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Security the Main Barrier to Digital Wallet Usage, Study

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Credit Card Industry Steps Up Payments Security Efforts

2F E A T U R E D A R T I C L E S

Felix ShipkevichFOUNDER

Kevin XuEDITOR

CONTENT STRATEGIST

Andrew BarnesMANAGING DIRECTOR, EMERGING PAYMENTS

Eric WagnerCONTRIBUTING WRITER

Melanie Macinas CONTRIBUTING WRITER

Daniel Cross CONTRIBUTING WRITER

Ellen RedCONTRIBUTING WRITER

David EasleyCONTRIBUTING WRITER

Jason MongielloDIRECTOR OF MARKETING

GRAPHIC DESIGNER

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M A R K E T P L A C E

T E C H

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DIGGING DEEPER WITH FIRST DATA VENTURES

Andrew sits down with Pete Donat, Head of First Data Ventures to get some straight talk. They talk about market challenges unique to being a payments startup, leading indicators for startup success, and the areas

that he sees as “hot.”

S P O T L I G H T A R T I C L E

4 - Mobile Payments Seen as Key Driver Behind Biometric Authentication Adoption

3 - Rumor: Apple to Release iPhone Mobile Wallet

I N D U S T R Y V O I C E S

5 - iWatch Has the Time for Play or Pay

S E P T E M B E R 1 - 5 , 2 0 1 4

6 - Isis Wallet Rebrands to Softcard

7 - Security the Main Barrier to Digital Wallet Usage, Study Shows

8 - Home Depot a Potential Victim of Data Breach

9 - Cheapair.com Takes Digital Currencies to New Heights

12 - Clear2Pay Acquisition to Boost FIS Payments Business

13 - Global Payments’ Taiwan Office Adopts CashPro® Any2Any Platform

10 - Millennials Will Drive Payment Card Growth Studies Show

11 - Credit Card Industry Steps Up Payments Security Efforts

14 - Digging Deeper with First Data Ventures: How a Payment Processing King Measures Startup Success

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Rumor: Apple to Release iPhone Mobile WalletBy: Daniel Cross

Apple has been working closely with Visa, MasterCard, and American Express to design a plastic-less payment system that allows

people to use their phones to make payments at partner banks and retailers.

At least that’s the latest rumor from Cupertino, where Apple is reportedly working on a new iPhone and possibly iWatch that will be released to the larger public on September 9th. In addition to new gadgets, Apple may also offer a mobile payment solution that may also introduce an NFC chip for the first time.

Historically, Apple has resisted NFC, although it has offered payment integration with apps and its Passbook app.

Several years ago, Starbucks began offering a payment solution using QR codes; more recently, airlines have used the same codes with Passbook to allow passengers to board planes without a paper ticket.

Rumors are scant about exactly how Apple’s new product would operate with existing payment infrastructure. VeriFone has offered NFC-enabled payment systems for years, and systems like MasterCard PayPass have offered limited touch-less payment availability in the past.

Possibly, the solution will forego NFC entirely and offer payments through custom apps that must speak securely to one another, much like peer payments through existing payment provider PayPal work. If Apple has already partnered with large retailers like Wal-Mart and Target, such a solution could target over $100 billion in transactions overnight.

An Apple payments solution could also integrate with a marketing platform, allowing smaller retailers to promote products while also offering payments via an iPhone. Such a move could help Apple dominate the small business retail market much as the iTunes App Store has helped the company dominate the indie app market.

MOBILE

Image credit: Simon Yeo

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Goode Intelligence – a leading research organization for the mobile security industry – predicts that by the end of 2015, biometrics

will become mainstream on mobile devices.

In its “Mobile and Wearable Biometric Authentication: Market Analysis and Forecasts 2014-2019,” Goode Intelligence reports that mobile payment is one of the key drivers behind the adoption of mobile and wearable biometrics.

Biometrics is defined as “the automatic identification of living individuals by using their physiological and behavioral characteristics.”

The Goode Intelligence report revealed that biometrics will replace passwords and PINs as these two are not considered as secure and convenient for mobile and wearable devices.

According to Goode Intelligence, by 2019, mobile and wearable biometric technology users worldwide will reach 5.5 billion.

In April 2014, fingerprint biometrics was introduced for PayPal’s mobile app on the Samsung Galaxy S5

smartphone.

Goode Intelligence also predicted that Apple will integrate biometrics into its iWatch smart watch device in late 2014.

Alan Goode, author of the report and founder of Goode Intelligence, said in a statement, “We believe that smartphones and tablets will be the first wave of consumer devices to be biometrically-enabled and this will quickly be followed by wearable technology.”

Thrive Analytics, meanwhile, in its “2014 Digital Wallet Usage” study, reported that security concern remains as the main barrier to digital wallet adoption.

Jason Peaslee, Managing Partner of Thrive Analytics, told Investorideas.com that mobile payments security will be determined by the strength of the authentication process.

The Managing Partner of Thrive Analytics said, “Eventually, biometrics could play a huge role in tying everything together.”

Mobile Payments Seen as Key Driver Behind Biometric Authentication AdoptionBy: Ellen Red

MOBILE

Image credit: Kārlis Dambrāns

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Apple’s long awaited unveiling of its signature smartwatch is expected to wow audiences around the world Tuesday, September 9th.

Industry analysts expect next week’s event to feature a flurry of iDevices including the iWatch, two new iPhones, and an iPad refresh.

Apple’s first iPhone jumpstarted the smartphone craze, and its new iWatch may have the same potential to make wearable technology the next big thing for consumers.

It is now confirmed that the iWatch will also carry NFC tech in a bid to enable payments on the smartwatch. The inclusion of NFC matches the iPhone 6, which will also be unveiled on the same day.

Near-Field Communication is a short-range

frequency specially designated for use in the burgeoning payments processing industry.

Tap-to-pay is a feature which is found in most smartphones save for the previous iterations of the iPhone, a hinderance to overall NFC adoption.

The leaked drawings of the iWatch show a beautifully curved wristband that has stylish appeal and wearable comfort written all over.

Apple plans to begin taking pre-orders for the new iWatch, and it is expected that the smartwatch will actually begin shipping to stores until early next year.

The combination of wearable computers mixed with mobile payment simplicity is a sure-fire sign that time keeps slipping into the future.

iWatch Has the Time for Play or Pay By: Eric Wagner MOBILE

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Isis Wallet, a mobile wallet and payments initiative, which unfortunately share its name with ISIS, the infamous militant group in the

Middle East, is rebranding.

With its rebranding first announced in July, Isis Wallet will soon be known as Softcard. Expect the mobile wallet app to be updated in the next few weeks.

Isis Wallet, or rather Softcard, of course is the NFC-based mobile payments play supported by major wireless carriers that include T-Mobile, Verizon, and AT&T.

Softcard promises a bold and simple visual redesign.

According to Michael Abbott, CEO of Isis Wallet/

Softcard, “Our search for a new name has been rooted in our founding vision: to use the power of the mobile phone to help consumers find a safer and better way to shop, pay and save. But we also wanted a name and visual identity that had the power, flexibility, and simplicity to define our category.”

Isis Wallet Rebrands to SoftcardBy: Kevin Xu

MOBILE

“OUR SEARCH FOR A NEW NAME HAS BEEN ROOTED

IN OUR FOUNDING VISION: TO USE THE POWER OF THE

MOBILE PHONE TO HELP CONSUMERS FIND A SAFER AND BETTER WAY TO SHOP,

PAY AND SAVE.”

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Security remains the main obstacle to digital wallet adoption, this according to the 2014 Digital Wallet Usage study conducted by

Thrive Analytics.

Thrive Analytics is a digital marketing research and customer engagement strategy consulting firm, and their 2014 Digital Wallet Usage study surveyed over 2,000 representatives of the U.S. adult population.

The Thrive Analytics study revealed that while 80 percent of U.S. consumers are aware of digital wallets, only less than one-third of American consumers adopt the digital wallet technology.

The low adoption of mobile wallets is mainly due to security concerns, the Thrive Analytics study revealed.

Jason Peaslee, Managing Partner of Thrive Analytics, said in a statement, “An overwhelming majority of consumers acknowledge the presence of digital wallets, however a minority have actually used

them despite fewer shoppers carrying cash today.”

Fifty percent of U.S. consumers, mostly on-the-go females, carry less than $20 on a regular basis, the study showed.

Sixty percent of digital wallet users though are males, despite the fact that they carry more cash than females.

The study further revealed that 18 to 29-year-old females are more likely to use merchant digital wallet apps for price shop (56 percent) and discounts/coupons (72 percent) compared to men.

According to the study, men tend to use merchant digital wallet apps for paying bills and searching for products and contact information of retailers.

Gartner, Inc. , a leading information technology research and advisory company, reported that starting in 2017, mobile security will become a higher priority for consumers.

Security the Main Barrier to Digital Wallet Usage, Study ShowsBy: Ellen Red

SECURITY

Image credit: Sergio Uceda

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Home Depot is warning customers about a potential data breach that could affect millions.

According to a statement posted on the company’s website, Home Depot is working with law enforcement authorities to investigate some unusual activity that suggested a breach had taken place.

The statement assures customers that, if a breach is found, they will be offered identity protection services free of charge, and that “the financial institution that issued your card or Home Depot are responsible for [fraudulent] charges should we confirm a breach.”

While determining whether an attack indeed took place, Home Depot apologizes and encourages its customers to keep a close eye on their accounts. Any suspicious activity should be reported to the card issuers themselves. Customers will be notified once a breach has been confirmed.

The fourth largest retailer in the U.S. is just the latest victim in a series of high profile data breaches – Target Corp. , Neiman Marcus Group Ltd. , and P.F. Chang’s Bistro all having suffered recent attacks. Target reported that it has so far

spent $146 million cleaning up the fallout from its breach.

The news could reverse recent good results for the retailer. Home Depot reported a nearly 6% increase in sales over its last quarter. Home Depot stock was trading down 1% from its market opening of $91.11.

The attack occurs despite Home Depot’s concerted efforts to curb credit card fraud. New EMV credit card computer chip reading technology has been installed on Home Depot’s card terminals, although they have not yet been activated. The technology may not have prevented the breach, however, as most consumers are still using old magnetic stripe cards.

Seth Ruden, Senior Fraud Consultant at ACI Worldwide stated “Similar attacks on merchants will likely continue until we remove the magnetic stripe from being the primary mechanism of data transfer in card-present transactions. This breach, like the others before it, should serve to increase the pressure to migrate to the EMV chip card standard and help to reinforce the need that we have for stepped-up security in payments, especially in the US, where we currently lag behind our peers.”

Home Depot a Potential Victim of Data Breach By: David Easley

SECURITY

Image credit: Mike Mozart

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The first online travel agency to accept Bitcoin, Cheapair.com has announced that they are now accepting Litecoin and the

Internet meme-based Dogecoin.

Fans in the Altcoin arena are ecstatic, as the open-source Dogecoin is the most transferred digital currency in existence.

Flyers can now book flights, hotels, and rental cars all using Bitcoin, Litecoin, and Dogecoin.

According the Cheapair.com CEO Jeff Klee, the move was largely prompted by the tremendously positive community response and lucrative results since the inception of the Bitcoin acceptance.

“We’ve had some success with bitcoin, we’ve gotten some new customers there – enthusiastic customers. We’ve gotten a great response since

we began accepting [bitcoin], and we had some requests for dogecoin and litecoin. We figured why not?”

The company reported that they raked in over $1.5 million in bitcoin revenue since the inception of the program, and they are expecting even better results from the newer and more cultish Litecoin and Dogecoin protocols.

The company has also chosen a new payments processor in Gocoin for these altcoin transactions, as they are more proficient than Coinbase with the altcoin technology. The company will continue its relationship with Coinbase as processor of all Bitcoin transactions.

Now Bitcoin’s younger siblings get a chance to take flight and travel the world with convenience.

Cheapair.com Takes Digital Currencies to New HeightsBy: Eric Wagner

DIGITAL CURRENCIES

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A study conducted by the Princeton Survey Research Associates International showed that 51 percent of millennials prefer to use

debit or credit cards over cash when purchasing items close to $5.

Millennials, also known as Generation Y, are those born between the 1980s and 2000s.

The Princeton Survey Research Associates International, in a study conducted for CreditCards.com, surveyed a representative sample of 1,497 Americans in July 2014.

The study also revealed that those aged below 50 years old are more likely to use debit or credit cards for a $5 purchase compared to 50-year-olds and older.

The study showed that 46 percent of those below 50 years old prefer debit or credit cards; while only 21 percent of 50-year-olds and older prefer using debit or credit cards.

The Princeton Survey Research Associates International survey also showed that Americans

who attended or graduated from college are considerably more comfortable than others with using plastic for small buys.

The survey found out that Americans who have children are more likely to use the cards for small buys (41 percent) than Americans without children (30 percent).

The person’s employment status also plays an important part in card use. The survey showed that cards are often used for small purchases by those employed (76 percent) than those unemployed (23 percent).

In its Prepaid and Gift Cards in the U.S. , 4th Edition report, Packaged Facts (a division of MarketResearch.com) reported that 18 to 34-year-olds have an average of 2.3 prepaid cards in their wallets, making them the key drivers behind the prepaid card revenue surge.

Juniper Research, meanwhile, projected that the usage of online bill payments by the millennials will continue to rise in the next five years.

Millennials Will Drive Payment Card Growth Studies ShowBy: Ellen Red

Image credit: Sean MacEntee

CREDIT, DEBIT, & PREPAID

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Credit card industry players are boosting their efforts to keep sensitive card information out of merchant environments as reports of

data breaches and theft continue to rise, weakening confidence in electronic payment systems.

Home Depot is the latest to have reported a potential data breach on its system. Card information from consumers who used cards at P.F. Chang’s China Bistro and in grocery stores operating as Albertsons, Acme and Jewel-Osco has also been recently stolen.

Cases like these highlight the vulnerability of merchant systems and also stress the need for more security measures.

In a move to bolster electronic payments security, Visa and MasterCard are introducing a new technology called tokenization, wherein sensitive

customer information is replaced with a unique set of numbers that confirms the cardholder’s identity.

The tokenization technology can be used online, in brick-and-mortar stores using a smartphone, and with apps that users load onto their smartphone. As this technology masks sensitive consumer information, hackers will not be able to steal any vital details.

Another measure is the EMV chip card technology, which has become the global standard for debit and credit card payments. With this technology, payment instruments come with embedded processor chips to store and protect cardholder information.

With these solutions, industry insiders hope incidences of data breach and theft will be diminished if not completely eliminated.

Credit Card Industry Steps Up Payments Security EffortsBy: Melanie Macinas

CREDIT, DEBIT, & PREPAID

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Florida-based FIS, a leading provider of banking and payments technology solutions and a pioneer in consulting and outsourcing

solutions, will acquire Clear2Pay, a Brussels-based payments technology firm that offers solutions for secure, timely and streamlined payments processing.

The move will provide FIS with global payments capabilities through new payments managed services and payments processing utilities, boosting its abilities to provide differentiated enterprise payments solution.

The payments domain is one of the fastest-growing segments in the financial services industry and a strategic growth and investment area for the company, said Gary Norcross, president and chief operating officer of FIS.

The acquisition shows the company’s commitment to delivering assets and technologies that encompass all customer channels, simplify payment operations, reduce costs and provide a better customer experience, he added.

Michel Akkermans, chief executive officer and chairman of Clear2Pay, commented: “The payments landscape continues to evolve to meet the next generation of customer demands. We believe the combination of these two companies will be uniquely qualified to deliver true payment systems convergence.”

With Clear2Pay’s Open Payment Framework (OPF), financial institutions are able to improve their internal payments processing efficiency and provide clients with better and faster payment services. Its client-base includes leading financial institutions in Western Europe, Asia Pacific and the US.

Clear2Pay Acquisition to Boost FIS Payments BusinessBy: Melanie Macinas

INDUSTRY LEADERS

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UK-based online cash payment provider Ukash has further expanded its partner network with its recent collaboration with

Singapore-based payment service provider, Yuupay.

The partnership will allow merchants using the YuuPay system in Europe, Australia, and Asia to offer secure online transactions with Ukash.

It will also increase payment choice for customers who shop and pay online without the need for a credit card or a bank account.

Ukash is available for use across several sectors, including shopping, games, gift cards, bingo and poker. With this system, customers use cash to pay securely and conveniently online by exchanging coins and notes for a unique 19 digit code. Consumers then use the code to make a transfer,

payment or buy online.

“The Ukash brand is already well established with Asian and Australian consumers, so this new partnership with YuuPay provides a great opportunity for merchants to leverage the loyalty around our service, offering customers flexibility and security when they shop, play and pay online,” says James Allum, Chief Commercial Officer at Ukash.

Yoav Elgrichi, CEO of YuuPay, commented: “Ukash offers the perfect fit for our customers as its universal and inclusive payment method helps consumers transact online safely and securely. Its simplicity makes it easy for consumers who don’t own a credit card or those who prefer to keep their personal information private when making online transactions.”

Global Payments’ Taiwan Office Adopts CashPro® Any2Any PlatformBy: Melanie Macinas

GLOBAL & LOCAL

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Andrew Barnes’ series, “Digging Deeper” is based in Silicon Valley and focuses on key startups and innovators, and how they are

disrupting digital payments and commerce.

If there were a king in the world of payments processing, First Data would certainly be a candidate for the crown. In 2013 it was the #1 processor for U.S. merchant acquirers and the #1 processor in international markets. It has 23,000 employees, 6 MM merchant locations, and 3,500 financial institutions as clients. 2013 revenues were $10.8 billion on 59 billon transactions.

First Data, like all processors, is in a scramble to stay relevant and profitable in an increasingly commoditized business. So where else to drive for innovation but Silicon Valley where in 2013 First Data launched its Ventures group, which is investing in and partnering with innovators in a number of areas, such as payments, marketing,

customer loyalty, security, mobile and solutions that support the next generation of commerce.

Pete Donat is senior vice president of First Data Ventures and helped open First Data’s Palo Alto office in 2013.

“I have seen massive exaggeration of market size, customer interest, and value creation – especially in payments. That tends to be a turnoff. If you haven’t assessed your market, you don’t know what the customers think.

So what’s the going on here? Andrew sits down with Pete Donat, Head of First Data Ventures to get some straight talk. They talk about market challenges unique to being a payments startup, leading indicators for startup success, and the areas that he sees as “hot.”

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Hi Peter, great to talk with you today. And by the way, these new First Data Ventures digs in Palo Alto are quite nice… thanks for the tour. Ok, lots to talk about, lots going on. Let’s jump in. To start things off, can you tell me what “venture” means to First Data Ventures?

Pete Donat: Great to see you and talk with you again Andrew. It’s always good to talk shop and yes, lots going on. To your question, to us a venture can be a new or an existing enterprise. First Data’s intent behind this Ventures group is to connect the scale, capabilities, and assets of First Data across the millions of merchants and thousands of financial institutions with whom we work. The goal is to bring those assets and capabilities together with the innovation and disruption that the Silicon Valley entrepreneurial community brings.

Is it an acquisition strategy? A partner funding strategy? What’s your charter?

We’re here to find the disruptive partners. We have the ability to do acquisitions and we have the ability to do commercial partnerships. I’d say it’s a whole range of corporate structures and investments that we could do with any of these partners. That said, my team will focus on equity investment-based work. We want to use a number of different levers to get access to deal flow, to create awareness. Using investment dollars is one of those that make a lot of sense.

If a company is aligned with our business strategies, for instance growing Clover, that’s helpful. If it’s aligned with certain product gaps, features, or functions that we may not have considered, or that our customers would value, an investment could help accelerate their growth and integration. Those are examples of things we think about as we look

at the disruptive partners who are out here.

Clover was one of your early fintech acquisitions. How did that take shape?

I met the cofounders, Leonard and Mark Schulze, 2 years ago at Finovate. First Data took a look at it and said, “Gee, there’s something cool going on here.” As Todd McGuire and our Corporate Development team started to evaluate it, all of the possibilities got exciting – the hardware play, the platform play, and the ability to be an app marketplace of the future. We felt that really complemented our desire to transform First Data to be more innovative and collaborative.

Are startups banging down your door to get noticed?

It’s a great question. We’ll connect with a couple hundred startups this year. We will have found them, or they will have found us. I’m not sure the ratio of reach-outs versus somebody reaching out to us.

As a company, we want to make sure that First Data has access to the best and most innovative deals that would be relevant for us – that we’re aware of them, we’ve seen them, and we’ve talked to them. We want to figure out if there’s a way for our companies to work together.

I think we’ve gotten much better visibility, but we still aren’t where we want to be. First Data Ventures is relatively unknown. As a corporate venture arm, we want to grow our brand, grow awareness, and do more deals and investments. Ultimately, we’re out to prove out that we’re a great partner.

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To date, I think the companies who are working with us, such as LocalVox or Gyft, would say that we are a great partner. That really helps our visibility and ensures that more and more entrepreneurs want to find a way to connect with First Data.

Are you getting calls from the venture guys saying, “Hey look, you’ve got to talk to my portfolio company”?

We do get the inbound happening weekly. Somebody at Matrix Partners or Andreesen Horowitz or another venture firm saying, “Take a look, I’m brokering an intro on a startup that’s in our portfolio.” That happens a lot, I would like it to happen more.

Is the quality of the introduction better than trawling out in the open ocean?

The companies who have top tier venture backing have clearly been through some screening to help establish some validity to the business. They wouldn’t have invested if they didn’t think there was something there. Many venture capitalists want to prove that they’re adding value to their portfolio companies. Finding a way to introduce them to us is helpful to them.

I think those introductions matter. We’ve found some very interesting companies through those types of introductions. That said, as a relatively new voice in town, I’d still like to have a broader ecosystem awareness of First Data Ventures than we have today.

Are your term sheets pretty competitive? Would

you say you’re more or less aggressive than other corporate venture groups?

I don’t know, but I’ll say we’re different. There’s a benefit of partnering with First Data that goes beyond the capital that gets put into the deal. We could put money in, $1 million, $2 million, whatever that amount is, at a rate anybody else can. Whether we’re competitive or not, it’s hard to say. I think the difference for us, and usually the types of things we’re negotiating, is around something beyond the money that makes us a different play.

Usually that means huge benefits for the entrepreneur who wants to work with us. Those benefits are the ability to access the thousands of people who are out there selling our solutions, the merchant base, the processing power, the 99.999% uptime that we have. It’s really hard for an entrepreneur to try and sell something to a banker, to a merchant, unless you’ve got somebody like First Data who is really behind you and supportive – someone who can help you work through the regulatory and compliance headaches of executing payments and commerce at massive scale.

Okay, so I’m a startup and I’ve got a solution. I need to bring to you something that’s going to be scalable, but I also have to build something that is unique and distinguishable. What do you say to a startup about how to serve both masters?

In some ways, what you’re getting to is the synergy First Data is trying to create with the Ventures unit. It’s taking the innovation and creativity of the startups and partnering with all the assets we have. The merchants. The sales force. The bank relationships. The processing power. The knowledge of how to get to a restaurant channel versus a petrol channel versus a small business

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channel. We can bring that knowledge to bear for startups

If it was as easy as pushing F9 they would have done it themselves. By partnering with us, we have the ability to take what they have, help them refine it, figure a way to productize it, work on the messaging, then distribute through a lot of different channels that can get up there very effectively.

When you look to areas for your investment dollars, where do you see opportunities for disruption, and for profits? What are the juicy parts in the payments system?

I’ll tell you two things. One, we’ve got some themes that we’re pursuing. Two, we also don’t know enough. Part of the reason we have this office, and why I’m in this role is to make sure we’re paying attention to things that we didn’t see coming. We’re a bit of a listening post, making sure we’re aware of the innovation. I love meeting with the startups that make me go, “Wow, I never thought of disrupting or connecting the dots in the payments industry with this, and this, and this, in the way you just talked about.”

There are a couple themes that we tend to think are hot from a First Data Ventures perspective. One of those is utilizing our information and analytics to find ways of proving that the action turned into a result. Our information and analytics products are very good at saying how’s your spending, where are your customers coming from – great insights around your business.

Can we do something that pairs with that? Those are the kind of great solutions that we see as truly disruptive.

For you and your SMB clients, are your efforts about finding new technology to disrupt, or finding ways to drive better adoption?

In some ways, I’m not sure. Some of the solutions we look at have pretty unique technological innovations. I don’t know whether we’ll invest in or partner with some of these. I’m seeing some unique innovations in the sensors, beacons and other types of categories that might link with our analytics product. That would be really cool. Those would be, in my view, technologically cutting edge.

Other things, maybe they were technologically cutting edge five, ten years ago – but never took off. Today they are a packaging of that older technology, but with some better blocking and tackling - and some really good user interfaces. We’ve seen a number of companies like that. It doesn’t have to be that cutting edge. It just has to work really well for somebody, a small business owner who wants to spend the vast majority of his or her time not worrying about payments and commerce. They want to spend their time growing their business.

Can you tell me a little bit about your story and how it ties into your work with startups in a venture capacity?

I got into the space and spent seven years at MasterCard. During that time, I’ve seen success and failure in innovation. Some of the things we pursued at MasterCard were very successful, some were horrific failures. I also spent five years at Visa International and Visa, Inc. in strategy, planning and other roles.

At First Data, I spent a couple years in business development, e-commerce, and co-heading our Durbin SWAT team around regulatory reform issues.

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I think the reason I’m in the chair I am now relates to the experience of knowing how the payments industry works, knowing what’s likely to lead to success or failure, knowing how to work across the First Data ecosystem.

As First Data Ventures, I need to make sure I’ve secured business unit support for something that we want to do as an investment. In our LocalVox investment, we’ve worked very closely with key business unit executives and product managers. Krish Mantripragada, who heads up the analytics team, and I were tied at the hip in terms of moving this forward. Joe Plumeri – Senior Advisor to the CEO - and, Guy Chiarello, the President of First Data, were involved in approving the deal and how it is going to integrate with our sales force.

You referenced your time at MasterCard your feel for what drives success and failures. Can you deconstruct that and give me your thoughts on the leading indicators for success?

It’s a complicated question. How do we evaluate companies and whether they’re likely to be successful for us? We do a little scorecard that we use as we assess companies. Some of those criteria are going to be things you would expect to see. Are they addressing a big market? Do they have a fit with what First Data would be doing? Do they align with the business strategy that we would be pursuing? Then we’ll assess other things Is their team great? Is their product good? Is it unique?

The answer to those tend to vary a lot, vertical by vertical. Our assessment of a new payment network solution would be one way, versus how we assess a security solution. Those dynamics tend to be very, very different.

There are a couple things that tend to be turn-ons and turn-offs when we look at companies.

Can you talk more about the start-up turn-ons and turn-offs?

Companies that are entering into the payment space and the ecosystem must have thought through, realistically, the value proposition. We’re talking about some complicated chicken and egg issues of dealing with a two-sided market.

I have seen massive exaggeration of market size, customer interest, and value creation – especially in the payment space. That tends to be a turnoff. If you haven’t assessed your market, you don’t know what the customers think.

I often refer to my eight rules of payments. In payments, getting one or two things right is not enough – you need to address all eight of these criteria. For example, can you get to a critical mass of consumers? Can you get to a critical mass of merchants? Can you manage fraud? Can you deal with disputes and things when they go wrong? These and a few other rules. If you don’t deal with all of them, usually you’re doomed to failure. The good news is that First Data’s capabilities can often help a startup address some gaps it may have in achieving commercial success.

Payments isn’t a swing for the fence and hope you get there type of industry. There is plenty of blocking and tackling, from regulatory to compliance and all along the stack. It’s a mix of swashbuckling and diligence to get all the Ps and the Qs handled isn’t it?

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I like it. Can I quote you on that? Swashbuckling and diligence. There’s a GE phrase that goes back a decade or two that was “loose — tight”. Can you be really creative at some stage and then rigorously assess what you’ve creatively innovated? I think you need to have a bit of both. All swashbuckling and no diligence, that is problematic. But if you don’t have any swashbuckling, then it’s not that exciting either. It has to be both in our minds.

I think that sums things up, swashbuckle and diligence, the mojo of payments and commerce startups. It has been great to get your view of venture’s role in payments and commerce disruption. Thanks for talking shop with me.

As always, great to talk with you as well Andrew.

About First Data VenturesFirst Data Ventures is responsible for leading First Data’s efforts to harness inno-vation by partnering with small innovative companies who can leverage First Da-ta’s processing assets and unmatched distribution to drive solutions that delight customers and materially grow long-term revenue.

Pete Donat, Head of First Data VenturesIn addition to his role as Head of First Data Ventures, Pete is also responsible for network business development, responses to major regulatory events (e.g. Durbin I & II), managing several of the company’s non-traditional partnerships.. From 2004-09 he was VP of Enterprise Planning & Corporate Strategy at Visa. From 1997-2004 he held a variety of senior management roles at MasterCard. Prior to MasterCard he was a management consultant at Marakon Associates. He has an MBA from Wharton, a Masters in International Economics and American Foreign Policy from Johns Hopkins SAIS, and a BA from Dartmouth.

Andrew Barnes, Managing Director, Emerging PaymentsBarnes is a self-confessed payments “geek” and entrepreneur working in Silicon Valley. He leverages his business development track record and network in start-ups, retail, and FI’s to solve tough revenue problems in digital payments and mo-bile commerce. Barnes has held executive positions internationally with Sprint, Global One, and 2Roam Mobile. He founded the National NNN Investment Group, and is an Advisor to the Electronic Transactions Association (ETA). Barnes has an MBA from WASEDA in Tokyo and a BA from Penn State. He launched the widely sourced Digging Deeper series and can be reached at @AndrewinSV and Linkedin.

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