February 2015
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4Q 2014 U.S. Credit Card Issuer Snapshot
Key issuer performance trends, including low single digit loss rates, purchase volume outpacing
receivables growth, and healthy profitability, persisted in the fourth quarter of 2014. Issuers are focused
on growth and continue to invest in marketing, technology, rewards programs, new products, digitals
wallets, and partnerships... More
Apple Pay: Early Observations on Potential Fraud Exposure
Apple Pay has gained momentum quickly, in typical Apple fashion, with 2,000 financial institutions
committed to support it, millions of cardholders actively enrolled, and two-thirds of all... More
We are excited to increase
the frequency and the type of
content we share with you in
2015.
COUNTDOWN
EMV Liability Shift
212
days to go.
Card-present counterfeit
fraud liability shifts to the least
compliant party.
LEARN MORE
(212 days to go, as of March 3, 2015)
Follow us on Twitter
Countdown to the EMV Liability Shift - 212 Days to Go
October 2015 marks a major milestone in the U.S. payment industry’s migration to EMV as the liability
shift comes into effect. After the liability shift, the party on a card transaction—the issuer, acquirer... More
Falling Oil Prices and the Trickle-Down Effect on the Payments
Industry
It was only a short time ago when gas prices were approaching $4/gallon and automobile manufacturers
were racing to make the transition to smaller vehicles with electric / hybrid power. The political in... More
Start-Up Spotlight: Marqeta
This is the first in a series of periodic spotlight pieces we will publish throughout the year on new or
innovative companies in the payments space.
We recently spoke with Omri Dahan, Chief Revenue Officer at Marqeta... More
A Quick Look at AribaPay
In July 2014, Discover Financial Services and Ariba launched a new B2B payments solution called
AribaPay. This solution combines Discover’s payment network with Ariba’s cloud based... More
Retailers Get Creative During Tax Refund Season
Walmart’s recently announced partnership with Tax Products Group (a business unit of Green Dot) and
Republic Bank and Trust Company where the tax refund disbursement (in cash) can be delivered... More
Unprecedented Activity in Canadian Card Market
It’s not just the level of card-related activity in Canada that has caught our attention, but the type of
activity. As outlined in the punch list below, the activity ranges from developments in... More
Payments at the International Consumer Electronics Show
This year’s International Consumer Electronics Show (CES) hosted more than 170,000 attendees
perusing more than 3,600 exhibitors during the four-day event. CES is always a notable... More
Payments Industry Stock Price Tracker
First Annapolis monitors the movement in stock prices and market capitalization for companies across
the payments value chain. After a challenging January for many firms, the payments sectors that... More
February 2015 Navigator
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© 2015 First Annapolis Consulting, Inc.
4Q 2014 U.S. Credit Card Issuer Snapshot
Key Themes
Notable Happenings
Strong profitability coupled with modest loan growth
Claims to own 2/3 of major network
contactless transactions in the U.S., albeit
contactless is a niche market.
Stable, low loss rate environment persists
Commentary from several banks indicating expected
increases in loss rates and funding costs
American Express renewed Delta/Starwood
and later announced the loss of Costco.
.
Heavy investments in marketing, innovation, rewards
programs, and digital wallets
Discover announced plans for (4Q 2014), and
subsequently launched (February 2015), the
“Miles by Discover” card.
Commentary from American Express and Capital One
on intense competition in the partnership segment
Retail card issuers (i.e. C, SYF, ADS, and PayPal
Credit) experienced notable volume and
receivables increases in 2014.*
*Some volume increases related to portfolio acquisition; SYF reported
5%+ forecasted receivables growth expectations - mostly organic
Industry Trends (Based on Non-Retail Issuers in Scorecard Section)
Receivables
Weighted
Avg.
YoY
Change
QoQ
Change
Purchase Net Loss After-Tax
Volume
Rate
ROA1
$583.0
$529.3
2.75%
3.08%
3.6%
8.0% 27 bps 35 bps
4.6%
5.3%
8 bps 35 bps
YoY = Year-over-year change versus Q4 2013. QoQ = Quarter-over-quarter change versus Q3 2014.
After-Tax ROA excludes Wells Fargo. Credit specific income not reported. Reflects any previous quarter
restatements.
Includes income from acquiring business and private label receivables and volume.
3
Earnings restated in 1Q 2014; historical figures adjusted to conform to new reporting methodology. Purchase
volume includes cash advances.4 Receivables, purchase volume, and net loss rates are for U.S. consumer cards.
After-tax ROA restated to include “Consumer Lending” only, which now includes Dealer Financial Services.
5
U.S. card business, small business, installment loans only. Purchase volume excludes cash advances.
6
Receivables and charge-offs are for U.S. Cardmember Lending business only. Purchase volume is for U.S. Card
Services segment, consumer and small business.
7
Includes U.S. domestic receivables and purchase volumes only. Restated: ROA reflective of Direct Banking
segment (80+% credit card) and implied U.S. Cards tax rate of ~40%. ROA denominator estimated from total
loans ended totals.
8
Wells Fargo began reporting purchase volume in 4Q 2013. Growth reflects both new account growth and cobrand outstandings driven by the Dillard’s card portfolio acquisition.
9
After-Tax ROA reflects Payment Services line of business income and average loans. Earnings restated in 1Q
2014; historical figures adjusted to conform to new reporting methodology.
10
A/R and PV for Retail Card unit only.
11
Loss rates and ROA include all of SYF’s business lines (i.e., Retail Card, Payment Solutions, and CareCredit).
Retail Card accounts for about 70% of total receivables.
12
Earnings restated in 1Q 2014; historical figures adjusted to conform to new reporting methodology. Purchase
volume includes cash advances.
13
Loss rates defined as “principle losses.” Adjusted EBITDA was 32% in 4Q 2014, up 4% YoY and down 9% QoQ.
1
2
Issuer Scorecard – 4Q 2014 ($ in Billions)
Issuer
A/R
YoY
QoQ
Purchase
Vol.
YoY
QoQ
Net Loss
Rate
YoY
QoQ
After-Tax
ROA
YoY
QoQ
Chase2
$131.1
5.7%
2.6%
$123.6
9.8%
3.4%
2.69%
-17 bps
17 bps
2.76%
-31 bps
-34 bps
$114.0
-2.4%
4.1%
$68.6
2.8%
8.9%
3.57%
-22 bps
-4 bps
3.65%
51 bps
-31 bps
$91.9
-0.5%
3.2%
$55.9
2.5%
3.9%
2.71%
-48 bps
-8 bps
3.17%
-59 bps
13 bps
$77.7
6.1%
6.2%
$58.2
15.6%
8.5%
3.39%
-50 bps
56 bps
2.63%
5 bps
-43 bps
Citigroup3
Bank of America
Capital One
4
5
American Express
$62.6
7.2%
7.9%
$145.0
8.1%
6.5%
1.30%
-20 bps
-10 bps
3.26%
-122 bps -121 bps
Discover7
$56.1
5.6%
4.5%
$30.9
4.5%
4.3%
2.26%
17 bps
10 bps
2.28%
-116 bps -126 bps
Wells Fargo8
$31.1
15.7%
10.1%
$16.8
17.3%
6.2%
2.97%
-41 bps
10 bps
US Bank
$18.5
2.7%
3.7%
$30.3
8.8%
-1.6%
3.53%
-19 bps
0 bps
4.59%
73 bps
-15 bps
$46.5
0.4%
8.1%
$23.5
0.9%
19.3%
4.18%
-11 bps
-5 bps
3.30%
2 bps
-81 bps
27 bps
2.70%
-30 bps
-50 bps
9
6
Retail Issuers
Citi12
Synchrony
10,11
Alliance Data13
$42.3
6.2%
10.0%
$24.9
12.0%
18.4%
4.32%
-81 bps
$10.6
31.8%
21.1%
$6.4
41.9%
31.5%
3.80%
-140 bps -20 bps
PayPal Credit Outstanding balances: 4Q 14: $3.7B | 3Q 14: $3.3B | 4Q 13: $2.9B.
February 2015 Navigator
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© 2015 First Annapolis Consulting, Inc.
Apple Pay: Early Observations on Potential Fraud Exposure
By Ben Brown
Apple Pay has gained momentum quickly, in typical Apple fashion, with 2,000
financial institutions committed to support it, millions of cardholders actively
enrolled, and two-thirds of all contactless transactions in December 2014
coming from Apple Pay devices. But Apple Pay is not without growing pains,
including higher-than-expected fraud rates in certain cases. As a result, some
participants are learning hard lessons about the risks associated with the
move to digital accounts and mobile wallets as they identify best practices in
this new area.
While no issuer has disclosed public figures on Apple Pay fraud levels, our
channel checks indicate that some issuers are experiencing higher-thanaverage rates of fraud, many times higher than the general-purpose industry
average of about 0.1%. Apple Pay’s sales volumes are still nominal, so a
small denominator likely contributes to a high percentage, and the issue
hasn’t translated into enough absolute dollar chargeback volume to raise
flags at most big merchants or acquirers.
The fraud associated with Apple Pay comes primarily from criminals with
stolen data provisioning compromised card accounts to phones. Apple
Pay leverages a range of innovative new security technologies to enhance
cardholder authentication at the point of payment and protect against
counterfeit cards, but authentication of the cardholder’s identity by issuers
at time of registration appears to be a soft spot based on our industry
conversations and our own in-house field testing.
When a cardholder registers their card for Apple Pay, a number of checks are
performed to ensure the requester is the actual accountholder. These checks
may include address verification, account validation, account age/history,
and other factors using standard issuer calls and potentially Apple data (e.g.,
iTunes account information and history). If these checks pass, the card is
tokenized and enabled on the phone – what is called the “green path.” If these
checks fail, Apple Pay will direct users to contact their bank to authenticate
their identity using issuer-specific protocols.
About half of Apple Pay card registrations require additional authentication,
based on our research, indicating that it is an important part of the onboarding
process — although issuers’ processes for additional authentication vary
widely. Some issuers ask cardholders to call customer service, some ask them
to log in to the bank’s mobile app, and others use two-factor authentication
such as an SMS or email. Many of these processes revolve around the
concept of a “tenured” phone number on file being secure, which is proving
to be troublesome. As a result, these processes are not always effective at
stopping account spoofing: across approximately 30 tests, our team at First
Annapolis was able to load and use several of our colleagues’ cards on one
another’s phones.
As should be expected, issuers and other stakeholders will have a new
learning curve as they participate in mobile wallets and other forms of
digital payments. We are observing a number of early best practices start
to emerge. Issuers should not just validate static account data, which could
have been compromised in a data breach; it is also useful to leverage mobile
authentication services like Payfone, and look for patterns in the mobile
account lifecycle. Issuers should develop more nuanced approaches to
authentication, including perhaps “light touch” and “high risk” workflows, and
leverage their channels beyond the call center. For example, if a user locks
up their mobile banking app or a caller fails two or more identity questions, the
issuer should consider directing them to a branch for in-person authentication.
And issuers should closely monitor spending activity across all channels on
new digital accounts to identify fraud patterns and quickly suspend suspicious
accounts.
The digital environment will require a fresh look at many industry practices
from cardholder authentication and fraud management to all-digital servicing
and tactics to drive top-of-wallet preference. Issuers should expect to
experience some pitfalls as they migrate to digital accounts and mobile
wallets, but any setbacks should be temporary as the industry develops tools
for this important new channel.
For more information, please contact Ben Brown, Senior Consultant,
specializing in Credit Card Issuing and Payments Innovation,
[email protected].
Countdown to the EMV Liability Shift - 212 Days to Go
By Janinne Dall’Orto and Sepehr Shirzadian
Figure 1: SMB Confidence in Meeting EMV Deadline
October 2015 marks a major milestone in the U.S. payment industry’s
migration to EMV as the liability shift comes into effect. After the liability shift,
the party on a card transaction—the issuer, acquirer, or merchant—who does
not support EMV assumes the liability for counterfeit card transactions and, in
some cases, for lost and stolen card transactions.
According to a survey of 160 small and medium-sized businesses conducted
by Software Advice in October 2014, 44% of merchants did not feel confident
that they were on track to be ready for the liability shift, and 25% were virtually
unaware of the deadline. A mere 11% of the merchants surveyed were EMVready.
Believe it or not, this is an improvement in EMV awareness levels compared
to a survey conducted by First Annapolis in March 2014. As part of our study,
First Annapolis surveyed 200 merchants across 32 industries, with $50,000
to $10 billion in sales volume. Our study showed that the vast majority of
merchants were unaware of EMV and unprepared for the 2015 migration and
liability shift. In that study, only 24% of the merchants indicated that they were
aware of the upcoming requirements for U.S. merchants to be able to accept
chip cards; 28% indicated they had heard of the requirements but did not
know the details, and nearly half indicated no awareness of EMV.
February 2015 Navigator
Source: Softwareadvice.com.
Despite these improvements, however, the majority of small and mediumsized merchants continue to be under-educated with respect to EMV, its
implications, and the approaching deadline.
For more information, please contact Janinne Dall’Orto, Senior Manager,
[email protected]; or Sepehr Shirzadian, Analyst,
[email protected]. Both specialize in Merchant
Acquiring.
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© 2015 First Annapolis Consulting, Inc.
Falling Oil Prices and the Trickle-Down Effect on the Payments Industry
By John Grund and Brian
Rutland
It was only a short time ago when
gas prices were approaching
$4/gallon
and
automobile
manufacturers were racing to
make the transition to smaller
vehicles with electric / hybrid
power. The political instability
in oil-producing regions of the
world seemed destined to cast a
permanent cloud of uncertainty
over oil prices. Retailers were
pointing to higher gas prices
crowding
out
discretionary
spending and airlines were getting
hammered by high fuel costs. Fast
forward to early 2015 and oil prices
have been on steady decline, as can
be seen in Figure 1.
As companies in the payments industry
reported their fiscal year 2014 results,
the impact of falling oil prices was a
common theme in their disclosures
and statements to investors. There
are a lot of puts and takes associated
with falling oil prices. At the extreme,
there are companies and individual
portfolios with significant exposure to
the price of oil. Fleet card specialists
such as FleetCor and WEX have
revenue models that are tied in part
to fuel sales, although they also offer
a range of fee-based services. In
the private label credit card space, a
single-purpose oil card is fully indexed
to the price of gasoline and purchase
volume would move in lockstep with
the price of oil. Of course, the impact
of falling oil prices on any one card
issuer, acquirer or other stakeholder
would be a function of their exposure
to the oil segment as a whole.
In Figure 2, we compiled commentary
on the impact of falling oil prices from
various payments companies on Q4
2014 earnings calls.
For more information, please contact
John Grund, Partner, specializing in
Credit Card Issuing,
[email protected]; or
Brian Rutland, Associate, specializing
in Commercial Payments,
[email protected].
Figure 1: Retail Regular Gasoline Price ($/gallon)
Source: EIA Short-Term Energy Outlook, February 2015.
Figure 2: Q4 2014 Oil Price Commentary by Payments Companies
Sector
Networks
and
Acquirers
Fleet Card
Specialists
Credit Card
Issuers
Company
Commentary on Oil Prices
MasterCard
• Growth was slightly down from the third quarter, mostly due to
lower gas prices
• Have not seen savings from lower gas prices translate into
additional discretionary consumer spending (probably 1 – 3
months away)
Visa*
• Lower gas prices had a -1% effect on U.S. payment volume
growth in the quarter with a disproportionate impact in December
• Gas prices had little impact on credit spend; most of the impact
came on debit
• Seeing ~50% consumers using gas savings for individual
savings, 25% to pay down debt, and 25% on discretionary
categories
USBank / Elavon
• Corporate T&E spend is growing even with the decrease in fuel
prices
• On the consumer side, witnessed almost a perfect correlation
of people spending money saved on gas through debit, credit
or prepaid cards on restaurants, hotels and other discretionary
items
Bank of America
• A drag effect on volume of about 1.5% was experienced from
lower fuel prices
First Data
• Optimistic on consumer spending given improving labor markets
and the recent fall in gas prices
Vantiv
• As gas prices decrease, other discretionary spend will increase
which will lead to steady growth
WEX
• Expanded into other high-growth payment verticals to help
lessen exposure to commodity fuel prices
• Less than 40% of revenues are exposed to fuel prices, down
from 60% 10 years ago
FleetCor
• Fuel spread margins for the quarter were at record levels in the
U.S., which offset the impact of lower fuel prices
• Transaction volume and rate increases also helped to offset the
decrease in fuel prices
Capital One
• Falling oil prices are likely a positive for the consumer business
SunTrust
• Credit card spending is marginally up and lower oil prices will
likely be a positive for the consumer business over the course of
the year
Source: Q4 2014 earnings calls. *Visa call represents Q1 2015.
February 2015 Navigator
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© 2015 First Annapolis Consulting, Inc.
Start-Up Spotlight: Marqeta
By Aaron Mercurio and Ben Brown
We offer full end-to-end program management for companies that need
a turn-key solution that includes everything from core processing, card
fulfillment, customer service, KYC, risk management, fraud modeling,
and marketing support. For clients that don’t need quite that level of
support, they can engage with our platform for pure processing and card
control management.
This is the first in a series of periodic spotlight pieces we will publish throughout
the year on new or innovative companies in the payments space.
We recently spoke with Omri Dahan, Chief Revenue Officer at Marqeta,
an innovative new card processor based in Emeryville, California. Marqeta
enables its clients to build and issue prepaid card products with high levels
of spend control and rich marketing capabilities. Marqeta is also the first
payment processor to offer fully documented open APIs for developers.
Headquarters
Emeryville, CA
Funding to Date
$26 million
Employees
~60
1. What kind of unserved need did Marqeta see in the marketplace
before it launched?
Before we launched our enterprise business, we saw that a lot of
innovators in financial services needed a processing platform that was
much more modern and flexible than what was out there. Basically, all of
these large processing platforms are competing in 2015 with technology
built in the 80s or 90s. These legacy platforms are often mainframebased and built using outdated programming languages. This limits the
speed of innovation, which these innovators need to retain a competitive
edge. With the increasing number of commerce disrupters entering the
market every day, these players have to be able to keep up to remain
competitive. Marqeta set out to deliver Silicon Valley innovation with
Silicon Valley technology at Silicon Valley speed, without sacrificing
reliability, stability, or security. If you’re a Marqeta client, you don’t have
to wait to get up and running or to make changes - we provide a flexible
and scalable platform that can be configured in real-time, client-side via
APIs and other web tools.
2. When you think about the value chain, where does Marqeta stop
and start?
3. Can you elaborate on some of the interesting loyalty and marketing
support that your company can provide?
The Marqeta Platform allows open and closed loop functionality to exist
on a single card. Couple that with the unique card controls that can be
enabled on specific PANs at specific locations and you can imagine the
possibilities as it relates to loyalty and customer engagement. In addition
to the platform, we offer our clients tools for customer engagement
through SMS, email, CRM and card marketing, as well as consultation
on specific strategies and tactics.
4. At Money2020, Marqeta introduced an open set of APIs, and we see
this as an effort to become the preferred processor for developers
and the companies behind innovative new financial applications.
So how big do you think that market opportunity is?
Developers are disrupting banking, retail and a host of other industries
in every part of the commerce and payments ecosystem. They need
far more modern and intelligent payment platforms that allow them to
monetize their constituencies with control, access and data. Existing
payment platforms cannot support the speed, capabilities or cultural
alignment of the innovation required by these companies.
The opportunity is significant and includes everyone from start-ups to
giant, multi-national corporates and everyone in between. No matter how
large or how small, commerce disruptors tend to follow a developer-led
decision making process and share a need to innovate fast with a better,
more flexible solution that will make them look like a hero. They want
cloud-based infrastructure and easy-to-integrate APIs. We believe our
market is anyone who needs a payment solution on Monday and wants
to be coding it by Friday.
For more information, please contact Aaron Mercurio, Senior Consultant,
[email protected]; or Ben Brown, Senior Consultant,
[email protected]. Both specialize in Credit Card Issuing.
Marqeta’s platform handles core issuer processing for prepaid with the
most advanced controls and open / closed loop functionality available.
A Quick Look at AribaPay
By Brian Rutland
Figure 1: Procedure to Pay with AribaPay
In July 2014, Discover Financial
Services and Ariba launched a
new B2B payments solution called
AribaPay. This solution combines
Discover’s payment network with
Ariba’s cloud-based business
commerce
applications
and
allows buyers to create purchase
orders, receive invoices, and send
payments in a secure electronic
portal. The solution also benefits
February 2015 Navigator
Source: First Annapolis Consulting research and analysis.
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© 2015 First Annapolis Consulting, Inc.
suppliers, which receive moredetailed remittance information and
more visibility into when they will
receive their payments. As shown
in Figure 1, AribaPay allows buyers
to initiate electronic payments from
their bank accounts, with Discover
directing those payments to the
supplier’s bank account. The only
requirement for participation is that
both the buyer and supplier to be on
the Ariba network.
Figure 2: 2014 Tax Reporting for Active Corporations in the U.S. (in trillions)
On Discover’s Q4 2014 earnings
call, management stated that
AribaPay generated $1.5 billion
in volume in the fourth quarter.
David Nelms, Discover’s Chairman
Source: First Annapolis Consulting analysis of 2011 IRS Tax Stat data grossed up by revenue and profit growth per U.S. Census data.
and CEO, believes the AribaPay
business can generate “over time
very significant volumes, but at much lower than the typical network fees
Figure 3: Large Corporate ($500M+)
that we might expect on the consumer side.” Even with the low margins, the
% of Payment Transactions Made
volume is expected to be so significant that AribaPay will be quite profitable
for Discover.
First Annapolis estimates a $20 trillion B2B payments market, as shown in
Figure 2. Although electronic payments have been growing (see Figure 3), a
significant portion of that volume continues to paid via check. This suggests
that AribaPay is just scratching the surface and has a significant opportunity
for growth.
Right now, Discover is focusing on ensuring satisfaction among existing
customers, but eventually may consider bundling additional products
and services with the AribaPay solution to improve margins and increase
volume.
For more information, please contact Brian Rutland, Associate, specializing
in Commercial Payments, [email protected].
Source: “2014 Treasury Management Monitor™ and Service Quality,” Phoenix-Hecht, April
1, 2014. “Treasury Management 2012: The Shifting Sands of Credit, Pricing, and Customer
Service,” Phoenix-Hecht, 2012.
Retailers Get Creative During Tax Refund Season
By John Grund and Aaron Mercurio
Walmart’s recently announced partnership with Tax Products Group (a
business unit of Green Dot) and Republic Bank and Trust Company, where
the tax refund disbursement (in cash) can be delivered to customers in
Walmart stores, highlights the value of capturing this seasonal increase in
household income.
For context, IRS figures indicate that $275 billion in tax refunds were made
in the 2014 tax season1 and those refunds skew toward low to moderate
income households, with 65% of refunds issued for those with adjusted gross
income below $50,000.2 H&R Block alone handled roughly 1 in every 7 U.S.
tax returns – it issued over $9.2 billion in deposits on 2.4 million of its prepaid
Emerald MasterCards in 2014.3 The use of promotions or specialized services
to attract the purchasing power made possible by a tax refund has evolved
February 2015 Navigator
over the years with selected offers listed in Figure 1. In past tax seasons,
retailers such as Home Depot, Sears, Lowe’s, and many others have used
promotions aimed at attracting the purchasing power of tax refunds.
The process behind Walmart’s Direct2Cash solution is designed to be
relatively simple. Self-filing customers from either of Walmart’s two inaugural
partners (Republic Bank and Tax Products Group) prepare and file their taxes
using software from these providers, and select Walmart Direct2Cash as
their desired refund disbursement method. Customers will then receive an
emailed code, which they provide to Walmart along with their ID to collect
cash when refund funds become available. These partner providers, Republic
Bank and TPG, may charge $0 to $7 for selecting this disbursement option
through their services, but Walmart will not charge customers additional fees
for Direct2Cash. Public sources indicate that customers’ refunds should be
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© 2015 First Annapolis Consulting, Inc.
available along the same timing as selecting direct
deposit, so the solution is targeted at underbanked
consumers.
The Direct2Cash program appears capable of
expanding beyond the two inaugural partners, although
the largest tax preparation providers have competitive
solutions in terms of branded prepaid cards. That said,
Walmart’s service is particularly creative in a number
of ways:
Figure 1: Select Tax Refund Incentives Offers – 2015 Tax Season
Retailer / Provider Tax
Prep
• Walmart is offering a cash refund granting customers
immediate liquidity and spending power;
• Walmart’s solution provides an alternative to more
expensive traditional check cashing solutions; and
• Walmart can and will compete on price – the prize for
Walmart is store traffic and the potential to capture its
share of retail spend.
 
• 25,000+ tax preparation locations between its
two partners
• Walmart Direct2Cash refund disbursement
option allows customers to receive refunds in
cash at Walmart stores for a maximum $7 fee
(in addition to prep / filing fees)
• No fee from Walmart when refunds are claimed

• Jackson Hewitt tax preparers stationed in
3,000+ Walmart stores
• Offers customers a $50 Walmart eGift Card
(redeemable instantly) when they e-file through
Jackson Hewitt in store ($20 for e-filers)
The low to moderate income household segment was
hit the hardest in the recession and has been slow to
recover. It is routinely cited by economists that the tax
refund is the single largest ‘paycheck’ for the average
American Family. There has never been a better time
for retailers that are dependent on those households to
look at new ways to save customers time and money
while increasing the likelihood of capturing a fair share
of spending during the tax season.
1
As of May 16, 2014 per IRS data.
2
As of May 12, 2014 per IRS data.
3
As of fiscal year ended April 30, 2014, per H&R Block annual report.
Tax
Detail
Refund

• $10 bonus when signing up for Bluebird and
including your tax refund as a deposit in your
account; bonus provided as a statement credit

• Bonus $20 statement credit for tax refund
check direct deposited onto a 1-2-3 REWARDS
Visa Prepaid Debit Card
• Also offers tax refund check cashing for special
$3 rate
• Uber drivers receive a $20 discount on tax
preparation fees

For more information, please contact John Grund,
Partner, [email protected]; or Aaron
Mercurio, Senior Consultant,
[email protected]. Both specialize in
Credit Card Issuing.

• H&R Block clients who e-file tax preparation
can receive up to 10% bonus (max $280) when
using a portion of refund to purchase gift cards
through Tango Card
 
• TurboTax customers can use part of their
federal refund to purchase an Amazon.com Gift
Card
• For certain platforms/versions, customers may
receive extra 5% to 10% to the amount loaded
onto an Amazon e-gift card
Source: Retailer websites.
Unprecedented Activity in Canadian Card Market
By John Grund and Jeff Avery
It’s not just the level of card-related activity in Canada that has caught our
attention, but the type of activity. As outlined in the punch list below, the
activity ranges from interchange developments to a flurry of moves in the
card partnership space, many of which are highly unique.
• Credit Card Interchange Regulation: On November 4, 2014, Visa
and MasterCard voluntarily agreed to limit interchange in Canada. The
underlying mechanics and tactics of how each network will effect this
February 2015 Navigator
change differ. For a more complete perspective on this topic, please
reference A Closer Look at Visa’s and MasterCard’s Voluntary Agreement
to Interchange Limits in Canada.
• Sears Canada and Chase Announce End of Partnership: In November
2014, Sears Canada and Chase announced the pending termination of
their credit card partnership. In what amounts to a pre-packaged divorce,
there are specific dates and processes associated with the termination.
Stay tuned over the next few months.
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• Target to Exit Canada: In January 2015, Target announced its intent
to close all of its Canadian stores and exit Canada under bankruptcy
protection. It remains to be seen how the RBC Target MasterCard credit
card accounts will be treated during and after the wind-down.
• Best Buy Transitions Card Program to Desjardins: Another prior
Chase client in Canada, Best Buy, struck a new partnership arrangement
with Desjardins in January 2015. This deal included the transition of the
private label accounts of the previous Chase program to Desjardins,
including both the Best Buy and the Future Shop private label credit
cards. Existing co-branded Best Buy Reward Zone Visa cards, which are
not included in the transaction, will be deactivated as of February 2015.
• Costco Canada Launches Co-Brand MasterCard with Capital
One Canada: On October 1, 2014, Costco Canada, Capital One, and
MasterCard launched a co-brand credit card as a successor to the
American Express co-brand card. Unlike most retail partnerships,
the Costco Canada decision involved card acceptance as well, where
MasterCard gained exclusive acceptance rights as of January 1, 2015.
American Express has attempted to convert cardholders from the legacy
Costco True Earnings card (which deactivated as of January 1) to the
newly-launched Amex SimplyCash card.
• Tim Hortons and CIBC Launch: Tim Hortons partnered with CIBC to
launch the “Double Double” Visa rewards credit card in July 2014. This
no annual fee card allows customers to earn Timmy Rewards points on all
spend, and features an innovative light-up button that allows customers
to pay using either their Visa account or by redeeming loyalty points for
products at Tim Hortons.
• Canadian Tire’s Partnership with Scotiabank: This particular deal
grabbed our attention given how unique it is compared to other retail
partnerships. In May 2014, Scotia made an equity investment in Canadian
Tire Financial Services, agreed to provide a $2.25 billion funding
commitment, and the parties agreed to pursue a range of marketing
opportunities.
• Aimia Strikes Unique Card Deal: Aeroplan is the largest co-brand
program in Canada (measured by purchase volume), with a prior
relationship with CIBC dated back to 1991. When TD emerged as the
new primary issuer for the Aeroplan program in September 2013, it was
not a typical transition. CIBC sold approx. 50% of the Aeroplan portfolio
(550,000 accounts representing $19B in purchase volume and $3.3B in
receivables) and retained accounts with a strong overlapping banking
relationship. Aimia, which owns and operates the Aeroplan program,
now offers credit cards through three issuers (CIBC, TD, and American
Express).
Sources: Company press releases and websites; the Wall Street Journal; Bloomberg; the
Canadian Press.
For more information, please contact John Grund, Partner,
[email protected]; or Jeff Avery, Senior Analyst,
[email protected]. Both specialize in Credit Card Issuing.
Payments at the International Consumer Electronics Show
By Brian Rutland
This year’s International Consumer Electronics Show (CES) hosted more
than 170,000 attendees browsing among more than 3,600 exhibits during
the four-day event. CES is always a notable showcase of innovative new
technology. Products on display this year ranged from drones to 3D printers.
Payments were not a primary focus, but several notable innovations were on
display at the conference.
Wearables including “smart watches” were a hot topic of interest. While
the industry’s focus was more around such watches interfacing with your
smartphone or controlling other devices in the connected home (e.g.,
thermometers, coffee makers), the ability to make NFC payments from a
smart watch was on display from a company called LAKS. It is also expected
that the forthcoming Apple Watch will support Apple Pay when paired with an
iPhone.
LoopPay, a mobile wallet and mobile payment solution provider showed off
its LoopPay Card and other products. LoopPay relies on magnetic secure
transmission (MST) technology to beam card data over a short distance to
the payment card terminal. LoopPay positions itself as an NFC alternative
that can be used at any merchant. Rumors at CES that Samsung was likely
to partner with LoopPay were confirmed when Samsung announced it would
acquire the company. Of course, Samsung went a step further this week and
announced Samsung Pay at this year’s Mobile World Congress in Barcelona.
February 2015 Navigator
As mobile payments grow, the need for new security tools is becoming
apparent. Biometrics such as iris scanning and facial recognition could be
part of the next wave of security measures for making payments with a mobile
device, and companies like Hoyas Labs, HyprKey, and NXT-ID showed off
their biometric security tools for mobile wallets and bank apps. Dynamics Inc.,
an intelligent powered payment card manufacturer with investments from
MasterCard, CIBC, Adams Capital Management and Bain Capital Ventures
also presented its interactive payment cards. These cards can encode
a unique security code on their magnetic stripe or chip for each in-store
purchase and display a unique card verification code on their digital display
for online transactions.
Lastly, the Bitcoin industry made a big splash at the conference in “The
World of Bitcoin” exhibit, which featured Bitpay and 9 other virtual currency
companies. Cryptocurrencies and distributed ledger technology were also
discussed by other companies, and some (e.g., HyprKey) specifically pointed
out opportunities for their products to integrate with Bitcoin apps.
All in all, payments did not take center stage at the International Consumer
Electronics Show--but there were still many payments innovations on display,
and the pace of payments-related activity has been brisk in the first quarter
of 2015.
For more information, please contact Brian Rutland, Associate, specializing
in Commercial Payments, [email protected].
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Payments Industry Stock Price Tracker
By Collin Bauer
Figure 1: Monthly Stock Price Tracker
First Annapolis monitors the movement in stock prices and market capitalization
for companies across the payments value chain. After a challenging January
for many firms, the payments sectors that First Annapolis tracks posted
positive gains when compared to the overall market’s 5% increase in February
(see Figure 1).
Summary:
The issuing sector experienced an aggregate gain of 9% and significantly
outperformed the broader market’s (+5%) performance in February. Positive
momentum across issuers occurred alongside news from the Federal
Reserve that it will consider raising interest rates on a “meeting-by-meeting”
basis moving forward. While maintaining gains of 1% in February, Amex
shares posted temporary declines on news that it would lose the Costco cobrand program in 2016 (Costco will move to Citi / Visa). Despite last month’s
performance, the issuing sector as a whole has posted declines of 5% thus far
in 2015 ―largely driven by the performance of the largest issuers.
The processor / acquirer sector experienced an overall gain of 7% in
February; however, individual performance within the sector was mixed.
FIS, Fiserv, TSYS, and Vantiv all experienced gains of 8% last month, with
Heartland Payments as the only firm to post a decline for the month, and year.
In aggregate, the sector has already experienced double-digit gains (+10%) in
2015 and is significantly outperforming the overall market (+2%) YTD.
Visa and MasterCard experienced an overall gain of 8% in February and
increases of 4% and 5%, respectively, YTD in 2015. The network sector, as
a whole, experienced gains of 4% over the same period, outperforming the
overall market (+2%) by 2 percentage points.
For more information, please contact Collin Bauer, Associate, specializing in
Credit Card Issuing, [email protected].
Note: Weighted Averages are based on current market caps.
Source: Yahoo Finance, First Annapolis Consulting research and analysis.
Companies
February
27, 2015
Month Δ
YTD Δ
Market Cap
($Billions)
Issuers
JPMorgan Chase
Bank of America
Citi
American Express
U.S. Bank
Capital One
Discover
FleetCor
WEX
Weighted Average
FIS
Fiserv
TSYS
Global Payments
Vantiv
Heartland
Weighted Average
Visa
MasterCard
Weighted Average
$61.28
13%
-1%
$228.57
$15.81
$52.42
$81.59
$44.61
$78.71
$60.98
$153.43
$106.99
-
4%
12%
1%
6%
8%
13%
9%
16%
9%
-12%
-3%
-12%
-1%
-4%
-6%
3%
8%
-5%
$166.32
$158.83
$83.22
$79.85
$43.71
$27.27
$14.06
$4.15
-
9%
10%
12%
14%
9%
-9%
10%
$19.18
$18.63
$7.07
$6.16
$5.38
$1.78
-
4%
5%
4%
$171.22
$100.04
-
2%
-
Acquirers / Processors
$67.59
8%
$78.07
8%
$38.20
8%
$91.86
5%
$36.99
8%
$49.03
-1%
7%
Networks
$271.31
7%
$90.13
10%
8%
Market Index
S&P 500
$2,104.50
5%
Founded in 1991, First Annapolis is a specialized advisory firm focused on electronic payments. Our market
coverage is international in scope with a primary focus on North America, Latin America, and Europe. In
total, we have over 70 professionals across our practice areas giving us one of the largest and strongest
advisory teams focused exclusively on electronic payments.
Practice Areas
Services
Credit Card Issuing
Debit & Prepaid
Merchant Acquiring
Retailer Services
Mobile / Alternative Payments
Commercial Payments
Management Consulting
Partnership Finance
Strategic Sourcing
Portfolio Management
Strategy Development / Implementation
Rewards Program Support
Three Park Place, Suite 200
Annapolis, Maryland 21401, USA
www.firstannapolis.com
February 2015 Navigator
M&A Advisory Services
End-to-End Transaction Support
Valuations
Fairness Opinions
Diligence / Negotiation Support
U.S. Office +1 (410) 855 8500
Europe Office +31 (0) 20 530 0360
[email protected]
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