U.S. COMMERCIAL CARDS — PART 3Combined commercial and consumer general purpose cards including credit, debit, and prepaid products in circulation in the U.S. generated $4.077 trillion in purchases of goods and services in

TOP 150 ACQUIRERS WORLDWIDEThe 150 largest acquirers of payment card transactions based on the number of general purpose card purchases at merchants during calendar year 2013 are listed on page 11. Collectively these acquirers handled 159.27 billion transactions and represented 41 countries. There were 37 acquirers that handled more than 1 billion transactions. The 4 largest acquirers, all from the United States, each handled more than 10 billion transactions.Rounding out the top 10 were 2 acquirers each from Brazil, the U.K., and the U.S.

GLOBAL GENERAL PURPOSE CARDS — MIDYEAR 2014American Express, Diners Club/Discover, JCB, MasterCard, UnionPay, and Visa credit, debit, and prepaid cards generated $8.668 trillion in purchase volume at merchants worldwide from

INVESTMENTS & ACQUISITIONS — AUGUST 2014Turn to page 8 for a list of 61 mergers, acquisitions, and corporate financing deals that occurred in August of 2014. Prior issues: 1,047, 1,045, 1,042, 1,041, 1,039, 1,037, 1,036

APPLE PAY MOBILE PAYMENT SERVICEApple Pay, the mobile payment and digital wallet service announced this month along with the debut of new handsets from Apple, will be available only in the U.S. beginning in

INCOMM/SEAMLESS ARE PREPAID PARTNERSSweden-based Seamless’s SEQR app for mobile phones gives users the opportunity to pay a retailer from a general purpose credit, debit, or prepaid card account, bank deposit account, or private

REDE BUYS MAXIPAGO IN BRAZILMajority interest in maxiPago, an online payment gateway available in Brazil since January 2012, has been acquired by Rede, the country’s second largest acquirer, which has 1.4 million active

8 Investments & Acquisitions — August 2014

9 Consumer & Commercial Card Purchase Volume — U.S. 2013

10 Purchase Transactions on Global General Purpose Cards Midyear 2014

10 Global General Purpose Cards MY 2014 11 Largest 150 Acquirers Worldwide 2013

2 – 4 Fast Facts 7 Citi Offers Digital Wallet in

the U.S. 7 Kount Fraud Technology

INSIDE CHARTS

VISA TOKEN SERVICEVisa Token Service, available in the U.S. in October 2014 and in select markets outside the U.S. beginning in 2015, was created to support mobile and online payments initiated from smartphones

Top 10(shown here)

74.2

159.3Top 150(listed inside)

Top Acquirers Worldwide Ranked by Transactions on

General Purpose Cards in 2013 (Bil.)

U.S.

1

2

3

4

5

106

8

14.1

12.1

10.2

10.0

6.5

3.55.7

3.6

7

9

4.9

3.6

U.K.

Brazil

© 2014 The Nilson Report© 2014 The Nilson Report© 2014 The Nilson Report

> see p. 8

> see p. 8

> see p. 11

> see p. 5

> see p. 6

> see p. 5

> see p. 10

> see p. 9

VISIT US ONLINE AT WWW.NILSONREPORT.COM © HSN Consultants, Inc. 2014 THE NILSON REPORT

FOR 44 YEARS, THE LEADING PUBLICATION COVERING PAYMENT SYSTEMS WORLDWIDE SEPTEMBER 2014 / ISSUE 1049

ENGAGEMENT & EXPERIENCE EXPO 2014

Three-Day ConferenceNovember 10-12, 2014The Renaissance Dallas HotelDallas, Texas

Topics include: customer experience, customer engagement, emerging technologies, mobile, customer data, customer intelligence, social media, ROI, and voice of the customer. Speakers represent: AT&T, Starbucks, Express, Scottrade, Gallup, Ruum American Kid’s Wear, and many more. Cost is $1,799 for vendors and $850 for brands (full conference). (Use code NILSONEE20.) Contact Carly Stemmer at Loyalty360, (513) 800-0360 x115, carlystemmer@loyalty360.org. Register at www.engagementexpo.com.

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Topics include: creating a global cashless society, opportunities in next generation payments, 2015 in focus: what’s in store for payments next year? cryptocurrency: the new face of money? and customer adoption and retention. Speakers include: Grameen Foundation Uganda, Indosat Indonesia, Barclays India, PKO BP Bank, Orange, Banco Central de Reserva del Peru, and more. Cost for vendors is $1,634, (£1,249) or $2,366 (£1,448) with the one-day workshop. After October 3 cost is $2,449 (£1,499) or $2,856 (£1,748) with the one-day workshop. Banks, MNOs, and retailers benefit from additional discounted rates. (Use code MGNR20.) Contact Customer Services at Clarion, 44 (20) 7384-8384, customer.services@clarionevents.com. Register at www.mobile-money-global.com.

FEATURED CONFERENCE 20%Subscribers to The Nilson Report will receive a 20% discount.

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MOBILE MONEY & DIGITAL PAYMENTS GLOBAL 2014

Two-Day ConferenceNovember 18-20, 2014The Wyndham Grand Istanbul LeventIstanbul, Turkey

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HEARTLAND PAYMENT SYSTEMS is offering merchants with an annual charge volume of less than $1 million American Express card acceptance. Heartland, the 6th largest acquirer in the U.S. based on purchase transactions, gives merchants a single deposit for all card transactions, one statement for all card networks, and one dedicated customer service contact. Robert Carr is CEO at Heartland, (609) 683-3831, bob.carr@e-hps.com, www.heartlandpaymentsystems.com.

TRANSACTION NETWORK SERVICES offers a point-to-point encryption service using VeriShield technology from VeriFone for terminals from that vendor or from Trustwave for all other terminals. Lisa Shipley is EVP and Managing Director at TNS, (703) 259-6748, lshipley@tnsi.com, www.tnsi.com.

META PAYMENT SYSTEMS has become the second prepaid card-issuing bank in the United States for Canada-based hyperWallet. Brad Hanson is President at MetaBank, (605) 782-1711, bhanson@ metapay.com, www.metapay.com. Lisa Shields is CEO at hyperWallet, (604) 482-0090, lshields@hyperwallet.com, www.hyperwallet.com.

APOLLO ENTERPRISE SOLUTIONS has entered into a multiyear licensing agreement to provide software and data processing services to New England Funding Technologies. AES sells Agent Emulation Systems lenders use to give consumers the ability to resolve delin-quencies using their computer or mobile device. NEFT offers an online services platform consumers use to view their credit report, schedule and make payments to trade lines, receive verification on payments made, update bureau data, and more. Evan Pinchuk is SVP at AES, (562) 513-3706, epinchuk@aestrue.com, www.aestrue.com.

DELTA AIRLINES, which opted out of a federal court-approved settle-ment of a class-action lawsuit regarding interchanges fees in the U.S., has reached a separate settlement with Visa, MasterCard, and 12 U.S.-based banks. Terms were not disclosed.

BLACKHAWK NETWORK has completed acquisition of CardLab, an online provider of general purpose and private label prepaid and rewards cards sold through the IncentiveCardLab.com website. Talbott Roche is President at Blackhawk Network, (925) 226-9030, talbott.roche@bhnetwork.com, www.blackhawknetwork.com. David Jones is CEO at CardLab, (214) 618-7047, david@ cardlabcorp.com, www.cardlabcorp.com.

PROTECT HCE MOBILE APPLICATIONS is a new white paper from Cryptomathic. The paper, written as an educational tool for banks and payment service providers, discusses best practices for implementing a comprehensive and flexible security strategy. Download at http://www.cryptomathic.com/solutions/mobile.

ALLIANCE DATA RETAIL SERVICES has signed a long-term agreement to provide co-brand and private label credit card services for Meijer, the 26th largest retailer in the U.S. It will also purchase Meijer’s existing credit card portfolio, which is currently owned by Synchrony Financial. Melisa Miller is President at Alliance Data Retail Services, (614) 729-4900, melisa.miller@alliancedata.com, www.alliancedata.com.

PRECASH’S free Evolve Money bill payment app is now available as an added feature to Red Pocket Mobile customers. Evolve Money lets users make an instant payment to more than 11,000 service provid-ers. Red Pocket Mobile is a contract-free, virtual mobile network operator. Blair Jeffery is SVP Business Development at PreCash, (713) 600-2346, blair.jeffery@precash.com, www.precash.com. Dean Wong is VP Business Development at Red Pocket, (650) 393-3388, dwong@goredpocket.com, www.goredpocket.com.

FAST FACTS FAST FACTS

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Mike Dreyer, formerly at Visa, has been appointed President of the Americas at Monitise, (415) 526-7000, mike.dreyer@monitise.com. William Nichols, formerly at VeriFone and First Data, has been appointed President & CEO at AnywhereCommerce, replacing Mitchell Cobrin, (954) 993-5093, bill.nichols@ anywherecommerce.com. Danielle Nagao has been appointed CEO at Merchant Risk Council, (206) 364-2789 x118, danielle@merchantriskcouncil.org. Pierre Burret has been appointed Head of Delivery, Quality & Resource Management for Europe, Asia-Pacific, Middle East & Africa at MasterCard Advisors, (65) 6390-6947, pierre-alain_burret@mastercard.com. Doug Bower has been appointed Executive Director and President of the The Network Branded Prepaid Card Association, (201) 746-0725, dbower@nbpca.org. Colum Rafferty has been appointed Director of Business Development and International expansion initiatives at Global Risk Technologies, 353 (1) 636-3111, colum.rafferty@globalrisktechnologies.com. Paul Waltz has been appointed President and COO at Shazam, (515) 288-2828, pwaltz@shazam.net. Lance Taschner, formerly at Wipit, has been appointed VP of Products and Business Development at Wave Crest Group, (954) 858-5566, lancet@wavecrest.gi. Jamie Topolski has been appointed Director of Alternative Payment Strategies at Fiserv, (651) 846-3616, jamie.topolski@fiserv.com. Anastasia Davis Stull has been appointed Managing Director, Compliance and Risk, Credit Services Group at NewOak, (202) 316-4562, astull@ newoak.com. Matias Fainbrum has been appointed General Manager, Latin America at GlobalCollect, 54 (11) 5272-1189, matias.fainbrum@globalcollect.com. Julienne Loh has been appointed Group Head of Consumer Credit, Asia-Pacific at MasterCard, (65) 6390-5923, julienne_loh@mastercard.com. Andrew Doyle has been appointed Managing Director EMEA at Sequent Software, (650) 419-2713, andrew.doyle@sequent.com.

MANAGEMENT CHANGES

FIRST DATA ACQUIRING SERVICES in India has deployed Roam’s RP750x cloud-based chip & PIN card reader on a white-label basis. Roam is an Ingenico Company. Nitish Asthana is General Manager at First Data Acquiring Services, 91 (22) 6720-6129, nitish.asthana@icicims.com, www.firstdata.com. Sunith Menon is Managing Director at Ingenico India, 91 (120) 472-8401, sunith.menon@ingenico.com, www.ingenico.com.

VIEWAY INTERNATIONAL’S DCC (Dynamic Currency Conversion) payment switching services will be marketed in North America by SmartCard Marketing Systems. Vieway clients in China include China Construction Bank, China Merchants Bank, Ping An Bank, Bank of East Asia, and Nanyue Bank. Massimo Barone is CEO at SmartCard, (844) 843-7296, mbarone@smartcardmarketingsystems.com, www.smartcardmarketingsystems.com. Span Sze is CEO at Vieway, 86 (21) 6117-9888, spansze@viewayintl.com, www.viewayintl.com.

KALIXA and MILLICOM have formed a joint venture to create a pay-ment service provider to operate in Africa and Latin America. The joint venture will offer a payment gateway and point-of-sale services to merchants as well as a 1-click payment eWallet for consumers shop-ping online. Millicom assets in Africa and Latin America include mobile broadband, TV content, and more. Annual revenues exceed $5.6 billion. Kalixa offers prepaid cards and merchant card acceptance services in Europe. Ed Chandler is CEO at Kalixa, 44 (207) 255-6389, edward.chandler@kalixa.com, www.kalixa.com.

SIX PAYMENT SERVICES and BNP PARIBAS FORTIS have formed a merchant acquiring partnership in Belgium. BNP Paribas Fortis has 180,000 merchant customers in the country. Six provides acquiring processing to merchants throughout Europe. It is also a cardholder account processor for issuers. Luc Holper is Head of Market Development at Six Payment Services, 352 (3) 5566-224, luc.holper@six-group.com, www.six-payment-services.com. Gunter Uytterhoeven is Director of Marketing at BNP Paribas Fortis, 32 (2) 312-0529, gunter.uytterhoeven@bnpparibasfortis.com, www.bnpparibasfortis.com.

Asia/Pacific, United States, Europe, Latin America, Middle East/Africa, and Canada

Also lists 265 Merchant Acquirers from 65 countries in all world regions

New for 2014

90 pagesFigures include cards in circulation and spending for more than

920 credit & debit card issuersfrom 116 countries in all world regions

Order Todaywww.nilsonreport.com/specialreport

FAST FACTS FAST FACTS

© HSN Consultants, Inc. 2014 THE NILSON REPORT 3SEPTEMBER 2014 / ISSUE 1049 / THE NILSON REPORT

SIA EXPO 2014: October 15, 2014. The Marriott Hotel, Milano, Italy. Estimated attendance: 1,000+. Cost for the one-day conference is $770 (€597.80 VAT included). Subscribers to The Nilson Report will receive a 20% discount. (Use code NRSIAEXPO14.) To take advantage of the savings, before October 10, 2014, send an email to Valentina Piana, valentina.piana@ sia.eu or call 39 (02) 6084-2334. For more information visit the conference website, www.eng.siaexpo.eu.

2014 WSAA ANNUAL CONFERENCE: October 15-16, 2014. The San Diego Marriott Marquis and Marina, San Diego, California. Estimated attendance: 800. Cost for the two-day conference is $99. Contact Xavier Ayala, President, (707) 445-5401, xayala@suddenlink.net. Register at www.westernstatesacquirers.com.

PAYTHINK 2014 (formerly ATM, Debit & Prepaid Forum): October 20-22, 2014. The JW Marriott Desert Ridge Resort & Spa, Phoenix, Arizona. Estimated attendance: 1,000. Cost for the three-day event starts at $1,195. Subscribers to The Nilson Report will receive a $300 discount. (Use code NILSON300.) Contact Ingrid Olsen at (212) 803-8456, ingrid.olsen@sourcemedia.com or Austin Hart at (212) 803-8388, austin.hart@sourcemedia.com. Register at www.paythinkforum.com.

CARD & MOBILE EXPO EAST AFRICA 2014: October 29-30, 2014. The Hilton Hotel, Nairobi, Kenya. Estimated attendance: 200. Cost for the two-day conference is free. Contact Stella Arome, 234 (80) 341-2725, stella@intermarc-ng.com or Uwana, 234 (701) 473-9939, uwana@intermarc-ng.com. Registration is via email only. For more information about the conference visit www.intermarc-ng.com/eastafrica-expo.html.

CARTES 2014 PARIS: November 4-6, 2014. The Paris Nord Villepinte Exhibition Centre, Paris, France. Estimated attendance: 20,000+. Cost for the three-day conference is $2,190. Subscribers to The Nilson Report will receive a 20% discount. (Use code PPARIS14). Contact Sarah at Comexposium, 33 (1) 7677-1474, sarah.khohkhachaikiat@comexposium.com. Register at http://badge.cartes.com/.

2ND VIRTUAL AND DIGITAL CURRENCY CONFERENCE 2014: November 20-21, 2014. The Carlton Hotel, New York. Estimated attendance: 100. Cost for the two-day conference is $2,295. Subscribers to The Nilson Report will receive a $300 discount. (Use code TNR300.) Contact Nicole O’Neill at ACI, (212) 352-3220 x5257, n.oneill@americanconference.com. Register at www.americanconference.com/virtualcurrency.

CONFERENCES & SEMINARS

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HABIB BANK (HBL), Pakistan’s largest commercial bank, plans to issue 7+ million MasterCard brand cards over the next 5 years. Raghu Malhotra is Div. President, Middle East and No. Africa at MasterCard, 971 (04) 391-4200, raghu_malhotra@mastercard.com, www.mastercard.com. Faiq Sadiq is Group Head, Payment Services at HBL, 92 (21) 3246-3232, faiq.sadiq@hbl.com, www.hbl.com.

METROBANK CARD CORPORATION in the Philippines will license the Prime4 card management system of TSYS. Amit Sethi is Manag-ing Director, Asia, Middle East, and Africa at TSYS Int’l, 91 (120) 419-1001, amitsethi@tsys.com, www.tsys.com. Riko Abdurrahman is President at MCC, 63 (2) 898-6888, rabdurrahman@metrobankcard.com, www.metrobankcard.com.

MONERIS SOLUTIONS, Canada’s largest credit and debit card acquirer, now offers its merchants UnionPay card acceptance. Angela Brown is CEO at Moneris, (416) 734-1111, angela.brown@moneris.com, www.moneris.com.

SANTANDER now issues an American Express-branded credit card in Mexico. Product features include rewards points for spending in department stores and supermarkets and a points multiplier for interest-free installment payments during the first six months. Jorge Alfaro Lara is Assoc. General Mgr. Consumer Credit and Pay-ment Tools at Santander Mexico, 52 (55) 5257-8000, jalfaro@ santander.com.mx, www.santander.com.mx. Lisandro Delfino is VP Global Network Partnerships Latin America at Amex, 52 (55) 5209-7026, lisandro.w.delfino@aexp.com, www.americanexpress.com.

COURT OF JUSTICE OF THE EUROPEAN UNION has upheld a lower court ruling that declared in 2007 that MasterCard interchange fees for cross-border transactions were a violation of EU competition rules. The decision ends a 7-year legal challenge by MasterCard.

ADYEN now offers JCB card acceptance to merchants online and in-store in 28 countries in Europe. Osamu Hino is SVP, Head of Sales and Marketing, Europe at JCB, 81 (3) 5778-8372, osamu.hino@jcb.co.jp, www.jcbeurope.eu. Roelant Prins is CCO at Adyen, 31 (20) 240-1246, roelant.prins@adyen.com, www.adyen.com.

NETS GROUP will use software from Lusis Payments to drive its 700+ ATMs in the Nordic region. Jan Erik Secker is VP at Nets, 47 (22) 898-989, jan.erik.secker@nets.eu, www.nets.eu. Philippe Preval is President at Lusis Payments, 33 (1) 5533-0900, p1@lusis.fr, www.lusispayments.com.

SMARTCON-PAYSMART, a distributor in Brazil of Fime’s EMV card testing tools, now also offers onsite support for MasterCard card testing, consulting for new card issuance, and card profile set-up in partnership with Fime. Also available is formal approval of Master-Card CPV services, which helps issuers receive certification of MasterCard contact and contactless cards. Xavier Giandominici is Director, America at Fime, (514) 935-1331, xavier.giandominici@ fime.com, www.fime.com. Daniel Nunes de Oliveira is Director of Business Dev. at Smartcon-paySmart, 55 (51) 3221-4879, daniel.oliveira@paysmart.com.br, www.paysmartservices.com.

FAST FACTS FAST FACTS

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merchant outlets. Terms were not disclosed. Current owners of maxiPago have retained a minority stake.

MaxiPago will continue to operate under that name, and current management will remain with the company.

The maxiPago platform uses technology from U.S.-based MaasGlobal Solutions. It is certified by all payment card acquirers in Brazil and by all major banks offering Boleto Bancario. It offers direct debit, PayPal, MasterCard’s MasterPass, and Koin, the Klarna-like company online merchants can use to give consumers the option of paying only after they receive their goods.

Because Rede is wholly owned by Itau Unibanco, Brazil’s largest issuer ranked by purchase volume, it also offers the possibility of on-us acquiring when Itau Unibanco cardholders make purchases from a merchant using the maxiPago gateway. In those instances merchants could expect less shopping cart abandonment, fewer card declines, and higher conversion rates.

Svante Westerberg is CEO at maxiPago in Rio de

Janeiro, Brazil, 55 (21) 98866-5886, svante@

maxipago.com, www.maxipago.com.

and other Internet-connected devices. Tokens are a 16-digit numeric substitute for the 16-digit primary account number

(PAN) found on Visa payment cards. They are referred to as digital account numbers. Tokens cannot be reverse engineered to reveal the PAN, as they are not algorithmically based.

The token passes through a merchant’s checkout system in exactly the same manner as a PAN, and allows for authorization, clearing, and settlement at the correct product designation and proper interchange rate. Tokens may be retained by the merchant to help with returns and loyalty programs. They are used by the merchant and the acquirer throughout the transaction’s entire lifecycle. Tokens are invisible to

cardholders, who are not required to change their behavior in any way.

Multiple tokens can be tied to a single PAN, allowing for tokens to be restricted in use only to a specific domain such as a mobile device, digital wallet, or e-commerce website.

The token’s domain is validated each time the token is used for payment, ensuring that it can’t be presented for payment in any other way such as on a counterfeit card or inputted at a Web merchant’s checkout page. Any transaction authorization requested outside the domain will be declined.

Issuers and/or their processors integrate with Visa to facilitate tokenization, which occurs at the Visa Token Vault that resides within VisaNet, a network connecting nearly 15,000 financial institutions and 36 million merchants worldwide.

The Visa Token Vault handles the three steps needed to execute and deliver tokens

— identification and verification of the cardholder’s PAN when a token is requested, provisioning of the token(s) to the device, and detokenization and validation during the transaction process.

The vault performs domain validation. It can also confirm that a valid EMV cryptogram has been generated by the device because it holds the key to validate the cryptogram. Alternatively, the cryptogram can be verified by the issuer or its processor. As part of the transaction process the vault also confirms that the token is active.

Issuers give bank identification numbers (BINs) of credit, debit, or reloadable prepaid card accounts if they want Visa to create the tokens, which use specific BIN ranges for each PAN. Tokens can also be created in-house by large issuers (or their processors). Even issuers who create their own tokens send them to the Visa Token Vault because they are needed to process transactions.

... continue to operate under that name under current management.

> see p. 6

VISA TOKEN SERVICE from page 1...

REDE BUYS MAXIPAGO IN BRAZIL from page 1...

© HSN Consultants, Inc. 2014 THE NILSON REPORT 5SEPTEMBER 2014 / ISSUE 1049 / THE NILSON REPORT

label prepaid or loyalty card account. Retailers display a decal in their checkout lanes that has a SEQR QR code on the front and an NFC chip on the back.

SEQR’s QR code can also be used for online sales.

InComm, which sells private label prepaid and loyalty cards

carrying the brands of retailers in North and South America, Europe, and Asia/Pacific, will offer the SEQR app to those partners as a way to digitize their existing plastic cards and move business onto a phone.

InComm will gain access to Seamless’s mobile payments customer base of 5,200 merchant outlets in Europe as potential distribution outlets for its prepaid products. It will also gain access to future products from Seamless such as in-store poster displays retailers can install to sell prepaid products, replacing existing racks of plastic cards. Seamless handles more than 3.1 billion mobile telecom account reloads annually from more than 525,000 POS terminals in 30 countries.

Its SEQR mobile payments business is active in Sweden, Romania, Finland, and Belgium. This month

The Visa Token Vault also provisions artwork over the air to the cardholder’s device. The cardholder will see the image of their payment card when making a payment. Apple’s new Apple Pay will work this way.

With Apple Pay, Visa tokens are stored on the device in a chip called a Secure Element. There is one token for each card stored in the Apple Passbook wallet.

For Android devices, issuers have the option of loading the token in a Secure Element or in software, using a feature in the operating system called host card emulation (HCE). To help mitigate the risk associated with storing tokens in software, the Visa Token Service generates limited-use cryptographic keys that are periodically refreshed and delivered to the consumer’s device. Tokens can also be used with QR code-based payments.

The Visa Token Service unlocks the tokenized authorization message before presenting it to the issuer, and reapplies the token before returning the response to the merchant’s acquirer. Those tokens hold all of the required issuer and product identification as well as routing instructions, including information that can be used by merchants to route debit transactions to multiple networks.

Tokens work in a manner that is congruent with EMV transaction processing. However, if an issuer or its processor is not yet EMV certified, Visa has created tools they can use to participate in tokenization, with Visa validating the chip data on the issuer’s behalf during transaction processing.

The Visa Token Service can also provide lifecycle management of the token from the original mapping to the PAN to include suspend, resume, and deactivation. Lifecycle management is integrated with

the issuer’s customer service department. If a device is lost or stolen, a call to the issuer allows for the immediate deactivation of the token. They can also reinstate them, which might occur if a person reports their phone lost or stolen, and then finds it.

Any token linked to a lost or stolen device can be deactivated and replaced without changing the underlying PAN. There is no need to reissue the payment card. David Cramer is Head of Financial

Institution Sales at Visa Inc. in

Cincinnati, Ohio, (513) 794-0743,

dcramer@visa.com, www.visa.com.

... holds all of the required issuer and product identification.

American Express, Discover, and MasterCard also have token vaults and related services. Like Visa, they use the EMVCo Payment Tokenization Specification to create tokens and provide services including lifecycle management from mapping the PAN through possible temporary suspension and deactivation.

Other Token Vaults

SeamlessINCOMM/SEAMLESS ARE PREPAID PARTNERS from page 1...

VISA TOKEN SERVICE from page 5

6 VISIT US ONLINE AT WWW.NILSONREPORT.COM Order Back Issues / Preview Upcoming Conferences / View Newsletter Archive

Payment service providers (PSPs), payment gateways, and acquirers outside the U.S. have

been testing portions of Kount’s enterprise fraud protection platform over the last 12 months as the company prepared to roll out Kount Central, its newest service. Clients can integrate with Kount through a single installation and then offer all of their merchants (large, midsized, and small) Kount’s fraud fighting technology.

Since coming onto the market in 2007, Kount has been selling only to large and midsized merchants worldwide. Kount Central, like Kount’s legacy service to large enterprises, is available on a software as a service (SaaS) basis. No software needs to be installed at any merchant. No onsite IT staff is needed to maintain the technology.

Online payment processors integrated with Kount Central can offer their large merchants a complete platform including a comprehensive suite of fraud fighting technologies. Small and

midsized merchants can be offered a simpler interface.

After a single integration to Kount Central, processors can offer their merchants fraud protection in minutes. Kount helps clients with the integration and provides ongoing consultation.

Kount Central processors gain protection for their entire

portfolios from common problems such as payment fraud, account

takeover, card testing, and application fraud. Rich Stuppy is COO at Kount

in Boise, Idaho, (208) 489-

3385, rich.stuppy@kount.com,

www.kount.com.

Citi Wallet is now available to all U.S. consumer credit card (not debit) customers who register at a dedicated Web page at Citi.com. Citi is the first U.S.

payment card issuer to leverage technology MasterCard has white-labeled to issuers in 10 countries. Once registered, cardholders do not need to enter their credit card, billing, or shipping information. When they subsequently buy from

a MasterPass participating online merchant, the login and password they use when they access their accounts at Citi.com is all that is needed to complete a purchase.

Citi Wallet will be presented to consumers after they click on the MasterPass digital acceptance service at 40,000+ Web merchants worldwide. While

other MasterPass white-label wallet providers will be posted at the site, Citi wallet will have the most prominent position.

In time, Citi Wallet will be introduced in markets outside the U.S. where online purchases are gaining traction. Visa and American Express cards issued by Citi, as well as the bank’s debit cards, will eventually be added to the wallet.

Barry Rodrigues is Head of Enterprise Payment

Solutions at Citi in Long Island City, New York,

(718) 248-1592, barry.rodrigues@citi.com,

www.citi.com/citiwallet.

Seamless signed a mobile payments contract in Portugal, and entered into an agreement to purchase the prepaid airtime line of business of Ingram Micro Mobility in Sweden and Denmark.

Peter Fredell is CEO at Seamless in Stockholm,

Sweden, 46 (8) 5648-7824, peter.fredell@seamless.se,

www.seamless.se.

... presented to consumers after they click on MasterPass.

PSPs, gateways, and acquirers link through a single installation.

CITI OFFERS DIGITAL WALLET IN THE U.S.

KOUNT FRAUD TECHNOLOGY

© HSN Consultants, Inc. 2014 THE NILSON REPORT 7SEPTEMBER 2014 / ISSUE 1049 / THE NILSON REPORT

October 2014. The service is supported by two NFC (Near Field Communications) chips embedded in

the Apple iPhone 6 and 6 Plus. One from NXP combines a 65V10 module and Secure Element. Another from AMS is an AS3923 booster IC.

The Secure Element will hold a token that is EMVCo Payment Token Specification approved — 16 digits long for Visa,

MasterCard, and Discover (not yet announced as a participant), 15 digits long for American Express — that substitutes for the 16- or 15-digit primary account number (PAN) when Apple Pay payments are made through the networks. The PAN is never stored on the device or at any remote Apple server.

Apple, which owns or has applied for 50 patents related to NFC, controls the Secure Element, rather than any of the mobile network operators selling Apple devices.

The handsets also include Touch ID biometrics, which are used to validate in-app purchases as

Atlantic Credit Encore Capital1 * U.S. AvantCredit debt financing2 $200.0 U.S. Bitbond seed funding3 $0.3 U.K. BitX seed funding4 $0.8 Singapore Blockr.io Coinbase1 * Slovenia CardSmith Blackboard1 * U.S. CashSentinel seed funding5 $0.6 Switzerland Chain Series A6 $9.5 U.S. ChargeSmart.com TIO Networks1 * U.S. CoinMonk Ventures seed funding7 $0.3 U.S. Comdata Fleetcor1 $3,450.0 U.S. Custom Credit Systems Misys1 * U.S. Demica consortium8 * U.S. Dorysign Visa9 * U.S. EFT Source CPI Card1 * U.S. eNett International Travelport10 * U.S. Express Teller Sharenet1 * U.S. Feedvisor Series A11 $6.0 U.S. FlexWage Solutions undisclosed round5 $3.5 U.S. Fortegra Financial Tiptree1 $200.0 U.S. GlobalBay Technologies Manhattan Associates1 * U.S. GreenPay MyECheck1 * U.S. IntraKey InterCard12 * Germany Iyzico Series B13 $1.4 Turkey iZettle Series C14 $5.0 Sweden Knox Payments undisclosed round5 $0.6 U.S. Korbit Series A15 $3.0 Korea Leaf Heartland1 * U.S. Maxie Mobile Global Payout1 * U.S. Medical Cannabis Pay. Sol. undisclosed round5 $0.5 U.S. mo9 Series B16 $1.0 China MoveinSync Series A17 $2.1 India Multicard InterCard1 * Germany Muscato Digital Payments1 * U.S. NagraID Security Oberthur1 * Switzerland

NettPositive Equifax18 * India Ngpay Flipkart9 * India Omise seed funding19 $0.3 Thailand Payfont seed funding20 $0.2 Scotland PayGlobal MYOB Finance1 * New Zealand PayRange undisclosed round21 $2.8 U.S. PaySuite Intuit1 * U.K. Payteller undisclosed round22 $25.0 U.S. Payzone Nordic Nets1 * Sweden PeerNova pre-Series A23 * U.S. Planet Payment delisted24 * U.K. QikServe undisclosed round25 $0.8 U.K. R&B Collections Stoneleigh Recovery1 * U.S. Retention Science Series A26 $7.0 U.S. Riskified undisclosed round27 $4.0 Israel Rocket Internet equity investment28 $445.0 Germany SafeNet Gemalto1 $90.0 U.S. Settle undisclosed round29 $1.5 Ukraine Siras.com InComm1 * U.S. SpoQA Series B30 $3.9 Korea Stellar seed funding31 $3.0 U.S. SumUp Series C32 $10.0 U.K. Two Tap seed funding33 $2.7 U.S. Upstart loan funding34 $100.0 U.S. Vogogo undisclosed round35 $8.5 Canada Zumigo Series B36 $6.0 U.S. *Terms not disclosed. (1) Acquisition. (2) From Jeffries. (3) Led by Point Nine Capital. (4) Led by Ariadne Capital. (5) Undisclosed investors. (6) Led by Khosla Ventures. (7) From Bitcoin Opportunity Corp. (8) Acquisition by JRJ Group, Toms Capital, and 76 West Holdings. (9) Undisclosed strategic investment. (10) Increased its majority ownership position to 73%. (11) Led by Square Peg Capital. (12) Purchased remaining shares. (13) Led by 212 Interest. (14) Led by Hasso Plattner Ventures. (15) Led by SoftBank Ventures Korea. (16) Led by Sequoia Capital. (17) Led by Inventus Capital. (18) Acquired the remaining minority shares. (19) From East Ventures. (20) From Scottish Enterprise. (21) Investors include Osama Bedier and Max Levchin. (22) From ISS Management. (23) By Pierre Lamond. (24) From the London-based AIM Market. (25) Led by Equity Gap. (26) Led by Upfront Ventures. (27) From existing investors including Genesis Partners. (28) By Philippine telco PLDT. (29) From Life.Sreda. (30) Led by Bokwang Investments. (31) From Stripe. (32) Led by Life.Sreda. (33) Investors include Digital Garage. (34) From Victory Park Capital. (35) Led by Cormark Securities. (36) Led by Intel Capital. © 2014 The Nilson Report

AmountCompany Buyer/Investor (mil.) Country

AmountCompany Buyer/Investor (mil.) Country

Investments & Acquisitions August 2014

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2013. Commercial card products used by employees of private companies, government agencies, and nonprofit organizations generated $886.95 billion or 21.76% of the total, up from 21.12% in 2012.

Purchase volume on commercial cards was up 11.1%, compared to 7.0% growth for spending for goods and services by cards issued to consumers.

Visa was the top commercial card brand. It had purchase volume growth of 8.4% to $349.49 billion, good enough for a 39.40% share last year versus American Express, MasterCard, and Discover. However, Visa’s share

fell from 40.39% in 2012. Visa’s consumer card volume grew by 8.6% in 2013.

American Express commercial card purchase volume of $299.31 billion increased by 9.4%. Its commercial card market share declined to 33.75% from 34.28% in 2012. Amex consumer card volume grew by 6.5% in 2013.

MasterCard purchase volume of $235.98 billion from commercial cards was up 17.9%. Its market share increased to 26.61% from

25.07%. Consumer card volume grew by 4.2% in 2013.

Discover commercial card purchase volume of $2.17 billion increased by 4.3%. Its share dropped to 0.24% from 0.26%.

As a percentage of each brand’s combined consumer and commercial purchase volume, commercial cards generated: 47.26% at American Express, 22.45% at MasterCard, 15.43% at Visa, and 1.71% at Discover.

Visa was also the top consumer card brand in 2013. Its $1,915.57 billion in consumer purchase volume equated to a 60.05% share, up from 59.19%. MasterCard’s $815.21 billion in consumer purchase volume gave it a 25.56% share, down from 26.25%. American Express’s consumer purchase volume of $333.98 billion equated to a 10.47% share, down from 10.53%. Discover’s $124.94 billion in consumer purchase volume gave it a 3.92% share, down from 4.04%.

Prior issues: 1,026, 1,002, 979, 975,

974, 957, 954, 951, 933, 931, 928

well as payments made at checkout lanes equipped with NFC contactless chip readers. A mathematical representation of the user’s fingerprint is held in the secure enclave of the A-Series processor where it is protected by encryption.

Apple Pay works with Apple’s Passbook wallet, which can store one or more tokenized payment card accounts along with a cardholder’s shipping details.

There are nearly 10 million merchant locations in the U.S. and currently over 220,000 of them have

contactless readers that accept card payments. This number will increase rapidly with the approach of an October 15, 2015

deadline that shifts the liability for counterfeit fraud to merchants if a chip card initiates a transaction at

Commercial cards grew 11.1% ver-sus 7.0% for consumer cards.

The PAN is never stored on the device or any remote Apple server.

‘09 ‘10 ‘11 ‘12 ‘13

$3,190$887

CommercialMarket Sharesof Commercial

Cards by Brand

Consumer Cards’Declining Shareof Total Purchases

Consumer

$236

$299 $334

$815

$1,916

$125$2

$349

* Includes credit, debit and prepaid cards. ©2014 The Nilson Report

Purchase Volume on U.S. Cards* in 2013 (Billion)

Visa

MasterCard

Amex

Discover

39

3427

82 81 80 79 78

vs.

U.S. COMMERCIAL CARDS — PART 3 from page 1...

> see p. 12

© HSN Consultants, Inc. 2014 THE NILSON REPORT 9SEPTEMBER 2014 / ISSUE 1049 / THE NILSON REPORT

January 1 to June 30, 2014, up 19.9% over the first six months of 2013. These global brand general purpose cards generated 92.01 billion purchase transactions at merchants in this period, up 14.0% over the first half of 2013.

Discover cards, which have acceptance at all Diners Club locations worldwide, are included for the first time in our presentation of global card statistics.

Year over year growth in credit card purchase volume was 17.1%. Debit card (including prepaid) purchase volume was up 23.0%.

Credit cards generated 50.62% of spending at merchants, down from 51.86% in the same period of

2013. Credit card transactions at merchants accounted for 45.81%

of combined credit and debit card payments for goods and services, down slightly from 45.99%.

Visa was the global leader in market share of combined credit

and debit card purchase volume worldwide for the first six months of 2014. However, its share fell to 37.43% from 40.60% in 2013.

UnionPay’s share grew to 36.73% from 31.64%. MasterCard’s share fell to 18.23% from 19.42%. American Express’s share declined to 5.65% from 6.27%. JCB’s share grew to 1.08% from 1.05%, and Diners Club/Discover’s share fell to 0.88% from 1.01%.

Visa was also the global leader when measuring combined credit and debit card purchase transactions worldwide for the first six months of 2014. However, its share declined to 58.55% from 60.40%. MasterCard’s share fell to 26.57% from 26.59%. UnionPay’s share increased to 9.23% from 7.11%. American Express slipped to 3.65% from 3.84%. JCB increased to 0.83% from 0.77%, and Diners Club/Discover dropped to 1.18% from 1.28%.

46.3% Visa 68.9%

30.5% MasterCard 23.3%

10.9% UnionPay 7.8%

8.0% Amex

2.6% Discover/Diners

1.8% JCB ©2014 The Nilson Report

Credit42.15 Bil.

Debit49.86 Bil.

Purchase Transactions on GlobalGeneral Purpose Cards Midyear 2014

Dollar Volume Purch. Trans. Brand Total (Bil.) Chg. Purch. (Bil.) Chg. Cash (Bil.) Chg. (Bil.) Chg.

Visa Credit $1,782.09 9.9% $1,623.30 10.6% $158.79 3.0% 19.52 10.0%

MasterCard Credit $1,196.49 11.1% $1,085.59 12.1% $110.90 2.9% 12.84 11.2%

UnionPay Credit $1,040.73 43.1% $1,018.89 43.8% $21.83 17.0% 4.58 50.7%

American Express Credit $496.20 8.0% $489.95 8.0% $6.25 7.2% 3.36 8.2%

JCB Credit $96.49 22.5% $93.30 22.6% $3.18 18.9% 0.76 22.5%

Discover/Diners Credit $81.87 4.7% $76.37 4.1% $5.50 12.9% 1.08 4.6%

CREDIT CARD TOTALS $4,693.86 16.1% $4,387.40 17.1% $306.46 4.2% 42.15 13.6%

Visa Debit & Prepaid $3,138.61 9.0% $1,621.04 10.5% $1,517.57 7.5% 34.35 10.9%

UnionPay Debit $2,506.25 35.3% $2,165.14 37.2% $341.10 24.0% 3.90 44.8%

MasterCard Debit & Prepaid $972.00 16.1% $494.40 13.7% $477.60 18.6% 11.61 17.2%

DEBIT CARD TOTALS $6,616.86 18.8% $4,280.59 23.0% $2,336.27 11.8% 49.86 14.4%

CREDIT & DEBIT TOTALS $11,310.72 17.7% $8,667.98 19.9% $2,642.74 10.9% 92.01 14.0%

Visa Total $4,920.70 9.3% $3,244.34 10.6% $1,676.36 7.0% 53.87 10.6%

MasterCard Total $2,168.49 13.3% $1,579.99 12.6% $588.50 15.2% 24.45 14.0%

VISA & MC TOTALS $7,089.19 10.5% $4,824.33 11.2% $2,264.86 9.1% 78.32 11.6%

UnionPay Total $3,546.97 37.5% $3,184.03 39.3% $362.94 23.6% 8.49 48.0%

Figures are for January 1, 2014 through June 30, 2014. They include all consumer and commercial credit, debit, and prepaid cards. Currency figures are in U.S. dollars. Change figures for dollar volume reflect a year-over-year comparison in local currency. Visa includes the sum of Visa Europe and Visa Inc. and includes Visa, Visa Electron, and Interlink brands. MasterCard excludes Maestro and Cirrus figures. American Express includes figures for third-party issuers. JCB figures are for October 1, 2013 to March 31, 2014 and include third-party issuers. Purchase volume, cash volume, and purchase transactions are estimates. © 2014 The Nilson Report

Global General Purpose Cards MY 2014 vs. MY 2013

GLOBAL GENERAL PURPOSE CARDS — MIDYEAR from page 1...

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Largest 150 Acquirers Worldwide 2013

Ranked by all purchase transactions by country (Visa, MasterCard, UnionPay, American Express, Discover, Diners Club, JCB, domestic debit and domestic credit). *Includes other countries. © 2014 The Nilson Report

1 Bank of America U.S. 14,050.6 2 Vantiv U.S. 12,097.5 3 Chase Paymentech U.S. 10,223.9 4 First Data U.S. 10,030.2 5 Citi Merchant Serv. U.S. 6,535.7 6 Worldpay U.K.* 5,669.7 7 Cielo Brazil 4,914.9 8 Barclays U.K. 3,619.7 9 Rede Brazil 3,596.4 10 Heartland Payment Sys. U.S. 3,506.4 11 Moneris Solutions Canada 3,198.1 12 Elavon U.S. 2,947.9 13 Worldpay U.S. 2,906.6 14 Credit Mutuel CIC France 2,752.8 15 BC Card South Korea 2,661.6 16 Wells Fargo U.S. 2,402.2 17 Sberbank Russia 2,388.1 18 Global Payments U.S. 2,305.3 19 Credit Agricole France 2,227.1 20 China UMS China* 1,788.7 21 Swedbank Group Sweden* 1,773.6 22 Global Payments Canada 1,504.1 23 JCB Japan 1,490.9 24 Behpardakht Mellat Iran 1,421.7 25 Commonwealth Bank Australia 1,316.3 26 BPCE France 1,269.8 27 Elavon Europe Ireland* 1,268.3 28 Mercury Payment Sys. U.S. 1,224.1 29 Worldline Belgium 1,198.4 30 CartaSi Italy 1,184.0 31 Global Payments U.K. 1,179.7 32 Mitsubishi UFJ Nicos Japan 1,165.7 33 BBVA Bancomer Mexico* 1,151.5 34 Visa Argentina 1,141.6 35 UniCredit Group Italy* 1,077.2 36 Samsung Card South Korea 1,011.8 37 Nets Finland 1,002.4 38 TD Merchant Serv. Canada 995.0 39 BNP Paribas France 962.3 40 ANZ Merchant Serv. Australia 930.9 41 Societe Generale France 890.6 42 SIX Payment Serv. Switzerland* 863.4 43 Aeon Financial Serv. Japan 800.2 44 Nat’l Australia Bank Australia 755.3 45 Garanti Bank Turkey 753.3 46 B+S Card Service Germany 750.7 47 Santander Group Brazil* 743.5 48 KB Kookmin Card South Korea 736.3 49 PNC Merchant Services U.S. 720.5 50 Westpac Australia 718.4

51 Comercia Spain 708.4 52 Parsian Electronic Co. Iran 687.6 53 EVO Payments Int’l Germany* 663.2 54 SETEFI Italy 656.5 55 Desjardins Canada 653.7 56 TSYS U.S. 646.0 57 Hyundai Card South Korea 567.2 58 Credit Saison Japan 564.7 59 SunTrust Merchant Serv. U.S. 558.1 60 Yapi Kredi Bankasi Turkey 556.8 61 Absa South Africa 536.4 62 Transbank Chile 511.7 63 Nordea Sweden 471.2 64 Teller A/S Norway* 469.1 65 TransFirst U.S. 465.3 66 T. Isbank Turkey 453.5 67 SADAD Informatics Corp. Iran 416.0 68 Akbank Turkey 401.8 69 Saman e-Pay Iran 400.2 70 IPayment U.S. 398.7 71 Merrick Bank U.S. 397.5 72 AIBMS Ireland 391.0 73 Banesco Banco Univ. Venezuela 379.7 74 Carrefour Banque France 376.7 75 First Data Polska Poland 366.6 76 Citibank Singapore* 365.4 77 La Banque Postale France 365.0 78 Lloyds TSB Cardnet U.K. 360.2 79 EVO Payments Int’l U.S. 358.1 80 Unicre Portugal 352.2 81 Santander U.S. 351.4 82 Iran Kish Credit Card Co. Iran 344.9 83 Evertec Puerto Rico* 338.4 84 Banc Sabadell Spain 329.8 85 Handelsbanken Sweden* 328.4 86 Concardis Germany 307.1 87 Banco Nac’l (Banamex) Mexico 298.2 88 North American Bancard U.S. 296.5 89 Banorte Mexico 296.3 90 Erste Bank Group Austria* 294.4 91 First Data Argentina 290.3 92 BBVA Spain* 288.7 93 First Nat’l Bank South Africa 268.8 94 Mercantil Banco Univ. Venezuela 262.2 95 Paysquare Netherlands 262.0 96 Raiffeisen Bank Austria* 260.4 97 Standard Bank South Africa 246.6 98 Cynergy Data U.S. 244.0 99 Merchant E-Solutions U.S. 240.7 100 Bank Pekao Poland 237.8

101 Moneris Solutions U.S. 231.4 102 Bankia Spain 214.0 103 CTBC Bank Taiwan 212.6 104 Euroline Sweden 209.0 105 Pasargad Elec. Payment Iran 208.6 106 CardConnect U.S. 202.1 107 Total Merchant Services U.S. 197.0 108 BB&T U.S. 196.2 109 MSI Merchant Services U.S. 193.9 110 Harbortouch U.S. 192.6 111 Intuit U.S. 189.2 112 Nedbank South Africa 189.0 113 First American Pymt. Sys. U.S. 183.9 114 PayPros U.S. 177.3 115 SEB Estonia* 177.0 116 NCCC Taiwan 174.9 117 PostFinance Switzerland 170.5 118 T. Vakiflar Bankasi Turkey 151.3 119 Asan Pardakht Persian Iran 145.3 120 UCS Russia 144.7 121 Banco de Venezuela 144.1 122 Orient Corporation Japan 141.4 123 Global Payments Hong Kong* 137.8 124 Fidelity Nat’l Info. Serv. U.S. 134.9 125 Sage Payment Solutions U.S. 133.5 126 Finansbank Turkey 133.5 127 Elavon Canada 133.0 128 Priority Payment Systems U.S. 129.4 129 Aduno Switzerland 123.9 130 Merchants’ Choice U.S. 123.5 131 Fanava Card Iran 121.0 132 Turk Ekonomi Bankasi Turkey 119.4 133 Network International U.A.E. 118.2 134 T. Halk Bankasi Turkey 116.5 135 Al Rajhi Bank Saudi Arabia 116.1 136 T.C. Ziraat Bankasi Turkey 115.6 137 Kasikornbank Thailand 113.1 138 Bancolombia Colombia 106.0 139 BankCard Services U.S. 105.8 140 Commerce Bancshares U.S. 104.4 141 CSOB Czech Republic 103.0 142 United Merchant Serv. U.S. 102.7 143 Electronic Payments U.S. 98.6 144 Central Payment U.S. 92.4 145 Card Complete Austria 91.3 146 MLS Direct Network U.S. 91.1 147 Hang Seng Bank Hong Kong 88.5 148 Key Merchant Serv./Elavon U.S. 88.4 149 Russian Standard Bank Russia 88.4 150 PrivatBank Ukraine 88.3

Transactions Transactions Transactions Rank Acquirer, Country (mil.) Rank Acquirer, Country (mil.) Rank Acquirer, Country (mil.)

© HSN Consultants, Inc. 2014 THE NILSON REPORT 11SEPTEMBER 2014 / ISSUE 1049 / THE NILSON REPORT

their terminal and they have not installed a chip card reader.

By the end of the decade, there will be at least 70 million Apple Pay-enabled devices in the U.S., and NFC readers will be ubiquitous.

All Apple Pay purchases require the cardholder to initiate a payment with their fingerprint. For in-app purchases, the fingerprint also triggers transfer of shipping details from Passbook to the merchant.

Brick and mortar merchants will promote Apple Pay with contactless payment signage. For merchants who sell within a mobile app, Apple Pay will become an alternative payment acceptance brand just as PayPal is. In time, Apple could aggregate and acquire some Apple Pay transactions, as Pay Pal does today.

All transactions remain Visa, MasterCard, Amex, or Discover. No new merchant acceptance agreement is required. Merchants will not pay any fees to Apple, although the networks will charge fees for their role in supporting tokenization security.

Target, Groupon, Starbucks, and others have already committed to Apple Pay for in-app purchases. Software development kits for Touch ID APIs are now available for developers including payment gateways, as well as for acquirers who have signed to promote Apple Pay to all of their

merchants. These include First Data, Vantiv, and TSYS.

Consumers wanting to use Apple Pay can designate the credit or debit card account details that are already held by Apple for purchases of music and apps. They will also need to add their CVV code.

Once Apple is contacted, it verifies the account information and CVV with the card issuer. This triggers the process of creating a token for the PAN. The token is then sent over the air to the Apple device by the issuer or their processor, or by Visa, MasterCard, American Express, or Discover (eventually). In-app purchases and those made at brick and mortar merchants use the same token.

Any cardholder who doesn’t already have a card registered at Apple can also participate in Apple Pay by notifying issuers who have signed Apple Pay contracts. So far these include Bank of America, Barclaycard, Capital One, Chase, Citi, Navy Federal CU, PNC, USAA, U.S. Bank, and Wells Fargo. This group, which will rebate part of their interchange fee revenue to Apple, accounted for 84% of all credit card purchase volume and 55% of all debit card purchase volume at midyear 2014.

Apple Pay security measures also include a unique device

account number (device ID) for each iPhone, which is encrypted and stored in the Secure Element. Each payment authorization request ties the device ID to the token. This gives issuers and

networks the ability to restrict authorization requests to specific domains

so that purchases will only be authorized when the token matches the device.

Apple holds, and therefore needs to protect, 800 million primary account numbers worldwide to support payments for purchases of apps and music. Substituting tokens for those PANs will, over time, reduce Apple’s risk from a security breach and any resulting reputational damage. Apple Pay’s infrastructure is designed to preclude damage to Apple’s reputation from participation in payments initiated by its mobile devices.

All transactions will remain Visa, MasterCard, Amex, or Discover.

Merchants will not pay Apple any fees to accept Apple Pay transactions.

NFC transactions initiated by Apple devices at a physical point of sale using hardware-based Secure Elements will qualify for card-present interchange rates.

eCommerce and other non-NFC transactions will qualify for CPS/eCommerce Basic Interchange and corresponding chargeback protections.

Merchant Fees

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© 2014 HSN Consultants, Inc. THE NILSON REPORT All Rights Reserved. Reproducing or allowing reproduction or dissemination of any portion of this newsletter in any manner for any purpose is strictly prohibited and may violate the intellectual property rights of HSN Consultants, Inc. dba The Nilson Report.

David Robertson, PublisherSept. 30, 2014