Optimal Acquires United Bank Card Portfolio for USD $44 M - Issue 8 - July 31, 2005

Optimal Acquires United Bank Card Portfolio for USD $44 M

Acquisition of Portfolio

Montreal, Quebec, May 31, 2005 – Optimal Payments Corp., a wholly-owned subsidiary of Optimal Group Inc. (NASDAQ:OPMR), has made the acquisition, from United Bank Card, Inc (“UBC”) of a portfolio of merchant processing for the cash consideration of US$44 million. (All dollar values stated are in United States currency.)

United Bank Card (UBC), headed by the bright and well liked, Jared Isaacman, is a New Jersey-based payment and transaction processor serving primarily card-present merchants in the USA. The acquired portfolio represents approximately 15,500 merchant locations that generate in excess of $1.5 billion in annual credit and debit card processing volume.

Optimal anticipates that this acquisition will contribute in excess of $9.8 million in annual underlying earnings from continuing operations before income taxes. As a result of this acquisition Optimal Group now anticipates underlying earnings from continuing operations before income taxes for the second quarter ending June 30, 2005 to be approximately $7.05 million. Optimal’s previous guidance for underlying earnings from continuing operations before income taxes for the second quarter was $5.4 million.

“This transaction continues Optimal’s announced strategy of growing its traditional, card-based processing business by acquisition while, at the same time, building on our sales and agent network to drive organic growth. The acquisition of UBC portfolio provides Optimal Payments with greater scale in U.S.-based card-present payment processing”, stated Mitch Garber, President and Chief Executive Officer of Optimal Payments. “As the volume associated with these merchants is processed through an existing Optimal bank acquiring relationship, we expect the acquisition to generate immediate leverage in our operating performance, while also being a seamless transition for the merchants.”, concluded Mr. Garber.

As some Canadian readers may be aware, U.S. portfolios of merchant accounts are customarily valued as a multiple of the monthly revenue that the merchants produce for the entity that has title in the merchants. Based on the above-cited numbers, a $44M purchase price for 15,500 merchants indicates that Optimal has paid approximately 54 times the monthly revenue for each merchant. (To arrive at this figure, start with $9.8M of total annual revenue and divide by 15,500 merchants to indicate $632.26 of revenue per merchant per year. Divide that number by 12 to arrive at an average of $53.00 of revenue per merchant per month. Finally, divide $44M by $53.00 times 15,500 to yield a multiple of 54.) The U.S. market for the purchase of merchant account portfolios currently pays between 15 and 28 times the monthly revenue per merchant. As such, the considerably higher multiple of 54 paid by Optimal has attracted a lot of attention in the market. Other U.S. ISOs looking to sell their portfolios will no doubt be looking to Optimal as a potential buyer.

The Montreal-based Optimal purchase of UBC also goes to reinforce Montreal as a North American center for the payment processing business. The presence of Optimal, the admirable success of PaySystems Corporation, the presence of North America’s leading electronic payments attorney, Adam Atlas and the home of the Frontier Times all contribute to keeping Montreal very much on the North American map for the processing industry.

Optimal believes that underlying earnings from continuing operations before income taxes is useful to investors as a measure of Optimal’s earnings, because it is an important measure of the Company’s growth and performance, and provides a meaningful reflection of underlying trends of its business.

AIM and Fire: FireOne Update

In addition to the UBC portfolio acquisition, Optimal Group Inc. has announced the successful completion of the FireOne placement on the London Stock Exchange’s AIM Market.

As per press release, Optimal Group explains that FireOne and its subsidiaries will carry on the activities that relate to the processing of online gaming transactions through the use of credit and debit cards, electronic debit and through FirePay, a leading stored-value, electronic wallet. FireOne will also offer FirePay for non-gaming purchases. The online gaming payments business to be carried on by FireOne processes more than $1 billion in annualized payments volume and has processed payments for over 300 merchants representing more than 1,500 websites.

In April 2005, Optimal Group Inc. first provided details concerning its intention to sell a minority interest in its online gaming payments subsidiary, FireOne Group plc, through a flotation on AIM.

Now, Optimal Group has placed 10 million ordinary FireOne shares, representing 20% of FireOne’s issued and outstanding share capital, with UK institutional and other shareholders. The placing price is 241 pence per share, resulting in gross proceeds to Optimal Group of 24.1 million British pounds (approximately US$44.0 million), coincidentally matching the cash consideration of US44$ for the acquisition of the United Bank Card Portfolio. The offering was led by Numis Securities Limited in London, England.

Upon approval of admission by the AIM Market, the shares of FireOne are expected to commence trading on June 2, 2005 and will trade under the ticker symbol “FPA”.

By Angela R. Read, Managing Editor, info@frontiertimes.ca

Note from the Editor

The FT is making its début appearance at Canadian payments conferences this summer. I will be attending the CPA Panorama Conference in St. John’s Newfoundland, June 15-17, 2005 and Angela R. Read, our Managing Editor, will be attending the ATMIA Conference in Toronto June 21-23, 2005, where this issue of the FT is among the conference materials. We wish all attendees at these events very fruitful meetings.

This issue of the FT reports two important events that will contribute to the opening of the Canadian market for third party, non-bank providers of payment services: Optimal’s purchase of UBC and MasterCard’s decision to include Global, Paymentech and Moneris representatives on their Canadian Board. The FT has consistently maintained the position that the Canadian market for payment services is currently unnaturally stagnant on account of the acute lack of competition. By buying into the entrepreneurial culture of UBC, Optimal is actually importing know-how to Canada that it can use to help open up the Canadian merchant account reseller or ISO market. Similarly, having Global, Moneris and Paymentech at the table at MasterCard will perhaps entice Canadian members of MasterCard Canada to open their eyes to the wealth of opportunities offered by third party providers of payment solutions. Sooner or later, Canadian banks will see the revenue they now leave on the table because of the marked absence of third party payment services in Canada.

The FT team wishes all readers a great Canadian summer.

Adam N. Atlas

Editor in Chief

atlas@frontiertimes.ca

News

Smart Chip Technologies Becomes IBM Business Partner

Las Vegas, NV and Toronto, ON, May 5 05 – Smart Chip Technologies (OTC: SCTN) is pleased to announce that its wholly owned subsidiary, Smart Chip Technologies – Canada, has become an IBM Business Partner – ISV. The companies are discussing projects for banking, retail, and other markets.

Smart Chip Technologies’ turnkey customer retention solution, including Loyalty, Pre-Paid Stored Value, and Gift Cards, was codeveloped with the Airos Group (www.airosgroup.com) and IBM™. This software solution enables card issuers and retailers to take advantage of click-and-mortar, real-time programs running on their existing cards and point-of-sale (POS) systems, including bar code, magnetic stripe, RFID, or smart cards, laptops, PDAs such as Palm™ or Windows™ devices, TV set top boxes, or mobile phones. Smart Chip Technologies’ end-to-end solution provides a seamless migration path from current customer ID and payment devices to future technology platforms, establishing business continuity across physical, mobile, and virtual streams of commerce. (www.sctn.com)

Canadians Earn Asia Miles

Toronto, May 19 05 – CNW – The RBC Cathay Pacific Visa Platinum card, created by a new alliance between Cathay Pacific and RBC Visa, allows Canadian card holders to earn Asia Miles every time they use their Visa card.

RBC Cathay Pacific Visa Platinum cardholders accumulate Asia Miles by earning one Asia Mile for each Canadian dollar spent on the card, plus new cardholders receive 5,000 bonus miles upon enrolment. Cardholders also earn two Asia Miles for each HK$5 spent for inflight purchase and from now until May 15, 2006, travellers will earn two Asia Miles for every Canadian dollar spent on flights booked online at www.cathaypacific.ca.

Every new RBC Cathay Pacific Visa Platinum cardholder will also receive a free companion ticket with the purchase of a qualifying round-trip Cathay Pacific business class ticket from Canada to Hong Kong (or beyond to the following Southeast Asia destinations: Bangkok, Cebu, Denpasar Bali, Jakarta, Kuala Lumpur, Manila, Penang, Singapore, Surabaya and Taipei). This offer is available for flights booked and ticketed by November 18, 2005 for travel during the period May 19, 2005 to May 18, 2006 inclusive.

Bank of Canada Announces the International Journal of Central Banking

Ottawa, May 19 05 – The Bank of Canada, along with the other sponsoring organizations of the International Journal of Central Banking (IJCB), today announced the publication of the journal’s first issue and the launch of a website, hosted by the Bank for International Settlements.

The IJCB, a new quarterly publication, features articles on central bank theory and practice, with a special emphasis on research relating to monetary and financial stability. The IJCB website provides additional information about the journal, as well as free access to the journal’s articles.

Retail BC Mosaik MasterCard Open for Business

Vancouver, May 3 05 – CNW – Retail BC and BMO Bank of Montreal announced the introduction of the Retail BC Mosaik MasterCard for Business. The credit card is available to the more than 3,200 member companies of Retail BC, the voice of the province’s retail sector, and provides customized benefits designed for retail business operators.

The Retail BC Mosaik MasterCard for Business offers the benefits of BMO Bank of Montreal’s Commercial MasterCard and the flexibility to build a credit card plan. Customers build their own customized cards by choosing and paying for only the rewards, features and interest rate plan they want. The options range from no-fee cards to AIR MILES reward options.

Cardholders will also have all the benefits of a business credit card plus free access to enhanced online reporting, expense and cash flow management, with revolving credit up to $75,000, plus exclusive discounts.

“Retailers are an important economic engine for B.C., generating more than $44 billion in sales annually and employing more than 250,000 British Columbians.”, said Mark Startup, President and CEO, Retail BC. The launch of the card coincides with Retail Week 2005, and B.C. Retail’s annual conference on May 3 and 4, 2005.

Moneris Solutions Rolls Out Wireless Payments

Chicago, IL, April 25 05 – Moneris Solutions has announced the delivery of an end-to-end wireless payment processing solution intended to allow merchants to accept credit and debit card transactions virtually anywhere at anytime.

Moneris’ comprehensive wireless point-of-sale solution consists of compact mobile hardware, software, and wide area wireless network access. The offering includes Lipman’s NURIT 8000, which is a compact handheld terminal powered by APRIVA’s Intellegent POS Gateway Service. The terminal includes a thermal printer, a touch screen, and built-in PIN pad. The wireless terminal is backed by a broad coverage map through AT&T / Cingular’s General Packet Radio Service (GPRS) Network. GPRS claims to offer merchants widespread network coverage that supports data-intensive applications and validates transactions in as little as four seconds.

The sophisticated offering supports customizable applications for mobile merchants, courier and home delivery services, taxi and transportation services, law enforcement agencies or field representatives, moving companies, and pay at the table venues.

Wireless payment processing solutions are becoming increasingly important as the number of mobile workers continues to grow. According to payments industry newsletter, The Nilson Report, wireless

POS terminals will account for nearly 30 percent of the total POS terminal market by 2008.

Moneris Solutions, one of North America’s largest electronic transaction processors is a joint investment of the Royal Bank of Canada and the Bank of Montreal, which have assets in excess of $700 billion. Moneris Solutions serves more than 350,000 North American merchant locations and has a staff of over 1,100 employees.

Global Payments Introduces Petroleum @dvantage Rigger Lite in Canada

Atlanta, March 23 05 – Global Payments Inc. (NYSE: GPN), a world leader in electronic transaction processing solutions, announced the introduction of Petroleum @dvantage Rigger Lite, which operates on the Keycorp K26 terminal and offers a new customized payment card processing solution to small and mid-market petroleum and automotive retailers in Canada.

With Petroleum @dvantage Rigger Lite, smaller Canadian merchants will now benefit from an industry-leading processing solution previously only available to national retailers.

MasterCard Canada Board Enhances Acceptance-side Representation

Toronto, March 31 05 – Presidents of Global Payments Canada, Moneris Solutions, & Paymentech Canada have joined the MasterCard Canada Board of Directors. MasterCard Canada has announced that three of the five new directors seated at its annual meeting are from the acceptance side of the business. James Baumgartner, President and CEO of Moneris Solutions; Drew Brown, President of Paymentech Canada; and, Jordan Cohen, President of Global Payments Canada, all join the MasterCard Canada Board effective immediately.

MasterCard Canada is increasing its acquirer presence on the board. Previously, the Canadian board was seated exclusively with MasterCard executives and issuing-side representatives.

Also joining the Board of Directors are Amolak Grewal, Chief Operating Officer, ATB Financial, and Stephen Stewart, Senior Vice President, Operations, President’s Choice Bank. Kathryn (Kathy) P. Silmser, Senior Vice President, Cardholder Services, BMO Bank of Montreal, and Martin Parizeau, Senior Executive Vice President, MBNA Canada Bank, will continue as chair and vice chair, respectively.

Direct Access Trading Via Montreal Exchange FIX Interface

Montréal, April 19 05 – Nexa Technologies, Inc., specialist provider of online and direct access trading solutions, researchquality historical and intraday financial data, announced it is the first firm certified to provide Direct Market Access (DMA) connectivity to the Montreal Exchange (MX), Canada’s financial derivatives exchange, via MX’s recently implemented Financial Information eXchange Protocol (FIX) interface. The move will enable Nexa’s institutional brokerage, hedge fund, proprietary trading firm and retail trading global client base to trade Canadian options on the MX without incurring the inflated third party connectivity fees that have been accepted market-wide until now.

First Data Processing Payments Electronically for Burger King Canada

Toronto, March 25 05 – First Data Corp. (NYSE: FDC) has announced it is now processing card payments at Burger King restaurants in Canada.

First Data’s payment processing solution in Canada supports the MasterCard Quick Payment Service (QPS) program, which waives the need for a signature on the receipt for purchases under $25 with a MasterCard card and speeds the transaction process. First Data is handling MasterCard(R) card processing and settlement for over 120 corporate-owned Burger King restaurants throughout Canada, making Burger King Canada the largest merchant in Canada to incorporate MasterCard QPS.

Desjardins Group Switch to Chip

Montréal, April 6 05 – Desjardins Group will be adopting chip technology for its members’ debit and credit cards. This news follows a recent announcement by Interac Association that by the end of 2006, it will have the necessary infrastructure to process transactions using this new technology. Canada set its own EMV liability shift deadline to January 1, 2010.

In paving the way for the introduction of chip cards, Desjardins will be modifying its systems, so that members will be able to carry out transactions at ATMs or POS terminals found in many stores. Desjardins expects the first chip transactions to start in 2008.

Since not all financial institutions will be switching to this new technology at the same time, the new cards will be a hybrid, with the magnetic stripe still present, enabling them to be used elsewhere around the world, where smart card technology has not yet been introduced.

Desjardins Freezes Bank Cards

Montréal, March 29 05 – Caisse Populaire Desjardins cancelled over 1,000 debit cards that had been illegally copied at a gas station. The decision left hundreds of customers without access to their bank accounts over the long Easter weekend. The customers were informed of the deactivation of the cards only after they tried to use them.

By the time Desjardins knew about the scam, over 100 cardholders had already been robbed of money in their accounts. Investigators suspected there were more than 1,600 cards that had also been duplicated, and ready to be used by criminals, which prompted the bank to freeze the use of the cards.

Desjardins put in place new measures to prevent fraud just last year. To withdraw more than $400 or to deposit more than $1,000, customers were asked to enter not only their personal identification number (PIN), but also their date of birth. However, the new security was not enough to keep criminals from copying more cards, and robbing the accounts.

International Bank Adopts Bioscrypt’s V-Station Finger Scan Reader

Toronto, May 5 05 – Bioscrypt Inc., (TSX: BYT), a leading provider of identity verification technology, announced today that it has been deploying Bioscrypt V-Station readers across a well known international bank’s network to strengthen the security to restricted areas.

“The addition of Bioscrypt’s biometric verification technology to the bank’s access control system is further evidence of our commitment to providing advanced technology to secure our clients assets,” said a spokesperson for the bank. “Bioscrypt’s ability to integrate across our flat IP network, allowing for remote enrolment and ease of administration, was a “value added” factor in our planning process.”

“We are pleased to be adding a Fortune 500 company, and one of the world’s most recognized brands, to our family of users,” stated Robert Williams, President and CEO, Bioscrypt. “The recent installation in a large financial institution, clearly demonstrates the continuing adoption of biometric technology for identity verification. The ability for individuals to gain access to areas where they do not have proper clearance simply because they have a credential or know a password should no longer occur. It is critical to authenticate the credential or password is being used only by the authorized individual.”

Bioscrypt is traded on the Toronto Stock Exchange under the symbol BYT. For more information, visit the Bioscrypt Web site at www.bioscrypt.com

TD Canada Trust Hits Two Millionth EasyWeb Customer Milestone

Mississauga, May 17 05 – CNW – TD Canada Trust secured its two millionth EasyWeb online banking customer on March 1st, 2005. Ten customers from across Canada who activated their EasyWeb online banking accounts on March 1st were randomly selected and will receive Compaq Presario Notebook laptops at their branches in conjunction with TD Canada Trust’s national Customer Appreciation Day.

Canadian Payments Association Renews Contract with CGI

Toronto, Ontario, March 17 05 – The Canadian Payments Association (CPA), Canada’s operator of clearing and settlement systems, has chosen to renew its partnership with CGI Group Inc. (CGI) (TSX: GIB.SV.A; NYSE: GIB) for a ten-year contract valued at CDN$23 million. As part of the contract, CGI will continue to provide mainframe hosting and telecommunications services as well as disaster recovery services for mission-critical systems. The CPA operates one of the most efficient, reliable payment systems in the world.

Also, the CPA has selected CGI for another project – to develop an Exchange Control System (ECS) as a key component of the CPA’s cheque imaging initiative. The ECS will be used by CPA member financial institutions, who act as Direct Clearers and others in the exchange and routing of images and data as part of an industry-wide plan to modernize Canada’s cheque clearing system using image technology. The project includes the development and support of the ECS, as well as a partnership between CGI and CPA, whereby CGI will market this solution to financial institutions worldwide.

Moneris President Named Electronic Transactions Association Member of the Year

Chicago, IL, April 27 05 – Jim Baumgartner, President and CEO of Moneris,Canada’s largest provider of debit and credit payment services for merchants, has been selected as the Electronic Transactions Association (ETA) Member of the Year.

The award was presented during the 2005 Electronic Transactions Association Annual Meeting and Expo, held in March in Las Vegas, Nevada. Nearly 2,900 payment professionals from CEOs to sales agents attended the meeting.

BMO Ends Relationship

Montréal, April 30 05 – The Bank of Montreal has decided not to renew an affinity card contract, (at the end of its term in 2006), with Life Canada. The BMO asked that a link to its web site from Life Canada, a well known pro-life organization, be removed, and then decided to terminate the contract shortly after fielding both complaints from concerned BMO customers and receiving a flood of emails from those who considered the arrangement of the BMO, Mosaik Mastercard Affinity Card with Life Canada, offensive. The BMO has decided to undertake a review of its other affinity services.

Datawave Completes Roll-Out of Posa Technology to Shell Stores Across Canada
Vancouver, April 10 05 – DataWave Systems Inc., announced the rollout of Point of Sale Activation (POSA) technology to over 600 Shell corporate stores across Canada. The technology allows the stores to sell a wide range of prepaid products, including long distance and cellular time. The completed rollout of these Shell stores means that DataWave’s Point-of-Sale Activation solution is now available at a total of over 6,000 retail locations.

Triversity PCI Standards for Customer Data

Toronto, April 20 05 – Triversity is incorporating PCI requirements, (Payment Card Industry (PCI) Data Security Standards), into its customer centric retail solutions. The PCI standard, adopted in December 2004, is an alignment of Visa’s Cardholder Information Security Program (CISP), MasterCard’s Site Data Protection (SDP), and Discover’s Information Security and Compliance (DISC). The basic principles of PCI include implementing firewalls, keeping security patches up to date, protecting stored card/cardholder data, encrypting data across a public network, advanced password management, and comprehensive audit trails.

Protecting sensitive customer data and complying with payment card security requirements are critical issues for retailers. Data encryption provides a major safeguard in protecting customer information. Now, all of Triversity’s customer-centric solutions claim to incorporate the PCI requirement of data encryption.

These solutions incorporate the necessary software functionality to help retailers be certified as PCI-compliant. The solutions are the first in their categories to incorporate the necessary software functionality to help retailers who are adopting the necessary practices and procedures to comply with the requirements of the Payment Card Industry (PCI) Data Security Standard.

Now Prepay signs with Global Payments

Port Coquitlam, BC, May 9 05 /PRNewswire-FirstCall/ – VendTek Systems Inc. (TSX-V: VSI), a developer of software for the prepaid service distribution industry, has entered into an agreement between its wholly owned subsidiary, Now Prepay Corp., and Global Payments in Canada.

As a result of this agreement, Global Payments has certified VendTek’s e-Fresh(TM) Now Prepay client software on selected Canadian POS terminals and will make the service available to Global Payments’ Canadian customers. Merchants with the software can elect to sell such prepaid services as Cellular Phone Account top ups and Long Distance Calling Plans from their enabled Global Payments processing terminal.

By using Now Prepay, merchants can offer their customers an extensive selection of prepaid services more easily and efficiently and without the need to hold or manage a physical inventory of prepaid cards. Additionally, the eliminateion of large onsite card inventory reduces security risks and out of stock concerns, providing “just in time” availability, thereby increasing merchants’ cash flows and allowing them to pay only for the product they sell, when they sell it.

Canadian Payments Association’s National Conference June 15 – 17, 2005

Come to one of the oldest cities in North America to explore the new world of payments. Payments Panorama 2005, the Canadian Payments Association’s National Conference, is your opportunity to gain new perspectives in St. John’s, Newfoundland, a city renowned for its remarkable vistas, its vibrant culture and its hospitality.

Join representatives of financial institutions, businesses, governments, service providers and other payment system users to learn about a range of payment-related issues that affect your daily business or will soon. Evaluate the benefits and impacts of innovative ideas and consider what opportunities they offer your organization.

Payments Panorama 2005 will help make sense of changes in the payments world, put developments into context, and feature the innovators and influential thinkers, that are redefining the way you conduct your financial operations.

Attend Payments Panorama in Canada’s City of Legends from June 15 – 17, 2005!

News compiled by Angela R. Read, Managing Editor, info@frontiertimes.ca

Features

Online Debit Pilot

Montreal, June 1 05 – The Royal Bank and Moneris Solutions have combined with Interac Online to begin a test pilot of DVDSoon, (Montreal, Quebec) as the first and presently, the only retailer to offer this service. And, Canada’s major Banks are in line to adopt this service. Since May 4th, 2005, Canadian clients who hold a RBC debit card can purchase directly from DVDSoon.com website by using the new “Interac Online Service”. The Royal Bank of Canada, which is currently testing the Interac Online system, is expected to be the first bank to offer the service to its online customers, The Bank of Nova Scotia, Bank of Montreal and Toronto Dominion Bank will join later in the year and the Canadian Imperial Bank of Commerce is slated to be added to the group in early 2006.

The incentive here is to allow payment options to customers who do not have a credit card, such as teenagers, customers for which credit cards are not normally issued, such as new immigrants, or for those who simply prefer to bank without credit cards. Sara Feldman, vice-president of marketing at the Interac Association, said it’s likely the first time in the world that a country’s major banks have come together to launch a debit-style online payment system. “This is a multi-bank option with multiple merchants, and it offers broad access (to online consumers),” Feldman said. “In that sense, we think we are a first, though there may be other variations elsewhere in the world.” However, it is clear the idea is hardly a new one – for direct payment options on the web there are already very real contenders. Of course, UseMyBank has been offering precisely this service in Canada for several years. Interac’s entry into online debit payment begs the question of monopolization by banks of the direct online debit payments market.

The Interac Online website encourages consumers to “take a tour”, of the steps that comprise “direct payment”. At the DVDSoon site customers click on the Interac Online option and are directed to their RBC online bank account where they log on to the bank’s site. After confirming the details and approving the transaction, customers are returned to the retailer’s site.

With this direct from the bank debit-style online payment system, the retailer collects no personal information from the customer during the process, purportedly creating a more secure process than say, if retailer merchants were to handle the transaction information of the customers, as is now done with credit cards, both online and offline.

In a customer to merchant to bank processing system, retailers would mediate any transaction. But with direct to bank transactions, no information (theoretically) is shared with the merchants. Issues arise as to who assumes liability for fraudulent transactions.

But RBC states that, “Interac Online is secure and easy to use because it works with your existing online banking service”. Naturally, any increased internet traffic of bank card and pin numbers will correspondingly increase opportunities for breaches. And, it is worth noting that Interac Online is no doubt aware of the recent historic breach of privacy discovered at the Bank of America in the US, where the account information of an estimated 676,000 banking customers were compromised, not by a so called “hack”, but in reality the breach was caused by a criminal ring comprised of bank employees who resorted to a “pen and paper” and direct printing means of copying private info.

By Angela R. Read, Managing Editor, info@frontiertimes.ca