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Top 10 Payment Trends to Watch in 2013 (Whitepaper)


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Technology-driven change has become a constant for merchants,
financial institutions, and processors. That reality has created a shifting
landscape of new capabilities, new competitors, new rules, and new
customer expectations. It can all be complicated and confusing, but an
assessment of that landscape indicates several clear trends affecting
the industry. For more info:

Published in: Economy & Finance, Business
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Top 10 Payment Trends to Watch in 2013 (Whitepaper)

  1. 1. Top 10paymenttrends towatchin 2013
  2. 2. Technology-driven change has become a constant for merchants,financial institutions,and processors.That reality has created a shift-ing landscape of new capabilities,new competitors,new rules,and newcustomer expectations.It can all be complicated and confusing,but anassessment of that landscape indicates several clear trends affectingthe industry.One of the most prominent of those is mobility. Consumers haveadopted smartphones and tablets with amazing speed and inte-grated them into their daily lives. The challenge now for the paymentsindustry is how best to include payments in that mobile mix. It isworking to provide the functions consumers want, take advantage ofgeolocation capabilities, work across multiple channels, and leveragea growing wealth of mobile purchase data—and do it all profitably.Meanwhile, the topic of security comes up in virtually any discussionof payments. Security has always been a top concern, but in this ageof digital information and payment methods, there are new threats.For their part, consumers worry about compromised personal infor-mation and data breaches—and about companies knowing too muchabout them. But they are not only worried—many are confused bythe various products and their components. From their perspective,threats are often invisible and difficult to identify and understand, anatural consequence of the fact that sophisticated security mea-sures often involve deep technical expertise.Meeting—and exceeding—evolving consumer expectationsPart of the Vantiv Insight Series 2013, featuring proprietary research performed by Vantiv Inc., and Mercator Advisory Group© 2013 by Vantiv LLC. All rights ten paymenttrends in 2013 1. Omnicommerce 2. Mobile payments 3. Mobile wallets 4. Security concerns 5. EMV cards 6. Data and offers 7. Consumer behaviors 8. Micropayments 9. Share of wallet10. Banking relationships
  3. 3. 3As always, the payments industry isworking within a growing, and some-times uncertain, regulatory framework.As it continues to adapt to the reali-ties of the Durbin amendment, it alsoneeds to keep an eye on new devel-opments. New regulations, litigation,and an increasingly active ConsumerFinancial Protection Bureau have puteverything from credit and debit cardsto security and data privacy underincreased scrutiny. Now legislators areturning that kind of scrutiny to pre-paid cards and mobile payments. In avery real sense, dealing with changingregulations and significant gray areasis the new normal.To help merchants and financial insti-tutions navigate this changing land-scape, Vantiv and Mercator AdvisoryGroup conduct annual research intoconsumer attitudes about evolvingpayment methods. The consumerperspective is vital because when itcomes to payments, it will ultimatelybe consumers who pick the winnersand losers.The Vantiv/Mercator Insight Seriescombines those consumer views withperspectives from industry execu-tives. Changes between the originalresearch, conducted in February 2012,and the most recent version, conduct-ed a year later, are especially revealing.The findings from this year’s researchhave been distilled into 10 trends,presented here, that we see reshap-ing the industry today. These trendscover a lot of ground, from the chang-ing nature of multichannel commerceto the drivers of mobile payments, theevolution of micropayments, and thecomplexities of digital wallets. Theycover the challenges and opportuni-ties that merchants and financial insti-tutions face in this environment. Andthey explore what consumers wantand fear, what they are adopting, andhow they want the industry to adapt.What emerges is a picture of consum-ers who have serious reservationsabout the new payment options beingcreated, but are enthusiastic none-theless. The industry should leveragethat enthusiasm to shape the chang-ing world of payments to the mutualbenefit of merchants and financialinstitutions, as well as the consumersthey serve.What emerges is apicture of consumerswho have seriousreservations aboutthe new paymentoptions being created,but are enthusiasticnonetheless.
  4. 4. 40% 20% 40% 60% 80%55%57%46%61%46%50%25%17%20%35%50%■ Usually shop ■ Have shopped38%Researched online before entering store,purchased it thereSaw product and purchased in that storew/o online researchResearched and purchased onlineResearched and purchased online;picked up in storeSaw product,checked prices on phone,purchased onlineSaw product,checked prices on phone,bought in another storeHOW CONSUMERS SHOPBlurring the LinesFor a growing number ofconsumers, shoppingtranscends traditionalonline and offlineretailing—and merchantsneed to work consistentlyacross all channels.1. The RapidEmergence ofOmnicommerceThe range of shopping, purchase,and payment channels available toconsumers continues to grow, creat-ing challenges and opportunities forretailers.Because of the proliferation of mobiledevices, consumers today are mak-ing regular use of multiple channels intheir shopping activities. In this year’ssurvey, 61% of all consumers said thatthey own a smartphone or tablet, upfrom 48% in last year’s research. In ad-dition, 82% of young adults and 74%of those earning $100,000 or more ayear reported owning such devices.Computer and mobile access has astrong influence on all purchasing-related behaviors, both online and inthe store. For example, online re-search and purchasing of productsover $50 (cited by 56% of respon-dents) has become more commonthan in-store shopping and purchas-ing without online research (46%).Nearly half of the respondents saidthat they have conducted researchonline before making an in-storepurchase. And 28% (and 35% ofsmartphone owners) said that shop-ping for higher-priced items hasinvolved “showrooming”—finding aproduct in a store, then looking onlineusing their mobile phones to findthe cheapest price for it and buyingit online or in another store. Thirty-five percent say they have used thisshowrooming technique at least onceto purchase online; 38% have used itto look in the store and then pur-chase in another store, according to aRoper/Vantiv study (see chart).These multiple channels continueto blur the traditional lines betweenthe electronic and brick-and-mortarworlds. Thus, it is increasingly impor-tant for merchants to find ways toenable “omnicommerce,” and provide aconsistent customer experience acrossall channels.“Merchants need to interact withcustomers in the ways that custom-ers expect, and do it in a consistent,secure way,” says Donald Boeding,president of Merchant Services atVantiv. With omnicommerce, he says,payments need to be seen as one ele-ment in a much broader picture. “This isnot about just providing, for example,a mobile app,” he explains. “It’s aboutsurrounding your customers withthings that allow them to experienceyour brand in a positive way.”That may sound challenging, butthere is a large potential upside. “Theemergence of omnicommerce cre-ates extraordinary opportunities formerchants to interact with consumersfrom the time they start thinking aboutproducts to the time they walk in the
  5. 5. 50% 5% 10% 15% 20%1%2%17%19%5%6%4%4%3%■ 2012 ■ 20137%Swipe credit/debit card throughreader on clerk’s tabletPay for landscape/plumbing by swipingcard on contractor’s phoneTap/wave mobile phone at checkout to payUsing“contactless”credit/debit bytapping it at checkoutPay at online retailer using mobile webor app on smartphoneACTUAL USAGE OF MOBILEPAYMENTSMobile: MovingSlowlyConsumers are moreaware of mobile paymentmethods, but relativelyfew have had any actualexperience using them.door to the time they buy, either in thestore or online. It creates an oppor-tunity for brands to become a biggerpart of the consumer’s lifestyle,” saysBoeding.Financial institutions are not immuneto the demands of this increasinglymultichannel world. Their custom-ers are also becoming accustomedto interacting in the channels of theirchoice—and they need to be reachedvia an “omnichannel” approach. Insti-tutions often think of this in terms of ashift to mobile banking and payments,but in reality, it is something more.Mercator’s research has found thatmobile-banking users are also activeusers of branches, ATMs, and com-puter channels. In other words, mobileisn’t a replacement for those otherchannels, it’s a complement to them—and banks have to meet consumersin all those channels. That meansoffering consistent information andservice across channels, while creatingchannel-specific interoperability thattakes best advantage of each chan-nel; both are necessary for superiorcustomer experience. “That’s thedifference between ‘multichannel’ and‘omnichannel,’” says Ed O’Brien, direc-tor of the Banking Channels AdvisoryService at Mercator.Some large banks are beginning toaddress these issues, says O’Brien.“They’re looking at having all their sys-tems, such as core banking, back office,CRM, loans, credit cards, and mort-gages, tied in across channels in realtime,” he says. “The idea of providingan outstanding customer experience—to serve the customer in a 360-degreeenvironment—is becoming a majortheme for them.”2.Mobile Payments:Reality Lags Behindthe RhetoricConsumers have rapidly embracedsmartphones and tablets—the keyenablers of mobile payments. At thesame time, awareness of mobile pay-ment methods has increased some-what, according to the research. Butinterest in actually using mobile pay-ments has not followed suit.Consumer interest in mobile paymentforms has remained essentially flatyear-over-year, and for some types, ithas even showed a decline. For ex-ample, consumer interest in “tappingor waving a mobile phone at checkoutto pay” fell from 14% to 10%. Overall,just 15% of respondents said that theywould prefer to use mobile paymentsover a credit, debit, or prepaid cardtoday.There are several likely reasons forthis lackluster response. One is secu-rity, which respondents cited as thetop reason for their lack of interest in
  6. 6. 60% 10% 20% 30% 40% 50%21%23%48%44%13%16%■ Why not personally use mobile payments?■ Why won’t mobile payments be common?No smartphoneNo need for serviceSecurity problemsMOBILE PAYMENT BARRIERSMobile InsecuritiesWhen consumers who saidthey are not interested inusing mobile paymentswere asked why, the most-cited reason was “securityproblems.”mobile payments. But just as impor-tant may be the disconnect betweenmarketing messages and the reality ofconsumers’ lives.Although consumers hear a great dealabout mobile payments from compa-nies and pundits, the infrastructure forthose payments is still quite limited.Thus, actual usage remains fairly low.Using merchant tablet point-of-sale(POS) systems with cards continuesto be the most common mobile pay-ment experience (19%). This is par-ticularly true for smartphone owners,:nearly one-third have used them, upfrom one-fifth in 2012. But usagefalls off quickly from there. Only 7% ofconsumers (and 11% of smartphoneowners) say they have used mobileecommerce, up from 4% (and 8% ofsmartphone users) in 2012—the onlycategory of mobile payments to showa significant year-to-year increase. Just2% of consumers say that they haveused a contactless mobile phone atcheckout.“Consumers may be tiring of the mobilepayments hype,” says Ken Paterson,vice president of Research Operationsat Mercator. “There has been a realbuild-up of expectations and aware-ness—surprisingly so, considering howlittle mobile payments infrastructurehas been deployed.” As a result, hesays, “payments stakeholders mayneed to more carefully manage expec-tations in the market in order to avoidmore consumer disappointment.”Delivering on the promise of mobilepayments will also help, and we maybe seeing more of that soon. “I thinkthere will continue to be small suc-cesses here and there with mobile,”says Dean Seifert, senior vice presi-dent of Product Strategy at Vantiv.But in reality, companies have beenlaying the groundwork for mobilepayments for some time. “At somepoint, all the tests and all the pilots ofthe last few years will come to frui-tion, and we’ll see a steady crescendoof large-scale programs being an-nounced over the next two to threeyears,” he says.In fact, mobile payments may be ex-periencing a phenomenon often seenwith the emergence of new technolo-gies. “The world tends to overestimatea technology’s short-term impact andunderestimate its long-term impact,”says Seifert. “It seems clear that mo-bile payments will eventually have ahuge impact, and merchants and finan-cial institutions need to consider thatin their long-term strategies.”For their part, consumers seem tobe thinking of that longer-term im-pact. Although their current interestis lagging, they feel positive about thefuture of mobile payments. Two-thirdsof consumers expect mobile paymentsto be common in five years, and 39%see themselves using such paymentmethods in that time frame—with bothfigures representing an increase overlast year’s.
  7. 7. 70% 10% 20% 30% 40% 50%13%10%32%44%■ 2012 ■ 2013InterestedAwareCONSUMERS AND MOBILEWALLETSStoring multiple card info on smartphone,wave it to pay at POSSorting ThroughWalletsMore consumers are awareof mobile wallets, but witha confusing marketplaceand low levels of usage,many are not sure whatvalue they offer.3. Mobile Wallets:Cutting Throughthe ConfusionDigital wallets are expected to play akey role in enabling convenient mobilepayments, and consumers have heard alot about them. But they have reserva-tions about using them.Consumers are more aware of digi-tal wallets than they were last year(44%, up from 32%). In addition, moreconsumers believe that a digital walletwould be more convenient than carry-ing credit cards (35%, up from 27%).However, only 10% said that they areinterested in actually using a digitalwallet at a retail point of sale—a de-cline from last year’s 13%.Security concerns are partly to blame.Many consumers say they are worriedabout storing card information on theirmobile phones, which they see as easyto lose and vulnerable to hacking. Butmore fundamentally, many consumerssimply do not understand what thesewallets are and how they fit in their lives.Currently, consumers are faced with aconfusing array of hundreds of digitalwallets with varying functionality, andthere is a lack of standards for thetechnology used in wallet-based pay-ments. What’s more, consumers havelittle or no personal experience withthem. Just 1% said that they have useda contactless digital POS wallet, andeven among smartphone owners, us-age stands at just 2%. “When we dis-cuss wallets directly with consumers,they are often unfamiliar with the con-cept and need explanations. There is alack of specifics about digital wallets inthe marketplace, so consumers proba-bly don’t see the real value propositionfor them yet,” says Paterson.Recent developments may make iteasier for consumers to get a hands-on appreciation for digital wallets. Forexample, some wallets now rely on QRcodes projected by the merchant forthe consumer’s phone to read. Thismay make it possible to speed up therollout of mobile payments by utilizingsmartphones and apps, while limitingthe modifications required to merchantPOS systems.Some wallets use the cloud to storepayment and card information. Thus,sensitive information is not shared withthe POS terminal or even stored on themobile device, so a lost phone is lessof a security concern. Consumers arealready familiar with this concept. One-third are now using payment methodsthat store information with an onlineretailer, which suggests that they shouldhave a high comfort level with a cloud-based wallet approach.“It is doubtful that the market will sup-port so many wallet options for long.The winners will be those that providea clear and succinct value proposition
  8. 8. 80% 20% 40% 60%57%54%46%14%20%I am more cautious when I use mypayment cardI think about payment security at everytransactionI think about security viewing monthlystatementsI use cash to avoid having cardscompromisedI changed my bank or paymentcard issuerATTITUDES FOLLOWINGSECURITY BREACHHigh AnxietyMany consumers haveexperienced problemsfrom data breaches,and those problems arebringing the issue ofsecurity into their dailypayment activities.for consumers,” says Seifert. That willmean providing security and the abilityto use the wallet at a broad range ofretailers—and giving consumers func-tions that go beyond payments alone.“Consumers will probably choosewallets based on packages of servicesaround the payments capabilities,” heexplains. “A fast-food restaurant mightlet you use your smartphone to orderfood ahead of time, or a grocery storecould provide phone-based shopping-list capabilities. Ultimately, then, thewallet and payment can be embeddedas part of a broader solution, and theissue will be less about the technologyinvolved and more about engaging thecustomer.”4.Selling Consumerson Mobile SecurityConsumers have a number of securityconcerns with traditional card-basedpayments, and they are carrying thoseperceptions into the emerging world ofmobile payments.Despite efforts by the paymentindustry to increase security, 16% ofconsumers said that they had a creditor debit card canceled within the pastyear due to a data breach; 15% sawfraudulent charges to one of their ac-counts because of a stolen accountnumber. Each of those figures repre-sents a 1 percentage-point increaseover last year. Such events have a sig-nificant impact on consumer attitudes.Among those whose cards have beencompromised, 57% said that they thinkabout security when reviewing state-ments, 54% said they are more cau-tious when using their cards, and 46%said that they think about security withevery transaction.The research also looked at consum-ers’ views of the security of variouspayment methods. Prepaid cards (bothgeneral-purpose and store-branded)topped the list, cited by 67% of con-sumers as a secure type of in-storepayment. That was followed closely bycredit cards, cited by 64%. However,this year, consumers felt slightly lesssecure with all payment card methodsthan they did in 2012, with the excep-tion of using a debit card online, whichconsumers now view in a slightly morefavorable light. In general, all emergingpayment forms are considered less se-cure than traditional ones—and NFC-based mobile payments are viewedas the least secure method. Just 19%said they believe mobile technology issecure for payments. However, men,smartphone owners, and particularlyyoung adults are most likely to considersmartphones secure for payments.In fact, doubts about security are a keybarrier to the broader rollout of mo-bile payments. When consumers whoexpressed low interest in mobile pay-ments were asked why, security issuestopped the list.
  9. 9. 966%15%19%■ Yes ■ No ■ Not sureOWN CHIP-BASED CARDSFOR SECURITYEMV: OffConsumers’ RadarFew U.S. consumershave EMV cards, and agood number aren’t evensure whether or not theydo—which points to theneed for more consumereducation on this front.“The lack of a security narrative inthe industry for mobile means thatconsumers tend to fill in the blanks forthemselves—often, with misconcep-tions,” says Paterson. The researchfound a number of widely accepted“myths” about security. For example,63% of consumers said they believethat mobile phone signals are easilyintercepted by criminals, and 50% be-lieve that to be the case with contact-less card signals. Similarly, 39% believethat payment cards can be readthrough a wallet, pocket, or purse.Even some established security pro-cedures run into consumer-perceptionproblems: although 56% of consum-ers said that using a PIN makes cardtransactions safer, 38% said that theyprefer to sign during a transactionso they don’t disclose their PIN toonlookers.These findings point to an opportu-nity to complement technical securityefforts with increased publicity andenhanced education about the effec-tiveness of those efforts—especiallywith mobile payments. It’s also worthnoting that 69% percent of consum-ers expect that the “zero liability” thatcomes with their credit cards will beextended to mobile payments. “That’snot a given in the industry right now,”says Seifert. “But that expectation isthere, and the mobile world is going tohave to move to zero liability, becausecustomers are going to weed outthe issuers and merchants that don’tprovide it.”5. EMV: ConfusingConsumersThe implementation of EMV tech-nology—and its related effort andexpense—is on the minds of bothmerchant and financial institution ex-ecutives in the U.S. But it seems to belargely off the radar for consumers.EMV cards are slowly showing up inthe U.S. market, and merchants arein the early stages of implementingEMV-capable terminals. Just 15% ofconsumers said that they have an EMV-equipped debit or credit card. One-fourth of those said they have usedthe card in EMV chip-mode outside theU.S.—not surprising, since the U.S. isone of the few countries that has notimplemented EMV. Financial institutionshave tended to give these cards tofrequent travelers and/or high-volumecustomers, and the research found thatthose earning $100,000 or more, tabletowners, and young adults are morelikely than average to own a chip card.However, consumers seem to be con-fused about the EMV card. Nineteenpercent were not sure whether theyhad one. Many believe the signals fromcards can be picked up easily by crimi-nals. And 65% percent of those whohave the cards said they have usedthem in chip-mode in the U.S. “That’sa near impossibility, given the very lowdeployment of EMV POS terminalshere today,” says Paterson.
  10. 10. 100% 20% 40% 60% 80%79%76%74%69%72%Receiving too many offers/messageson phonePurchase history disclosed to toomany vendorsResponsible for unauthorized charges ifpaid by mobileToo much personal data knownToo many offers to my phone while I shopCONCERNS WITH MOBILEPAYMENTS53%Not getting promised coupons/discountConsumers WorryAbout TMIConsumers like discounts,but many are concernedthat mobile payments willlead to a flood of unwantedoffers and less control overpersonal data.“The card brands, issuing financialinstitutions and merchants, will want toprovide their consumer customers withinformation on not just how to use thecards, but also the benefits of doingso, specifically the EMV card’s ability tocreate a more secure shopping experi-ence,” says Patty Walters, senior vicepresident of Merchant Products andSecurity at Vantiv. Companies that rollout EMV earlier than their competitorsmay be able to differentiate them-selves based on their commitment tosecurity.EMV may also be a catalyst for innova-tion that consumers can understandand are interested in, says Walters.“Once you have the hood open on thatinfrastructure, you have opportuni-ties to implement things like DynamicCurrency Conversion, Point-to-Pointencryption, and mobile payments,” shesays. As merchants pursue those op-portunities, they may want to publicizethose innovations, and point out theincreased convenience they will bringto consumers.6. Consumer Offers:An IncreasinglyDelicate BalanceConsumer data is a valuable asset,and it’s the key to providing targetedproducts and services to consumers.But consumers are ambivalent aboutthe way companies collect and use thisdata—and emerging payment methodsare only complicating their views.Consumers are typically happy to re-ceive the offers and promotions madepossible through the use of consumerdata. Although mobile coupons arerelatively new, 29% of consumers in theRoper/Vantiv study said that they haveat some point purchased a product ina store using a coupon they had justreceived on their phone. In the Merca-tor/Vantiv study, 15% of consumersreported that they do so regularly. Andconsumers have clearly demonstratedthat they are comfortable using theirmobile phones to compare productsand prices as part of the in-store shop-ping process.Offers are appealing enough thatthey can affect consumers’ choice ofpayment type, as well as their prefer-ence for a given retailer or product.Forty-four percent of respondentssaid they would switch their currentpreferred payment type if they wereto receive a discount on a purchasefor using another payment type.Young adults, tablet owners, andsmartphone owners are especiallywilling to switch for a discount. For-ty-two percent of all consumers saythey would switch if the new methodoffered rewards.While consumers like offers, they areless excited about the idea of using
  11. 11. 110 10 20 30 40 5044%42%42%24%Earning added rewards for anotherpayment typeMerchant charges a fee for currentpayment typeDiscount on a purchase for using anotherpayment typeIf my card had a breach/unauthorizedchargesMOTIVATION FOR CHANGINGPAYMENT METHODSMake Me An OfferMany consumers are willingto switch payment meth-ods for a discount or thechance to earn rewards—more than would switchbecause of a data breach.consumer data to produce those of-fers. Thirty-seven percent said thatthey don’t like to be asked for anemail address to receive a discount ora promotional price. When consider-ing mobile payments, 76% said thatthey worry about receiving too manyinappropriate or irrelevant offers ormessages via email or text; 72% saidthat they worry about mobile pay-ments requiring them to share toomuch personal data with vendors.Some consumers seem to lack faith inthe process, too: more than half saidthey would worry about not gettinga promised coupon or discount whenusing mobile payments—that is, thatthey might provide personal informa-tion without receiving any benefit inreturn.All of this underscores the impor-tance of maintaining control overcustomer data and building greatersophistication in using that data tocreate offers. To do so, merchantsand financial institutions will have tostrike a balance between understand-ing their customers and not beingtoo intrusive. Even though customersclearly like offers, 69% worry about“receiving too many offers on myphone while I shop, even if I okayedit.” Faced with that mind-set, compa-nies will need to use customer histo-ries and other consumer data, alongwith capabilities such as geolocation,to carefully target offers to the rightcustomer in the right place at theright time.7. ConsumersAdjust to EvolvingPaymentsAs payment technologies and methodsevolve, consumers are adapting alongwith them. In some ways, their behaviorremains unchanged, and in some waysit is changing significantly.The leading reasons why consum-ers prefer one payment method overanother have held steady since lastyear, with 80% of consumers citingthe importance of methods that areno-cost/low-cost, 78% citing conve-nience/fast to use, and 73% citing be-ing secure against fraud. Of those whoprefer methods such as prepaid anddebit cards, about 3 out of 4 said thatthey like the ability to track and man-age spending. Those earning more than$100,000 a year were especially likely(83%) to view that ability as important.Consumer payment-related behaviorcan be influenced by merchants andfinancial institutions. More than 2 outof 5 consumers said that they wouldswitch payment methods to get a dis-count. About 1 out of 3 and about halfof young adults, smartphone owners,and tablet owners would be more likelyto use mobile payments if they wereoffered rewards programs similar tothose in today’s credit card programs.Meanwhile, consumers continue to em-
  12. 12. 120% 20% 40% 60%15%16%34%57%5%6%InterestedUseAwareCONSUMERS AND CARDREADER PAYMENTS■ 2012 ■ 2013Small Payments,Small ProgressAwareness of paymentsusing card readers andphones has increased sig-nificantly, but consumerdoubts about mobilephone security are slow-ing interest and adoption.brace online shopping through a varietyof methods: 41% said that they entercredit or debit card numbers online;34% have used a card that’s on filewith an online retailer; 38% use PayPal;and 32% pay bills from an online bank-ing website. Just 7% of consumersand 11% of smartphone owners makemobile payments from online retailers.Mobile technology is already chang-ing consumer shopping behavior instores, and looking ahead, the additionof mobile payments will be a primarydriver of further changes. Within fiveyears, 39% of consumers expect to usemobile payments in general and 10%to 14% of consumers expect to preferusing mobile-based payments acrossa variety of specific activities, such asin-store shopping, large purchases, andonline purchases.But once again, security is a concern.The research explored the ways inwhich consumers are addressing thiswith their smartphones, where theybelieve they have a fair amount ofcontrol over security. Consumers areespecially worried about losing theirphones and compromising the infor-mation they contain. Not surprisingly,77% of smartphone owners said thatthey would prefer to have two securitycodes on their phone—one for thephone itself and one for any paymentapplications it contains. But those wor-ries don’t always carry over into actualbehavior. Just 38% have a securitycode on their mobile device, and themost commonly used code is a simplepassword with four or fewer charac-ters. “That may change as more phonesinclude valuable payment informationthat consumers want to protect,” saysPaterson.8. Small Payments,Big PotentialOver the last year, micropaymentsbetween individuals have caught thepublic’s eye, but those methods aregetting varying degrees of tractionwith consumers.The concept of mobile micropay-ments—which used to encompasscash transactions such as babysitterpayments or yard sale purchases—hasbeen adopted by small businesses,or micromerchants, allowing trades-people to easily accept credit cardsusing a device attached to their mobilephone. And person-to-person (P2P)transfers—used in place of a check topay back a friend, for example—cannow rely on credit cards or a separateservice. In essence, these methods areblending and overlapping, but overallthey indicate a growing interest in us-ing mobile devices to transfer moneyamong individuals.A lot of attention has been focusedon card readers attached to mobilephones and tablets. Fifty-seven per-
  13. 13. 130 20 40 60 80 10094%6%67%2%25%17%83%62%86%3%14%18%■ 0 ■ 1 or more ■ 1 to 2 ■ 3 to 5 ■ 6+NUMBER OF PAYMENT CARDSCARRIEDLoyalty cardsGeneral-purpose charge cardStore credit cardGeneral-purpose credit card73%12%2%31%69%26%20%7%Fat WalletsConsumers carry a varietyof cards, but most have ageneral-purpose credit card.Loyalty cards account for alarger share of wallet thanother payment forms.cent of consumers said they are awarethat small merchants can use suchreaders. That awareness is even higheramong consumers under age 35 (64%)as well as those earning more than$100,000 a year (70%). Nevertheless,usage is low—just 6% of consumers in-dicate they have used this approach topay for services, up from 5% last year.Sixteen percent expressed interest inusing this method.P2P payments present a similar pic-ture, with 42% of consumers sayingthey are aware of mobile phone-basedP2P money transfers, but just 4% us-ing this method and 12% saying thatthey are interested in it. One barrier towider use is the time it takes to trans-fer money via ACH networks. “It maybe a few days before the other persongets their money,” says Seifert. Fastertransfers are possible if both senderand receiver are part of the same P2Pservice, he adds, “but that means theother person has to share privateinformation with the service, as well assign up ahead of time, which reducesthe level of convenience.”In addition, micropayments are seenas relatively insecure by consumers.Among those with low interest inmobile P2P, 43% said security is a topconcern; with mobile wallet accep-tance, that figure is 58%. Consumerssee the smartphone itself as beingvulnerable, and just 25% consider thecard reader on a mobile phone to besecure.Consumers see the usefulness ofthese methods and want to adoptthem, but the industry has to makethese transfers faster and more secure.In the meantime, however, adoption islikely to be slow. Says Seifert, “That’sbecause there is an alternative thatworks: write a check and mail it.”9. Share of Wallet:Gradual ChangeProven payment methods such ascards and cash continue to accountfor the largest share of wallet, butnew approaches are gradually chang-ing the mix.Today, various types of payment cardscan be found in consumers’ wallets.Debit (71%), general-purpose credit(69%), and store credit cards (38%) aremost widely owned. Debit card ownersusually carry their debit cards with them.General-purpose credit cards are morelikely to be carried by the consumer(65%), than store credit cards (32%).Loyalty cards are carried by 69% ofconsumers, and they take up the mostwallet space, with an average of 3.3carried among owners, compared to anaverage of 2.1 for both general-purposecredit and store credit cards.“As digital wallet providers consider theircapabilities, they should think about thisvariety, and, especially, the importance
  14. 14. 140% 20% 40% 60% 80%62%62%57%61%49%55%16%23%■ 2012 ■ 2013I can trust retailer prepaid cardsUseful for online purchasesI can trust GP prepaid cardsATTITUDES TOWARDSPREPAID CARDSWill use as a substitute for checking accountPREPAID’S APPEALConsumers see prepaidcards as being secureand providing a practi-cal payment method fora variety of uses, bothonline and offline.of loyalty cards,” says Paterson. “Digitalwallets have a lot of potential to appealto consumers by helping them managesome of this clutter.”The mix of payment cards has beenfairly stable since last year, althoughadoption of prepaid cards is continuingto fluctuate. Overall, prepaid card pur-chases have been essentially flat. Thisyear, 60% of consumers said that theypurchased them, as opposed to 63%last year. However, of the 58% whoplan to buy prepaid cards in the comingyear, 43% said that they expect to buyeven more than they did in the past.Unlike most prepaid cards, general-pur-pose reloadable cards saw more con-sumers using them this year, going from15% to 19%. What’s more, these cardsare no longer the province of lower-earning consumers: those earning lessthan $50,000 a year are less likely thanhigh-income consumers to have boughtthem. Young adults as well as tablet andsmartphone owners were also morelikely to purchase these cards.The research found that the antici-pated increases in prepaid purchaseswill be driven by several factors. Nearlyone-fourth of consumers said theyplan to use prepaid cards as a substi-tute for a traditional checking account,with 32% of young adults 18-34 ex-pecting to make that change. Consum-ers also see prepaid cards as offeringhigher security and limited risk, aswell as being useful for making onlinepurchases and helping with budgeting/spending control.“I think we’ll see prepaid used in uniqueand non-traditional ways in the nearfuture,” says Ed Paciolla, director of Pre-paid Programs at Vantiv. For example, hesays that prepaid could be bundled witha small business payment solution, sothat when the business accepts pay-ment via mobile phone, the funds wouldgo into a prepaid account. This wouldgive the business owner fast access tofunds and a convenient way to use aprepaid card for business expenses.As mobile payments ramp up, theyshould gradually gain a larger share ofwallet. For example, 14% of consumersexpect to prefer mobile payments forsmall in-store purchases five years fromnow, which will occur at the expense ofcash. Similarly, 11% expect to use themfor household services such as plumb-ing and landscaping, at the expense ofcredit cards and checks. And 12% ex-pect to use them for large purchases, atthe expense of debit and credit cards.10. FinancialInstitutions:Building on TrustThe payments landscape is chang-ing rapidly, and as last year’s researchfound, executives at financial institu-
  15. 15. 15In Banks They TrustConsumers rank banks andcredit unions at the top interms of preferred walletproviders—a reflection ofthe trust built up by thoseinstitutions.tion worry about betting on the wrongtechnology. As a result, they oftenhesitate to move ahead with newprograms—especially in the mobilepayments and wallets arena.This year, however, the researchshowed that financial institutions havea significant advantage in these emerg-ing approaches—and a powerful im-perative to move forward. When askedwho they would prefer as a digital wal-let provider, 50% of consumers pointedto their banks/credit unions, givingthose institutions the highest ranking.That was followed by major card net-works (43%), online providers such asPaypal (20%), major companies such asApple, Amazon and Verizon (13%), andthird-party developers such as Google(9%). Among customers who wouldconsider using mobile wallets in thefuture, financial institutions fared evenbetter, with 69% of consumers say-ing they preferred their banks or creditunions to provide them.At the same time, card networks andthird-party providers are moving fastto deliver mobile wallets. In short,banks have an opportunity—but theyneed to exploit that opportunity soon.Financial institutions have developed ahigh level of trust among and relation-ships with consumers that can helpallay fears about security and privacy.They maintain cardholders’ personaland financial information, which meansconsumers using bank or credit unionwallets and payment tools don’t needto share sensitive data with a new, un-known provider. “Financial institutionshave an opportunity to leverage theirtrust and their widely used online andmobile banking programs to integratemobile wallet technologies around ex-isting debit and credit cards, as well asdeposit accounts,” says Paterson.But as they pursue wallet programs,institutions should think about doingmore than having their payment toolsavailable at the point of sale. Custom-ers making purchases will be receivinglast-minute offers from other provid-ers, and financial institutions will haveto create their own offers in order tostand out, explains Royal Cole, presi-dent of Financial Institution Servicesat Vantiv. Otherwise, institutions willmiss an opportunity to enhance brandawareness at that increasingly impor-tant point of sale—and perhaps losecustomers to other providers thatmaintain a higher profile.“Financial institutions have a capabil-ity that third parties and retailers can’teasily match. They can lend money,issue credit, and provide bank ser-vices,” says Cole. Thus, a bank mightoffer a small loan with easy terms toa customer making a large purchase,encouraging them to use the bank’smobile payment method. That can helpthat bank retain customers—or evenfind new ones. “You might offer that tosomeone who’s not a customer yet, sothat can get that relationship started0% 20% 40% 60% 80%50%69%43%59%20%27%13%18%■ All respondents■ Respondents most likely to use mobile wallets13%18%13%18%12%17%PREFERRED DIGITAL WALLETPROVIDERBanks,credit unionsMajor card networksOnline payment providersMajor technology companiesMajor eCommerce companiesWireless providersMajor retailers
  16. 16. Vantiv Corporate Headquarters8500 Governors Hill Drive, Cincinnati, OH 45249866-622-2880 | www.vantiv.comAbout VantivVantiv is one of the leadingintegrated 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.right in the moment,” he says. “This caneven be an acquisition strategy.”At the same time, financial institutionscan build on their foundation of trustby expanding their mobile bankingplatforms and adding features thatcustomers want. These might includemobile check deposit, alerts, budget-ing and personal financial manage-ment tools, as well as the ability tomanage coupons. With such features,says Seifert, “financial institutions cangradually enhance their own platformsand help their customers migrate fromtraditional payments to a digital andmobile-based payment environment—and maintain relationships with thosecustomers along the way.”ConclusionAs these trends illustrate, merchantsand financial institutions need to stay instep with consumers—and often, leadthem. The changing payments envi-ronment can present consumers withan overwhelming set of options. Thatmeans the industry needs not only tocreate new products, but also to helpconsumers understand how those inno-vations can be used in their daily lives.Still, with so many currents moving inso many directions, industry executivesoften find it difficult to know with preci-sion how to proceed. The result, theVantiv/Mercator research has found, isoften hesitation. But in a fast-changingindustry, sitting on the sidelines canquickly mean missing out on new op-portunities.There are many steps merchants andfinancial institutions can take in thisenvironment. They can explore andconduct pilots, tests, and trials. Theycan partner with third parties and tapinto the technologies and businessexpertise of the industry ecosystem.And they can listen, paying close at-tention to what customers say theywant—and what they say they worryabout—with payment technologies.That’s critical, because customershave more control and more choice—and the competition is working hard tomeet their needs.The industry is changing, and it ischanging fast. By moving forwardsooner rather than later, merchantsand financial institutions can learn howto maximize opportunity and minimizerisk in this environment—and be activeparticipants in guiding the ongoingevolution of the industry.Chart sources: Page 4, Roper/Vantiv Research, December 2012.All other charts, Vantiv/MercatorResearch, 2012 and 2013.®