)
            Fiserv Inc.                              $         58.56    $          58.74   $         0.18    $       28.1               0.3%
            Global Cash Access Holdings              $          3.19    $           4.45   $         1.26    $       97.1              39.5%
            Green Dot                                $         56.74    $          31.22   $       (25.52)   $   (1,039.9)            -45.0%
            Heartland Payment Systems                $         15.42    $          24.36   $         8.94    $      334.4              58.0%
            Jack Henry & Associates                  $         29.15    $          33.61   $         4.46    $      374.2              15.3%
            MasterCard Worldwide                     $        224.11    $         372.82   $       148.71    $   19,243.1              66.4%
            NetSpend                                 $         12.82    $           8.11   $        (4.71)   $     (413.4)            -36.7%
            Online Resources                         $          4.65    $           2.42   $        (2.23)   $      (66.2)            -48.0%
            TNS                                      $         20.80    $          17.72   $        (3.08)   $      (77.3)            -14.8%
            Total System Services                    $         15.38    $          19.56   $         4.18    $      825.1              27.2%
            Visa                                     $         70.38    $         101.53   $        31.15    $   26,349.8              44.3%



       Sources: Company releases, Morningstar.com, Bloomberg.com
       2011 YTD yield excludes dividends; based on 12/30/11 and 12/31/10 closing prices
Dorado Industries                                                                                                                              (310) 544-1316
655 Deep Valley Drive, Suite 125-P                                                                                           jmacallister@doradoindustries.com
                                                                              8
Rolling Hills Estates, CA 90274                                                                                                       www.doradoindustries.com
Interesting News This Quarter
                Subject               Source/Date                                                       Substance
     Firethorn Mobile                       Paybefore    • When it started out in 2006 as Firethorn Holdings, the company was focused on leading the
                                            November       financial services industry into the mobile banking frontier. Since being acquired by Qualcomm,
                                                           the company has moved into consumer management of closed-loop gift cards on its new
                                                           smartphone platform. Firethon Mobile’s new offering, Swagg, promotes retailer coupons and
                                                           gift cards through a mobile app as well as admission to swanky events touted by a companion
                                                           blog site that targets the younger demographic. Discover is working behind the scenes for
                                                           processing.
     Retailers/Legislators                     Various   • From the “just when we thought the war was over” department. Jason Chaffetz (R-Utah) and Bill
                                     October/November      Owens (D-NY) introduce legislation designed to repeal the Durbin Amendment. A split second
                                                           later, the NRF, FMI, and National Association of Convenience Stores file suit against the Federal
                                                           Reserve Bank Board for its alleged failure to comply the law designed to reduce interchange
                                                           levels to their lowest possible point. It doesn’t seem likely that these folks are going to settle this
                                                           over a session of beer and pretzels any time soon.
     Google                                  Finextra    • After giving it the old college try, Google tosses in the towel on its Checkout system and merges
                                            November       it into Google Wallet in an effort to create a single online and offline payment solution. In a
                                                           corresponding move, The Gap switched to Google Wallet payments in 65 stores in the San
                                                           Francisco Bay Area, just down the road from Google headquarters. In a classic version of
                                                           merchant-funded rewards, the retailer is offering a 15 percent discount for purchases made using
                                                           the G Wallet.
     Square                              BusinessWire    • Not wanting to outdone by the Girl Scouts, Salvation Army bell ringers launched a program for
                                           November        acceptance of donations to the service’s Red Kettle campaign by credit/debit cards using Square
                                                           card readers. The campaign kicked off at the Thanksgiving Day game between the Dallas
                                                           Cowboys and Miami Dolphins in this, the fifteenth year of cooperation between Dallas and the
                                                           Salvation Army. Hope the program performs better for the Army than the Cowboys did this year
                                                           (although they did eke out a 20-19 win over Miami.)




Dorado Industries                                                                                                                                         (310) 544-1316
655 Deep Valley Drive, Suite 125-P                                                                                                      jmacallister@doradoindustries.com
                                                                            9
Rolling Hills Estates, CA 90274                                                                                                                  www.doradoindustries.com
Interesting News This Quarter – Continued
             Subject                 Source/Date                                                      Substance
Green Dot                                 Paybefore    • Green Dot does what retailing titans Home Depot and Wal-Mart could not by receiving almost
                                          November       unanimous approval (Governor Elizabeth Duke dissented) from the Fed to complete its acquisition of
                                                         Bonneville Bancorp, a $36 million (assets) bank based in Provo, Utah. Future plans call for a name
                                                         change to Green Dot Bank, transitioning Green Dot-branded GPR cards from Synovous (excluding the
                                                         Wal-Mart/GE Money book of business), and maintenance of cash equal to the amount of insured
                                                         deposits generated through Green Dot’s GPR card operations.
Visa                                       Finextra    • Visa makes quick work of leveraging its Fundamo acquisition to launch a prepaid card account targeted
                                          November       at developing countries and their unbanked citizens. Visa plans to roll out the account through mobile
                                                         network operators, financial institutions, and government agencies across Latin America, Asia, and
                                                         Africa. It is unclear as yet how much of the new service will be integrated with the card giant’s V.me
                                                         mobile specification. If any of it moves over, count on someone squawking about disintermediation.
Heartland Payment Systems              Business Wire   • Heartland continues to selectively release analyses of post-Durbin interchange reductions posted by
                                          November       retail verticals. In November, the spotlight fell on restaurant and lodging merchants processed by HPY.
                                                         Heartland reported that between the Durbin effective date and November 9, 2011 this segment received
                                                         $7.7 million in savings with restaurant operators receiving the lion’s share to the benefit. Other
                                                         meaningful data points include: 64 percent of signature debit sales qualified as regulated, the average
                                                         savings on regulated transactions was $0.20, while the average regulated interchange rate was $0.23.
Openbucks                              Nilson Report   • Openbucks is a startup that aspires to straddle the gap between online purchases and unbanked
                                          September      consumers by marrying sellers of closed-loop gift cards with online and digital goods providers.
                                                         Consumers may now purchase CVS, Subway, Circle K, Hess and Sports Authority gift cards and use
                                                         them on checkout pages at game sellers’ websites. The Openbucks platform links the selling prepaid
                                                         card merchants to the online digital content sellers. Funds are transferred via the ACH using Bank of
                                                         America. Openbucks retains a 15-20 percent commission, potentially exposing it to Durbin or CFPB
                                                         scrutiny. The Openbucks approach appears to skating dangerously close to creating a payments method
                                                         that parallels the nationally branded card schemes.




Dorado Industries                                                                                                                                      (310) 544-1316
655 Deep Valley Drive, Suite 125-P                                                                                                   jmacallister@doradoindustries.com
                                                                            10
Rolling Hills Estates, CA 90274                                                                                                               www.doradoindustries.com
Interesting News This Quarter – Continued
               Subject                Source/Date                                                           Substance
     Stop & Shop                         Point of Sale   • Stop & Shop claims to be the first supermarket to offer up a self-scanning application for smartphones. Scan
     Supermarket Company                        News       It! enables shoppers to use bar code scanning technology to create an electronic shopping cart while in one of
                                                           three stores included in the roll-out pilot. To checkout, the application routes the “cart” via Wi-Fi to the in-
                                                           store point of sale system where a normal payment is tendered. The same Wi-Fi network enables Stop &
                                                           Shop to route personalized information and offers back to the shopper.
     BankSimple                          TechCrunch      • BankSimple shortens its name to Simple and opens its doors to consumers in a limited beta. While not an
                                          November         FDIC insured bank, Simple works with chartered banks to hold deposits gathered from consumers and uses
                                                           and agent bank to issue its Simple Visa card for purchases. To some degree, Simple operates as a meta-layer
                                                           over these relationships, crafting and distributing mobile device applications that provide assess to consumer’s
                                                           deposits and card balances. Simple continues to be proud of its key objective: “build a bank that doesn’t
                                                           suck.”
     Card.io                         Mobile Payments     • The market for non-traditional card payment acceptance is starting to get crowded. In addition to category
                                               Today       killers Square and Intuit’s GoPayment, there are upstarts like Card.io entering. Card.io offers a smartphone
                                             January       app that utilizes the scanning function built into the phone’s camera to capture card data and initiate a
                                                           purchase transaction. No merchant services account is required; Card.io charges 3.5 percent plus 30 cents per
                                                           transaction – a bit steeper than others but the market ought to sort that out.


     Viableware                      Bank Technology     • Viableware has launched Rail, an at-the-table digital payment terminal designed to alter the current diner
                                               News        payment model. Designed to look like a traditional bill folder, Rail uses a digital touch screen to summarize
                                                           the charges, accepts magnetic stripe swipes and has NFC capabilities to accept mobile and contactless
                                                           payments. Rail can also be adapted to accept EMV chip cards. Pretty cool solution for casual and high-end
                                                           dining establishments. Might also be adapted to handle farmers markets and other open air sites.
     Harland Financial                  Nilson Report    • Harland joins the P2P fray by offering Direct Payment Exchange (DPX) to the 11,000 financial institutions
     Services                               December       that use it and its sister company Harland Clarke (the check printer). The entry puts Harland in direct
                                                           competition with PayPal, Fiserv, ClearXchange and several also-rans. The initial service will feature two-
                                                           party transactions settled via the ACH; the ultimate objective is to route the transactions through a DPX
                                                           switch thereby eliminating ACH fees and speeding up transaction settlement. P2P, like other “viral”
                                                           payments sectors, is starting to look like a grudge match fist-fight. Wonder how many P2P transactions
                                                           actually post every day.
Dorado Industries                                                                                                                                                 (310) 544-1316
655 Deep Valley Drive, Suite 125-P                                                                                                              jmacallister@doradoindustries.com
                                                                                     11
Rolling Hills Estates, CA 90274                                                                                                                          www.doradoindustries.com
Interesting News This Quarter – Continued

              Subject                 Source/Date                                                       Substance
     Chevron                         Mobile Payments   • Chevron takes an early lead in the mobile payments acceptance realm for petroleum retailers as it announces
                                               Today     a pilot program involving 600 service stations in San Francisco and Los Angeles. Pumps at these sites will
                                           December      use contactless readers to accept Google Wallet transactions. Could have sworn that we were discouraged
                                                         from using cell phones near service station pumps.


     PayPal                          Mobile Payments   • PayPal runs a test of its mobile payment application with two retailers in Stockholm over the Christmas
                                               Today     holidays. A ski/sports equipment retailer and an electronics outlet agreed to accept PayPal’s new “Instore”
                                           December      app. The app is linked to a tag attached to the phone which is swiped/waved at the POS terminal. Despite the
                                                         dismissive attitude shown by John Donahoe, CEO of eBay toward NFC, it looks like the PayPal payments
                                                         gurus may have their day in the sun – but it’s not likely to be in Stockholm at Christmas time.




Dorado Industries                                                                                                                                            (310) 544-1316
655 Deep Valley Drive, Suite 125-P                                                                                                         jmacallister@doradoindustries.com
                                                                                  12
Rolling Hills Estates, CA 90274                                                                                                                     www.doradoindustries.com
New Names to Watch If You Hate Check Out Lines

         Here’s a short discussion on some of the emerging solutions designed to reduce consumer time spent in check out
         lines – similar to Viableware’s Rail offering cited earlier. These apps make for easy shopping but we miss the chance
         to thumb through the National Inquirer or pick up a pack of gum. So it goes.


                 Firm/Product                                                            Highlights

                                      • In-store self checkout built into the Apple Store mobile app
     Apple EasyPay                    • Use an iPhone to scan items marked for EasyPay checkout
                                      • Load up the cart and pay using forms of payment on file in the iTunes cloud

                                      • Shoppers scan merchandise on their smart phone or browse through the retailer’s catalogue
     AisleBuyer                       • Payment works by scanning a photo of the shopper’s payment card using the on-board camera
                                      • For now, the payment function generates a CNP transaction – a pricey merchant disadvantage

                                      • Designed for restaurants and bars
     TabbedOut                        • Allows patrons to close out their tabs and leave a tip from their table
                                      • Card information is stored on the diner/drinker’s phone and is transmitted to an in-store server

                                      • Enables remote ordering and payments
     Chipotle Mobile Application      • Payment function is in-app using stored payment type data held in the Chipotle cloud
                                      • Patrons order ahead of time and go straight to the pick up order site in their favorite Chipotle
                                      • Card Case owner is recognized upon entering the store using GPS logic
     Square Card Case                 • User name serves as transaction initiator
                                      • App takes care of the rest




Dorado Industries                                                                                                                               (310) 544-1316
655 Deep Valley Drive, Suite 125-P                                                                                            jmacallister@doradoindustries.com
                                                                       13
Rolling Hills Estates, CA 90274                                                                                                        www.doradoindustries.com
M&A/Alliance Activity
       Buyer/Investor                       Target         Payments Emphasis                           Possible Strategy
     VeriFone                        Global Bay Mobile   Mobile retail solutions       Not content to be constrained by magnetic stripe
                                     Technologies                                      payment forms, VeriFone pays an undisclosed amount
                                                                                       to expand its position in mobile retail applications.
                                                                                       Sandeep Bhanote, Global Bay’s CEO and co-founder
                                                                                       will step into the role of VeriFone’s general manager
                                                                                       of Mobile Retail Systems.

     Visa Europe                     Monitise plc        Mobile banking and payments   Visa Europe invests $39.9 million in Monitise plc
                                                                                       bringing its ownership share up to 8.8 percent.
                                                                                       Monitise, now profitable, will use the added funds to
                                                                                       invest in additional markets including India and Asia-
                                                                                       Pacific. Meanwhile, Monitise plc is acquiring 51
                                                                                       percent of Monitise Americas for $15 million thereby
                                                                                       reducing its joint venture partner’s share to 3.3 percent.
                                                                                       Metavante/FIS is the diluting partner.
     ShopSavvy                       Eduardo Saverin     Smartphone based payments     ShopSavvy’s application which enables product
                                                                                       location, research and payment using barcodes has
                                                                                       enticed Saverin, a Facebook co-founder ,to invest $7
                                                                                       million in the venture. The application boasts 10
                                                                                       million unique users and partnerships with 40,000
                                                                                       retailers.
     American Express                Various             Payments                      AXP sets aside $100 million to invest in Silicon Valley
                                                                                       startups including those targeting mobile payments and
                                                                                       online marketing. Harshul Sanghi, late of Motorola
                                                                                       Mobility Ventures because of Google’s snatch of that
                                                                                       enterprise will be doling out the cash. Might help
                                                                                       AXP forget the money pit it launched called Serve.
Dorado Industries                                                                                                                          (310) 544-1316
655 Deep Valley Drive, Suite 125-P                                                                                       jmacallister@doradoindustries.com
                                                                        14
Rolling Hills Estates, CA 90274                                                                                                   www.doradoindustries.com
M&A/Alliance Activity - Continued
      Buyer/Investor                         Target     Payments Emphasis                                Possible Strategy
     Richard Branson                 Square           Merchant payments               Virgin founder peels off $3 million in loose change and
                                                                                      invests in Square on the heels its $100 million round of Series
                                                                                      C funding. 800,000 of those free payment-accepting dongles
                                                                                      are now generating $10 million a day in payments. Not
                                                                                      needing to have a merchant services account continues to
                                                                                      attract smaller retailers in droves.
     Public Market                   Vantiv           Payments processor              You knew this was coming – the three year anniversary of
                                                                                      Advent’s major investment in Vantiv is coming up. Vantiv,
                                                                                      fka Fifth Third Processing Solutions, fka Midwest Payment
                                                                                      Systems, files for a $100 million IPO. Other shareholders
                                                                                      cashing in include Bain and, naturally, the bank.
     VeriFone                        Point            Electronic payments processor   After the small sip it took with Global Bay, VeriFone takes a
                                                                                      deep swig in forward integration terms by acquiring Point, a
                                                                                      Euro-based payments and gateway processor for over $1
                                                                                      billion. Once again, the rationale is that VeriFone intends to
                                                                                      offer fully integrated payment options over and above its
                                                                                      standard line of terminals and other devices. “More M&A
                                                                                      activity is foreseen,” says the presser. To say the least.
     MasterCard                      mFoundry         Mobile banking and payments     The frontrunner in mobile banking applications with over 500
     Intel Capital                                                                    bank and credit union clients attracts $18 million in
     FIS                                                                              development funds earmarked for payments-related mobile
     Motorola Mobility                                                                products aimed at the FI and mobile network operator
                                                                                      (MNO) segments. See the pattern here? Visa takes down
                                                                                      Fundamo while taking stakes and Monitise and Square while
                                                                                      American Express goes after Payfone. MasterCard needed to
                                                                                      make a play.

Dorado Industries                                                                                                                           (310) 544-1316
655 Deep Valley Drive, Suite 125-P                                                                                        jmacallister@doradoindustries.com
                                                                       15
Rolling Hills Estates, CA 90274                                                                                                    www.doradoindustries.com
M&A/Alliance Activity - Continued
     Buyer/Investor                           Target           Payments Emphasis                             Possible Strategy
     Returning investors             FrontStream Payments   Payment solutions                FrontStream is a soup-to-nuts payments acceptance
                                                                                             operation managed by a group of ex-Tier Technologies
                                                                                             and Sallie Mae execs. FrontStream raises its total
                                                                                             funding to $36 million through another $10 million
                                                                                             round. Funds are to be invested in improved operations
                                                                                             and sales expansion. Its Fasttransact platform claims to
                                                                                             offer an ala carte approach to features and functions for
                                                                                             delivery to consumers through its business clients.
     CO-OP Financial                 The Members Group      Credit union payments services   CO-OP makes a strategic investment in The Members
     Services                                                                                Group in an undisclosed amount. Both parties plan to
                                                                                             cross-sell each other’s products. CO-OP brings a huge
                                                                                             surcharge-free network of ATMs while TMG offers
                                                                                             full-service credit card processing. TMG is both and
                                                                                             investor in, and back-end ACH processor for Dwolla,
                                                                                             the low-cost payments system headquartered in Iowa.
                                                                                             Late breaking news – Union Square Ventures plops
                                                                                             down $10 million in Dwolla Series B funding. This is
                                                                                             now getting interesting.
     General Atlantic                Klarna                 E-commerce payments              Well-heeled investors put up a staggering pre-IPO $155
     DST Global                                                                              million to expand M&A activities, grow the footprint,
     Sequoia Capital
                                                                                             and hire more resources. Klarna’s Euro-centric on-the-
                                                                                             fly credit granting payments system is backstopped by
                                                                                             Analyzd, an Israeli fraud prevention firm it acquired
                                                                                             earlier in 2011. Shoppers are extended short term loans
                                                                                             upon purchase while merchants are paid upon receipt of
                                                                                             order, a practice referred to as “invoicing.”

Dorado Industries                                                                                                                               (310) 544-1316
655 Deep Valley Drive, Suite 125-P                                                                                            jmacallister@doradoindustries.com
                                                                            16
Rolling Hills Estates, CA 90274                                                                                                        www.doradoindustries.com
M&A/Alliance Activity - Continued
         Buyer/Investor                 Target    Payments Emphasis                            Possible Strategy
     Western Union                   eBillme     E-commerce                  WU acquired eBillme in October but kept it quiet until
                                                                             Payments News outed them in December. No word on
                                                                             pricing or what will become of the management team. The
                                                                             brand, however, will go away. Not a bad idea to rebrand
                                                                             eBillme, an also-ran in the online alternatives marathon.
                                                                             eBillme’s share had declined to 2 percent in 2011 Javelin
                                                                             Research estimates.
     Village Ventures                Zipmark     Digital checkbook           Currently in invitation-only beta, Zipmark enables users to
     Contour Venture Partners                                                pay bills (rent, in particular), pay friends, or pay paper
     Others                                                                  invoices via the web and mobile devices. Investors have
                                                                             ponied up $2 million in VC funds to keep things afloat.
                                                                             The service is a FinTech Innovation Lab finalist in 2011.
                                                                             Pretty clever stuff but “digital checkbook?” Oxymoronic in
                                                                             the extreme.
     Saudi Prince Alwaleed bin       Twitter     Text based social network   Apparent the prince anticipates that Twitter will one day
     Talal                                                                   measure up (or down in one case) to its other significant
                                                                             holdings in Apple, News Corp and Citibank. His
                                                                             investment company drops $300 million into the 140
                                                                             character info sharing network. Turns out Arabic is the
                                                                             fastest growing language on Twitter (who knew?) and the
                                                                             service was the mainstay protest coordination tool from
                                                                             Tunisia to Bahrain in 2011.
     Euronet Worldwide               PayNet      Electronic payments         EEFT continues to expand in Europe. Remember when
                                                                             Euronet was named Arkansas Software? PayNet is a
                                                                             relatively small (720 ATMs and 1,700 POS terminals)
                                                                             payments outsourcer based in Romania and recently bought
                                                                             by EEFT. Annual revenues are in the $3 million range.
Dorado Industries                                                                                                                    (310) 544-1316
655 Deep Valley Drive, Suite 125-P                                                                                 jmacallister@doradoindustries.com
                                                                     17
Rolling Hills Estates, CA 90274                                                                                             www.doradoindustries.com
M&A/Alliance Activity - Continued

       Buyer/Investor                   Target          Payments Emphasis                                Possible Strategy
     Global Payments                 CyberSource      Online merchant portfolio       In a classic game of “love the company, hate its customers,”
                                                                                      Visa sells the 9,000 online merchant relationships it gained
                                                                                      when the card company paid $2 billion for CyberSource a
                                                                                      while back.
     Undisclosed investors           Jumio            Mobile and online payments      Jumio raises $25.5 million in funding on top of the $6.5
                                                                                      million plunked down by Facebook co-founder Eduardo
                                                                                      Saverin. Among other products, Jumio offers Netswipe, a
                                                                                      digital camera -based method for accepting credit and debit
                                                                                      card payments with and without a separate merchant account.
     eBay/PayPal                     Billsafe         Purchase-on-invoice processor   PayPal continues its global conquest by acquiring the
                                                                                      remaining 80 percent share of Billsafe that it did not already
                                                                                      own. Billsafe boasts 15 million accounts in Germany where
                                                                                      it specializes in purchase-on-invoice payments. P-O-I is a
                                                                                      Euro-centric service that enables consumers to make online
                                                                                      purchases with delayed payment options. Plans are to
                                                                                      integrate the functionality with existing PayPal services
                                                                                      abroad and ultimately in the U.S.
     Citi Ventures                   Plastic Jungle   Gift card online exchange       Plastic Jungle claims there are $41 billion in unredeemed gift
                                                                                      cards – essentially a “shadow economy” – that it is attempting
                                                                                      to free up through use of its online exchange portal. Users
                                                                                      can sell unwanted cards for up to 92 percent of their face
                                                                                      value. Citi is a strategic investor in PJ for an undisclosed
                                                                                      amount. PJ began as a boot strapped venture over five years
                                                                                      ago making it a senior citizen in payments exchange. Prior to
                                                                                      the Citi investment, Plastic Jungle had raised $20 million in
                                                                                      VC and PE monies.
Dorado Industries                                                                                                                                (310) 544-1316
655 Deep Valley Drive, Suite 125-P                                                                                             jmacallister@doradoindustries.com
                                                                            18
Rolling Hills Estates, CA 90274                                                                                                         www.doradoindustries.com
M&A/Alliance Activity - Continued

       Buyer/Investor                   Target     Payments Emphasis                              Possible Strategy
     Blumberg Capital                ZipZap      Cash payments for online      Ever wonder where Art Kranzley, the former MasterCard
                                                 purchases                     exec is these days? In addition to other ventures he advises,
                                                                               Art is a Director with ZipZap a stealthy beta-only company
                                                                               based in San Francisco. ZipZap offers a product (Cash
                                                                               Payment) that somehow enables purchasers of online content
                                                                               to pay with cash. Blumberg injected an undisclosed round of
                                                                               funding in December to keep the company growing. Small
                                                                               world.
     First National Bank             Bank of     Agent bank credit card        BofA abandons the agent bank market (which it paid a
     Omaha                           America     portfolios                    fortune for when it bought MBNA) and is shedding the
     US Bank                                                                   portfolios in chunks - US Bank took $700 million while FNB
                                                                               Omaha was satisfied with $285 million.




Dorado Industries                                                                                                                        (310) 544-1316
655 Deep Valley Drive, Suite 125-P                                                                                     jmacallister@doradoindustries.com
                                                                          19
Rolling Hills Estates, CA 90274                                                                                                 www.doradoindustries.com
Useful Links for More Information
     We threw a lot of new names out again this quarter. Here’s a list of links for you to
     learn more.

                          Company                     Role                                        Link
       GiftZip                       Consumer prepaid card exchange           www.gfitzip.com

       BankSimple                    Streamlined online banking               www.banksimple.com

       China UnionPay                World largest card scheme                En.unionpay.com

       Tagattitude                   Sonic based POS system                   www.tagattitude.fr

       Jumio                         CNP system using webcams                 https://pay.jumio.com

       ReadyForZero                  Consumer debt reduction system           www.readyforzero.com

       Authentify                    Out-of-band authentication               www.authentify.com

       BillGuard                     Fraudulent transaction tracker           www.billguard.com

       BillFloat                     Immediate credit lending for consumers   www.billfloat.com




Dorado Industries                                                                                                       (310) 544-1316
655 Deep Valley Drive, Suite 125-P                                                                    jmacallister@doradoindustries.com
                                                       20
Rolling Hills Estates, CA 90274                                                                                www.doradoindustries.com
Back in the day!



           So, a bunch of old EFT payments
           network guys from the Midwest got
           bored and decided to invite an even
           older payments consultant to Lake
           Michigan for a day of fishing. They
           artificially stock salmon in the lake
           and these Silvers were on their way
           back to their original streams to
           spawn. Unfortunately for them,
           they didn’t know that home was a
           hatchery in Kansas and got lost.
           So it goes.



Dorado Industries                                                         (310) 544-1316
655 Deep Valley Drive, Suite 125-P                      jmacallister@doradoindustries.com
                                                   21
Rolling Hills Estates, CA 90274                                  www.doradoindustries.com

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Dorado Trend Watch Q4 2011

  • 1. CARD Act, OD fees gone, Dodd- Frank- Durbin. Lord, what more could go wrong? Wait, is that my mobile phone placing a butt call order on Amazon? TrendWatch 2.0 Q4 2011 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.
  • 2. Random Thoughts When it rains, it pours. Why? Abandonment of MC/V rails comes in second and players It looks like we’re in for another run of alternative payment like Dwolla and Nacha’s Secure Value Payments system are providers offering merchant and issuer value propositions aggressive enrolling issuers and merchants in an effort to designed to tempt consumers away from traditional payments avoid traditional payments pricing models. brands, rails, and pricing. We’ve seen this at least twice Unique market vertical focus applied by startups TabbedOut before. Ten years ago, payments got caught up in the dot-com and Rail targets special problems in the leisure and hospitality frenzy and about a half-decade back tokens, bracelets, and tags verticals by promoting the notion that “one size does not fit were attempting to irradiate consumers as they eschewed their all.” leather wallets in favor the bright glowing object of The fourth driver, elimination of check out lines and POS contactless payments. lanes, seems to be getting the most traction of all. By Both of these waves crashed for a variety of reasons and a lot leveraging mobile phone GPS, on-board camera and scanner of us were caught short. We think that having a framework for technology, and aggregated product data, companies like the drivers behind the current wave in alternative payments AisleBuyer, ShopSavvy, and Australia’s QkR are empowering might help us assess the long-term value they bring and their consumers both shop and buy without dealing without cashiers probability of being successful in their own right and or POS devices, two of retailers’ biggest expense categories. contributors to FI, retailer and network bottom lines. How many of these offerings will Avoidance of the cost of PCI compliance is the first succeed is probably unknowable. Yet, if framework driver, one that impacts all parties to the payments the drivers in our framework prove to be system. Most mobile applications that leverage NFC sound, we could see newcomers take the technology and imbedded Secure Elements target PCI place of those that fade and perhaps one compliance cost avoidance by purporting to deliver a more day we will no longer be burdened by secure transaction. Narrate’s ultrasonic application for POS SOPA PCI, outdated pricing models, retailer transactions claims to be incapable of being skimmed or queues, and check out systems that sniffed. Merchant PCI compliance costs can exceeds tens of expose us to fraud. In the meantime, millions of dollars for larger retailers making the driver a non-mainstream retailers may final significant long term player. receive some attention from the payments industry. Dorado Industries (310) 544-1316 655 Deep Valley Drive, Suite 125-P jmacallister@doradoindustries.com 2 Rolling Hills Estates, CA 90274 www.doradoindustries.com
  • 3. Table of Contents 2011 Predictions/Results 4 2012 Predictions 6 TrendWatch Scorecard/Summary 7 2011 Payments Industry Yields 8 Interesting Quarterly News That Got No Respect 9 New Names to Watch 13 Q2 M&A/Investor Activity 14 Useful Links for More Information 20 Back in the Day 21 Dorado Industries (310) 544-1316 655 Deep Valley Drive, Suite 125-P jmacallister@doradoindustries.com 3 Rolling Hills Estates, CA 90274 www.doradoindustries.com
  • 4. 2011 Predictions and Review • Despite good efforts to the contrary and Visa’s plan to support dual interchange schedules, exempt debit card issuers will suffer major product profitability declines as a consequence of Durbin. Mar. Won’t know until the end the year. Sit tight. Jun. Fed’s final rules changed things somewhat by raising the floor and putting the industry on notice that big brother will be watching. Sep. Already happening as networks lop off 15-20 basis points here and there while kicking up the small ticket fees. Nobody happy. Dec. Merchant group sues the Fed for not doing its job correctly. If successful, the game really is over. • A major retailer will take first-mover action to propel mobile payments out of its holding pattern in cottage industry land – doesn’t include early players McDonald’s, Starbucks, Coca Cola, or Jack in the Box. Mar. Major retailers at the Alternative Payments Systems Innovation conference stated that they wanted lower costs, shorter lines, strong security, dial tone reliability, easy implementation, and low maintenance in mobile payments. A tall order; might not happen this year. Jun. Now that the Fed has reneged on its first Durbin offer, it’s likely that retailers will move on with mobile. Sep. Press releases popping all the time with this or that retailer joining Google or Isis. No full-blown movement yet. Dec. Does the Home Depot/PayPal lash-up count? We think so. • Isis, the mobile payments consortium, will launch to a lukewarm response. Mar. Didn’t see any skyrockets when Isis announced its 2012 (really?) transportation pilot in Salt Lake City. Jun. Yet another change of direction announced – entering Austin market for pilots. We see the term “flip-flop” being used a lot. Sep. Isis may actually get stronger through its “heads or tails” approach. Google launch delay has allowed time for others to re-think. Dec. Guess we’ll just have to wait for the Salt Lake City light rail/bus experiment to launch in 2012. • Major retailer profits will grow in the second half of 2011 but we will not be able to cite Durbin as the reason. (And, if the issue is raised, the MPC will brush it off.) Mar. Waiting to see what happens in Q3 and Q4. Jun. Fed Chairman poured cold water on this prediction. Sep. Heartland’s “Durbin Dollars” report is pretty clever and suggests that the money is flowing in already. Where it’s going isn’t clear. Dec. Several articles and a survey stating that consumers have yet to see better pricing as a result of Durbin. Same results as surveys conducted in Australia. Shouldn’t come as a surprise – 1) major retailers are accountable to shareholders just like banks and 2) product pricing is a function of cost, value and competition; there’s never been a direct causal relationship between lower costs and lower prices. Dorado Industries (310) 544-1316 655 Deep Valley Drive, Suite 125-P jmacallister@doradoindustries.com 4 Rolling Hills Estates, CA 90274 www.doradoindustries.com
  • 5. 2011 Predictions • Having lost the pricing advantage between their products and POS debit, two providers of alternative payments schemes will fold or sell out cheap. Mar. Again tied to the Fed’s final rules – which won’t be ready by April 21 as required. Nice. Jun. Three on a match! FaceCash and Bling Nation shut down to “re-think” their business models. Tempo is both in a ditch and liquidating. Sep. Game over. Dec. Yet new alternative forms of payment keep popping up. 2012 will see a new crop of upstarts and startups. • Starbucks will selectively open use of its proprietary prepaid card to retail partners. Target, with its 1,000 in-store coffee facilities, might be first. Mar. Nothing yet but it’s going to happen! Jun. Still waiting; come on guys, it’s the next logical step. Sep. Guys must be using too much of their decaf product. This is a slam dunk, Starbucks! If Facebook can do it with Credits, so can you. Dec. Guess we missed this one. In the meantime, buyers of new Blackberry phones can no longer rely on Starbucks for 2D app support. Bummer! Dorado Industries (310) 544-1316 655 Deep Valley Drive, Suite 125-P jmacallister@doradoindustries.com 5 Rolling Hills Estates, CA 90274 www.doradoindustries.com
  • 6. 2012 Predictions • Four new payments schemes designed to maximize mobile phone functionality while eliminating the need for retailer check out lanes will proliferate – two will be launched by merchants, two from third parties. • CFPB or DOJ will put the buy-here, pay-here segment for automobiles and accessories out of business. • At least one of the top ten FIs will be merged out. • Congress will turn its back on efforts to repeal Durbin and/or materially alter Dodd-Frank. • American Express will prevail in its suit with DOJ. • By yearend, China UnionPay’s base of cardholders will be 120 percent of Visa’s. • Nokia’s partnership with Microsoft will save it from extinction. Dorado Industries (310) 544-1316 655 Deep Valley Drive, Suite 125-P jmacallister@doradoindustries.com 6 Rolling Hills Estates, CA 90274 www.doradoindustries.com
  • 7. TrendWatch Scorecard/Summary – Q4 2011 Industry Players To Watch The Fed: The regulator needs to take the suit filed by NRF, FMI, and NACS as serious as a heart attack. Congress: New legislation designed to overturn Durbin is well funded and could prevail as the road to the 2012 elections straightens out. Positive CFPB: Not six hours after being anointed by President Obama, Richard Cordray sent out thousands of emails soliciting guidance on which evil- Mixed doing mole the agency should whack first. Looks like student loans may Negative top the list but payments can’t be far behind. Apple: Its sheath of patents surrounding Siri contains veiled as well as Med 1. New Payment Forms none-too- subtle references to ATMs, e-commerce, and in-store shopping. But we expected that from Apple, right? Low 2. ATM Restructuring Payments Networks of All Types: With the Durbin exclusivity ban kick-in date rapidly approaching, you’ve got to wonder how large the checks being High 3. POS Volume Trend written to FIs and merchants to lock up volume must be. New Technology in Payments: Spurred by a desire to avoid PCI, the High 4. Legal/Regulatory Issues hoped-for demise of check out lanes, and simple “shiny objectives in the East” strategies, new payment forms are lining up with retailer verticals. Mixed 5. Prepaid Card Growth Market & Industry Situation Med 6. Earnings Announcements 1 – The niche players are working the edges hard to avoid irrelevance. 2 – No one seems to have followed Cardtronics’ lead last quarter. Low 7. Industry Investments 3 – Holiday purchasing exceeded expectations and pumped up card volume. 4 – Folks just can’t get over the fiasco left by Durbin; expect more litigation. 5 – Several bankers like the notion of GPR as an option for younger demographics. Let’s see if CFPB or FTC get wind of it. 6 – Early advisories suggest better times are ahead for a few; most will be flat. 7 – Everyone is planning on waiting to see how well the Facebook IPO goes we think. Dorado Industries (310) 544-1316 655 Deep Valley Drive, Suite 125-P jmacallister@doradoindustries.com 7 Rolling Hills Estates, CA 90274 www.doradoindustries.com
  • 8. 2011 Payments Industry YTD Yields Another great quarter for our basket of payments industry equities! While the S&P began and ended the year at 1,257+/- for a zero percent annual return and the Dow struggled to post a 6.0 percent 2011 gain, this payments sector shopping cart added $6.0 billion in cap value before considering Visa and MasterCard gains. Industry Player 12/31/2010 12/30/2011 Price  Cap Value  YTD 2011 Yield Alliance Data Systems $ 71.03 $ 103.84 $ 32.81 $ 1,952.2 46.2% Cardtronics $ 17.70 $ 27.06 $ 9.36 $ 381.0 52.9% Discover Financial Services $ 16.68 $ 24.00 $ 7.32 $ 3,520.2 43.9% Euronet Worldwide $ 17.44 $ 18.48 $ 1.04 $ 52.4 6.0% Fidelity National Information Services $ 27.39 $ 26.59 $ (0.80) $ (152.6) -2.9% First Data (Future Use) Fiserv Inc. $ 58.56 $ 58.74 $ 0.18 $ 28.1 0.3% Global Cash Access Holdings $ 3.19 $ 4.45 $ 1.26 $ 97.1 39.5% Green Dot $ 56.74 $ 31.22 $ (25.52) $ (1,039.9) -45.0% Heartland Payment Systems $ 15.42 $ 24.36 $ 8.94 $ 334.4 58.0% Jack Henry & Associates $ 29.15 $ 33.61 $ 4.46 $ 374.2 15.3% MasterCard Worldwide $ 224.11 $ 372.82 $ 148.71 $ 19,243.1 66.4% NetSpend $ 12.82 $ 8.11 $ (4.71) $ (413.4) -36.7% Online Resources $ 4.65 $ 2.42 $ (2.23) $ (66.2) -48.0% TNS $ 20.80 $ 17.72 $ (3.08) $ (77.3) -14.8% Total System Services $ 15.38 $ 19.56 $ 4.18 $ 825.1 27.2% Visa $ 70.38 $ 101.53 $ 31.15 $ 26,349.8 44.3% Sources: Company releases, Morningstar.com, Bloomberg.com 2011 YTD yield excludes dividends; based on 12/30/11 and 12/31/10 closing prices Dorado Industries (310) 544-1316 655 Deep Valley Drive, Suite 125-P jmacallister@doradoindustries.com 8 Rolling Hills Estates, CA 90274 www.doradoindustries.com
  • 9. Interesting News This Quarter Subject Source/Date Substance Firethorn Mobile Paybefore • When it started out in 2006 as Firethorn Holdings, the company was focused on leading the November financial services industry into the mobile banking frontier. Since being acquired by Qualcomm, the company has moved into consumer management of closed-loop gift cards on its new smartphone platform. Firethon Mobile’s new offering, Swagg, promotes retailer coupons and gift cards through a mobile app as well as admission to swanky events touted by a companion blog site that targets the younger demographic. Discover is working behind the scenes for processing. Retailers/Legislators Various • From the “just when we thought the war was over” department. Jason Chaffetz (R-Utah) and Bill October/November Owens (D-NY) introduce legislation designed to repeal the Durbin Amendment. A split second later, the NRF, FMI, and National Association of Convenience Stores file suit against the Federal Reserve Bank Board for its alleged failure to comply the law designed to reduce interchange levels to their lowest possible point. It doesn’t seem likely that these folks are going to settle this over a session of beer and pretzels any time soon. Google Finextra • After giving it the old college try, Google tosses in the towel on its Checkout system and merges November it into Google Wallet in an effort to create a single online and offline payment solution. In a corresponding move, The Gap switched to Google Wallet payments in 65 stores in the San Francisco Bay Area, just down the road from Google headquarters. In a classic version of merchant-funded rewards, the retailer is offering a 15 percent discount for purchases made using the G Wallet. Square BusinessWire • Not wanting to outdone by the Girl Scouts, Salvation Army bell ringers launched a program for November acceptance of donations to the service’s Red Kettle campaign by credit/debit cards using Square card readers. The campaign kicked off at the Thanksgiving Day game between the Dallas Cowboys and Miami Dolphins in this, the fifteenth year of cooperation between Dallas and the Salvation Army. Hope the program performs better for the Army than the Cowboys did this year (although they did eke out a 20-19 win over Miami.) Dorado Industries (310) 544-1316 655 Deep Valley Drive, Suite 125-P jmacallister@doradoindustries.com 9 Rolling Hills Estates, CA 90274 www.doradoindustries.com
  • 10. Interesting News This Quarter – Continued Subject Source/Date Substance Green Dot Paybefore • Green Dot does what retailing titans Home Depot and Wal-Mart could not by receiving almost November unanimous approval (Governor Elizabeth Duke dissented) from the Fed to complete its acquisition of Bonneville Bancorp, a $36 million (assets) bank based in Provo, Utah. Future plans call for a name change to Green Dot Bank, transitioning Green Dot-branded GPR cards from Synovous (excluding the Wal-Mart/GE Money book of business), and maintenance of cash equal to the amount of insured deposits generated through Green Dot’s GPR card operations. Visa Finextra • Visa makes quick work of leveraging its Fundamo acquisition to launch a prepaid card account targeted November at developing countries and their unbanked citizens. Visa plans to roll out the account through mobile network operators, financial institutions, and government agencies across Latin America, Asia, and Africa. It is unclear as yet how much of the new service will be integrated with the card giant’s V.me mobile specification. If any of it moves over, count on someone squawking about disintermediation. Heartland Payment Systems Business Wire • Heartland continues to selectively release analyses of post-Durbin interchange reductions posted by November retail verticals. In November, the spotlight fell on restaurant and lodging merchants processed by HPY. Heartland reported that between the Durbin effective date and November 9, 2011 this segment received $7.7 million in savings with restaurant operators receiving the lion’s share to the benefit. Other meaningful data points include: 64 percent of signature debit sales qualified as regulated, the average savings on regulated transactions was $0.20, while the average regulated interchange rate was $0.23. Openbucks Nilson Report • Openbucks is a startup that aspires to straddle the gap between online purchases and unbanked September consumers by marrying sellers of closed-loop gift cards with online and digital goods providers. Consumers may now purchase CVS, Subway, Circle K, Hess and Sports Authority gift cards and use them on checkout pages at game sellers’ websites. The Openbucks platform links the selling prepaid card merchants to the online digital content sellers. Funds are transferred via the ACH using Bank of America. Openbucks retains a 15-20 percent commission, potentially exposing it to Durbin or CFPB scrutiny. The Openbucks approach appears to skating dangerously close to creating a payments method that parallels the nationally branded card schemes. Dorado Industries (310) 544-1316 655 Deep Valley Drive, Suite 125-P jmacallister@doradoindustries.com 10 Rolling Hills Estates, CA 90274 www.doradoindustries.com
  • 11. Interesting News This Quarter – Continued Subject Source/Date Substance Stop & Shop Point of Sale • Stop & Shop claims to be the first supermarket to offer up a self-scanning application for smartphones. Scan Supermarket Company News It! enables shoppers to use bar code scanning technology to create an electronic shopping cart while in one of three stores included in the roll-out pilot. To checkout, the application routes the “cart” via Wi-Fi to the in- store point of sale system where a normal payment is tendered. The same Wi-Fi network enables Stop & Shop to route personalized information and offers back to the shopper. BankSimple TechCrunch • BankSimple shortens its name to Simple and opens its doors to consumers in a limited beta. While not an November FDIC insured bank, Simple works with chartered banks to hold deposits gathered from consumers and uses and agent bank to issue its Simple Visa card for purchases. To some degree, Simple operates as a meta-layer over these relationships, crafting and distributing mobile device applications that provide assess to consumer’s deposits and card balances. Simple continues to be proud of its key objective: “build a bank that doesn’t suck.” Card.io Mobile Payments • The market for non-traditional card payment acceptance is starting to get crowded. In addition to category Today killers Square and Intuit’s GoPayment, there are upstarts like Card.io entering. Card.io offers a smartphone January app that utilizes the scanning function built into the phone’s camera to capture card data and initiate a purchase transaction. No merchant services account is required; Card.io charges 3.5 percent plus 30 cents per transaction – a bit steeper than others but the market ought to sort that out. Viableware Bank Technology • Viableware has launched Rail, an at-the-table digital payment terminal designed to alter the current diner News payment model. Designed to look like a traditional bill folder, Rail uses a digital touch screen to summarize the charges, accepts magnetic stripe swipes and has NFC capabilities to accept mobile and contactless payments. Rail can also be adapted to accept EMV chip cards. Pretty cool solution for casual and high-end dining establishments. Might also be adapted to handle farmers markets and other open air sites. Harland Financial Nilson Report • Harland joins the P2P fray by offering Direct Payment Exchange (DPX) to the 11,000 financial institutions Services December that use it and its sister company Harland Clarke (the check printer). The entry puts Harland in direct competition with PayPal, Fiserv, ClearXchange and several also-rans. The initial service will feature two- party transactions settled via the ACH; the ultimate objective is to route the transactions through a DPX switch thereby eliminating ACH fees and speeding up transaction settlement. P2P, like other “viral” payments sectors, is starting to look like a grudge match fist-fight. Wonder how many P2P transactions actually post every day. Dorado Industries (310) 544-1316 655 Deep Valley Drive, Suite 125-P jmacallister@doradoindustries.com 11 Rolling Hills Estates, CA 90274 www.doradoindustries.com
  • 12. Interesting News This Quarter – Continued Subject Source/Date Substance Chevron Mobile Payments • Chevron takes an early lead in the mobile payments acceptance realm for petroleum retailers as it announces Today a pilot program involving 600 service stations in San Francisco and Los Angeles. Pumps at these sites will December use contactless readers to accept Google Wallet transactions. Could have sworn that we were discouraged from using cell phones near service station pumps. PayPal Mobile Payments • PayPal runs a test of its mobile payment application with two retailers in Stockholm over the Christmas Today holidays. A ski/sports equipment retailer and an electronics outlet agreed to accept PayPal’s new “Instore” December app. The app is linked to a tag attached to the phone which is swiped/waved at the POS terminal. Despite the dismissive attitude shown by John Donahoe, CEO of eBay toward NFC, it looks like the PayPal payments gurus may have their day in the sun – but it’s not likely to be in Stockholm at Christmas time. Dorado Industries (310) 544-1316 655 Deep Valley Drive, Suite 125-P jmacallister@doradoindustries.com 12 Rolling Hills Estates, CA 90274 www.doradoindustries.com
  • 13. New Names to Watch If You Hate Check Out Lines Here’s a short discussion on some of the emerging solutions designed to reduce consumer time spent in check out lines – similar to Viableware’s Rail offering cited earlier. These apps make for easy shopping but we miss the chance to thumb through the National Inquirer or pick up a pack of gum. So it goes. Firm/Product Highlights • In-store self checkout built into the Apple Store mobile app Apple EasyPay • Use an iPhone to scan items marked for EasyPay checkout • Load up the cart and pay using forms of payment on file in the iTunes cloud • Shoppers scan merchandise on their smart phone or browse through the retailer’s catalogue AisleBuyer • Payment works by scanning a photo of the shopper’s payment card using the on-board camera • For now, the payment function generates a CNP transaction – a pricey merchant disadvantage • Designed for restaurants and bars TabbedOut • Allows patrons to close out their tabs and leave a tip from their table • Card information is stored on the diner/drinker’s phone and is transmitted to an in-store server • Enables remote ordering and payments Chipotle Mobile Application • Payment function is in-app using stored payment type data held in the Chipotle cloud • Patrons order ahead of time and go straight to the pick up order site in their favorite Chipotle • Card Case owner is recognized upon entering the store using GPS logic Square Card Case • User name serves as transaction initiator • App takes care of the rest Dorado Industries (310) 544-1316 655 Deep Valley Drive, Suite 125-P jmacallister@doradoindustries.com 13 Rolling Hills Estates, CA 90274 www.doradoindustries.com
  • 14. M&A/Alliance Activity Buyer/Investor Target Payments Emphasis Possible Strategy VeriFone Global Bay Mobile Mobile retail solutions Not content to be constrained by magnetic stripe Technologies payment forms, VeriFone pays an undisclosed amount to expand its position in mobile retail applications. Sandeep Bhanote, Global Bay’s CEO and co-founder will step into the role of VeriFone’s general manager of Mobile Retail Systems. Visa Europe Monitise plc Mobile banking and payments Visa Europe invests $39.9 million in Monitise plc bringing its ownership share up to 8.8 percent. Monitise, now profitable, will use the added funds to invest in additional markets including India and Asia- Pacific. Meanwhile, Monitise plc is acquiring 51 percent of Monitise Americas for $15 million thereby reducing its joint venture partner’s share to 3.3 percent. Metavante/FIS is the diluting partner. ShopSavvy Eduardo Saverin Smartphone based payments ShopSavvy’s application which enables product location, research and payment using barcodes has enticed Saverin, a Facebook co-founder ,to invest $7 million in the venture. The application boasts 10 million unique users and partnerships with 40,000 retailers. American Express Various Payments AXP sets aside $100 million to invest in Silicon Valley startups including those targeting mobile payments and online marketing. Harshul Sanghi, late of Motorola Mobility Ventures because of Google’s snatch of that enterprise will be doling out the cash. Might help AXP forget the money pit it launched called Serve. Dorado Industries (310) 544-1316 655 Deep Valley Drive, Suite 125-P jmacallister@doradoindustries.com 14 Rolling Hills Estates, CA 90274 www.doradoindustries.com
  • 15. M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy Richard Branson Square Merchant payments Virgin founder peels off $3 million in loose change and invests in Square on the heels its $100 million round of Series C funding. 800,000 of those free payment-accepting dongles are now generating $10 million a day in payments. Not needing to have a merchant services account continues to attract smaller retailers in droves. Public Market Vantiv Payments processor You knew this was coming – the three year anniversary of Advent’s major investment in Vantiv is coming up. Vantiv, fka Fifth Third Processing Solutions, fka Midwest Payment Systems, files for a $100 million IPO. Other shareholders cashing in include Bain and, naturally, the bank. VeriFone Point Electronic payments processor After the small sip it took with Global Bay, VeriFone takes a deep swig in forward integration terms by acquiring Point, a Euro-based payments and gateway processor for over $1 billion. Once again, the rationale is that VeriFone intends to offer fully integrated payment options over and above its standard line of terminals and other devices. “More M&A activity is foreseen,” says the presser. To say the least. MasterCard mFoundry Mobile banking and payments The frontrunner in mobile banking applications with over 500 Intel Capital bank and credit union clients attracts $18 million in FIS development funds earmarked for payments-related mobile Motorola Mobility products aimed at the FI and mobile network operator (MNO) segments. See the pattern here? Visa takes down Fundamo while taking stakes and Monitise and Square while American Express goes after Payfone. MasterCard needed to make a play. Dorado Industries (310) 544-1316 655 Deep Valley Drive, Suite 125-P jmacallister@doradoindustries.com 15 Rolling Hills Estates, CA 90274 www.doradoindustries.com
  • 16. M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy Returning investors FrontStream Payments Payment solutions FrontStream is a soup-to-nuts payments acceptance operation managed by a group of ex-Tier Technologies and Sallie Mae execs. FrontStream raises its total funding to $36 million through another $10 million round. Funds are to be invested in improved operations and sales expansion. Its Fasttransact platform claims to offer an ala carte approach to features and functions for delivery to consumers through its business clients. CO-OP Financial The Members Group Credit union payments services CO-OP makes a strategic investment in The Members Services Group in an undisclosed amount. Both parties plan to cross-sell each other’s products. CO-OP brings a huge surcharge-free network of ATMs while TMG offers full-service credit card processing. TMG is both and investor in, and back-end ACH processor for Dwolla, the low-cost payments system headquartered in Iowa. Late breaking news – Union Square Ventures plops down $10 million in Dwolla Series B funding. This is now getting interesting. General Atlantic Klarna E-commerce payments Well-heeled investors put up a staggering pre-IPO $155 DST Global million to expand M&A activities, grow the footprint, Sequoia Capital and hire more resources. Klarna’s Euro-centric on-the- fly credit granting payments system is backstopped by Analyzd, an Israeli fraud prevention firm it acquired earlier in 2011. Shoppers are extended short term loans upon purchase while merchants are paid upon receipt of order, a practice referred to as “invoicing.” Dorado Industries (310) 544-1316 655 Deep Valley Drive, Suite 125-P jmacallister@doradoindustries.com 16 Rolling Hills Estates, CA 90274 www.doradoindustries.com
  • 17. M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy Western Union eBillme E-commerce WU acquired eBillme in October but kept it quiet until Payments News outed them in December. No word on pricing or what will become of the management team. The brand, however, will go away. Not a bad idea to rebrand eBillme, an also-ran in the online alternatives marathon. eBillme’s share had declined to 2 percent in 2011 Javelin Research estimates. Village Ventures Zipmark Digital checkbook Currently in invitation-only beta, Zipmark enables users to Contour Venture Partners pay bills (rent, in particular), pay friends, or pay paper Others invoices via the web and mobile devices. Investors have ponied up $2 million in VC funds to keep things afloat. The service is a FinTech Innovation Lab finalist in 2011. Pretty clever stuff but “digital checkbook?” Oxymoronic in the extreme. Saudi Prince Alwaleed bin Twitter Text based social network Apparent the prince anticipates that Twitter will one day Talal measure up (or down in one case) to its other significant holdings in Apple, News Corp and Citibank. His investment company drops $300 million into the 140 character info sharing network. Turns out Arabic is the fastest growing language on Twitter (who knew?) and the service was the mainstay protest coordination tool from Tunisia to Bahrain in 2011. Euronet Worldwide PayNet Electronic payments EEFT continues to expand in Europe. Remember when Euronet was named Arkansas Software? PayNet is a relatively small (720 ATMs and 1,700 POS terminals) payments outsourcer based in Romania and recently bought by EEFT. Annual revenues are in the $3 million range. Dorado Industries (310) 544-1316 655 Deep Valley Drive, Suite 125-P jmacallister@doradoindustries.com 17 Rolling Hills Estates, CA 90274 www.doradoindustries.com
  • 18. M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy Global Payments CyberSource Online merchant portfolio In a classic game of “love the company, hate its customers,” Visa sells the 9,000 online merchant relationships it gained when the card company paid $2 billion for CyberSource a while back. Undisclosed investors Jumio Mobile and online payments Jumio raises $25.5 million in funding on top of the $6.5 million plunked down by Facebook co-founder Eduardo Saverin. Among other products, Jumio offers Netswipe, a digital camera -based method for accepting credit and debit card payments with and without a separate merchant account. eBay/PayPal Billsafe Purchase-on-invoice processor PayPal continues its global conquest by acquiring the remaining 80 percent share of Billsafe that it did not already own. Billsafe boasts 15 million accounts in Germany where it specializes in purchase-on-invoice payments. P-O-I is a Euro-centric service that enables consumers to make online purchases with delayed payment options. Plans are to integrate the functionality with existing PayPal services abroad and ultimately in the U.S. Citi Ventures Plastic Jungle Gift card online exchange Plastic Jungle claims there are $41 billion in unredeemed gift cards – essentially a “shadow economy” – that it is attempting to free up through use of its online exchange portal. Users can sell unwanted cards for up to 92 percent of their face value. Citi is a strategic investor in PJ for an undisclosed amount. PJ began as a boot strapped venture over five years ago making it a senior citizen in payments exchange. Prior to the Citi investment, Plastic Jungle had raised $20 million in VC and PE monies. Dorado Industries (310) 544-1316 655 Deep Valley Drive, Suite 125-P jmacallister@doradoindustries.com 18 Rolling Hills Estates, CA 90274 www.doradoindustries.com
  • 19. M&A/Alliance Activity - Continued Buyer/Investor Target Payments Emphasis Possible Strategy Blumberg Capital ZipZap Cash payments for online Ever wonder where Art Kranzley, the former MasterCard purchases exec is these days? In addition to other ventures he advises, Art is a Director with ZipZap a stealthy beta-only company based in San Francisco. ZipZap offers a product (Cash Payment) that somehow enables purchasers of online content to pay with cash. Blumberg injected an undisclosed round of funding in December to keep the company growing. Small world. First National Bank Bank of Agent bank credit card BofA abandons the agent bank market (which it paid a Omaha America portfolios fortune for when it bought MBNA) and is shedding the US Bank portfolios in chunks - US Bank took $700 million while FNB Omaha was satisfied with $285 million. Dorado Industries (310) 544-1316 655 Deep Valley Drive, Suite 125-P jmacallister@doradoindustries.com 19 Rolling Hills Estates, CA 90274 www.doradoindustries.com
  • 20. Useful Links for More Information We threw a lot of new names out again this quarter. Here’s a list of links for you to learn more. Company Role Link GiftZip Consumer prepaid card exchange www.gfitzip.com BankSimple Streamlined online banking www.banksimple.com China UnionPay World largest card scheme En.unionpay.com Tagattitude Sonic based POS system www.tagattitude.fr Jumio CNP system using webcams https://pay.jumio.com ReadyForZero Consumer debt reduction system www.readyforzero.com Authentify Out-of-band authentication www.authentify.com BillGuard Fraudulent transaction tracker www.billguard.com BillFloat Immediate credit lending for consumers www.billfloat.com Dorado Industries (310) 544-1316 655 Deep Valley Drive, Suite 125-P jmacallister@doradoindustries.com 20 Rolling Hills Estates, CA 90274 www.doradoindustries.com
  • 21. Back in the day! So, a bunch of old EFT payments network guys from the Midwest got bored and decided to invite an even older payments consultant to Lake Michigan for a day of fishing. They artificially stock salmon in the lake and these Silvers were on their way back to their original streams to spawn. Unfortunately for them, they didn’t know that home was a hatchery in Kansas and got lost. So it goes. Dorado Industries (310) 544-1316 655 Deep Valley Drive, Suite 125-P jmacallister@doradoindustries.com 21 Rolling Hills Estates, CA 90274 www.doradoindustries.com