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: www.nafcu.org/vantiv

1. Top 10
payment
trends to
watch
in 2012

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
Shaping the future of
payment processing
Business is changing on virtually every front, and the world of
payments is no exception. Today, merchants, financial institutions, Top 10 Payment
and 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 2012
changing. Emerging payment methods, based on everything from
1. Share of wallet
smartphones to social networks, are rapidly gaining traction, as are
innovative point-of-sale systems and a growing number of e- 2. ecurity
S
wallet-based methods. At the same time, more familiar factors— 3. repaid
P
such as shifting security threats and ever-changing laws and regu- 4. Smartphone
lations—have to be factored into the equation. Altogether, these payments
currents promise a fundamental transformation comparable to the 5. Merchant tablets
shift from cash to electronic payments more than a decade ago. 6. Mobile banking
In this publication, Vantiv focuses on these varying and often over- 7. 2P payments
P
lapping currents. These have been distilled into 10 trends that are 8. E-commerce
underway and, in many cases, likely to have an even greater impact 9. Social payments
in the near future. 10. Legislation
These observations are based on Vantiv’s experience and on dis-
cussions with clients and others in the industry. Perhaps most
important, we draw on the insights of consumers. Working with the
Mercator 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 behaviors
will shape the future as much as new technologies and policies.

4. 4
No 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 the
Control 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
mobile 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 data
These percentages may be types. For example, 6 out of 10 breach in the past year, and
underestimated, since consumers tend respondents said they were worried 14% actually saw fradulent
to minimize their own likelihood of using about security with electronic wallets, charges on their accounts
alternate 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 that
drive and will drive consumers’ choice of New developments may help alleviate
payment method. Consumers are very some of those concerns. The move to
interested in low- or no-cost methods, EMV technology, which can help prevent
security, and the ability to control in-store fraud, is accelerating. This is
spending—and are less interested in largely driven by Visa’s and MasterCard’s
the prestige of payment type and store announced EMV roadmaps. There
preferences. An understanding of these are also incentives at work, with Visa
perspectives can help institutions focus allowing retailers to waive some PCI
on payment methods that will appeal audit costs once more than 75% of
to consumers and encourage greater transactions come from terminals that
adoption and usage. are both EMV and contactless capable.

6. 6
Criminal As more institutions adopt EMV, downstream,” says Walters. “Smaller
hacking 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
consumers 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 cards
next 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 cards
of prepaid cards compared to that because most large states have
of emerging mobile and contactless completed the transition to such Useful for online 49%
payment methods. As those methods cards. Universities, on the other purchases
become more widespread, prepaid can hand, are showing increased interest
offer a comfortable alternative because in disbursement cards because it 38%
Safer than cash
the cardholder’s liability is limited if the provides a cheaper, faster alternative
card is lost or compromised. But faith to writing checks for tuition rebates.
in prepaid cards is not absolute: While Substitute
for checking 16%
most consumers trust network-branded Meanwhile, the gift-card segment account
prepaid 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 PREPAID
General-purpose reloadable cards are This is a mature market, and the trend
CARDS
likely to see strong growth in the coming toward merchants seeing gift cards as Consumers trust prepaid
year—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 half
involved in the effort to convert more we are likely to see more incentives consider them useful in
consumers 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 hedge
sort out fee structures and look for card programs with their marketing/ e-commerce risks with
convenient, multichannel approaches to promotions functions—areas that are limited personal data and
card-loading, which is inhibited because still separate silos at many companies. account separation.
58% of bank customers are still not
involved in online banking. Finally, several emerging approaches to
prepaid bear watching. These include
The prepaid-card arena has been digital, downloadable prepaid cards,
growing more diverse, with various which essentially give the user a card
types of cards serving different number online; and micro-lending
needs—and that trend continues. The prepaid cards, which allow consumers
coming year will see growth in the 15% to borrow small amounts from their
to 20% range for customer rebate and financial institution and apply them to
incentive cards and employee-reward their card, on the spot, when they need
cards. 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
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 for
I 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 a
surprisingly, 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
acceptance is an early incarnation of the at a pace that has surprised many
merchant world by 2015.” observers. Merchants are finding Convenient 27%
a number of in-store uses for the
Ultimately, the actions of issuers will devices, allowing salespeople to gather
be key to bringing consumers around. customer data and help customers find
Today, many users simply don’t see a what they need, or letting shoppers
reason to change. Just 1 in 4 regard browse through inventory themselves. Reliable 23%
mobile wallets as convenient, and 1 “Merchants are finding them useful
in 8 would prefer to use smartphone for streamlining in-store processes
payment rather than a card. But issuers and engaging customers to increase
are 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-based
marketing, and tools to help consumers Increasingly, merchants are also looking
budget and manage spending. at the tablet as a mobile point-of-
0% 15% 30%
sale (POS) device that can be used
Rewards, too, may help: In the Vantiv to accept payments and provide an
research, 27.5% of consumers regarded effective alternative to the traditional
them as a potentially effective way to cash register—at perhaps a tenth of MOBILE PERCEPTIONS
encourage the use of mobile payments. the price. While the use of tablets
Consumers are taking a
The research also found that for many to handle payments is still relatively
“wait and see” approach to
consumers, 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 to
payment 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 appealing
convenience 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 a
5. Merchants: satisfying customer experience. In a
shoe store, for example, a salesperson
The 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 the
Over the past year, merchants have customer. “If the customer likes the
embraced iPads and other tablets product, the salesperson can just

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, vice
Interested 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 use
TABLETS TAKE OFF “hardening” for each type of retail their smartphones to photograph and
environment. That specialization may deposit a check. This approach moves
Merchant tablets may have also help with another tablet issue. “If beyond basic mobile banking and
already hit the tipping point, you have a specialized device for, say, lets the customer avoid a trip to the
with more than half of all ordering and paying in a restaurant,” bank branch, and it provides a proven
respondents aware of this says Boeding, “customers are going value proposition for banks. USAA, a
payment method and 17% to be less tempted to walk away pioneer in mobile check deposit, has
saying 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 the
slightly higher among feature to deposit 7.8 million checks
smartphone 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
see much more of that,” says Love.
Banks’ interest in wallets is certainly
7. P2P: Getting Aware 24%
growing—but so is the interest
of other parties, from Google and
Consumers to
Amazon to numerous large retailers.
Vantiv estimates that there are more
Come Along
than 80 wallets in development or on There has been much discussion about
the 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 common
The 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-account
But 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—a
worried, as always, about security— key form of A2A—has not taken off.
may see their banks as a safe and
simple 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 would
information, so there is a level of fit into their lives. Forty-seven percent GAINING FAMILIARITY
trust 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 taken
just seamlessly add payments to off outside the U.S., that’s
that, rather than use a number of Many observers think that increased not the case here, where
other 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 using
All of this can be seen as the potential for P2P payments, especially this method—largely, it
emergence of “mobile banking 3.0,” for unanticipated transactions that appears, because they don’t
says Love. “We’re moving toward need to happen rapidly, such as paying yet see the need for it.
mobile personal financial management, medical bills or car repairs,” says Dean
where the consumer not only has Seifert, senior vice president, product
banking functions, but can also use strategy, at Vantiv. Interestingly,
the phone to do budgeting, receive P2P has gained some traction
alerts about overspending, get offers among individuals making payments
from third parties, and so on. At that to tradespeople and other small
point, mobile banking starts to really businesses. “The original thought was
contribute to the customer relationship that two individuals might use P2P
and loyalty. And this will probably to split the check at lunch, that sort
happen sooner than a lot of of thing,” says Seifert. “But so far it’s
people expect.” been a consumer-to-small-business

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 will
Online 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 charge
ability.” Debit cards followed for everyday, one-off transactions. cards are still the preferred way to
closely, 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
the appeal of intermediaries, such as has launched its V.me wallet for online
Amazon, because they allow consumers shopping, which lets consumers pay
to 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. In
the Vantiv/Mercator research, 45.5% of Those moves are part of a larger
consumers said that they view PayPal trend toward the increasing overlap of
online 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 mobile
Indeed, there is growing interest smartphone payments, tablets being
in such online payment methods, used in stores, ubiquitous wireless
including e-wallet initiatives such as connections, and changing consumer
Used 4%
Google Checkout that let consumers payment behaviors, “e-commerce is no
make purchases without having to longer something you do from your PC
enter credit card numbers. What’s at home—it’s now taking place in the
more, 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 GET
and iTunes are cloud-based wallets
and 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 growing
chief product officer at Vantiv. With
financial information stored by these
the Real World? rapidly, social media
payments are of limited
intermediaries 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 are
an 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% of
wallets being used in brick and mortar,” consumers have heard of these social
Weingart continues. “PayPal clearly has network payments; 12% say they are
a vision to be an acceptance option at interested in them, and just 4% are
the retail point of sale, and there’s an using them, according to the Vantiv/
expectation that Amazon and Apple Mercator research. Nonetheless, this
will 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 $2.3
world.” That trend is also proving to be billion on virtual goods last year, up
a two-way street: Visa, for example, from $1.8 billion in 2009, according to

14. 14
Unauthorized
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 Change
Store 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 significant
Doesn’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
is just about anything that touches a
transaction,” says David Herron, product
Conclusion Early adopters
may rush to try new
legal 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 most
The CFPB has been hearing credit card disruptive. However, two things are crystal consumers want
complaints since it was launched, and clear: New challenges are arising on the something more.
it 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 see
bureau announced that it had received security are rising. By assessing the situ- how new approaches
more than 20,000 complaints on various ation, exploring consumer attitudes, and will improve upon
topics, including some 12,000 about continuing the discussion, we can contend
credit cards. with developments as they unfold. what they have.
Consumer perceptions may also drive As these 10 trends demonstrate, success
change. Herron says that consumers will require deeper expertise, the ability to
generally 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 from
retailers. “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 focus
provides 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 they
most-cited bad-payment experiences: will come” is not effective in the world of
unexpected fees for using credit/debit payments. Early adopters may rush to try
(84%), and being charged extra by stores new methods, but most consumers want
to use a payment type (80%). something more. They want to see how
new approaches will improve upon what
Finally, the U.S. presidential elections they have now—how they will save time
are also likely to affect the regulatory and money, make payments more con-
landscape, one way or another. “There venient, and strengthen their confidence
have already been minority calls in that information and funds are safe.
Congress to repeal parts of Durbin,” says
Herron. “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 to
eventual makeup of Congress, we may see keep driving improvements that work for
another run at credit card legislation when consumers while enabling merchants and
the dust settles from the elections.” financial institutions to thrive.

16. About Vantiv
Vantiv LLC is one of the
leading integrated payment
processors in the United
States. Known as Fifth
Third Processing Solutions
since 1971, the company,
headquartered in Cincinnati,
Ohio, changed its name to
Vantiv in 2011, and became
a public company in 2012.
Vantiv’s credit, debit,
prepaid, and data security
solutions help businesses
and financial institutions of
all sizes get the most out of
payment activities.
Vantiv Corporate Headquarters
8500 Governors Hill Drive, Cincinnati, OH 45249
866-622-2880 | www.vantiv.com
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