Reference material accumulated from multiple public sources to understand basics of US payments industry

1. PAYMENTS 101
US Payments – A Primer
KAPISH KAUSHAL
https://in.linkedin.com/in/kapishkaushal

2. The following document is a collection of personal notes on understanding the basics of the US
payments industry. All the information in the document was accumulated from public sources –
Annual Reports, Payments Publications, Newspaper Articles, Magazines etc.
Source List (Not Exhaustive)
▪ Red Book – Published by BIS
▪ The Economist
▪ The Ken
▪ PYMNTS.com
▪ Let’s Talk Payments
▪ Investopedia
▪ Economic Times
▪ Annual Reports – Banks, Card Networks, Merchant Acquirers etc.
▪ Reserve Bank of India – Whitepapers / Statistics / Annual Publications
▪ Company Websites

3. PAYMENTS – USA
Table of Contents
1. Regulators (The Fed, CHIPS) and Regulation
2. Card Networks (Revenues, Costs, Transaction Flow) (Visa, Mastercard and Amex)
3. Traditional Merchant Acquirers (Revenues, Costs, Txn Flow) (Vantiv, First Data)
4. Technology Providers (FIS, Fiserv)
5. Alternate Payments (Zelle, Apple Pay, RTP, Paypal)
6. Merchant Acceptance (Square, Stripe, Braintree)
7. Others (Western Union, MoneyGram, Verifone, Earthport, CurrencyCloud, Loomis, Brinks)
8. Difference Questions
9. Miscellaneous
1. Regulators (The Fed, CHIPS)
The Federal Reserve Bank
▪ The “Fed” plays three roles
o As a payments industry regulator, it writes the rules that govern practices by banks
and other parties across multiple payments systems
o As a provider of payments services, it operates the largest check and check image
clearing houses in the country (It also operates one of the two ACH switches and one
of the two wire transfer systems (Fedwire), and is the sole provider of cash and
currency to banks)
o As the manager of the National Settlement Service, it provides settlement services
to multiple private sector clearing houses, both paper and electronic
o It is owned by the banks they serve
The Clearing House
▪ The Clearing House, a bank-owned payments company, is a quiet powerhouse in the banking
industry. Originally the New York Clearing House (for check clearing), established in 1853, it
grew through a series of mergers with other clearing houses and payments companies, and
through establishing new payments services to serve its member banks. Today, it is owned
by 24 large banks (both US banks and the US branches of international banks). It is a major
competitor to the Fed in providing payments services to banks – offering check and image
clearing, ACH processing (it’s the one other ACH operator in the country through Electronic
Payments Network) and through CHIPS, wire transfer processing’s
▪ Unlike Fedwire, however, which is accessible to any bank with an account at a Federal
reserve bank, CHIPS is used by only a small number of very large banks. CHIPS is not an RTGS
system, using instead a form of multilateral netting that manages settlement risk while
providing certain liquidity benefits to participating members
2. Card Networks (Visa, American Express and Mastercard)
Visa
▪ Visa Net: Visa Network, one that does authorization, clearing and settlement
▪ Cybersource: Merchant gateway services; enables merchants to accept, process and
reconcile payments, manage fraud and safeguard payment security online and in-store.

4. Cybersource additionally enables acquirers and other partners to offer these services to
their merchants
▪ DPS: Issuer Processing Services along with other value-added activities
▪ Visa Checkout: Offers consumers an expedited and secure payment experience for online
transactions wherever Visa Checkout is enabled
o Visa Checkout is an online and mobile payments feature that makes online shopping
more convenient. At checkout, enter your username and password to make your
online shopping experiences easier with a single account that can be used across all
your devices. You can store and use any Chase card with Visa Checkout, and there is
no need to re-enter your card number or address every time you make a purchase
o According to one study, during the regular retail season only 26 percent of online
carts result in an actual purchase among desktop shoppers. On smartphones, the
conversion rate is an astonishingly low 16 percent.
o As merchants look for ways to solve this problem, they face an ever increasingly
crowded landscape of new products. So, what’s a merchant to do?
o Visa Checkout, which stores customers’ payment information and enables enrolled
users the ability to checkout in just a few clicks, who choose to stay signed in, isn’t
the only answer to the conversion problem, but it is a great option
▪ Visa Direct: Push payment product platform that facilitates payer-initiated transactions that
are sent directly to the Visa account of the recipient. It supports faster payments like P2P
payments and disbursements
o These push payments use the card brands’ existing infrastructure to move funds for
several applications including P2P apps like Venmo, Paypal and Google Wallet. They
are also active in business disbursements and more recently cross border
transactions
o Currently Zelle, Venmo, Paypal, Google Wallet, Square Cash, Vantiv’s same day
merchant settlement product and fast access funding all use card network’s
solutions
o Settlement for Mastercard Send and Visa Direct is handled through existing card
settlement activities
▪ mVisa: Allows consumers to transfer money to merchants in real time using their mobile
phones and merchants can accept Visa transactions without the need to install card
acceptance hardware
▪ Visa Token Service: In FY 2017, Visa announced new specifications that allow certified third-
party service providers such as Gemalto, Giesecke & Devrient and Inside Secure to connect
directly to Visa’s token service and become Token Service Provider (TSP)
▪ Visa Advertising Solutions: A service that allows merchants to better target and track the
efficacy of their digital campaigns
▪ Visa Commerce Network: Uses Visa’s global payments network to enable merchants to
promote relevant offers to acquire new customers, drive loyalty and increase sales. For
example, Uber uses platform to provide its customers with card-linked offers from local
restaurants and retailers. Qualified purchases are recognized at the point of sale and
rewards are applied to the riders’ Uber accounts – eliminating the need for coupons
▪ Visa Advanced Authorization: Adding geolocation intelligence in real time. Mobile location
confirmation informs issuers is their participating account holder’s mobile phone is near a
purchase location
▪ Revenue Structure:

5. o Service Revenues: Earned for services provided in support of client usage of Visa
Products (45% of revenues)
o Data Processing Revenues: Earned for authorization, clearing, settlement, network
access and other maintenance and support services that facilitate transaction and
information processing among our clients globally (42% of revenues)
o International Transaction Revenues: Cross border transaction processing and
currency conversion activities (31% of revenues)
o Other Revenues: License fees for the use of Visa brand (5% of revenues)
o Client Incentives: Paid to financial institution clients, merchants and strategic
partners to build payments volume, increase Visa product acceptance, win merchant
routing transactions over our network and drive innovation (-23% of revenues)
▪ Expenses
o Network and processing expenses mainly represent expenses for the operation of
our processing network, including maintenance, equipment, rental and fees for
other data processing services
American Express
▪ Our principal products and services are charge and credit card products and travel-related
services offered to consumers and businesses around the world
▪ Our spend centric business model focuses on generating revenues primarily by driving
spending on our cards and secondarily by finance charges and fees. Spending on our cards,
which is higher on average on a per-card versus our competitors, offers superior value to
merchants in the form of loyal customers and larger transactions. Because of the revenues
generated from having high-spending card members, we have flexibility to invest in
attractive rewards and other benefits for card members, as well as targeted marketing and
other programs and investments for merchants
▪ Revenues
o Discount Revenue, which represents fees generally charged to merchants when card
members use their cards to purchase goods or services on our network, is primarily
driven by billed business volumes (58% of revenues)
o Interest on Loans, principally represents interest income earned on outstanding
balances (18% of revenues)
o Net card fees, represent revenue earned from annual card membership fees, which
varies based on the type of card and the number of cards for each account (9% of
revenues)
o Other Fees and Commissions, represent foreign currency conversion fees charged to
card members, card member delinquency fees, loyalty coalition-related fees, travel
commissions and fees etc. (6% of revenues)
▪ Expenses
o Marketing and Promotion (17% of expenses)
o Card Member Rewards (31% of expenses)
o Card Member Services and Other (5% of expenses)
o Salaries and Employee Benefits (24% of expenses)
o Others (23% of expenses)
Mastercard
▪ We generate revenue by charging fees to issuers, acquirers and other stakeholders for
providing transaction processing and other payment-related products and services, as well

6. as assessing customers based primarily on the dollar volume of activity, or gross dollar
volume (GDV) on the cards and other devices that carry our brands
▪ Our ability to grow business is influenced by personal consumption expenditure growth,
driving cash and check transactions towards electronic forms of payment, increasing our
share of electronic payments and providing value-added products and services
▪ The company classifies its net revenue into the following 5 categories
o Domestic Assessments (28% of gross revenues): Fees charged to issuers and
acquirers primarily on the dollar volume of activity on cards and other devices that
carry our brands where the merchant country and the issuer country are the same
o Cross Border Volume Fees (23% of gross revenues): Fees are charged to issuers and
acquirers based on the dollar volume of activity on cards and other devices that
carry our brands where the merchant country and the issuer country are different
o Transaction Processing (33% of gross revenues): Earned from both domestic and
cross border transactions and is primarily based on number of transactions.
Transaction processing includes switching (authorization, clearing and settlement),
connectivity fees charged to issuers and acquirers for network access, equipment
and the transmission of authorization and settlement messages. These fees are
based on the size of the data being transmitted and the number of connections to
the company’s network. Other processing fees include issuer and acquirer
processing solutions; payment gateways for e-commerce merchants; and mobile
gateways for mobile initiated transactions
o Other Revenues (16% of gross revenues)
▪ Products and Services
o Consumer Credit: 44% of GDV
o Commercial Credit: 8% of GDV
o Debit and Prepaid: 47% of GDV
▪ Core Products
o Consumer Credit and Charge: Normal credit cards and different kind of cards
o Debit: Typical debit cards
o Prepaid: Segments on which we focus include government programs such as social
security programs, unemployment benefits and others
o Commercial: Products for small, medium and large businesses
o Digital: Masterpass, MDES, Mastercard Developers, Mastercard Send
▪ Value Added Services:
o Payment gateways that offer a single interface to provide e-commerce merchants
with the ability to process secure online and in-app payments and offer value added
solutions, including outsourced electronic payments, fraud prevention and
alternative payment options
o Mobile gateways that facilitate transaction routing and processing for mobile-
initiated transactions for our customers
▪ Masterpass: Delivering the best digital experience anywhere; omni-channel all digital
payment service
o Digital payment service that enables consumers to make fast and secure purchases
when shopping online, in the mobile apps of their favourite merchants, and in stores
using a mobile device. Masterpass is offered to consumers by their bank, which they
trust to protect their financial details

7. o Masterpass helps our bank customers to offer digital wallets to their customers.
Your bank may just update the mobile banking app you already use or offer you a
new payment app, and with it you will be able to pay more quickly and easily
o On the other side of the ecosystem are the merchants. Masterpass enables
merchants to offer the Masterpass payment option on their website and in their
mobile app
o Masterpass digital wallet from your bank – you can use it to shop wherever you see
the Masterpass button. And now, Masterpass banking partners are increasingly
introducing contactless capability into their digital wallets so you can tap and pay in
stores as well
▪ MDES:
o MDES helps transform any connected device into a commerce device to make and
receive payments.
o Tokens are card numbers that mobile devices use in place of the card number
printed on the plastic. MDES validates the transaction, maps from the token back to
the PAN and forwards it to the issuer for authorization. If a token is somehow
compromised, MDES will block the transaction
o The better customer experience comes from the fact that in the event a device is
lost, or a plastic card is compromised – we can break the link in MDES between the
tokens and the card – and reissue the token or the card – without disrupting the
customer
o MDES supports contactless payments and digital secure remote payments (DSRP).
DSRP is a transaction method where a customer can make in-app purchases using a
token. Contactless payments leverage NFC technology for POS transactions while
DSRP delivers EMV like transactions for in-app payments
o Provides Mastercard’s customers with end to end services (cardholder identification
& verification, tokenization and digitization) for Mastercard cards, across channels
and devices
o Digitization is when the tokenized card details are delivered to the mobile device
o MDES provides issuers with centralized token management and a single point of
connection to a growing ecosystem of digital partners, enabling issuers to scale their
issuance to new digital channels more easily
o For issuers, merchants and wallet providers (Flipkart, first merchant in Asia to roll
out MDES for merchants)
o Visa Token Service (equivalent of MDES) (Visa Digital Enablement Program)
o How it works?
o Creation: The card’s primary account number (PAN) is replaced with an alternate
card number called a token
o Storage: The tokenized card details are delivered to the mobile device through a
process called digitization
o Usage: A mobile device is enabled for more secure payments
o Under an agreement announced last month by Visa and Mastercard, Visa will be
able to request tokens from Mastercard for Mastercard-branded cards consumers
want to load into Visa Checkout, and Mastercard will be able to do likewise for Visa
cards digitized for Masterpass. The reciprocity agreement will let each network
access the other network’s token engine via an API call. Up to now, cardholders
could load, a Visa card into their Masterpass digital wallet but what was loaded was
the actual card credential, not a token masking the credential

8. ▪ Mastercard Send: Only solution that can send funds to both card and non-card endpoints
including bank accounts, mobile wallets and cast out locations in 80 countries and growing
o Examples: Travel Insurance: Flight delay: Instant credit by the travel insurance
company to the customers in his debit account
o Claims on House Insurance: As soon as the claim is approved, instant payment is
made
o Google Wallet uses Mastercard Send
o Other Players using Mastercard Send: Paypal, Zelle, Western Union, HomeSend,
Standard Chartered
o By leveraging our Vocalink assets and partners, Mastercard Send will enable real
time payments to any bank account in the UK by Q2 2018 – taking a bold, new step
in fulfilling our vision to become a single platform for our customers to reach card
and non-card end points
3. Traditional Merchant Acquirers
Vantiv
▪ Second largest merchant acquirer and largest PIN debit acquirer by number of transactions
in the US
▪ Enables merchants of all sizes to accept and process credit, debit and prepaid payments and
provide them supporting value-added services, such as security solutions and fraud
management, information solutions and interchange management
▪ Offers services to financial institutions also but for those which have less than $15bn in
assets
▪ Sales for Vantiv can be done directly using their own sales force or indirectly through ISOs
that target small and mid-size merchants
▪ Small and mid-sized merchants can easily connect to our integrated technology platform
using our APIs, SDKs and other tools we make available to technology partners, which we
believe enhances our capacity to sell to such merchants. Our integrated technology platform
allows us to connect, manage and analyse data across both our merchant services and our
financial institution service segments that we can package into information solutions
▪ How Vantiv defines its competition
o Merchant Services: Bank of America Merchant Services, Chase Paymentech
Solutions, Elavon (subsidiary of US Bancorp), First Data Corporation, Global
Payments, Total Systems Inc and World Pay
o Financial Institution Services: Fidelity National Information Services, First Data
Corporation, Fiserv, Total Systems Services, Visa Debit Processing Service
▪ Visa, Mastercard and other payment networks require Vantiv to be sponsored by a member
bank in order to process electronic payment transactions. Because, we are not a bank, we
are unable to directly access those payment networks. Vantiv is currently registered with
Visa, Mastercard through Fifth Third Bank and other sponsor banks
▪ Acquired Moneris Solutions in Dec 2016, a provider of payment processing solutions offering
credit, debit, wireless and online payment services for merchants in virtually every industry
segment
First Data

9. ▪ Largest merchant acquirer, issuer processor and independent network services provider in
the world, enabling businesses to accept electronic payments, helping financial institutions
issue credit, debit and prepaid cards, and routing secure transactions between them
▪ Provides retail POS merchant acquiring and eCommerce services as well as next generation
offerings such as mobile payment services, webstore in a box solution, and our cloud based
Clover POS operating system
▪ Revenues are generated from a variety of sources including
o Discount fees charged to a merchant, net of credit and debit card interchange and
assessment fees charged by the payment networks
o Processing fees charged to our alliances
o Processing fees charged to merchant acquirers who have outsourced their
transaction processing to us
o Sales and leases of POS devices
o Fees from providing reporting and other services
o Software fees such as security applications and Clover related fees
▪ How First Data defines its competition?
o Merchant Acquirers: Vantiv, World Pay, Global Payments, Chase Paymentech
Solutions, Elavon
o Next Gen Competition: Paypal, Cybersource, Adyen, Stripe, Micros, Square etc.
▪ Clover: Open Architecture Integrated POS system; the goal with Clover is to create for
business owners the largest open architecture platform of commerce enabling solutions and
applications in the world
o Business users may use applications in the Clover App market to manage their
employees’ work schedules, operate customer loyalty programs, integrate
transaction information directly into their accounting software, manage inventory
and provide analytics on their businesses
▪ Disburse to Debit Gateway: To address low-cost, real time options for businesses to deliver
funds directly to a debit card
▪ First Data connects its gateway to Mastercard’s Money Send (Mastercard Send) pipe, a
process like connecting to any of a number of debit networks the company is able to serve
▪ Disburse to debit generally targets payments in four key groups. One is non-salary income,
such as investments, dividends, rental payments etc. Second is government disbursements
(tax refunds, disaster assistance). Third is merchant disbursements (product rebates, store
credits, refunds to customers). Fourth is companies making payments to employees for
bonuses, expense reimbursement etc.
4. Technology Providers
FIS
▪ World’s largest global provider dedicated to financial technology solutions
▪ Provides core banking systems
▪ Code Connect Gateway: Provides clients with online access to hundreds of FIS and 3rd
party
APIs needed to spur innovation in their organizations
▪ Services
o Core processing software applications are designed to run banking processes for our
financial institution clients, including deposit and lending systems, customer
management, back-office support systems, compliance support, cash management
services, multi-bank collection and disbursement services

10. o Provides traditional ATM based debit network access through NYCE and emerging
real time payment alternatives.
o Offer EMV integrated circuit cards, often referred to as smart cards or chip cards, as
well as a variety of stored-value card types and loyalty / reward programs.
Integrated services range from card production and activation to processing to an
extensive range of fraud management services and value-added loyalty programs
designed to increase card usage and fee-based revenues for financial institutions
and merchants (in order to provide card processing services, FIS must be certified by
Visa, MA, Amex etc.)
o Leading provider of prepaid card services, which include gift cards and reloadable
cards, with end to end solutions for development, processing and administration of
stored-value programs
o Merchant processing services provides a merchant or financial institution a
comprehensive solution to manage its merchant card activities, including PoS
equipment, transaction authorization, draft capture, settlement, chargeback
processing and reporting
o Also provides ACH processing in certain countries
▪ Competitors
o Internal technology departments within financial institutions, retailers, data
processing or software development departments of large companies
o Companies that deliver software and integrated services to financial services
industry
▪ Revenues
o Revenue is primarily derived from a combination of recurring technology and
processing services and software license fees
o A significant portion of revenue is derived from transaction processing fees that
fluctuate with the level of accounts and card transactions, among other variable
measures, associated with consumer, commercial and capital markets activity
Fiserv
▪ Global leader in financial services technology solutions
▪ Services: Electronic bill payment and presentment services, card-based transaction
processing and network services (Accel), ACH transaction processing, Account to Account
Transfers, P2P payments, internet and mobile banking systems, Check Processing and
Imaging etc.
▪ The business in our payments segment provide financial institutions and other companies
with the products and services required to process electronic payment transactions and to
offer their customers access to financial services and transaction capability through digital
channels
▪ Products: Check Free: Electronic bill payment and presentment product: To manage
household bills via an easy to use online tool; Pop Money – P2P solution
▪ Partner with EWS (Early Warning Services) to offer a turnkey implementation of its Zelle, a
real time P2P service. The turnkey solution simplifies the implementation of Zelle by
providing interface, risk management, alerting, settlement and other services to clients
▪ Own and operate Accel network
▪ Our principal competitors include other vendors of financial services technology, data
processing affiliates of large companies, and processing centres owned and operated as user
cooperatives.

11. 5. Alternate Payments
Zelle
▪ Bank-centric, person-to-person (P2P) payments solution offered by Early Warning, which has
been launched with over 50 banks and credit unions to date, including several of the largest
financial institutions. Early Warning has clear intentions to further develop business-to-
consumer (B2C) and government-to-consumer (G2C) opportunities on its network
▪ Uses of this product for more than P2P transactions include business to consumer
disbursements such as insurance payouts, rebates, financial support in emergencies and
other scenarios
▪ Business and government agencies could consider using Zelle as a viable disbursement
strategy
▪ What the industry will be observing intently is the speed with which financial institutions
convert their existing P2P products to Zelle. The owner banks are investing millions of dollars
to upgrade their mobile banking applications, their online capabilities and the back-end
operations to integrate the product. Processors such as ACI, FIS, Fiserv and Jack Henry are
creating integration tools to help their clients to convert existing P2P products and enrol
clients to Zelle and to assist in managing the back-end settlement and reconcilement
activities
▪ Zelle’s business model is tricky, however. First, significant investments need to be made in
integration, account conversion, client migration, and marketing efforts. Using processor
provided tools can streamline the costs and effort, but the expenses are material
nonetheless. Once an FI has Zelle in place, it will then need to pay transactional fees to EWS
and additional fees to a third-party processor that may be providing settlement and other
services. The fees from EWS are reported to be $0.50 per transaction for transactions that
occur between two integrated FIs and $1 if one participant in a P2P transaction is using the
standalone Zelle app. These fees are incurred by FIs on a product that currently generates
zero revenue. The other uncomfortable piece of the model is that non-owner FIs will pay
transactional fees that will enrich the owner banks, which besides being part owners of EWS
and Zelle are also their competitors. FIs may have little choice, however, as the market for
P2P continues to grow and nonbank providers continue to post significant growth statistics.
Having a real time or fast P2P service will be expected by FI customers
▪ Under the cover, Zelle still functions by combining a directory of emails and phone numbers
matched to bank account data along network rules for moving along the ACH network
▪ In most cases, the larger banks are building custom integrations to Zelle so they can leverage
the functionality for future products like TCH real-time payments, bill pay or disbursements.
The smaller banks are utilizing their existing providers like FIS and Fiserv to integrate with
Zelle, and the mid-market banks are doing a combination of both
▪ Zelle will exist as both a standalone mobile app and as a baked-in feature in its partner
banks’ mobile banking applications and sites
▪ Like Venmo, Zelle is also leveraging the Mastercard Send and Visa Direct rails to enable
money to be pushed instantly to a network-branded debit card
Clearing House RTP
▪ The Clearing House recently launched RTP, its branded product with a transaction executed
between Bank of New York, Mellon, and U.S. Bank. RTP is a unique new payments rail that
allows consumers and businesses to send and receive payments nearly instantly, directly

12. from their financial institution accounts. Many other large financial institutions are slated to
integrate The Clearing House RTP capabilities in the near term and build products on top of
The Clearing House’s money movement capabilities.
▪ The role that TCH is playing is to connect end points, provide the standards, and provide the
network and security. It will be up to banks, 3rd
party service providers, and fintech
organizations to develop the front-end technology and other ancillary services that present
the payment instructions to the engine that TCH has constructed
Paypal
▪ Technology platform that enables digital and mobile payments on behalf of customers and
merchants worldwide
▪ We operate a two-sided proprietary global technology platform that links our customers,
both merchants and consumers, around the globe to facilitate the processing of payment
transactions, allowing us to connect millions of merchants and consumers worldwide
▪ We enable consumers to more safely exchange funds with merchants using a variety of
funding sources, which may include a bank account, a Paypal account balance, a Paypal
credit account, a credit and debit card or other stored value products such as coupons and
gift cards
▪ We offer merchants an end to end payments solution that provides authorization and
settlement capabilities, as well as instant access to funds
▪ We generate revenues by charging fees for transaction processing (87% of revenues) and
other payment related services
▪ Our gateway services include our Payflow gateway service and Braintree gateway service
that enables merchants to accept payments online with credit or debit cards. Our gateway
services provide the technology that links a merchant’s website to its processing network
and merchant account
▪ We pay significant transaction fees when consumers fund payment transactions using credit
cards, lower fees when consumers fund payments with debit cards, nominal fees when
consumers fund payment transactions by electronic transfer of funds from bank accounts,
and nominal fees when consumers fund payment transactions from an existing Paypal
account balance or through our Paypal credit products
▪ We do not directly access the payment card networks such as Visa and Mastercard, that
enable our acceptance of credit cards and debit cards. Accordingly, we must rely on banks or
other payment processors to process transactions and we must pay for their services
▪ Transaction Expense: Costs incurred to accept a customers’ funding source of payment.
These costs include fees paid to payment processors and other financial institutions in order
to draw funds from a customers’ credit or debit card, bank account or other funding source
they have stored in their digital wallet. Transaction expense also includes fees paid to
disbursement partners to enable a transaction and interest expense on borrowings incurred
to finance our portfolio of loans receivable arising from our Paypal credit funding option
▪ Only player in the ecosystem that operates on both the consumer and merchant side of
payments, can control the end to end experience and do so globally. When we roll out
things, we don’t have to go to as merchants to change integration in many cases
▪ Very few of the pays control the end to end experience. That’s important. Like for instance,
Apple right now has a great user interface, but they don’t control the onboarding process.
The banks control that. So, they control who comes onto that, because when they didn’t,
they got hit with pretty high fraud, so they control that. They don’t control whether the
transaction gets approved or not. The banks do that, as well, and therefore, you can create a

13. value proposition. We can do that because we do all the risk analysis for that, and we can
offer that protection
▪ Paypal One Touch: Allows the customer to complete purchases faster while keeping the
financial information secure. When you log into Paypal, with your mobile phone or from a
desktop, tablet or laptop, you can choose to stay logged in for easier, faster checkout across
all eligible merchants. After you opt in to staying logged in to your Paypal account, you will
skip the Paypal log-in screen on future purchases when paying with Paypal using the same
device and same browser
▪ Payflow ACH payment performs the payment in two parts: In this example, a debit / sale
payment, the Payflow ACH payment service first moves the money from your customer’s
bank account and then moves money to the retailers’ bank account
o A customer visits the biller’s website. After customer authentication (username and
password), the biller’s web server presents the billing information
o The customer reviews the bill. When the customer schedules a payment, your
website collects the payment information and using Payflow Pro, securely sends it to
Paypal for processing on the date specified by the customer
o Paypal prepares the ACH payment information and delivers it to for ACH submission
to the ODFI by electronic transmission over a secure connection. The ACH payments
are submitted to the ODFI on the customer-specified payment date
o The ODFI processes the ACH payment information and electronically delivers the
information to the ACH network operator (Federal Reserve). The ACH network
operator electronically distributes the ACH items to the customers’ bank
o The Federal Reserve credits the ODFI’s bank account on settlement day for the value
of all ACH debits deposited, and debits the RDFI’s bank account for the value of all
ACH items received
o Paypal then initiates a secondary transaction to move the money into your (biller’s)
bank account
o The customer’s periodic bank statements reflect ACH payments
o Merchants are notified of ACH payments on their bank statements. Merchants use
Paypal manager to view status and reports on previously submitted payments
▪ If you have multiple funding sources available, Paypal will fund your transaction as follows
o If you have a balance in your account, Paypal will always use your balance to fund
your payment
o If you do not have balance or your balance is not sufficient to fund your entire
transaction, Paypal will fund your transaction or the remainder of your transaction
in the following order: Balance (if any), instant transfer from bank account, Paypal
Smart Connect or Paypal Extras Mastercard, Credit Card / Debit Card, eCheck from
your bank account
▪ Paypal’s cost will always be higher when you pay by credit card or load money into a Paypal
wallet because Paypal in this case will be the merchant and pay MDR
▪ Paypal began using email addresses and passwords to initiate payment – replacing the use
of 16 digit card numbers and expiration dates. The rest of Paypal’s early transactions rode
the card network rails for payment funding and completion. Only later did Paypal take the
next step to innovate with respect to the funding step – adding the option for funding
directly from the buyer’s bank checking account in lieu of payment cards
▪ Funding directly from the buyer’s checking account was considerably cheaper for Paypal
than using credit / debit card funding. Interestingly, the ability for Paypal to use this

14. alternative funding approach came about as the result of a rule change that enabled a new
type of ACH transaction – the web transaction
▪ Paypal’s use of card or ACH funding is an example. Paypal conducts one transaction between
its buyer and seller – using a separate funding transaction to go get the buyer’s funds from
the buyer’s card or checking account via ACH. These kinds of transactions are called
“decoupled transactions” – a single transaction actually decomposing into two separate
transactions in different payments systems
Merchants need to maintain certain amount of reserve balance in their Paypal accounts
▪ An account reserve is an amount of money that is held in your PayPal account to cover
potential financial risk such as payment reversals you may receive like chargebacks and
claims. PayPal uses three types of reserves: rolling reserves, minimum reserves and
jumpstart reserves.
▪ Reserves may be a necessity throughout your relationship with PayPal. Preventing reserves
isn’t always possible, and depending on your industry and your credit history, you might
never be able to fully remove a reserve from your account.
Paypal Prepaid Mastercard
▪ The card does not pull funds from your Paypal account balance. You need to load funds onto
the card to use it
▪ You can get a card for free if you order online from PayPal
▪ The customer does need a Paypal account to get this card. Your PayPal account is used to
view your card balance, pay bills online, and add funds to your card from your bank after you
have a bank account linked to your new PayPal account. You can use the prepaid card as a
funding method for PayPal payments if you choose.
Paypal Debit Mastercard
▪ Instead of “loading” funds onto your card, you can spend the cash directly from your PayPal
account balance.
▪ To use the card, you’ll need to have funds in your PayPal account from payments you’ve
received or transfers you’ve made into the account, for example. If you don’t have funds in
your account before you use the card, your purchase will be rejected, unless you set up a
backup funding source, such as your bank account, which allows you to spend even if you
don’t have any money in PayPal
▪ Currently, the PayPal Debit Mastercard is only available for certain business accounts.
Individuals who do not run a business will have a hard time getting this card.
▪ The main benefit of this card is that you get one percent cash back on certain purchases that
you make with the card
Paypal Extras Mastercard
▪ The PayPal Extras card is another option. This card allows you to borrow from PayPal, via a
credit account with Synchrony Bank
▪ The main benefit of the Extras card is the ability to earn points as you spend. Certain
purchases earn one to three points, which can be redeemed for gift cards, travel vouchers,
or cash back to your PayPal account. There is no annual fee, but you’ll pay interest if you
don’t pay the card off every month, and other fees might apply.
Apple Pay

15. ▪ Apple Pay, launched in 2014, uses Near Field Communication (NFC) technology between the
device and the payment terminal for transactions. The device, in this case, the iPhone, is
fitted with an NFC chip, which builds an encrypted token and transmits it wirelessly to the
payment terminal. It uses Touch ID—the biometric feature—to authenticate the transaction.
▪ What’s thwarting Apple Pay’s entry into India is the lack of a coherent NFC-based payments
ecosystem, both on the issuance and acceptance side. Contactless card payments, such as
those based on Visa’s payWave product, have made sluggish progress for various reasons,
primarily, the absence of infrastructure. And due to the lack of concrete use cases, the
adoption and usage of contactless cards are yet to achieve mass adoption levels.
▪ According to estimates, there are about 200,000 contactless terminals in India or around
13% of all online PoS machines deployed by banks.
▪ Merchant awareness is also an issue. Most merchants are not sure if their POS terminals are
NFC enabled or not
▪ Besides, from an adoption point of view, the average Indian urban user prefers wallet-based
payments. It effectively means that India has virtually skipped the contactless card payment
phase, much like China
▪ Apple Pay officially launched in China in February 2016, through a partnership with
UnionPay, China’s state-backed interbank payments network. It also tied up with 19 banks in
the country, making nearly 80% of the credit and debit cards in the country eligible for use
on its platform.
▪ While the company saw a strong initial uptake, with over three million cards being added
within two days of the launch, it struggled to compete with China’s local third-party
payment solutions. Over the last two years, China’s mobile payments market has leaned
heavily towards wallets and QR code payments, promoted by Alipay (backed by Alibaba) and
Tenpay (backed by Tencent), the two dominant players in the space. Together, they control
nearly 90% of the mobile payments market, as per a recent report.
▪ In October last year, nearly six months after its much-hyped launch, Apple quietly integrated
Alipay into its payment services for iTunes and in-app purchases. This meant that users could
use their Alipay accounts to buy apps and subscribe to services.
▪ In India, it might face a similar situation, with third-party mobile payment systems, including
wallets like Paytm or even UPI-based apps like BHIM and PhonePe making significant inroads
recently. This is, in addition, to banks having their own wallet and UPI offerings.
▪ “It’s not difficult to scale these contactless cards. The banks need to be aggressive about it,
and all we must do is provide the infrastructure, i.e. PoS machines. Once more PoS machines
become available, more cards will be issued
▪ On an average, banks are spending Rs 500-1000 per terminal as part of the upgrade. “Over
the last two-three years, all the PoS machines that have been acquired in India are NFC-
enabled. What is needed is a software upgrade on part of the service provider, which
activates the acceptance technology
▪ Samsung uses what is called the MST technology, where a smartphone device ‘emits a
magnetic signal that mimics the magnetic strip on a traditional payment card.’ In other
words, the technology sends a magnetic signal from the device to the PoS terminal, which
replicates the swipe done during contactless payments. Unlike Apple Pay, Samsung’s
payment service works with any EMV-enabled PoS terminal.
▪ Apple Pay – Revenue Sources: Twofold: One is sale of more i-phones and secondly, issuers
pay Apple Pay a 15 cent fee on a $100 transaction if their card is being used
6. Merchant Acceptance

16. Square
▪ Square introduced a simple piece of hardware that could turn a mobile phone into a
payments device that can accept credit cards thus allowing anyone to accept card payments
securely
▪ Square’s one sided merchant mobile POS card acceptance proved to be a big success –
enabling small merchants to equip themselves for card acceptance without requiring their
customers to change anything. On the other hand, Square also tried innovating with several
ideas that did require consumer-side adoption including the Square Wallet. This app
connected the consumer’s smartphone with the merchant’s Square Register in an attempt
to make payment more convenient. Not surprisingly, Square Wallet failed to gain any
meaningful consumer adoption and was ultimately shut down
▪ Enables businesses (sellers) to accept card payments, an important capability that was
previously inaccessible to many businesses
▪ Combines sophisticated software with affordable hardware to enable sellers to turn mobile
devices and computing devices into a powerful payment and POS solutions. We have high
seller acceptance rates and fast onboarding, while maintaining low risk and fraud losses as a
result of our approach to risk management that emphasizes data science and machine
learning
▪ With Square’s offering, a seller can accept payments in person via magnetic stripe (a swipe),
EMV (a dip), or NFC (a tap) or online via Square invoices, Square Virtual terminal or the
sellers’ website
▪ Once on Square’s system, the seller gains access to technology and features like reporting
and analytics, next day settlements, digital receipts, payments dispute management,
chargeback protection and payments industry compliance
▪ On the consumer (buyer) side, Square cash offers individuals access to a fast, easy way to
send and receive money electronically to and from individuals and businesses
▪ Square’s commerce ecosystem also includes powerful POS software and services that help
sellers make informed business decisions through the use of analytics and reporting. As a
result, sellers can manage orders, inventory, locations, employees and payroll; engage and
grow their sales with customers and gain access to business loans. We monetize these
features through either a per transaction fee, a subscription fee or a service fee
▪ With our Square Capital service, we facilitate the offering of loans to sellers based on their
payment processing history, and the product is broadly applicable across our seller base
▪ Square developer platform (APIs) allows businesses with individualized needs to customize
their business solutions while processing payments on Square and taking advantage of all
the services in our ecosystem, including integration with third party applications
▪ How a Transaction Happens
o Once the buyer is ready to make a purchase, the seller inputs the transaction into
the Square Point of Sale and presents the buyer with the amount owed.
o For in-person transactions, the buyer pays by swiping or dipping their payment card,
or by tapping their NFC-enabled payment card or mobile device on a Square Reader
or Square Stand, which captures the buyer’s account information. For card not
present transactions, card information is keyed in manually by either the buyer or
seller into the Square Point of Sale app, Square Invoices, Square Virtual Terminal, or
the seller's e-commerce website.
o The Square Point of Sale sends the transaction information to Square, which acts as
the PSP. Square passes the transaction information to the Acquiring Processor via an

17. internet connection. Square pays a small fixed fee per transaction to the Acquiring
Processor.
o The Acquiring Processor routes the transaction to the appropriate Card Network
affiliated with the buyer’s card such as Visa, Mastercard, Discover, or American
Express. Square pays a variety of fees to the Card Network, the most significant of
which are assessment fees that are typically less than 0.15% of the transaction
amount.
o The Acquiring Processor then routes the transaction through the Card Network to
the Issuing Bank, which authorizes or declines the transaction for the buyer’s
payment card.
o Upon authorization, the Issuing Bank sends a notification back through the Card
Network to the Square Point of Sale to inform the seller that the transaction has
been successfully authorized.
o The Square Point of Sale sends a digital receipt for the transaction to the buyer,
enabling a persistent communication channel between the seller and the buyer. For
example, this is how the buyer can send feedback to the seller about the service
provided.
o The Issuing Bank then triggers a disbursement of funds to the Acquiring Bank
through the Card Network for the transaction amount. Square will ultimately pay
the Issuing Bank an interchange fee as a percentage of the amount of the
transaction plus a fixed fee per transaction, which together average between 1.5%
to 2.0% of the transaction amount. However, this percentage can vary significantly
based on the card type, transaction type, and transaction size.
o Square transfers the funds to the seller’s bank account, net of the fee charged by
Square. Square provides sellers with fast access to funds, typically settling with them
by the business day after the date of the transaction via Automated Clearing House
(ACH) transfers, or the same day via its Instant Deposit service for an additional
transaction fee. Square pays a very small fee for each ACH transfer.
o The funds are settled from the Acquiring Bank to Square, typically in one to two
business days after the date of the transaction.
o At the end of the month, the Issuing Bank sends a statement to the buyer showing
their monthly charges. The statement includes a reference to Square as the
merchant of record on the billing statement as a prefix to the seller name (denoted
as SQ).
▪ Competition
o For payments and POS services, we compete primarily with traditional acquiring
processors and payment processors who sell costly card terminal and POS systems,
often tied to long-term contracts, through direct sales or ISO channels. Many
competitors offer payments and POS services that have features tailored to
particular industries or business types that require sellers to stitch together
technology from multiple hardware, software and payment vendors
▪ Revenues and Costs
o We derive substantially all of our revenue from transaction-based fees we collect in
connection with managed payment services; we charge our sellers a transaction fee
for managed payments solutions that is generally calculated based on a percentage
of the total transaction amount processes. We also selectively offer custom pricing
for larger sellers

18. o Our business depends on our ability to accept credit and debit cards, and this ability
is provided by the payment card networks. Other than American Express, we do not
directly access the payment card networks that enable our acceptance of payment
cards. As a result, we must rely on banks and acquirer processors to process
transactions on their behalf
o We are required to pay interchange fees and assessments to the payment card
networks, as well as fees to our acquiring processors, to process transactions
o Because we generally charge our sellers a flat fee for our managed payments
services, rather than passing through interchange fees and assessments to our
sellers directly, and increase or decrease in interchange fees or assessments or in
the fees we pay to our acquiring processors could make our pricing look less
competitive, lead us to change our pricing model, or adversely affect our margins
o Under our processing agreement with Starbucks, we charged a percentage of the
total transaction amount for payment solutions we offered to certain Starbucks-
owned stores in the US
o Transaction based costs consist primarily of interchange fees set by payment card
networks and that are paid to the card issuing financial institution, assessment fees
paid to payment card networks, fees paid to third party payment processors and
bank settlement fees
Stripe
▪ Every day, Americans spend about $1.2bn online. That figure has roughly doubled in the past
5 years. For years, the explosive growth of e-commerce has outpaced the underlying
technology; companies wanting to set up shop have had to go to a bank, a payment
processor, and “gateways” that handle connections between the two. This takes weeks, lots
of people, and fee after fee. Much of the software that processes the transactions is decades
old, and the more modern bits are written by banks, credit card companies and financial
middlemen, none of whom are exactly winning hackathons for elegant coding
▪ Stripe introduced simple APIs that allow any company with a web presence to securely
accept electronic payments in as little as 10 lines of code, and a simple signup process
▪ Stripe built software that businesses could plug into websites and applications to instantly
connect with credit card and banking systems and receive payments
▪ The company lets online businesses accept payments from customers with a per transaction
charge and no setup fee
▪ For every transaction it processes, Stripe in the US gets a swipe fee of 2.9% plus 30 cents,
roughly the same as other payment firms such as Square, though large customers get
volume discounts
▪ Clients: Lyft, Under Armour, Target etc.
▪ Facebook, Twitter and Pininterest have chosen Stripe to power their e-commerce efforts,
and traditional retailers like Best Buy and Saks Fifth Avenue have picked Stripe for their
forays into mobile
▪ Competitors in India: CC Avenue and Razor Pay
▪ The company faces formidable rivals. Braintree has double the volumes of Stripe and boasts
marquee customers like Uber and AirBnB (a large portion of Braintree’s volumes comes from
gateway transactions that generally carry lower fees)
▪ When Lyft decided in early 2015 that it wanted to pay its drivers more quickly, it turned to
Stripe. In December, Lyft launched Express Pay, an option that allows it to pay drivers almost
instantly for their rides rather than making them wait for several days. This feature required

19. Stripe to bypass the typical electronic payment network, called ACH, and instead build a
service that connected with drivers’ bank accounts through their debit cards.
▪ Paypal is largely a consumer company, whereas Stripe is highly focused on building tools for
developers. There are areas where Paypal and Stripe overlap, but have different visions for
the future
▪ Square has focused on processing in-person sales at retailers
▪ Stripe leverages Mastercard Send to make instant payments (real time). Instant payouts can
be sent directly to service providers’ debit cards and funds are automatically deposited into
the bank account linked to the debit card
▪ Stripe rolled out a new solution in July 2018: Stripe Issuing: a service that enables companies
to create their own cards, both physical and virtual, via an API call. Few use cases highlighted
are providing employees with company cards for expense management, linking consumers
to debit cards to provide banking services, or offering cards to on-demand service providers,
like food couriers that need to make a purchase on behalf of a customer. Businesses that
issue their own cards can set limits on spend amount and categories, while Stripe Issuing
automates processes like report generation, card replacement and dispute management.
Stripe receives a portion of each transaction made with the cards, adding that it will share
some of that revenue with business customers using Stripe Issuing in the form of cash-back
▪ Stripe in India
o That’s because the Indian payments market is like no other, and its quirks are many.
You can pay in more than five different ways. Then there is the dreaded two-factor
authentication (2FA) that all these payment methods need. Indian merchants also
want 24/7 support, something that Stripe does not provide. And running a payment
gateway business in India almost always means it’s a price war. It’s the inevitable
reality.
o Giants like PayPal have dominated this business in the US. In India, it is led by
BillDesk, which was the first in the payment aggregator space. The e-commerce and
ticketing business are cornered by Naspers-owned PayU, after its acquisition of
Citrus Pay, and CCAvenue. And recent entrant, Razorpay is positioned as the Stripe
of India with its small and midsize startup clients.
o Whatever be the target segment, they all get asked the same question. “How much
does it cost to use your gateway?” In India, most gateways charge businesses
anywhere between 0.75-2% of a transaction. And merchants get different rates
based on the volumes processed.
o But that’s not all. Whatever money is made, it is split four ways (or even more in
some cases). So, payment gateway companies are at best left with earnings of about
20 basis points out of a transaction (one basis point is 0.01%).
o Given this, Stripe may find it hard to charge the flat fee it usually specifies on its
website.
o Merchants’ love or hate for a gateway company depends mostly on two things: Price
and transaction success rates. Today, across gateways, one in nearly seven
transactions fail. That’s because of the multiple hoops a transaction goes through.
The infrastructure is designed in such a way that each transaction changes at least
four hands. And most merchants usually work with three-four payment gateways
because of the failure rates. The payment gateway with the highest success rate
becomes the primary gateway. The others are relegated as backup options.
o Every failed transaction also comes with the hassle of extending support and
refunding customers. This could be Stripe’s opportunity. “As long as the commercials

20. are aligned, if a gateway can improve success rates by even a few percentage points,
it will make a big difference
o Stripe comes with some serious engineering chops. But companies in India, too, are
not too far away on the innovation curve. For instance, Razorpay has tried to solve
the 2FA problem in India. It has a feature, which reads the OTP in a message and fills
it in automatically. And PayU offers a deferred payment option called LazyPay to
creditworthy users who will be able to shop even if a transaction fails. And these are
features, which have been customised for India.
o Daunting as it may seem, Stripe does come with some unique set of advantages.
Stripe is trying to evolve into a payment solutions company rather than being just an
aggregator. And Indian entrepreneurs who want to set up a base in the US may find
a viable partner in Stripe. Its latest programme, Atlas, provides all tools from
financial to legal to help international entrepreneurs incorporate in the US for a flat
fee of $500. A feature, which is not in the playbook of the Indian payment gateway
companies.
o The modus operandi of companies like Stripe and Braintree in the US is to latch on
to businesses in their early stages and grow along with them. For instance, Lyft uses
Stripe in the US. And Uber uses Braintree.
o While in the US, early stage companies are in the thousands and that market is
deep, Gupta of PayU believes that the Indian market isn’t so. “If you think about it,
startups in the US achieve scale in three-four years and become billion dollar
companies. So, you tend to grow with them. But it takes a long time for that to
happen in India.” He adds, “Here, the top 50 startups and unicorns control the full
market.”
o Even Razorpay, for whom 40% of its merchants are small-sized, it has a few big
accounts like Zomato and Goibibo, which help bring 60% of the revenue
o If anything, it is Razorpay that is most likely to be directly affected by Stripe’s entry
as they both look at engaging a similar audience
Braintree
▪ Provides online and mobile payment technology to fast growing consumer services like
OpenTable, Fab.com, AirBnB, Uber, Angry Birds and Living Social. It is gaining market share
because these companies can integrate the product in 20 minutes – compared to 2 months
for competitors
▪ Braintree is a full stack payments platform that makes it easy to accept payments in your
app or website. Our service replaces the traditional model of sourcing a payment gateway
and merchant account from different providers. From single touch payments to mobile SDKs
and foreign currency acceptance, we provide everything you need to start accepting
payments today
▪ Developers want a payments platform that is quick to integrate into their operations.
Executives want the payment company to scale without a high incremental cost while
maintaining high service quality
▪ To understand the problem that Braintree helps solve, consider the humble Amazon
smartphone app. Finding stuff, putting it in your cart, and paying for it with a credit card or
gift card balance is so simple, you don’t even think about it.
▪ Which is great for Amazon. But for basically any other web merchant out there, it just isn’t
that easy. Payments, in particular is hard to do yourself, if you are a small startup, especially,

21. if it’s a maze of fraud prevention, deals with credit card arbitrage firms, and a million other
headaches
▪ That’s where Braintree comes in. It lets developers quickly and easily build payment systems
that blend right in with their own applications and websites/ They can take credit cards,
bitcoin, Apple Pay, Google Pay or whatever comes next, without having to be a specialist in
any of those things. Just plug in Braintree and go
▪ So even when Tim Cook promotes Apple Pay at big Apple events, its Braintree and its
customers who get the push
▪ Apple Pay / Android Pay encrypts any credit / debit cards added to an Apple / Google wallet
on supported devices. Apple Pay / Android Pay assigns a device-specified tokenized credit
card number called a DPAN that Braintree will use to process transactions
7. Others
Verifone
▪ Solutions include electronic payment devices, field services such as installation, repair and
warranty; and software such as estate management, security and gateway services
▪ Recently launched Verifone Carbon 8 and 10, an integrated dual screen cloud based POS
solution, that enables merchants to run register and business applications from a tablet
sized screen while enabling customers to pay and interact with a smaller consumer facing
screen
▪ Portable payment devices consist of small, portable, handheld devices that enable
merchants to accept electronic payments wherever wireless connectivity is available, and
our mobile solutions offer secure mobile payment capabilities for all segments of the mobile
point of sale, or mPOS environment, from large retailers to small merchants, and include
devices that attach to, and interface with iOS, or Android based smartphones and tablets,
enabling these devices to be used as a secure payment device by merchants
▪ Value added transaction services include terminal management services and gateway
solutions that enable more efficient routing of transactions, multi-channel acceptance and
processing, along with end to end encryption to reduce the complexity and costs of payment
card industry, or PCI standards compliance
▪ Also working with Paypal, Google, Samsung and other partners to increase the acceptance of
digital wallets at large retailers across the US through our NFC enabled devices
▪ Clients consist primarily of financial institutions, payment processors, large retailers,
petroleum companies, transportation companies, government organizations, healthcare
companies and quick service restaurants. We also sell payment processing services directly
to merchants and retailers.
▪ Primary Competitors: Ingenico, PAX Technology, Fujjan New Zealand, Square, SZZT
Electronics, Spire Payments etc.
▪ We also face competition from alternative payment solutions, such as mobile device based
card payment and processing solutions that offer customers the ability to pay on mobile
devices through a variety of payment methods. Some of these alternative solutions enable
payment and processing at the point of sale without the use of traditional payment
terminals, such as those we manufacture and sell. In addition, some of these alternative
solutions are offered by companies that are significantly larger than we are. Competition
from these alternative solutions, particularly as they are deployed globally could reduce our

22. demand for our traditional payment terminals and our service offerings and have an adverse
effect on our results of operations
Western Union
▪ Western Union says it isn’t worried about disruption. Many of its customers still prefer to
use cash, and it would just be too costly for startups to develop on the ground network that
could compete
▪ Western Union launched a digital division in San Francisco that is setting up partnerships
with companies like Chinese messaging app WeChat and Facebook Messenger. It invested in
the Digital Currency Group, an investment firm focused on bitcoin and blockchain startups
▪ Corporate T&E company Certify is integrating payment capabilities provided by Western
Union to enhance its global reimbursement and supplier payment offering. Businesses using
Certify can facilitate employee reimbursements and supplier payments across borders, with
transactions powered by Western Union. The new solution, Certify Payments, uses Western
Union’s Mass Payments API, which can handle cross border, direct to bank payments in 45
currencies
▪ Mobile money transfers now account for nearly 60% of WU’s digital transactions globally
▪ Western Union agents include large networks such as post offices, banks and retailers and
other established organizations as well as smaller independent retail locations which
typically provide other consumer products and services
▪ We provide our 3rd
party agents with access to our multi-currency, real-time money transfer
processing systems which are used to originate and pay money transfers. Our systems and
processes enable our agents to pay money transfers in ~130 currencies worldwide
▪ Our agents provide the physical infrastructure and staff required to complete the transfers.
Western Union provides central operating functions such as transaction processing,
settlement, marketing support and consumer relationship management to our agents, as
well as compliance training and related support
▪ C2C: 79% of revenues; C2B: 12% of revenues and Business Solutions: 2% of revenues
▪ C2C Segment
o Our revenue in this segment is derived primarily from transaction fees and forex
revenues paid by customers to transfer money
o The substantial majority of remittances constitute walk-in transactions in which
payment is collected by one of our agents and is available for pick up in another
agent location, usually within minutes
o In certain countries, consumers can initiate a money transfer from a WU branded
website, including through their mobile devices
o Consumer can fund transactions: Cash, Debit Card, Account. In online money
transfer account, consumers can generally fund transactions using a credit card,
debit card, electronic funds transfer etc.
o Revenue Split: Transaction Fees: 74% and Forex Revenues: 26%
▪ C2B Segment
o Our revenue in this segment is derived primarily from transaction fees paid by
consumers and billers. The transaction fees are typically less than the fees charged
in our C2C segment
o Revenue Split: Transaction Fees: 96% and Forex Revenues: 4%
▪ Most significant competitive factors in C2C remittances relate to the overall consumer value
proposition, including brand recognition, trust, reliability, consumer experience, price, speed

23. of delivery, distribution network, variety of send and receive payment methods, and channel
options
▪ Cost of services primarily consist of agent commissions (~60% of total cost services)
▪ Revenues: $5.4bn (2016) (For last 5 years, revenues have stayed constant or declined
slightly); Revenues in 2012 were $5.6bn (Dec 2012)
▪ Net Income: $250m (Dec 2016)
MoneyGram
▪ Our primary customers are persons who may not be fully served by other financial
institutions, which we refer to as unbanked or underbanked consumers
▪ Our offerings include money transfers, bill payment services, money order services and
official check processing. Our money transfer services are our primary revenue driver.
Money transfers are movements of funds between consumers from the origination or
"send" location and the designated "receive" location. MoneyGram earns revenue from the
fees paid by the consumers sending the funds and from the management of currency
exchange spreads on money transfer transactions involving different “send” and “receive”
currencies. We share a significant portion of that fee with both the sending and receiving
agents. We also earn bill payment services revenues primarily from transaction fees charged
to consumers for each transaction completed. Additionally, we earn revenue from the sale
of our money order and official check products and generate revenue from the investment
of funds underlying these products.
▪ Money Transfer: 89% of revenues; Bill Payment: 6% of revenues; Money Order: 3% of
revenues and Official Check: 2% of revenues
▪ Walmart is our only agent that accounts for more than 10% of our total revenue
▪ Our competitors include a small number of large money transfer and bill payment providers,
financial institutions, banks and a large number of small niche money transfer service
providers that serve select regions.
▪ In 2014, Walmart launched a white label money transfer service, a program operated by a
competitor of MoneyGram that allows consumers to transfer money between Walmart US
store locations
Earthport
▪ Earthport is a platform that allows you to make payments to local ACH systems in 60
countries (well established and serve mainly large clients)
▪ Earthport provides clients with access to a global payment network, maintaining local
banking partnerships, through which client business is settled directly via local clearing to
banked beneficiaries in over 65 countries
▪ Earthport has built a cross border interbank payments hub as an alternative to the old
model. Client can move and track transfers through the firm’s centralized network of more
than 60 banks
▪ Mostly for XB payments
▪ Clients: Xoom, Hyperwallet, Payoneer, World Remit, BAML, Ripple
▪ It’s very time consuming to build the operations to deliver payments directly into one
country, and then you must replicate all the systems and processes for each new country.
That includes configuring our customer operations, our networking centre, our accounting
group, treasury and systems integration. With Earthport, we just do this once and enjoy a
much faster time to market – it’s a one stop shop

24. ▪ Through a single relationship with Earthport, clients seamlessly manage payments to almost
any bank account in the world, delivering significantly cost and operational efficiency
CurrencyCloud
▪ Currencycloud provides a multi-currency processing platform which allows customers to
build apps that cross borders. Each client starts with a multi-currency e-money account (like
Paypal) and can use it to convert funds, make various types of payment (including ACH in
multiple countries), delivered via flexible APIs
▪ Developers use Currency Cloud’s API building blocks to build customized payment solutions
▪ In essence, think of Earthport as a payout platform for banks, and Currency Cloud as a multi-
currency processing platform for developers
▪ Clients: Azimo, Fidor Bank and Revolut
Loomis
▪ Offer comprehensive solutions for cash handling primarily to banks and retailers
▪ 23,000 employees; 400 branch offices; 20 countries
▪ The demand for efficient cash handling is high among central banks, large commercial banks,
large ATM operators, large retail chains but also smaller enterprises
▪ Offer a wide range of solutions for cash in transit (CIT), cash management services (CMS)
and international valuables logistics. Cash in transit remains our main source of income but a
growing part of our profits is generated through cash management services.
▪ Headquartered in Sweden
▪ Loomis operates cash around the clock. Therefore, Loomis can predict how much cash is
needed in different parts of the chain and at what time
▪ Business Concept
o Loomis’ mission is to secure the supply of cash in society. CIT teams make sure that
ATMs are replenished, and that bank branches and retail outlets have the amount of
cash that they need
o The general public withdraws cash from ATMs and bank branches to spend in retail
outlets and restaurants
o Loomis collects daily receipts and cash from retail outlets, restaurants, service
boxes, deposit boxes and SafePoint units and transports them to cash centres.
There, Loomis employees use modern equipment to count and quality-assure bills
and coins with industrial efficiency.
o The funds are then deposited in the customer’s bank accounts. The bills and coins
are packaged and re-circulated in society as quickly as possible
▪ 8,000 secure transport vehicles collect and deliver cash and valuables daily between stores,
banks, deposit boxes and ATMs
▪ Deposits to our customer’s bank accounts are made through a clearing system in
collaboration with banks. We help our customers reduce the time spent on managing cash
manually and make sure the money is rapidly deposited in their bank accounts
▪ At the processing centres, we also store cash in order to supply banks and retailers with
additional banknotes and coins when needed. In the vaults, at the processing centres, we
can also store other valuables such as precious metals
Brinks
▪ World’s largest cash management company

25. ▪ Our customers include financial institutions, retailers, government agencies (including
central banks), mints, jewellers and other commercial operations around the world
▪ Competitors: Prosegur ($2.1B revenue) (Spain), Loomis ($2.0B revenue) (Sweden), G4S
($1.6bn revenue) (UK), Garda ($0.8B revenue) (Canada)
▪ We design customized services to meet the cash and valuables supply chain needs of our
customers. We enter into contracts with our customers to establish pricing and other terms.
Cash in transit and ATM contracts usually cover an initial term of at least one year and in
many cases one to three years, and generally remain in effect thereafter until cancelled by
either party
▪ Cash in transit services generally include the secure transportation of
o Cash between businesses and financial institutions, such as banks and credit unions
o Cash, securities and other valuables between commercial banks, central banks and
investment banking and brokerage firms
o New currency, coins, bullions and precious metals for central banks and other
customers
▪ ATM Services
o We provide customers who own and operate ATMs a variety of service options.
Basic ATM management services include cash replenishment and first and second
line maintenance. We also provide comprehensive services for ATM management
including cash replenishment, replenishment forecasting, cash optimization, ATM
remote monitoring, service call dispatching, transaction processing etc.
▪ Cash Management Services
o Money Processing (e.g. counting, sorting, wrapping, checking, condition of bills etc.)
o Services related to deploying and servicing “intelligent” safes and safe control
devices
o Check imaging services
▪ Brink’s CompuSafe ® service provides an integrated, closed-loop system for preventing theft
and managing cash. We market CompuSafe ® services to a variety of cash-intensive
customers including convenience stores, gas stations, restaurants, retail chains and
entertainment venues. In most instances, once the specialized safe is installed, the
customer’s employees deposit currency into the safe’s cassettes, which can only be removed
by Brink’s personnel. Upon removal, the cassettes are securely transported to a vault for
processing where contents are verified and transferred for deposit. Our CompuSafe ® service
features currency-recognition and counterfeit-detection technology, multi-language touch
screens and an electronic interface between the point-of-sale, back-office systems and
external banks. Our electronic reporting interface with external banks enables customers to
receive same-day credit on their cash balances, even if the cash remains on the customer’s
premises. Recently, some customers have requested specialized safes permitting customer
employees to remove money in a secure manner that was previously deposited in the safe
cassettes to meet a current need. We have also implemented this capability.
▪ Payment Services
o Bill payment processing services include bill payment acceptance and processing
services on behalf of utility companies and other billers. Consumers can pay bills,
top-up prepaid mobile phones and manage accounts at retail agent locations that
we operate on behalf of utility companies, banks and a small number of leased
payment locations. This service is offered at over 32,000 locations in Brazil,
Colombia, Panama and Mexico.

26. o We offer Brink’s Money™ general purpose reloadable prepaid cards and payroll
cards to consumers and employers in the U.S. Our general-purpose reloadable cards
are sold to consumers through our direct-to-consumer marketing efforts while our
payroll cards are sold to employers who use them to pay employees electronically.
Brink’s Money™ cards can be used at stores, restaurants, online retailers, and at
ATMs worldwide. This product is targeted to the millions of unbanked and under-
banked Americans looking for alternative financial products.
8. Difference Questions
Visa / Mastercard vs American Express
Visa / Mastercard American Express
Payment processing system only, so it does
not issue cards directly to the consumer
Also, a payment system, but in addition to
that, they issue their own cards directly to
the consumer, finance payments, and process
the transfers. They make most of their money
from interest charges and fees
Since MA and Visa works with banks which
issue the cards, there are hundreds of options
for customers to choose from
Determines its own interest rates, fees and
payment schedules. However, your choices
are limited to the ones they offer
Open Loop Network: all the headaches
associated with lending money – payment
delays, defaults etc. are someone else’s
problem
Closed Loop Network: Company extends
credit, in the form of its famous cards, to its
clientele. It also acts as the processor of fees
generated by the purchases made with said
cards
After Volume. More transactions, the more
fees generated. So, the trick is to widen those
networks as much as possible. Every bank
that issues their cards grows the customer
base and much more
Accepted at significantly fewer merchants but
compensates for this not only by charging the
merchant a higher amount, but also by
collecting from the cardholder in the form of
relatively high annual fees. It also benefits
from higher average spending from a
generally more affluent client base
Transaction Centric Business Model Spend Centric Business Model
Earns revenue primarily on the payments
volume and the transactions volume carried
out through their cards
Payment services are provided directly to the
cardholders and merchants by the owner of
the network. Amex acts as both the issuer
and the acquirer. Amex makes money
primarily from the merchant discount fees. It
focuses on generating revenues primarily by
driving spending on its cards through
attractive reward programs for card
members. This helps them earn more
discount revenue from merchants
Advantage of Scalability; A downside of this
structure is the inherent inertia in its systems.
The fact that multiple remote parties can
interact with each other easily, relying on a
common body of standards, rules and liability
frameworks, also means that it is very
Advantage of Simplicity; as one entity sets all
the rules and has a direct relationship with
end parties, it can act more quickly and more
flexibly than the distributed open loop
systems, which must propagate change
throughout the system’s intermediary layers

27. difficult to change these standards.
Improvements or enhancements from one
participant may have significant operational,
technical, or economic ramifications that may
not be immediately apparent at the time the
change is proposed. Many proposed changes
require simultaneous adjustments to
technical standards, operations procedures,
risk management procedures, pricing, and
even the physical formatting of payments
services (checks, cards, terminals etc.).;
Changing open loop payments systems can
take years of work, first at a committee level
and then at a senior management level within
a network. Even once approved, a payments
system changes many not take effect for a
year or more – giving participants time to
prepare and implement changes
▪ The problems with the three-party model are scale (the payment scheme has to recruit and
manage all the merchants and cardholders) and risk management (the payment scheme
accepts all the fraud and credit risk of all parties)
9. Miscellaneous
▪ Why is NACHA role so limited when the ACH network is so pervasive?
o Banks using the ACH network do not pay a “tax” to NACHA (comparable to the card
network assessments). As a result, NACHA does not have the resources for product
development, brand advertising, or network expansion that the card networks do).
One could argue, of course, that the reason the card networks can charge such a
“tax” is because of the direct revenues (interest, interchange fees) that the banks
earn on issuing card products
▪ US Card Industry Evolution
Formation Expansion Segmentation Diversity Digitize
1960s-70s 1980s 1990s 2000s 2010s
Associations Consumers
adoption of cards
Co-Branding Debit Decade EMV to US in
2015
Regional
Governance
POS Terminals Debt Begins Visa / MA IPO New
regulations
Revolving Credit New Acceptance
Markets
Rewards Cards Paypal, E
Commerce
No signature
Role of Issuer &
Acquirer Systems
Third Party
Processors
Product, Rate
Proliferation
Prepaid Cards Wallets
Infrastructure
Interchange
Systematic Fraud
Management
Commercial and
Purchasing Cards
Decoupled Debit Acquisitions
Honour all cards Brand
Competition
E Commerce
Begins
New form factors NFC Payments
Global
interoperability
Affinity Cards EMV Chip
Specification
Security: PCI –
DSS
Mobile POS

28. Early Litigation Receivables
Securitization
Payments as a
Service
Tablet
Registers
Association
Litigation Losses
Merchant Power
Strengthens
P2P, Bitcoin
Durbin debit,
network routing
Apple Pay,
Chase Pay,
Walmart Pay