Top 10 Payment Trends to Watch in 2012 (Whitepaper) | Vantiv


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Business is changing on virtually every front, and the world of payments is no exception. Today, merchants, financial institutions, and processors all face an evolving landscape that is being reshaped
by an array of forces. The use of credit and debit cards is changing. Emerging payment methods, based on everything from smartphones to social networks, are rapidly gaining traction, as are innovative point-of-sale systems and a growing number of ewallet- based methods. For more info:

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Top 10 Payment Trends to Watch in 2012 (Whitepaper) | Vantiv

  1. 1. Top 10paymenttrends towatchin 2012
  2. 2. Part of the Vantiv Insight Series 2012, featuring proprietary research performed by Vantiv Inc., and Mercator Advisory Group © 2012 by Vantiv LLC. All rights reserved.
  3. 3. 3 Shaping the future of payment processingBusiness is changing on virtually every front, and the world ofpayments is no exception. Today, merchants, financial institutions, Top 10 Paymentand processors all face an evolving landscape that is being re- Processing Trends shaped by an array of forces. The use of credit and debit cards is for 2012changing. Emerging payment methods, based on everything from 1. Share of walletsmartphones to social networks, are rapidly gaining traction, as areinnovative point-of-sale systems and a growing number of e- 2. ecurity Swallet-based methods. At the same time, more familiar factors— 3. repaid Psuch as shifting security threats and ever-changing laws and regu- 4. Smartphonelations—have to be factored into the equation. Altogether, these paymentscurrents promise a fundamental transformation comparable to the 5. Merchant tabletsshift from cash to electronic payments more than a decade ago. 6. Mobile bankingIn this publication, Vantiv focuses on these varying and often over- 7. 2P payments Plapping currents. These have been distilled into 10 trends that are 8. E-commerceunderway and, in many cases, likely to have an even greater impact 9. Social paymentsin the near future. 10. LegislationThese observations are based on Vantiv’s experience and on dis-cussions with clients and others in the industry. Perhaps mostimportant, we draw on the insights of consumers. Working with theMercator Advisory Group, Vantiv has researched consumer atti-tudes about these trends—what they want, what they worry about.That perspective is key, because consumers’ views and behaviorswill shape the future as much as new technologies and policies.
  4. 4. 4No or low cost 87% 1. Vying for Royal Cole, president, FI Services, at Vantiv. “We haven’t seen much of that Fast at POS 85% Share-of-Wallet yet, but we certainly expect it before long.” As a result, there will probably be Consumers have a growing array of fewer rewards being offered with debit payment methods to choose from, but cards in the coming months. Security 72% cash is still king, according to Roper/ Vantiv research. In the study, conducted Pent-up demand in the wake of theControl spend 71% during the most recent holiday season, recession is also likely to drive more about 9 out of 10 consumers used credit card usage. “There are a lot of cash, compared to about 6 out of 10 people in the marketplace who have Ease of dispute 68% who used debit cards and less than half been holding back, staying focused on who used bank credit cards, store credit saving their money, and trying not use No minimum cards, or gift cards. credit or incur debt,” says Cole. “But 66% purchase as the economic picture gets better, More extensive research conducted by people will start spending again, and a Instant Vantiv in February 2012* indicates that lot of them will use credit to do so.” deduction 65% these non-cash methods will continue 0% to grow in popularity, altering the share- As larger banks shift their focus away 50% 100% of-wallet across payment instruments. from debit cards, credit unions and The greatest growth is likely to be in community banks that are not covered CHOOSING A METHOD prepaid cards, which will pull from credit by the Durbin Amendment may see a and check payments. Credit card usage market opportunity and redouble their Cost, speed, security, will increase moderately, and growth in efforts in that space. “Consumers love control, and ease of dispute the debit space will continue, but not as their debit cards,” says Cole. “So non- are most important when strongly as in the recent past. Checks, regulated issuers have an opportunity consumers choose a which have been declining for some to enhance customer loyalty with this payment method for time, will continue to do so. But they are payment method. It has the potential everyday use. Factors such hardly disappearing and will continue to to be a competitive differentiator for as prestige and store be used by businesses and consumers. smaller institutions versus the large preference rank much lower banks.” (21% and 20%). Driving much of this change is the Durbin Amendment to the Dodd-Frank For the longer term, new and emerging Act, which caps interchange fees on payment forms are likely to have an some debit cards. “Because Durbin impact on this mix—in particular, is changing the economics of debit mobile payments. Vantiv/Mercator cards, we’ll probably see larger financial research shows that mobile payments institutions de-emphasizing debit cards will have traction in all major spending and encouraging consumers to shift categories, with significant percentages to credit and even prepaid cards,” says of respondents saying they’d shift to * antiv/Mercator Insight Series Research, V February 2012
  5. 5. 5mobile payments as follows: 2. Extending the Credit or• 10% for small in-store purchases, displacing mostly cash Security Umbrella debit card cancelled due 15% Several years of high-profile data to data breach• 11% for grocery/everyday, breaches and publicity about identity displacing mostly debit theft have made security top-of-mind for consumers. The payments industry• 8% for large in-store purchases, has made a tremendous amount of Unauthorized charges displacing mostly credit progress in bolstering security, and has because done so in a fairly short time. But there account 14%• 7% for online purchases, are no silver-bullet solutions when it number was displacing credit/debit comes to keeping payment data safe, stolen and the coming year will see continued• 6% for education expenses, work on this front. 0% 10% 20% displacing mostly checks Consumers’ worries about security• 9% for household expenses, are a significant impediment to many BREACHES displacing mostly debit of the advances taking place in the industry. The Vantiv/Mercator research Fifteen percent of respon-• 8% for doctor visits/co-pays, found that concern about security dents reported that their displacing mostly cash and checks was the main driver behind a lack of credit or debit cards had consumer interest in new payment been cancelled due to a dataThese percentages may be types. For example, 6 out of 10 breach in the past year, andunderestimated, since consumers tend respondents said they were worried 14% actually saw fradulentto minimize their own likelihood of using about security with electronic wallets, charges on their accountsalternate payment methods. and 4 out of 10 said the same about due to a stolen account person-to-person payments. number.The study also looked at the factors thatdrive and will drive consumers’ choice of New developments may help alleviatepayment method. Consumers are very some of those concerns. The move tointerested in low- or no-cost methods, EMV technology, which can help preventsecurity, and the ability to control in-store fraud, is accelerating. This isspending—and are less interested in largely driven by Visa’s and MasterCard’sthe prestige of payment type and store announced EMV roadmaps. Therepreferences. An understanding of these are also incentives at work, with Visaperspectives can help institutions focus allowing retailers to waive some PCIon payment methods that will appeal audit costs once more than 75% ofto consumers and encourage greater transactions come from terminals thatadoption and usage. are both EMV and contactless capable.
  6. 6. 6 Criminal As more institutions adopt EMV, downstream,” says Walters. “Smallerhacking to get 78% consumers will also be pushing for shops can be very vulnerable because payment data adoption. “It will basically be mandated they usually don’t have the technical by the market,” says Patty Walters, sophistication the larger retailers have.” senior vice president, merchant Expect to see more industry interest Losing phone 77% product security, at Vantiv. “Consumers in moving security solutions down to are interested in security, and when the small merchant, and making them one bank starts marketing its EMV affordable and easy to install. These Would still product as being more secure, other efforts may extend beyond technology, carry credit/ 67% debit cards banks will no doubt want to keep up.” she adds: “The industry is looking at In recent Vantiv/Roper research, only how it might offer indemnification 20% of consumers said they would be programs, so that if the small retailer is Battery life 53% interested in tapping or waving their compromised, the resulting forensics phones at terminals to make a payment and legal costs are at least somewhat this year—a fairly lukewarm response. covered and don’t end up putting the 0% 40% 80% But more than twice that number (43%) retailer out of business.” were interested in EMV smart cards, which consumers see as more secure. RETAINING CARDS EMV is also setting the stage for the 3. Prepaid Cards: Fearful of criminal hacking and lost phones, two-thirds use of dynamic CVV, which is included in the Visa roadmap. With this approach, Wider Appeal, of respondents said that if they had a mobile phone for the card’s chip automatically generates a security code for each transaction, Increasing Variety payments, they would still as opposed to the current approach of Prepaid cards will continue to increase carry credit or debit cards in having a code for the card itself. “With in popularity and variety—in large their wallets. Battery life was the dynamic data being required, the part because of the Credit Card Act of less concern. card number is no longer enough to use and the Dodd-Frank Act. “Those two for fraud,” says Walters. “The fraudsters acts together are making it so that, really can’t guess the dynamic CVV, as in many cases, a large portion of the they can with the traditional fixed U.S. population is unable to obtain security code. You need the card with a credit card, a debit card, or even a the chip itself. So this has the potential checking account,” says Ed Paciolla, to dramatically improve security.” product management director at Vantiv. A prepaid card gives these The coming year may also see a consumers a more convenient and heightened focus on strengthening controllable payment method than cash, security among smaller retailers, which especially for paying bills and making are often a “soft target” for data thieves. online purchases. Overall, the Vantiv/ “Reports show that fraud is moving Mercator research found that 15.5% of
  7. 7. 7consumers expect to substitute debit/ used in the public sector to provide I can trust general-purpose 62%DDA accounts with prepaid cards in the funds to constituents, present a mixed prepaid cardsnext 12 months. picture. For example, unemployment- card usage has ballooned in recent I can trust retailer prepaid 57%Many consumers also like the security years, but that market is now slowing cardsof prepaid cards compared to that because most large states haveof emerging mobile and contactless completed the transition to such Useful for online 49%payment methods. As those methods cards. Universities, on the other purchasesbecome more widespread, prepaid can hand, are showing increased interestoffer a comfortable alternative because in disbursement cards because it 38% Safer than cashthe cardholder’s liability is limited if the provides a cheaper, faster alternativecard is lost or compromised. But faith to writing checks for tuition prepaid cards is not absolute: While Substitute for checking 16%most consumers trust network-branded Meanwhile, the gift-card segment accountprepaid cards (62%) and retailer cards will continue to see modest growth,(57%), only 38% see prepaid as being compared to the significant 2011 0% 35% 70%safer than cash, according to the Vantiv/ market rebound driven by post-Mercator research. recession consumers’ renewed confidence in the stability of retailers. TRUSTING PREPAIDGeneral-purpose reloadable cards are This is a mature market, and the trend CARDSlikely to see strong growth in the coming toward merchants seeing gift cards as Consumers trust prepaidyear—perhaps 25%. What’s more, large marketing tools designed to drive traffic cards, particularly general-financial institutions may become more to the business will continue. As a result, purpose cards. Nearly halfinvolved in the effort to convert more we are likely to see more incentives consider them useful inconsumers as debit card usage slows.* associated with gift cards, as well as online purchases, a trust-However, this may take time, as banks efforts by merchants to integrate gift- worthy way to hedgesort out fee structures and look for card programs with their marketing/ e-commerce risks withconvenient, multichannel approaches to promotions functions—areas that are limited personal data andcard-loading, which is inhibited because still separate silos at many companies. account separation.58% of bank customers are still notinvolved in online banking. Finally, several emerging approaches to prepaid bear watching. These includeThe prepaid-card arena has been digital, downloadable prepaid cards,growing more diverse, with various which essentially give the user a cardtypes of cards serving different number online; and micro-lendingneeds—and that trend continues. The prepaid cards, which allow consumerscoming year will see growth in the 15% to borrow small amounts from theirto 20% range for customer rebate and financial institution and apply them toincentive cards and employee-reward their card, on the spot, when they needcards. Disbursement cards, often to make a larger purchase.* ue to Durbin-related costs and controls, D financial institutions are encouraging customers to roll from debit to prepaid cards by offering rewards/prewards for keeping cards loaded.
  8. 8. 8 Mobile payments will be common 4. Smartphone Mercator’s own research shows that smartphone ownership at the 22% 7% Payments: On beginning of 2012 was 45%, up from 28% in 2011. In addition, in the Vantiv/ 10% 30% the Verge Mercator study, consumer awareness of mobile payments is now above 50%, 31% Smartphones are being used for and interest is at 20%—levels that a growing range of applications in typically represent a tipping point for a daily life—and that includes making technology’s widespread acceptance. payments. But so far, there has been By 2017, about 10% of consumers more buzz than actual usage. expect to be using mobile payments forI will use mobile payments small in-store and grocery purchases. 37% In the Vantiv/Mercator research, just 1.5% of consumers said that they have Merchant activities, too, will drive 18% made mobile payments. Interest and increased usage. There is a lack of 18% awareness are there—61% believe that in-store infrastructure for smartphone 19% mobile payments will be common in five payments. But as the push for EMV 8% years. But consumers appear to have compliance drives merchants to difficulty applying that to their own upgrade equipment, some may bring situations: only 38% see themselves on NFC capabilities, which are required ■ 1-2 years making mobile payments in five years. for smartphone payments, as part of ■ 2-5 years the upgrade. However, it is still not clear ■ 5+ years There are several reasons for this that NFC will be the winning technology, ■ No idea gap. Consumers have doubts about as a battle is raging between a number ■ Never smartphone security and see the of gatekeeping mechanisms, and some devices as vulnerable to hacking and merchants wait for a clear victor. easy to lose. They’re also concerned USING MOBILE about practical limitations, such as short Another driver is represented by PAYMENTS battery life and forgetting to carry their solutions such as “Square”—a card- phones. As a result, most consumers reader attachment for smartphones While 62% of respondents say even if they used a phone for that lets retailers use their phones expect that mobile pay- payments, they would keep a traditional to accept credit-card payments. ments will be common card as a backup. Smartphone-based card acceptance within the next five years, has reached 33.5% awareness and 5% only 36% expect that they The upshot: Smartphone payments are usage. For such a relatively new tool, themselves will be mak- not likely to take off in the next year. But this represents a strong foundation ing those payments. Not longer term, the picture is different due for growth and the beginning of asurprisingly, this percentage to several factors, including marketplace significant user base. Consequently, is higher among younger buzz. The increasing ubiquity of the says Ben Love, Vantiv’s vice president, respondents. devices is also creating momentum. product, “We think phone-based card
  9. 9. 9acceptance is an early incarnation of the at a pace that has surprised manymerchant world by 2015.” observers. Merchants are finding Convenient 27% a number of in-store uses for theUltimately, the actions of issuers will devices, allowing salespeople to gatherbe key to bringing consumers around. customer data and help customers findToday, many users simply don’t see a what they need, or letting shoppersreason to change. Just 1 in 4 regard browse through inventory themselves. Reliable 23%mobile wallets as convenient, and 1 “Merchants are finding them usefulin 8 would prefer to use smartphone for streamlining in-store processespayment rather than a card. But issuers and engaging customers to increaseare taking steps to pique consumer sales,” says Donald Boeding, president,interest with features such as coupon merchant services, at Vantiv. Secure 17%programs, location- and proximity-basedmarketing, and tools to help consumers Increasingly, merchants are also lookingbudget and manage spending. at the tablet as a mobile point-of- 0% 15% 30% sale (POS) device that can be usedRewards, too, may help: In the Vantiv to accept payments and provide anresearch, 27.5% of consumers regarded effective alternative to the traditionalthem as a potentially effective way to cash register—at perhaps a tenth of MOBILE PERCEPTIONSencourage the use of mobile payments. the price. While the use of tablets Consumers are taking aThe research also found that for many to handle payments is still relatively “wait and see” approach toconsumers, a 1% rebate from merchants new, the Vantiv/Mercator research payments via smartphone,at the point of sale would be an found that 17% of consumers have seeing phones as a some-effective incentive for adopting a new already used roving POS for in-store what convenient way topayment method. In short, says Love, payments—and that figure should pay—but not quite as“You can’t make things any easier than grow significantly, and quickly. reliable or secure.using a card, so you have to add value.You have to offer something more than Tablet-based payments are appealingconvenience and provide a compelling not just because of lower costs,consumer experience.” but also because they can increase salespeople’s efficiency, shorten checkout lines, and contribute to a5. Merchants: satisfying customer experience. In a shoe store, for example, a salespersonThe Advent of the could use a tablet to check inventory without running to a storeroom,POS Tablet quickly locate the right type of shoe, and then have it retrieved for theOver the past year, merchants have customer. “If the customer likes theembraced iPads and other tablets product, the salesperson can just
  10. 10. 10 hand the tablet to the customer, who banking evolves in the near future. Aware 51% can then fill out payment information and complete the sale online with “So far, many banks have essentially just secure, encrypted card acceptance,” transferred PC-based Internet banking says Boeding. The customer spends to mobile banking, so you can do things less time waiting, and the salesperson like check balances and transfer funds spends more time selling. from your phone,” says Ben Love, viceInterested 28% president, product, at Vantiv. “It’s a As this trend unfolds, we are likely to utility that provides convenience, but see tablets continue to evolve to fit it doesn’t really take advantage of the the often demanding requirements of device’s mobility. So we are going to various retail environments. An iPad see a lot of innovation in this space in Used 17% might not be suitable for a restaurant the near future, as banks try to make where people are spilling drinks mobile banking more compelling for and getting food on the device, for consumers.” example. This is leading to specialized 0% 30% 60% forms of tablets, with different One such innovation is mobile check functions and levels of physical deposit, which lets consumers useTABLETS TAKE OFF “hardening” for each type of retail their smartphones to photograph and environment. That specialization may deposit a check. This approach movesMerchant tablets may have also help with another tablet issue. “If beyond basic mobile banking andalready hit the tipping point, you have a specialized device for, say, lets the customer avoid a trip to thewith more than half of all ordering and paying in a restaurant,” bank branch, and it provides a provenrespondents aware of this says Boeding, “customers are going value proposition for banks. USAA, apayment method and 17% to be less tempted to walk away pioneer in mobile check deposit, hassaying they’ve already with it, compared to a new, general- seen rapid acceptance of the process,used it. This percentage is purpose iPad.” reporting that customers used theslightly higher among feature to deposit 7.8 million checkssmartphone users. totaling $4.3 billion in 2011. Not 6. Heading Toward surprisingly, there is a lot of interest in this method among consumers Mobile Banking 3.0 and banks alike, and it is expected to become increasingly widespread in the Mobile banking is garnering a great deal coming months. of attention, with nearly half the banks in an internal Vantiv survey saying they Meanwhile, many observers see the expect to invest in it in the coming year. addition of wallet-based payment But banks have a significant opportunity capabilities as a logical next step in to take things to the next level—and mobile banking. “The industry is already that may have an impact on how mobile starting on that path, and we will
  11. 11. 11see much more of that,” says Love.Banks’ interest in wallets is certainly 7. P2P: Getting Aware 24%growing—but so is the interestof other parties, from Google and Consumers toAmazon to numerous large retailers.Vantiv estimates that there are more Come Alongthan 80 wallets in development or on There has been much discussion aboutthe market and that there may be as person-to-person payments for several Interested 22%many as 250 by the end of the year. years. Indeed, P2P is already a commonThe result is an often-confusing array form of payment in much of the world,being presented to consumers. with consumers in many countries able to easily make account-to-accountBut banks have strengths that may transfers (A2A) to other individuals and Used 3%stand out in that mix. Consumers— businesses. In the U.S., however, P2P—aworried, as always, about security— key form of A2A—has not taken off.may see their banks as a safe andsimple wallet option. “The bank Part of the problem is that consumers 0% 15% 30%already has your personal and financial don’t seem sure how mobile P2P wouldinformation, so there is a level of fit into their lives. Forty-seven percent GAINING FAMILIARITYtrust already established,” says Love. said that they don’t see a need for it,“And if you have a mobile banking 38.5% have security concerns, and just While mobile person-to-application, it makes a lot of sense to 22% said they were interested. person payments have takenjust seamlessly add payments to off outside the U.S., that’sthat, rather than use a number of Many observers think that increased not the case here, whereother wallets.” familiarity will, in the long run, make P2P only 3% of Vantiv/Mercator a common tool in the U.S. “There is real respondents reported usingAll of this can be seen as the potential for P2P payments, especially this method—largely, itemergence of “mobile banking 3.0,” for unanticipated transactions that appears, because they don’tsays Love. “We’re moving toward need to happen rapidly, such as paying yet see the need for personal financial management, medical bills or car repairs,” says Deanwhere the consumer not only has Seifert, senior vice president, productbanking functions, but can also use strategy, at Vantiv. Interestingly,the phone to do budgeting, receive P2P has gained some tractionalerts about overspending, get offers among individuals making paymentsfrom third parties, and so on. At that to tradespeople and other smallpoint, mobile banking starts to really businesses. “The original thought wascontribute to the customer relationship that two individuals might use P2Pand loyalty. And this will probably to split the check at lunch, that sorthappen sooner than a lot of of thing,” says Seifert. “But so far it’speople expect.” been a consumer-to-small-business
  12. 12. 12 tool. The average transaction value is money movement, and charging a fee Credit/charge 41% more than $300, rather than, say, $20.” for these premium, faster transactions. card Ultimately, banks will also need to The coming year should see consumer provide P2P capabilities across awareness of P2P increase considerably. channels—on-line, in-branch, mobile, Debit card 31% There are a growing number of and ATM—for consumer convenience. providers, from Paypal to Amazon, and “Right now, P2P is really a blip in the many observers see the possibility of overall payments market, but it willOnline payment players such as Google and Facebook eventually grow quickly,” says Seifert. (e.g., PayPal) 16% moving into the space. Many banks have “As long as the fees are lower than wire started to embrace P2P and A2A in transfers and the speed is faster, it will earnest, and last year Bank of America, catch on.“General-purpose Chase, and Wells Fargo created prepaid 3% “clearXchange,” a back-end system for 0% 25% 50% processing P2P payments. 8. Online Heads Nevertheless, there are some obstacles. One issue is time: Many P2P payment Into Offline SECURITY STILL services rely on the ACH network, When it comes to making payments IMPORTANT ONLINE which means that it can take a few online, consumers have a clear sense days for payments to clear. Payments of their options. The Vantiv/Mercator For purchases made online, made through services such as PayPal research found high levels of awareness respondents said they pre- can go through in minutes, but only if (more than 80%) for online methods of ferred credit cards, in large both parties have accounts with the credit and debit, PayPal, ACH debit, and measure due to “zero li- service—which makes it fairly unsuitable online bill payment. Credit and chargeability.” Debit cards followed for everyday, one-off transactions. cards are still the preferred way toclosely, with online payment Otherwise, such transfers can take days. purchase online, but other options will methods such as PayPal Consumers may also feel that current gain ground in the near future. showing potential. P2P services require too much effort, with the need to open accounts, go For consumers paying online, security online to approve incoming transfers, and the risk of identity theft are and so forth. top of mind. Credit cards provide some comfort: More than half the The industry is working to address such respondents cited the “zero liability” issues. Already, some institutions allow of cards as a key factor behind their consumers to send payments to credit online use. Roughly the same proportion cards using a common bill payment said that prepaid cards, which limit network, such as MasterCard’s RPPS. exposure, are useful in making online Others are seeing value in using their payments. But looking ahead, worries debit “rails” in reverse for real-time about security are likely to increase
  13. 13. 13the appeal of intermediaries, such as has launched its wallet for onlineAmazon, because they allow consumers shopping, which lets consumers payto enter their card number once for using MasterCard, Discover, or American Aware 36%use with multiple vendors, rather than Express, as well as Visa cards.separately with different vendors. Inthe Vantiv/Mercator research, 45.5% of Those moves are part of a largerconsumers said that they view PayPal trend toward the increasing overlap ofonline security as being better than that physical commerce and e-commerce—a Interested 12%of credit or debit cards. trend that is likely to accelerate in the coming months. With mobileIndeed, there is growing interest smartphone payments, tablets beingin such online payment methods, used in stores, ubiquitous wirelessincluding e-wallet initiatives such as connections, and changing consumer Used 4%Google Checkout that let consumers payment behaviors, “e-commerce is nomake purchases without having to longer something you do from your PCenter credit card numbers. What’s at home—it’s now taking place in themore, those methods are moving from store itself,” says Weingart. 0% 20% 40%their e-commerce roots into the brick-and-mortar world. “PayPal, Amazon, WILL VIRTUAL GETand iTunes are cloud-based walletsand have the potential to take their 9. Social Network REAL?e-commerce approach down to the in-store point of sale,” says Bill Weingart, Payments: Entering Although spending on virtual goods is growingchief product officer at Vantiv. Withfinancial information stored by these the Real World? rapidly, social media payments are of limitedintermediaries in the cloud, shoppers Consumers are buying a growing interest to consumers.could check out with minimal risk using number of virtual goods used in online While more than a third arean ID number and PIN, he explains. social network games—things like familiar with it, only 12% swords and magic wands for multi- are interested and only 4%“It’s highly probable that we will be player games, or cows and tractors for have used it.seeing more of the e-commerce Farmville. Nevertheless, only 36% ofwallets being used in brick and mortar,” consumers have heard of these socialWeingart continues. “PayPal clearly has network payments; 12% say they area vision to be an acceptance option at interested in them, and just 4% arethe retail point of sale, and there’s an using them, according to the Vantiv/expectation that Amazon and Apple Mercator research. Nonetheless, thiswill want to do the same and take their is a rapidly growing area, with U.S.brands from the virtual to the real consumers spending more than $2.3world.” That trend is also proving to be billion on virtual goods last year, upa two-way street: Visa, for example, from $1.8 billion in 2009, according to
  14. 14. 14Unauthorized charges 86% the Frank N. Magid Associates con- sulting firm. 10. The Regulatory Unexpected The question is, how will this play out Landscape: 84% fees in the non-virtual world of paying for actual goods and services? Already, Unending ChangeStore charge 80% there is beginning to be some overlap The past several years have seen for card use of the virtual and the real. “Facebook, heightened regulatory scrutiny and new for example, is allowing people to use legislation affecting financial activities; Debit card declined 78% Facebook credits to purchase real this year, those changes are having a goods from merchants,” says Ben significant impact. The ramifications Credit card Love, vice president, product, at Vantiv. of the CARD Act and the Durbin 77% declined “They are doing this in a small way so Amendment are being sorted out, while far, but that may grow.” new 1099-K rules placing significantDoesn’t work 71% reporting requirements on payment abroad However, virtual payments will need to providers and merchants are being rolled Purchase overcome some obstacles to become out through 2013. information 66% widespread in the real world. Because revealed virtual transactions are relatively high- Even as companies work through these 0 50 100 risk, providers typically charge 30% or changes, new ones are appearing on more to handle them. “That also means the horizon—and it can be difficult to that sellers have to wait days for pay- keep track of it all. The Financial Crimes PERCEPTIONS WILL ment while the intermediary makes sure Enforcement Network, for example, DRIVE CHANGE there are no chargebacks,” says Love. has issued new reporting and record- Thus, social-network payment methods keeping requirements that affect the When ranking the worst will need to find approaches to pricing use of open-loop prepaid cards. And payment experiences they and timing that will appeal to broader a number of observers expect to see face, respondents noted, audiences. Security, too, will need to be government agencies start tailoring in particular, unauthorized more robust. “As virtual currencies are regulations to the emerging use of charges, unexpected fees, used for more real goods, they become social media in financial activities. and stores charging for more valuable to more people—and card use. that is likely to increase the potential for A key development to watch will be the fraud to a level they aren’t dealing with activities of the Consumer Financial today,” says Love. Protection Bureau, created last July and now getting into full swing. The CFPB These challenges are significant but presents an especially big question not insurmountable, Love adds: “This mark because of its exceptionally is a fast-changing area, and social net- broad mandate. “It essentially looks at works have a history of innovation. So anyone who provides financial services this bears watching.” to consumers or businesses—which
  15. 15. 15is just about anything that touches atransaction,” says David Herron, product Conclusion Early adopters may rush to try newlegal counsel at Vantiv. “It is staffing up The currents moving through the indus-and will be looking in a lot of directions.” try are complex, intertwined, and often methods, but mostThe CFPB has been hearing credit card disruptive. However, two things are crystal consumers wantcomplaints since it was launched, and clear: New challenges are arising on the something recently expanded its efforts into operational and regulatory fronts, and cus-checking accounts. By early 2012, the tomer expectations for ease of use and They want to seebureau announced that it had received security are rising. By assessing the situ- how new approachesmore than 20,000 complaints on various ation, exploring consumer attitudes, and will improve upontopics, including some 12,000 about continuing the discussion, we can contendcredit cards. with developments as they unfold. what they have.Consumer perceptions may also drive As these 10 trends demonstrate, successchange. Herron says that consumers will require deeper expertise, the ability togenerally see the increased bank fees that learn from broad experience, innovation,have resulted from recent legislation, but and the agility to stay in step with chang-they haven’t seen the expected benefits ing customer attitudes and technologies.of lower costs being passed along fromretailers. “That may produce a backlash It’s no longer just about share of wallet.against the existing legislation, as well It’s about owning a customer relation-as drive more complaints to regulators,” ship by creating value. As a result, com-he says. The Vantiv/Mercator research panies will need to heighten their focusprovides some insight into the potential on consumers. A key lesson in the Vantiv/nature of those complaints. Among the Mercator research is that “build it and theymost-cited bad-payment experiences: will come” is not effective in the world ofunexpected fees for using credit/debit payments. Early adopters may rush to try(84%), and being charged extra by stores new methods, but most consumers wantto use a payment type (80%). something more. They want to see how new approaches will improve upon whatFinally, the U.S. presidential elections they have now—how they will save timeare also likely to affect the regulatory and money, make payments more con-landscape, one way or another. “There venient, and strengthen their confidencehave already been minority calls in that information and funds are safe.Congress to repeal parts of Durbin,” saysHerron. “A new Congress might be open It is up to the industry to help consum-to those calls. And depending on the ers reach that understanding—and toeventual makeup of Congress, we may see keep driving improvements that work foranother run at credit card legislation when consumers while enabling merchants andthe dust settles from the elections.” financial institutions to thrive.
  16. 16. About VantivVantiv LLC is one of theleading integrated paymentprocessors in the UnitedStates. Known as FifthThird Processing Solutionssince 1971, the company,headquartered in Cincinnati,Ohio, changed its name toVantiv in 2011, and becamea public company in 2012.Vantiv’s credit, debit,prepaid, and data securitysolutions help businessesand financial institutions ofall sizes get the most out ofpayment activities. Vantiv Corporate Headquarters 8500 Governors Hill Drive, Cincinnati, OH 45249 866-622-2880 | TL0001 4/12