CINCINNATI (7/23/12)--Vying for share of wallet is the No. 1 payment processing trend shaping up for 2012 in an industry undergoing a number of changes, according to a report from a payment processor.
Cash is still king, with 90% of consumers surveyed using cash during the winter holidays, compared with 60% using debit cards, and less than 50% using bank credit cards, store credit cards or gift cards, said the report, "Top 10 payment trends to watch in 2012," by Cincinnati-based Vantiv LLC (formerly Third Processing Solutions), an integrated payment processor, and Roper.
Non cash will grow in popularity, altering the share-of-wallet across payment instruments.
Vantiv research indicated the greatest growth likely will be in prepaid cards, which will pull from credit and check payments.
Vantiv reported that credit card use will increase moderately with pent-up demand from the recession; check use will continue its decline; and, because of the Dodd-Frank Wall Street Reform Act interchange regulation, larger institutions will de-emphasize debit cards and encourage their member/customers to shift to credit and even prepaid cards.
The study said it expects the greatest growth in prepaid cards. Those credit unions and community banks not covered by the interchange amendment "may see a market opportunity and redouble their efforts in that space," said the report.
New, emerging payment forms, most notably mobile payments, will have a long-term impact in all major spending categories, with significant percentages of respondents saying they would shift to mobile payments in these ways:
- 10% for small in-store purchases, mostly displacing cash;
- 11% for grocery/everyday spending, displacing most debit;
- 8% for large in-store purchases, displacing most credit;
- 7% for online purchases, displacing credit/debit;
- 6% for education expenses, displacing mostly checks;
- 9% for household expenses, displacing mostly debit; and
- 8% for doctor visits and co-pays, displacing mostly cash and checks.
Vantiv also noted factors that drive consumers' choice of payment method. Consumers are interested in low- or no-cost payment methods (87%); speed at the point of sale (85%); security (72%); ability to control spending (71%); ease of dispute (68%); no minimum purchase (66%); and instant deduction (65%).
The other nine trends to watch, in a nutshell, are:
Security. Security is the main driver behind a lack of consumer interest in new payment types. Roughly 60% of consumers surveyed worry about security with electronic wallets and 40% do so with person-to-person payments. Fifteen percent indicated their credit or debit cards were cancelled due to a data breach in the past year, and 14% saw fraudulent charges on their accounts. EMV will be mandated by the market and will set the stage for CVV, which generates a security code for each transaction instead of a security code for the card itself.
Prepaid cards. These will increase in popularity and variety. Of consumers surveyed, 15.5% said they expect to substitute debit/direct deposit accounts with prepaid cards in the next 12 months. General purpose reloadable cards will grow as debit use slows. However, financial institutions will need time to sort out multichannel approaches to card-loading and pricing tiers, Vantiv said. It expects 15%-20% growth for customer rebate and incentive cards and employee-reward cards. Disbursement cards will see mixed results, and the gift-card segment will continue modest growth.
Smartphone payments. Just 1.5% of consumers have made mobile payments, although 61% say mobile payments will be common in five years. The wait-and-see attitude is fueled by doubts about the security of smartphones, which are vulnerable to hacking and easy to lose. Most said they would keep a traditional card as a backup for mobile payment. Although smartphone use at the beginning of 2012 was 45% (up from 28% in 2011), in-store infrastructure for smartphone payments still is lacking at many merchants. It is not clear that Near Field Communications capabilities will be the winning technology. Other solutions tout card-reader attachments for smartphones that let retailers use their phones to accept credit-card payments. Issuers will need to convince users to change to mobile wallets with coupon and rewards programs, location- and proximity-based marketing and tools to help consumers manage their spending.
Merchant tablets. Merchants have embraced iPads and other tablets to allow salespeople to gather customer data, help customers find what they need, let shoppers browse through their inventory, and speed up waiting in line. Some also are considering the tablet as a point-of-sale (POS) device to accept payments and as a less expensive alternative to a cash register. Seventeen percent of consumers surveyed already use roving POS for in-store payments, and Vantiv said that figure will grow quickly. It expects specialized tablets for certain functions at different types of merchants to gain in the future.
Mobile banking. Mobile banking 3.0 will emerge. Nearly half of banks surveyed in a separate study say they will invest in mobile banking in the coming year. Mobile check deposit, where consumers take a photo of a check and send the image to the financial institution for deposit, moves to the next level. Expect the addition of wallet-based payment with as many as 250 wallets developed for the market by the end of the year. To stand out in the crowd, financial institutions have an edge: they already have consumers' personal and financial information and trust.
Person-to-person (P2P) payments. In the U.S., P2P has not taken off yet. Of consumers surveyed, 47% don't see a need for it, 38.5% have security concerns, and just 22% said they were interested. However, it has gained among individuals making payments to tradespeople or small businesses. Increased familiarity will improve the popularity, said Vantiv. Practical obstacles include: relying on the automated clearinghouse (ACH) network, which takes days to clear the payments; making the effort needed to open P2P accounts and go online to approve incoming transfers; and providing P2P capabilities across a variety of channels at financial institutions.
E-commerce. Expect e-commerce wallets to expand to brick and mortar. Consumers have a high awareness (more than 80%) for online methods of credit and debit, PayPal, ACH debit, and online bill payment, but worry about security, said Vantiv. Credit and charge cards are the preferred way to purchase online. But there's a growing interest in moving online payment methods to e-wallet initiatives that let consumers make purchases without having to enter credit card numbers. PayPal already is working to become an acceptance option at the retail POS, Vantiv said. Also, the trend can work in reverse: Visa launched its V.me wallet for online shopping, which lets consumers pay with a variety of credit cards. In the past, e-commerce was conducted from the consumer's home PC. Now, it is taking place at the store itself.
- Social network payments. Consumers are buying more virtual goods used in online social network games. For example, they buy swords and magic wands for multi-player games or cows and tractors for Farmville, said Vantiv. This area is growing rapidly with more than $2.3 billion spent last year on virtual goods, an increase from the $1.8 billion spend in 2009, said the report, citing statistics from Frank N. Magid Associates consulting firm. There is some overlap of the virtual world of paying and the non-virtual world. Facebook, for example, is allowing consumers to use "credits" to purchase real goods from merchants. Virtual payments will need to overcome these obstacles: they are high risk and therefore providers charge high fees to handle them; sellers wait for days for payment while the intermediary checks to ensure there are no chargebacks; they need to find approaches to pricing and timing that appeal to broader audiences; and as virtual currencies take hold and establish more value, the risk of fraud will increase.
Legislation/regulation. The ramifications of the CARD Act and the Dodd-Frank Act's impact on payments are still being sorted out. Vantiv says to expect more reporting and recordkeeping requirements on payment providers and merchants. It cited more reporting and recordkeeping mandates on open loop prepayment cards, government agencies tailoring regulations to the emerging use of social media in financial activities, the as-yet unknown impact of the new Consumer Financial Protection Bureau and its activities, and the election year as impacting payments.
"New challenges are arising on the operational and regulatory fronts, and customer expectations for ease of use and security are rising," Vantiv said. "Success will require deeper expertise, the ability to learn from broad experience, innovation, and the agility to stay in step with changing customer attitudes and technologies," the report concluded.
The company provides credit, debit, prepaid and data security solutions related to payment activities. For the full report, use the link: