ALSO IN THIS ISSUE: Fintechs' Thirst for Data A Winning Hand for Payments Why Chip Cards Are Scarcer Yes, Pony up for AML - RocketCDN
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Suddenly, mobile apps that combine
payments and myriad
other features are
on the ascent.
Volume Nineteen, Number One • DigitalTransactions.net • January 2022
ALSO IN THIS ISSUE:
Fintechs’ Thirst for Data
A Winning Hand for Payments
Why Chip Cards Are Scarcer
Yes, Pony up for AML
The payments market is large and fragmented.
DigitalTransactions.net gathers the
most important news in one place, and shows you
how it all fits together to impact your business.
Concise, Breaking Calendar Complete Detailed 13 years of
clean news of industry current and listings of payments
interface from the events past issues payments news and
is easy to payments of Digital market analysis
navigate market, Transactions suppliers
posted daily magazine
JANUARY 2022 • VOLUME 19, NUMBER 1
The Age of the Super App 22
You don’t have to look up in the sky to spot a super app. They’re starting to pop up
in consumers’ phones everywhere. Here’s why—and why that’s so important.
THE GIMLET EYE Regulate Now, Pay Later 4
TRENDS & TACTICS 6
Fintech Apps’ Square’s Building Block Phishing’s Record Summer ISOs Set Out to Mine
Thirst for Data Square may have changed Online commerce may be the BNPL Potential
its name to Block, but it’s at record highs, but so is
Consumers love their fintech Why should merchants and
reasoning isn’t circular. online fraud.
apps. They may not love card issuers have all the fun?
how these apps control the
information they collect.
Plus, Security Notes outlines how to stay a step ahead of quantum computing’s threat to security;
and Payments 3.0 says proponents should take care that central bank digital currencies don’t widen the digital divide.
ACQUIRING 13 SECURITY 28
A Winning Hand for Payments Is AML Worth the Investment?
The boom in iGaming—online poker and Technology can help prevent losses as
casino games—and sports betting is well as fines from regulators.
generating big potential for payments
companies. Can they cash in? ENDPOINT 30
COMPONENTS 16
What BNPL Means for
Retail Payments
The Card Crunch The rewards outweigh the risks for
The chip shortage plaguing POS most consumers and merchants.
terminal makers is starting to inflict
pain on payment card manufacturers.
The forecast for 2022 is that the
worst is yet to come. Cover Illustration: Jason Smith, 123rf.com
Digital Transactions (USPS 024-247) is published monthly by Boland Hill Media LLC, 800 Roosevelt Road, Building B, Suite 212, Glen Ellyn, IL, 60137. Periodicals Postage
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2 DIGITAL TRANSACTIONS | JANUARY 2022 CONTENTS
JANUARY 2022 • VOL. 19, NO. 1
REGULATE NOW, PAY LATER PUBLISHER Robert A. Jenisch
EDITOR-IN-CHIEF John Stewart
SENIOR EDITOR, DIGITAL
THE PANDEMIC HAS LENT MOMENTUM to a number of trends in digital Kevin Woodward
payments, but one of the biggest is the buy now, pay later option. The install-
CORRESPONDENTS
ment plan isn’t new, but providers have offered it as a way of giving merchants Jim Daly, Peter Lucas
another payment channel as Covid-wary consumers crowded online.
ART DIRECTOR/PRODUCTION EDITOR
With BNPL, you get to pay off your purchase with, typically, four interest-free Jason Smith
installments over six weeks. You get to buy what you want while avoiding
EDITORIAL ADVISORY BOARD
high-interest-rate credit cards, and merchants clinch a sale they might have Eula L. Adams
otherwise lost. No muss, no fuss, right? John Elliott
Except regulators are starting to make a fuss. Last month, the other shoe Alex W. “Pete” Hart
dropped with a letter sent to five leading BNPL firms from the Consumer Finan- Former Chief Executive Officer,
cial Protection Bureau requesting information on their services. The five— Mastercard International
Affirm Inc., Afterpay Ltd., Klarna AB, PayPal Holdings Inc., and Zip Co.—have William F. Keenan
President, De Novo Corp.
until March 1 to respond to the order. By that time, Afterpay will likely have
Dr. Gideon Samid
become part of Block Inc. (formerly Square Inc.) in a $29-billion deal the par- Chief Technology Officer,
ties clinched in August. AGS Encryptions Ltd.
The bureau is demanding data related to several areas. The first concerns DIRECTOR OF ADVERTISING
the potential for overspending by consumers who may rely too heavily on the Robert A. Jenisch, 877-658-0418
readily accessible point-of-sale credit offered by the BNPL apps. “[P]eople bob@digitaltransactions.net
can quickly become regular users of BNPL for everyday discretionary buying, ADVERTISING SALES REPRESENTATIVES
especially if they download the easy-to-use apps or install the web browser Robert Mitchell, 877-658-0418, x7
bmitchell@digitaltransactions.net
plugins,” the regulator’s letter notes.
Rob Akert, 877-658-0418, x6
Other concerns include the potential for BNPL credit to fall outside of rakert@digitaltransactions.net
consumer-protection rules that apply to other lending products. That could
mean lenders might collect and use data gathered from consumers’ BNPL Digital Transactions, Digital Transactions News,
and DigitalTransactions.net are publications of
transactions in ways not allowed for credit card and other credit transactions, Boland Hill Media LLC, 800 Roosevelt Road,
Suite B212, Glen Ellyn, IL 60137
according to the CFPB.
John Stewart, Managing Director
Shortly before the order went out, six U.S. Senators sent a letter to Rohit Robert A. Jenisch, Managing Director
Chopra, the CFPB’s director, asking for a review of BNPL products with a view For advertising information, call
toward introducing consumer protections. All six Senators are Democratic 877-658-0418. To subscribe or
give us a change of address, go to
members of the Committee on Banking, Housing, and Urban Affairs. www.digitaltransactions.net and click on
It shouldn’t surprise anyone that BNPL has landed on regulators’ radar “Subscriber Care” or call 847-559-7599.
screens. It has been around for years in various forms, but its recent popularity The views expressed in this publication are
not necessarily those of the editors or of the
has made it what Eric Grover, principal at the Minden, Nev.-based payments members of the Editorial Advisory Board.
consultancy Intrepid Ventures, calls “an irresistible target.” The publisher makes reasonable efforts to
ensure the timeliness and accuracy of its
Indeed, Ben Jackson, our Payments 3.0 columnist (page 12) and chief oper- content, but is not engaged in any way in
ating officer at the Innovative Payments Association, cites the CFPB probe as offering professional services related to
financial, legal, accounting, tax, or other
a warning to fintechs that tougher oversight is coming, and fast. matters. Readers should seek professional
counsel regarding such matters. All content
But oversight, too, comes with a cost. The new BNPL rules, when final, may herein is copyright © 2022 Boland Hill Media
well introduce constraints that could make the programs less popular with LLC. No part may be reproduced without the
express written permission of the publisher.
merchants and less accessible to consumers. Subscription prices: $59/year for subscribers
in the United States; $69/year for Canadian
John Stewart, Editor | john@digitaltransactions.net subscribers. All other subscribers, $119/year,
payable in U.S. currency.
4 DIGITAL TRANSACTIONS | JANUARY 2022
trends & tactics
FINTECH APPS’ THIRST FOR DATA
Consumers have relied more heavily 4,019 banking consumers in Septem- The poll found that nearly one-third
on payments apps and other fintech ber. Some 2,013 were financial-app of consumers had increased their usage
technologies since the onset of the users and 2,006 were not. Questions of fintech apps since 2019, while only
pandemic, but few are aware of how in the poll had to do with consum- 8% had decreased usage. The big winner
much control these apps have over ers’ perceptions of how financial among the 11 apps is Cash App, which
consumer data, according to a recent apps access, use, store, and share registered a 17% rise in users. PayPal
survey released by The Clearing House data. Included in the poll were 11 saw a 4% decline, but remains the most
Payments Co. well-known apps, including those of popular app among the 11, according
In fact, consumer confidence in the PayPal, Venmo, Square (Cash App), to TCH’s poll, which was conducted by
security of their information has only Zelle, and Coinbase. the polling firm Hall & Partners.
increased in the wake of Covid. Some
73% of consumers expressed confi-
dence in the privacy of the informa- THE PANDEMIC 8%
tion they enter in apps, and 75% said
the same about the security of their EFFECT Decreased
usage
data, up from 70% in both instances (Change
in a similar survey in 2019. in usage
Yet, 77% admitted in the 2021 sur- of fintech
vey that they had not read all the apps since
the start
31%
terms and conditions applicable to Increased
the apps they were using. of Covid) usage
“More consumers are using finan-
cial apps, but they’re still in the dark
about how their data is used, accessed,
and stored,” said Ben Isaacson, senior 61%
vice president of product strategy at Kept usage
the same
New York-based TCH, in a statement.
TCH, which has polled consumers
about data privacy since 2018, queried Source: TCH 2021 Consumer Survey Report
6 DIGITAL TRANSACTIONS | JANUARY 2022 TRENDS & TACTICS
SQUARE’S BUILDING BLOCK
While consumers remain blasé
about the security of the data they
enter, they are equally unaware of
the ways that data is being accessed.
Some 80% indicated they were not The word “block” may have a number
aware that apps use third parties,
called data aggregators, to access the
of meanings, but for Square Inc. it
could mean a stronger emphasis on
EASY COME, EASY GO?
(Block’s revenue and costs related to Bitcoin,
information in their accounts, while blockchain. That’s how some observ- nine months to Sept. 30, in billions)
24% didn’t know that aggregators can ers interpret the company’s deci- Revenue
sell personal data. sion last month to change its name Cost
A trade organization called the to Block Inc., a dozen years after its
$8.05 $7.88
Financial Data Exchange (FDX) has founding as Square.
been working on a set of standards Under chief executive and crypto $2.82 $2.76
to govern this access and the result- enthusiast Jack Dorsey, Square has 2020 2021
ing commerce in data. been a champion of digital currency,
Source: Square shareholder letter, third quarter 2021
The power and utility of the fin- specifically Bitcoin, for years now, and
tech apps is revealed in the survey’s the executive has been clear that he transactions. As an operating unit
result showing that less than half of sees blockchain technology playing an within the company, Square will thus
consumers who are informed about increasingly big role in Square’s future. join Cash App and Tidal, a video and
how the apps access their data—some Already, at $1.82 billion in rev- music-streaming service in which
40%—said the knowledge would cause enue, Bitcoin activity accounts for Square has an interest.
them to use the apps less. That’s down nearly half of the company’s revenue, While Square began with, and per-
from 53% in 2019. according to its third-quarter earn- haps remains best known for, that
Nonetheless, the survey indicates ings report. Indeed, the ability to merchant business, the change to Block
consumers want more control over buy, sell, and spend Bitcoin has been could now help identify the company
their data within the apps. The most a central feature of the company’s more broadly, some observers say.
popular change—clear disclosure of Cash App wallet for years. Now, as “Square now has a banking license, and
the data third parties can access— part of the changes in nomenclature, they’re creating a financial-services
attracted 59% of respondents. Some the company’s Bitcoin business has company, so they needed a brand that
56% support the idea of letting the adopted the name “Spiral.” isn’t so tightly associated with the
consumer set controls over which The overarching name change point of sale,” observes Patricia Hewitt,
account—and what kind of data— to Block, which comes with a thor- principal at PG Research and Advisory
can be accessed by a third party. Just ough redesign of the company’s Web Services in Savannah, Ga.
5% indicated they are “indifferent” site, “positions [the company] to be The sudden unveiling of Block was
about how their data is accessed more expansive in that [blockchain] nonetheless somewhat startling, com-
and used. space,” notes Thad Peterson, who fol- ing just 48 hours after Dorsey’s res-
The Clearing House, which is lows digital wallets at Aite-Novarica ignation as chief executive at Twitter
owned by 24 major financial institu- Group, a Boston-based consultancy. Inc., which, like Block, is a company
tions, is part owner of Akoya LLC, an “I don’t see much of a downside to it,” he helped found. Observers like Peter-
account-access protection network. he adds, addressing the potential for son see the events as connected. With
The platform, which went live in 2019, confusion after more than a decade a new identity for Square, he says,
uses an application programming of identification as Square. Dorsey may need to concentrate his
interface based on FDX’s standard. The name “Square” will be retained energies on driving a new set of strat-
The other owners include FMR LLC, to identify the company’s acquiring egies. The change to Block “positions
parent company of Fidelity Invest- business, which includes the Square- [the company] more strongly for the
ments, and 11 of TCH’s member banks. designed hardware and software future,” Peterson adds.
—John Stewart physical merchants use to process —John Stewart
TRENDS & TACTICS DIGITAL TRANSACTIONS | JANUARY 2022 7
PHISHING’S RECORD SUMMER
It’s well-known by now that e-com- consumer brands and then send out The business most targeted by
merce activity is on a sharp upswing, emails to consumers with subject phishers is software-as-a-service
but the underside of that trend is that lines aimed at luring the unwary into and webmail organizations, which
fraud is rising fast, as well. Phishing clicking on links back to the spuri- accounted for just over 29% of attacks
attacks, for example, hit a record high ous sites, where visitors are gulled in the third quarter. Financial insti-
in July, according to the Anti-Phishing into entering card data. tutions came in second at nearly 18%,
Working Group. The APWG has been The number of legitimate brands while payments firms accounted for
tracking this online crime since 2003. targeted by these fraudsters increased 7.1%, ranking sixth. Interestingly,
Overall, the number of attacks from 522 in July to 715 in September. cryptocurrency firms are now firmly
has “more than doubled since early Such attacks can also mimic emails in phishers’ sights, accounting for
2020,” an APWG report says. Then, from other trusted sources, such as 5.6% of attacks, up from 2% in the
the group was seeing anywhere from banks, app providers, and universities. first quarter.
68.000 to 94,000 attacks each month. If nothing else, the latest report The alarming rise of phishing
But the July volume reached 260,642, could be seen as an effort by the attacks indicated in the latest report
then moderated somewhat in August APWG to warn against complacency. is part of a broader trend reflecting
and September, with totals of 255,385 “The number of phishing sites being a general increase in this fraud over
and 214,345, respectively. reported to APWG is now 10 times at least the past two years, though
The number of phishing email what it was 10 years ago, back in it may have taken on more momen-
subjects and the number of brands late 2011,” notes Greg Aaron, a senior tum with the jump in e-commerce
targeted by these emails, however, research fellow at the Cambridge, since the onset of the pandemic. The
both increased dramatically, with the Mass.-based organization, in a state- volume of phishing attacks in the
former skyrocketing from 11,384 in ment. “Phishing has not decreased as fourth quarter of 2019, for example,
July to 64,233 in September. the online environment has evolved. was consistently under 100,000 per
In phishing attacks, fraudsters It remains a dangerous, effective, and month, according to the APWG.
build fake sites to copy popular profitable activity for cybercriminals.” —John Stewart
NOT GOOD FOR THE BRAND
(Number of brands targeted by phishing attacks)
JULY 522
AUGUST 603
SEPTEMBER 715
Source: Anti-Phishing Working Group
8 DIGITAL TRANSACTIONS | JANUARY 2022 TRENDS & TACTICSISOs SET OUT TO MINE THE BNPL POTENTIAL
The pandemic has lent momentum consumers choose transactions they on those installment payments. With
to a number of trends in digital pay- want to split into installments, with an increasing array of firms offering
ments, but one of the biggest is the the total payment pre-authorized the option, the typical BNPL user has
buy now, pay later option. It shouldn’t on a credit card. The merchant is deployed up to six different services,
be surprising, then, that providers of paid in full. according to digital collection agency
the service are now looking to sell “BNPL boosts purchasing power TrueAccord.
the service to merchants of all sizes and flexibility on the customer side The upside to this aspect of the
through the acquiring entities that at minimal cost to the business, business is that outstanding bal-
call on retail sellers all the time— which is why this option has seen ances tend to be lower than on credit
independent sales organizations. dramatic adoption rates over the last cards, while the repayment rate on
The latest such deal emerged last few years,” notes Aubrey Amatelli, delinquent loans at 30 days past due
month with an announcement from chief revenue officer at QuickFee, is 30% compared to 10.5% for credit
QuickFee Group LLC that it has signed in a statement. cards, TrueAccord reports.
Los Angeles-based ISO Elite Mer- While BNPL has established itself And the volume potential for ISOs
chant Solutions to market QuickFee’s with chains and other larger mer- and tech providers alike could be
BNPL offering. chants, ISOs could help bring BNPL quite alluring. Speaking in October
Elite says it was seeking a BNPL to a much broader merchant base, at the Money 20/20 exposition in Las
option for its merchants in response including smaller sellers. These mer- Vegas, Rick Cunningham, senior vice
to the rapidly rising popularity of the chants typically rely on merchant- president for strategy and business
service, which lets consumers pay service providers to recommend pay- development at Alliance Data Sys-
for purchases online or at the cash ment services as well as hardware and tems Corp., estimated the market
register with, typically, four equal software for payment acceptance. potential at $100 billion, with just
installments at no interest over a One downside risk to lenders, how- $4 billion to $6 billion having been
six-week period. ever, is the threat of delinquencies lent so far.
Consumers have flocked to BNPL
in response to economic pressures
brought on by the Covid-19 pandemic.
QuickFee cites a July survey from the MONTHLY MERCHANT METRIC
research firm McKinsey indicating
60% of of consumers are likely to use Total Gross Processing Revenue, in Percent
BNPL or other point-of-sale financ- Sum of total discount, total transaction fee revenue, and total other fee revenue divided by total volume
ing options in the course of the next
six to 12 months.
Q3 2020 2.366%
“Businesses frequently tell us Q4 2020 2.399%
they’re interested in BNPL due to Q1 2021 2.376%
customer demand, so after some Q2 2021 2.405%
consideration, we decided to go Q3 2021 2.438%
with QuickFee as the best option
Note: This is sourced from The Strawhecker Group’s merchant data
for meeting those needs,” said Jus- warehouse of over 3 million merchants in the U.S. market. The ability
tin Milmeister, president of Elite, to understand this data is important as small and medium-size
in a statement. businesses (SMBs) and the payments providers that serve them are key drivers of the economy.
All data are for SMB merchants defined as merchants with less than $5 million in annual card volume.
QuickFee, a 12-year old firm based Source: The Strawhecker Group © Copyright 2022. The Strawhecker Group. All Rights Reserved. All information as available.
in Australia and the United States, lets
TRENDS & TACTICS DIGITAL TRANSACTIONS | JANUARY 2022 9A TYPICAL TEXTBOOK enumerates preserve the achievement of digital the three main attributes of money: currency: frictionless transactions, store of value, unit of account, and ease of storage, and the tethering of medium of exchange. Overlooked is gideon@bitmint.com money to its intended purpose—all one other attribute: a social lifeline, while safeguarding privacy and re- owing to two other, undermentioned establishing the social bond between attributes—money is universally users of their sense of privacy and two strangers participating in a mon- desirable, and money creates a bond inconspicuousness. etary exchange. between two strangers. In this col- About a decade ago, Hock’s strange- The inspiration for this new umn, I focus on that bonding aspect. ness-brokerage idea was re-invented, weapon in the crypto arsenal comes I remember as a kid I would toss not as a corporate entity but rather from a very unlikely source: Covid-19. a coin into the peddler’s basket and as a public ledger, with which all It is amazing how this tiny virus wres- grab the daily newspaper from the cryptocurrency traders are famil- tles with the full body of human sci- pile. The peddler and I were, and iar. Visa’s code and regulations were ence and technology. How? By invok- remained, strangers to each other. replaced with a complex algorithm. ing Darwinian evolution. Had Covid But this tossed coin created a momen- Human management was removed, remained a stationary target, it would tary bond. As we migrate further into as Bitcoin runs on autopilot. There be dead by now. Alas, Covid outpaces cyberspace, this aspect of payment you have it. Two strangers exercise a its hunters. And so should crypto between strangers should be a prime financial transaction, and no privacy vis-a-vis quantum. factor to keep in mind. is lost (so it is claimed). Bitcoin and most of its imitators No sooner did money’s manifesta- Alas, time is running out on Bit- rely on the mathematical strength tion extend to non-cash instruments coin and its ilk. A big black bear is of an algorithm known as ECDSA. than this bond abated. Writing a pounding its way through the finan- ECDSA has been in the crosshair of check was not the same thing, and cial jungle: quantum computing. It’s cryptanalytic shops for a long time. commerce became full of friction. a 40-year-old technology that vio- Some might have already cracked it, Then came a brilliant innovation lates the core notion of cryptocur- and hide this fact. Quantum comput- pioneered by Dee Hock, who solved rency, which says: computers are ers already crack it in theory, with the strangers’ dilemma by establish- not fast enough to harm our pro- practice to follow soon. ing a strangeness-broker, the Visa tective algorithm. The Covid-inspired solution is credit card enterprise. But quantum computers are fast to replace ECDSA with a mutation- While payor and payee were, and enough. So now what, are we going powered, evolving algorithm, keep- remained, strangers to each other, back to the Stone Age, reverse- ing a step ahead of the quantum jug- they were no strangers to Visa, migrating out of cyberspace? No. We gernauts. The details are fascinat- which facilitated the transaction. re-invoke the quintessential human ing and will be presented in coming This simple notion of a strangeness- weapon: innovation. columns. The objective, though, is broker gave rise to a trillion-dollar BitMint*LeVeL, among other clear: to safeguard the many benefits industry. And it is still working. proposals, prepares today for the of digital money, and in particular Alas, unlike cash, card payment looming battle royal between quan- to re-establish the core aspect of is Internet-dependent. It robs its tum and crypto. This is the battle to money—a bond between strangers. 10 DIGITAL TRANSACTIONS | JANUARY 2022 TRENDS & TACTICS
ONLY ONE OF THESE BIRDS CAN
GIVE YOU THE LATEST NEWS
IMPACTING THE PAYMENTS MARKET
Today and every day follow
DIGITAL TRANSACTIONS
@DTPAYMENTNEWS on TwitterTHE BIRTH OF CRYPTOCURREN- Another hurdle for CBDCs is adop-
CIES and the digitization of payments tion. Many of the biggest fans of
have led central banks worldwide to cryptocurrencies want to use them
consider launching their own digi- bjackson@ipa.org precisely because they are not issued
tal dollars. by a central authority and are out-
These central bank digital curren- In a document on CBDC, the Bank side of government structures. Some
cies (CBDC) could either supplement of France specifies that CBDCs should crypto advocates see CBDCs as a con-
or replace government-issued cash as be able to be used in peer-to-peer spiracy to kill off cryptocurrencies.
legal tender. Proponents say the tokens transactions and be issued only if the Citizens concerned about privacy
could offer benefits to citizens, govern- social benefits outweigh the costs. might also want to avoid CBDCs, but
ments, and businesses, while others But if central banks around the if countries force adoption by elimi-
have concerns about the effects they world were to launch digital dollars nating other forms of cash, they may
could have on privacy and the commer- that were liabilities on themselves, not have a choice.
cial banking and payments industry. this could shake up the banking and Advocates say CBDCs could help
As of now, almost 50 countries payments industry. Banking is about tax collection, law enforcement, and
have a central bank digital currency taking in deposits and lending them financial inclusion, all while preserv-
in some stage of development, and out to make profits. If deposits, par- ing privacy. Members of Congress
another 40 are researching the idea, ticularly those of consumers, were have floated the idea of Fed accounts
according to the nonprofit Atlantic held by the central bank, commer- as bank accounts for people who have
Council. The Web site CBDCtracker.org cial banks could face funding issues. been shut out the banking system by
lists five countries that have can- The Independent Community fees or bad credit scores. However,
celed their CBDC currencies, includ- Bankers of America raised this and this ignores FDIC research that shows
ing Finland, which launched a card- other concerns in a blog post that the number-one reason unbanked
based program called Avant in 1992 to discusses the different models for people don’t have an account is that
replace cash for small transactions. CBDCs. It points out that banks risk they don’t have enough money.
A central bank digital currency disintermediation, depending on the When it comes to financial services,
would differ from cryptocurrencies model used for distributing CBDCs. particularly for disadvantaged popula-
and other digital currencies in that it The current banking and pay- tions, the government and the indus-
would be a liability of the central bank ments systems should keep a close try should avoid viewing technology
and would have the same value as the eye on the development of CBDCs and as a kind of panacea. Digital curren-
national currency. In other words, the think about how they might adjust cies, regardless of the issuer, require
digital dollar would not be worth more their businesses based on the differ- additional infrastructure to operate.
or less than the paper dollar. So, it would ent models that appear and as coun- Given the digital divides that exist in
not fluctuate like many cryptocurren- tries move through various stages of this country and others, central banks
cies do and it would not need backing, adoption. The early adopters should should make sure they are not taking
like stablecoins, which are cryptocur- be seen as labs for a new payments away their citizens’ options as they
rencies pegged to a specific value. environment. explore those that come with CBDCs.
12 DIGITAL TRANSACTIONS | JANUARY 2022 TRENDS & TACTICSThe boom in PAYMENTS COMPANIES LOOKING amount of money players wager
iGaming—online FOR NEW MARKETS might wager on
the online sports betting and casino
and the amount they win, says
CorporateFinanceInstitute.com.
poker and casino games market. It could reap big divi-
dends, especially as more states allow
That is a 645% increase from Janu-
ary through October 2019 and up 143%
games—and these forms of online gambling and
consumers continue to play online,
for the same period in 2020.
Sports betting, which is legal in 30
sports betting observers say.
Indeed, the excitement around online
states and the District of Columbia,
generated $3.2 billion year-to-date
is generating sports betting may one day be eclipsed by
the interest in online gambling—think
in 2021, up 359.3% from the same
period in 2019 and up 229.5% from
big potential of casino games and poker—among
many payments companies.
2020. As recently as 2018, just three
states allowed sports betting (“The
for payments Why is that? In 2021, through Octo- Sporting Chance,” July 2018).
companies. ber, online casino games and poker,
known as iGaming and allowed in
‘A LOT OF HOOPS’
Can they cash in? some form in only seven states, gen-
erated $2.98 billion in gross gaming These numbers translate into excite-
revenue, according to data from the ment for payments companies that
American Gaming Association. serve the online gaming industry.
Gross gaming revenue, or GGR, The potential for them is tremen-
BY KEVIN WOODWARD reflects the difference between the dous, says Jerry Rau, managing direc-
tor of electronic money movement at
Eilers & Krejcik Gaming LLC, an Irvine,
Calif.-based gaming consultancy. “But
there’s a lot of hoops, so it’s not easy,”
Rau says. These hoops are the state-
by-state regulations and broader ones
that include know-your-customer
mandates and similar requirements.
Still, some payment companies
are not deterred. “The excitement
around the size and potential around
the opportunity [have] grown signifi-
cantly since 2018,” says Greg Kirstein,
vice president of business for North
America at Paysafe Ltd., a London-
based payments provider.
ACQUIRING DIGITAL TRANSACTIONS | JANUARY 2022 13Paysafe is live in 19 states that
permit some form of online gambling GROSS GAMING REVENUE
or sports betting, he says. As of mid- (January-October, 2021) Increase from same
December, New York appeared to be period 2020
the next large state to allow sports
betting. The potential is massive in
New York, which has multiple pro-
$3.16 BILLION Sports Betting GGR 229.5%
fessional sports teams.
The challenge for payments pro-
viders servicing online gambling,
$2.95 BILLION iGaming GGR 143.4%
Source: American Gaming Association
whether it’s casino games and poker
or sports betting, is that each state has must be used to verify the user’s loca- The moral aspect of gambling also
its own rules. So the potential payoff tion. That is not much of a hurdle, is a concern. “From a moral stand-
depends on how the state regulates but it must be accounted for, Talbott point, the biggest concern now is
online gaming,” Kirstein says, adding, says. Some payments companies can responsible gaming,” Rau says. “There’s
“States that allow online sports and help with that, he says, but it’s the been a lot of good efforts to allow for
iGaming have the most opportunity.” casino’s responsibility to comply. Age customers to have alternatives.” For
But to tap that opportunity, pay- verification is another compliance example, gamers in New Jersey can opt
ments companies must be licensed in matter. Most states require online themselves out of online gambling.
each state they want to operate in, says gamblers be at least 21 years old. When they do that for one operator,
Scott Talbott, senior vice president of the exclusion is shared with other
government affairs at the Electronic
Transactions Association, a Wash-
THE MORAL ASPECT New Jersey operators so the individual
is excluded from them all, Rau says.
ington, D.C.-based trade group. “The What interests Rau, however, is that “There will always be moral ques-
payment industry must make sure the not many payments companies appear tions around gaming,” Kirstein says.
casino is licensed and complies with to be pursuing the online gambling “It just comes with the territory.”
federal and state law,” Talbott says. industry, despite involvement by The National Football League,
For example, most states permit some big-name companies. “I went which supports sports betting, lim-
only debit and prepaid cards to be used to Money 2020 looking for payments its the number of online gambling
to fund wallets that bets are made from. providers serving the industry; I ads shown during game broadcasts,
New Jersey, however, allows credit found a couple,” he says. he says. The NFL in October launched
cards as a funding option, though such One reason some processors may a $6.2-million responsible-betting
transactions count as cash advances. shy away from online gambling is the campaign. The online gambling indus-
Payments companies must complete a time and cost required by regula- try, including operators, payments
risk-management process and under- tion and compliance demands. “It’s providers, and responsible gaming
write the casino to ensure compliance difficult because they have to get advocate organizations, have taken
protocols are adhered to. jurisdictional compliance. It can be steps to ensure responsible gaming
There are other stipulations. “What complex,” says Rau. is adhered to, Kirstein says.
makes things a bit more complicated In Louisiana, for example, Rau says
is [payment providers] have to comply
with state-by-state regulations,” Kirst-
that though gambling is governed by
statewide regulations, each parish (a
REAL-TIME PAYOUTS
ein says. “Every state has a different county in other states), can opt in or not. Still, even with the state-by-state issues,
approach.” For example, states cannot The American Gaming Association lists the opportunity in online gaming is
commingle funds with another state 11 payment and transaction systems vast for payments companies, sug-
Many states also want to ensure members, including Paysafe, Fiserv gests Paysafe’s Kirstein. “The bigger the
that users are gambling within their Inc., FIS Inc.’s Worldpay, Nuvei Tech- state, the more activity they permit, the
jurisdiction, so geofencing technology nologies Inc., and Shift4 Payments Inc. more opportunity as a whole,” he says.
14 DIGITAL TRANSACTIONS | JANUARY 2022 ACQUIRINGNew York, some reports suggest, wagering. A Paysafe report from Janu- the potential for payments providers
may enable online betting in February. ary 2021 found that 70% of players looms large. Some smaller payments
Nine sportsbook apps are readying placed their sports bets online. providers may not have the resources
for that, reports PlayNY.com, a site Rau also sees an opportunity for to fully jump into the market, while
about online betting in the Knicker- real-time payments in online gam- larger ones might be reluctant to do
bocker state. Meanwhile, iGaming in bling. “This sector is ripe for real-time so because of the disclosures they
New York hasn’t advanced very far, payments,” he says. A couple of pay- might have to make, Rau says. “There
with no state bills authorizing online ments providers have implemented is a sweet spot where having gaming
casinos in process. real-time payments for cashing out. would be a tremendous potential to
Online gaming, whether sports The same Paysafe report, which sur- their portfolios,” he says.
betting or casino games, has benefited veyed 2,022 gamblers in eight sports- And there are even more mar-
from the seemingly unfettered adop- betting states—Nevada, New Jersey, kets beyond the 30 states and the
tion of mobile devices. The American Pennsylvania, Colorado, West Vir- District of Columbia. “Everyone has
Gaming Association says 86% of all ginia, Indiana, Iowa, and Illinois— their eyes on California and Ohio
sports bet are placed online, and. found that 32% wanted instant pay- and traditionally big sports states,”
of the $41.3 billion wagered legally outs, while 34% said they wanted their says Kirstein. “The modernization
through October, $36.3 billion was money within 24 hours and 24% said of this space, and [the fact] that all
done via a mobile device. within one to 3 days, with decreas- the leagues are participating, only
Rau says mobile sports betting ing percentages for longer periods. furthers the credibility necessary.
might be in the 90% range for some Even without further adaptations, Traditional online gaming has come
locations, excluding Nevada, that like real-time payments for payouts with its own stigmas, but these stig-
have both mobile and retail (on-site) or even loading funds into wallets, mas are being alleviated.”
.com
800-296-4810
PIN Debit
Inventory
Cash Discount
LEVEL II & III
Multi-Merchant
QuickBooks® SyncThe chip shortage IT WAS ONLY A MATTER OF TIME those ships can sit idle for days, even
before the semiconductor shortage weeks, while waiting to be unloaded
plaguing POS plaguing manufacturers such as auto once they arrive in port.
terminal makers is and computer makers trickled down
to payment card manufacturers.
Plus, there is no guarantee that,
when finished product makes it onto
starting to inflict Nearly two years into the pandemic
that triggered the chip crunch, pay-
the docks, a trucker will be available
to haul it to its final destination.
pain on payment ment card manufacturers are seeing And the shortfall in chip card pro-
lead times on orders stretch farther duction is only likely to get worse.
card manufacturers. and further out. Predictions are that chip availabil-
The forecast for 2022 The reason for the disruption in
payment card production is the same
ity will spiral downward this year
and could potentially prevent the
is that the worst is as it is for point-of-sale terminal
makers (“Out of the Chips,” September
issuance of as many as 740 million
payment cards globally, according
yet to come. 2021): shortages of the raw materials to ABI Research. That’s more than
needed make the tiny squares of sili- double the 347 million cards that
con. Even if the chips can be manu- were at risk of not being issued in
BY PETER LUCAS factured and placed on a cargo ship, 2021, according to ABI.
What helped mask the card-
production problems last year was
that chip inventories were large
enough for card makers to squeak
by. But those stockpiles have dwin-
dled substantially and are not being
replenished as needed, according to
payment-industry experts.
The combination of low inventory
and constrained production capacity
has raised concerns that chip manu-
facturers will be forced to tighten the
allocation of chips to their clients even
further. This scenario is a mounting
concern for the payments industry,
as the fluidity of the chip shortage
makes it difficult for chipmakers to
forecast just how many chips they
can allot to their customers.
16 DIGITAL TRANSACTIONS | JANUARY 2022 COMPONENTSAlso of concern to payment card
makers is that chip manufacturers WHERE THE CHIPS FALL
(Chip card adoption by region, expressed as a percentage of all cards issued)
may opt to provide the biggest allot-
ments to their biggest customers,
such as mobile-phone companies
and automakers.
“We’re seeing a lot of constraints
Canada, Latin America, Caribbean
90.7%
in industries that use chips, such as
the automotive industry, and that is
not only raising concerns about chip
allocation, its raising government
Africa and Middle East
90.4%
awareness about chip allocation,”
says Jason Bohrer, director of the
U.S. Payments Forum and the Secure
Europe Zone 1
86.5%
Technology Alliance. “How questions
around allocation will impact the pay-
ments industry remains to be seen.”
Europe Zone 2
84.1%
PRODUCTION GAPS
To help ensure payment card manu-
United States
63.9%
facturers get their fair allotment of
chips, the American Bankers Associa-
tion in November published a letter
written to the Bureau of Industry and
Asia-Pacific
60.9%
Source: EMVCo
Security of the Department of Com-
merce regarding the adverse effect request for public comment on the America’s domestic semiconductor
of the chip shortage across myriad chip shortage. production capability.”
industries, including payment cards. The ABA went on to suggest the While Commerce mulls what action,
In the letter, the ABA argues that, Commerce Department adopt an if any, to take to help alleviate the
without adequate supplies of chips, approach that treats all industries shortage, card manufacturers have
payment card manufacturers could equitably, rather than give certain begun altering their business model
face production gaps that will make industries priority access to chip in response to the worsening shortage.
it difficult for financial institutions manufacturers and distributors in Increasingly, they are favoring cus-
to issue replacement cards to exist- the United States and abroad. tomers that commit to orders upfront
ing cardholders, let alone cards to “All American industries must be with signed contracts. This contrasts
new accountholders. able to freely source needed supplies, with the pre-shortage custom of ver-
“Given the importance of semicon- including from foreign manufactur- bally placing an order, expecting it to
ductors to the payment card industry ers, without obstacles that compound be filled, then signing a contract later.
and broader economy, ABA believes the underlying supply chain prob- “Card manufacturers are now say-
that a whole-of-government approach lem,” the ABA says in the letter. “In ing an order is not valid unless it’s
is crucial both to weather short-term the near term, we hope that Congress accompanied by a signed contract,”
shocks to the supply chain and to will provide the Department with says Adam Wahler, creative director for
formulate and implement a success- sufficient authority and resources A2A Studio, a Stamford, Conn.-based
ful strategy over the longer term,” necessary to aid U.S. industry. In the graphic-production firm that includes
the ABA states in its letter, which longer term, Congress should find a payment card design in its portfolio.
was sent in response to the BIS’s permanent, flexible solution to secure “It’s true supply-side economics.”
18 DIGITAL TRANSACTIONS | JANUARY 2022 COMPONENTSDigital Transactions News
We deliver the payments industry news to your email inbox daily!
Digital Transactions News is packed with news and information
from the $123.4 billion transaction industry:
Two original stories every issue
Trending stories, so you know what our subscribers are reading
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Subscribe today at Bolandhill.omeda.com/dtr/
or email publisher Bob Jenisch at
Bob@digitaltransactions.net‘MONEY TALKS’ was a special order, separate from
standard chip production.
Group, a Boston-based payments con-
sultancy. “There is a shortage of a lot
Card manufacturers’ need to obtain “By ordering our own chip, we of things right now. I’m even hearing
firm, upfront commitments from buy- were able to get around some of the of a paper shortage that could impact
ers is being driven largely by lengthen- lead-time issues [for general chip the availability of envelopes needed
ing lead time for orders. Pre-shortage, production],” Wahler says. “When it to mail out cards.”
orders of about 1 million cards took comes to a custom card, longer lead Now that the calendar has flipped
10 to 12 weeks, on average, according times can be more palatable as long to 2022, cardmakers are bracing for a
to payments-industry experts. Larger as the client knows they will get what further tightening of chip supplies.
orders could take a few weeks longer. they want in the end. In today’s envi- Infineon Technologies AG, which
Today, cardmakers are quoting lead ronment, money talks.” manufactures chips for cards, says
times of at least six months. that the component continues to be
The delays have gotten so bad
that manufacturers have taken to
SHORTAGES ARE WILD in short supply, and that demand
continues to outstrip supply by far.
quoting those long delivery times in The roots of the chip shortage can “Many products are in allocation
weeks, as opposed to months, because be traced back to the economic fall- and inventories along the value chains
“24 weeks sounds better than six out from the Covid-19 pandemic. As are low,” an Infineon spokesperson
months,” Wahler says. countries around the world began to says. “We do not expect the situa-
A2A is no stranger to navigating close their borders in 2020 to travel tion to normalize any time before
card production delays in the midst of and trade, delivery of the raw materi- well into 2022.”
a chip shortage. The company designed als needed to produce semiconductor To help weather the storm, Infi-
the Venmo card, which launched in chips became almost non-existent. neon says it has been working closely
with its customers for about a year to
optimize production to meet custom-
‘One of card issuers’ biggest fears er’s needs. The Neubiberg, Germany-
based manufacturer adds it is also
is running out of inventory’ making investments to increase
future production capacity.
—DAVID SHIPPER, STRATEGIC ADVISOR, AITE-NOVARICA GROUP “We have started production at
our new 300-millimeter [plant] in
October 2020, just as the chip card At the same time, many chip manu- Villach, Austria, and are increasing
shortage was gaining momentum facturers temporarily reduced the capacities at our [facility] in Dresden,
and spreading to myriad industries. size of their workforce or shuttered Germany,” the Infineon spokesperson
As part of its design work, A2A plants to safeguard their employees says. “This will enable us to meet the
interacts with card manufacturers from the Coronavirus. growing demand for semiconductors.”
and chipmakers. In the case of the As factories began to reopen While bringing more production
Venmo card, the studio worked with several months into the pandemic, capacity online can help resolve long-
a chipmaker to create a custom chip supply-chain problems continued to term supply issues, it can take years to
with a “V” imprinted in the middle delay delivery of raw materials and build and bring a new manufacturing
that did not interfere with the secu- finished products. plant online, says the U.S. Payment
rity features of the chip itself. “It’s not just the shortage of raw Forum’s Bohrer. So any increase in
By working directly with a chip- materials needed to make the chip future production capacity has to be
maker to create a custom chip, which that continues to hinder production, weighed against how to manage cur-
costs substantially more than a stan- it’s also the shortage of other raw rent inventories and demand, he adds.
dard chip, order lead times were materials, such as plastics, needed “We’re seeing a lot of constraints up
negotiated directly with the man- to make cards,” says David Shipper, and down the supply chain from raw
ufacturer. It also meant the order a strategic advisor for Aite-Novarica materials to finished products, and
20 DIGITAL TRANSACTIONS | JANUARY 2022 COMPONENTSthere is only a finite number of chip One potentially major issue loom- spending even if they can’t get a physi-
foundries certified to manufacture ing over card issuers as the new year cal card in the hands of a new card-
chips for payment cards,” Boher says. begins is whether card manufactur- holder right way. They are also popu-
ers will have enough inventory to lar with Millennials and Gen Zers.
A VIRTUAL SOLUTION replace expiring cards for the next
12 months. About 25% of all cards
The downside to these products
is they are a temporary solution for
Not surprisingly, the constraints issued in the U.S. are replaced annu- consumers who prefer to pay with
chipmakers have faced throughout ally, according to Boher. plastic, card industry experts say.
the shortage is increasing the cost of “One of card issuers’ biggest fears “Virtual cards and mobile wal-
chips, as manufacturers can no lon- is running out of inventory,” says lets are a way to capture spend and
ger absorb the increased production Shipper. “Besides annual reissuance, retain customers while they wait for
costs caused by the shortage. there are always circumstances that a physical card, but not all custom-
“We have experienced tremendous are not planned for, such as a mas- ers will be keen on using them, and
increases in our own costs for raw sive reissuance due to a data breach.” many of those consumers will likely
materials and foundries, for exam- Two options card issuers have for default to another card while waiting
ple, since the beginning of the pan- keeping cards in the hands of consum- for their actual card to arrive, which
demic, and we had to pass on these ers as inventories dwindle are to issue means the issuer can lose business,”
additional costs to our customers virtual cards or to encourage card- says Wahler. “Physical cards are not
after a certain timeframe,” the Infi- holders to embrace mobile wallets. going away.”
neon spokesperson says. “Our highest Virtual cards and mobile wallets And neither, any time soon, is the
priority is to be a fair partner to our are a way for card issuers, espe- shortage of chips needed to produce
customers and suppliers.” cially fintechs, to capture consumer them.
THE ONLY MAGAZINE COVERING
THE TOTAL PAYMENTS MARKET
In 2019, there were 150.2 billion
digital transactions in North America.
Digital Transactions magazine covered
them all. It is the only publication
addressing the total market.
Subscribe today by going to
Bolandhill.omeda.com/dtr/ to start tackling
the ever-changing payments market.You don’t have to look up in the sky to
spot a super app. They’re starting to
pop up in consumers’ phones everywhere.
Here’s why—and why that’s so important.
MOST CONSUMERS DON’T GO TO BED AT NIGHT pining away for a new
mobile app. They don’t likely request an investment app for Christmas or a
shiny new payments app for their birthday. But more and more payments
companies are betting that people will want—and spend plenty of time
on—an app that combines these and lots of other useful features.
The idea of the super app may have started in The U.S. market’s long-developed wireline con-
China and parts of Southeast Asia, but it’s showing nectivity meant app developers could create spe-
up now globally as fintechs and Internet companies cialized apps, such as payments or banking, with
look for ways to attract, keep, grow, and monetize less regard for the urge to share the needs or pur-
a mobile user base. The developers’ goal is to weave poses behind the transactions.
together so many essential capabilities that “you And the social aspect here has also been less
manage your life in the app,” says Patricia Hewitt, prominent owing to consumers’ conflicted atti-
principal at PG Research & Advisory Services, a tudes toward their money. “Money can be incred-
Savannah, Ga.-based consultancy. ibly social at one end of the spectrum and incred-
Right now, the most prominent examples of this ibly private at the other end,” notes Josh Wood-
kind of mobile app can be found in China, where ward, senior director of product management
a near-absence of wireline connectivity forced for Google Pay.
developers early on to focus on apps for consum-
ers’ nearly ubiquitous handsets. That gave rise
to super apps like Alipay and WeChat Pay, which
Monetizing Eyeballs
combined commerce and social media. Now, that narrow focus may be starting to change
Now, the concept has been so refined that a Pin- as developers begin combining payments with
duoduo, for example, can generate constant user other financial functions. Block Inc.’s Cash App,
attention by offering deep discounts on a wide array for example, has in recent years introduced equity
of everyday products. The offers become available investing and Bitcoin trading (Block last month
when users recruit more buyers through the app’s became the new name for Square). And PayPal’s
social network. Users cash in on the specials and new app, explicitly called a super app, one-ups all
then look to expand their network of buyers for others with such features as a savings account and
the next set of offers. cash-back on spending (box, page 24).
THE AGE OF THE SUPER APP DIGITAL TRANSACTIONS | JANUARY 2022 23So what’s the point of a super app? What busi- MDAU, these days, is the holy grail of super-app
ness purpose does it fulfill? In the view of some development, say some experts. Its value lies in
experts, narrowly focused payments apps are tak- the fact that it represents irrefutable evidence of
ing on other features—and are likely to continue consumer engagement as well as revenue potential.
doing so—because of one, all-important measure- “What you’re looking for as the secret sauce for
ment: the monetizable daily active user. these brands is engagement,” says Sunil Sachdev,
Inside PayPal’s Super App
PayPal Holdings Inc. launched a new its launch by billing it as a way for Cash App Pay for its highly popu-
version of its mobile app in Septem- consumers to simplify their lives lar Cash App wallet. The app lets
ber, with a panoply of new shop- by consolidating a range of key users pay merchants by scanning a
ping and financial features aimed functions behind one access point. QR code or by swiping a button on
at broadening the product’s appeal “Our new app offers customers their screens. Square says 70 million
with consumers who are increas- a simplified, secure, and person- active users have adopted Cash App.
ingly turning to online commerce. alized experience that builds on PayPal will add over the coming
The event may have marked our platform of trust and security months investment features and yet
the first time a U.S. company and removes the complexity of more payment options for in-store
explicitly used the super-app having to manage multiple finan- and online shopping, the company
label that has become so com- cial or shopping apps, remember said. The latter will include a capa-
mon in Southeast Asia. different passwords, and track bility for QR codes, a technology
The big refresh, the first PayPal loyalty rewards,” Schulman said PayPal began deploying in 2020
has executed on its digital wallet in a statement. with chains such as CVS Pharmacy
for at least seven years, includes The new app comes as con- to ease contactless payments.
features such as a high-yield sav- sumers, who have been increas- PayPal’s big and fast-growing
ings account via long-time PayPal ingly turning to digital wallets, account base is an advantage for
partner Synchrony Bank, cash demand apps that are streamlined the company’s new push into digi-
back or PayPal shopping credit and easy to use, PayPal says. The tal wallets, experts say. The active
on spending, consolidated bill company cites statistics from account base grew to 416 million
payment, direct deposit for early Juniper Research showing that by the end of September, a 15%
access to wages, and a utility to some 4.4 billion consumers will jump compared to the end of the
buy, hold, and sell cryptocurrency. be using digital wallets by 2025, third quarter in 2020. That number
“It’s a shot across the bow for twice the number using them now. includes some 33 million merchants.
wallet and payment players like Of current users, almost half say But the adoption rate will be
Apple Pay and Google Pay, [and] simplicity is their number-one key, Peterson cautions. “PayPal has
also traditional financial institu- reason for using the app. a massive user base and an equally
tions and neo-banks,” says Thad The new app also arrived as huge merchant base. This could be
Peterson, a senior analyst who other payments-technology firms a game-changer in commerce, pay-
follows mobile wallets for Bos- are launching new wallets or ments, and banking, but only if their
ton-based Aite-Novarica Group. upgrading existing ones. Square users adopt it,” he says. “That’s the
PayPal chief executive Dan Inc., for example, last fall intro- test and we’ll find out in the next
Schulman promoted the app at duced a payments feature called year or so if they passed.”
24 DIGITAL TRANSACTIONS | JANUARY 2022 THE AGE OF THE SUPER APPYou can also read
