Merchants and financial institution
executives devote a great deal of attention
to keeping up with changing
payment methods. They are constantly
weighing everything from mobile and
prepaid strategies to the rollout of
new security technologies and the
emergence of new competitors. Faced
with shifting and even contradictory
currents, they find the ultimate direction
of events is not always clear. As
a result, they are often hesitant about
moving forward with new approaches. For more info: www.nafcu.org/vantiv
3. 3
As one might expect, executives are less payment technology will emerge
No or low cost 87%
worried about security with new pay- as the dominant approach. Rather, ex-
ment methods in general, and with ecutives are looking at a growing range
mobile payments in particular. That’s a of options. These include alternatives Fast at POS 85%
strong concern for consumers as well. to NFC, such as Paydiant and other
But looking ahead, executives are actu- cloud-based interfaces activated via
ally more optimistic than consumers QR codes or PIN—approaches that do Security 72%
about the industry’s ability to address not require much additional infrastruc-
security. Many interviewees “recognized ture. With such options getting trac- Control spend 71%
a potential for even greater security tion, the future role of NFC is not clear.
with smartphone payments through
technologies like multifactor authenti- The interviews found that executives Ease of
dispute 68%
cation and tokenization,” says Bill Wein- are seeing a similar level of uncertainty
gart, chief product officer at Vantiv. around mobile wallets, which provide No minimum 66%
a single access point to an individual’s purchase
Executives are less confident when it cards and accounts for payments.
comes to dealing with the widespread Industry executives feel that current im- Instant
65%
implementation of mobile payments. plementations of these wallets do not deduction
Merchants not only worry about the provide the functionality consumers are
0% 50% 100%
cost of new infrastructure, they also looking for—in particular, they don’t in-
want to avoid driving customers to new corporate all the cards customers want
payment types that will increase costs. to carry, such as merchants’ private-la- WHAT CONSUMERS
Financial institutions, seeing lower bel closed-loop cards. Most merchants WANT
revenues driven by legislation, want to said that they were involved in evaluat-
clearly understand the value of mobile ing mobile wallets, but many complained Executives tend to think
payments before investing. that not enough phones support mobile that consumers are looking
payments and that current technology for convenience, but costs
At the same time, it isn’t clear which is not user-friendly. Three merchants are top of mind for consum-
technologies companies should invest reported that their mobile wallet pilots ers when choosing a pay-
in. “A primary concern is the lack of a were unsuccessful; a fourth decided to ment method.
universal standard platform for mobile suspend its program until more phones
payments,” says Weingart. The issue is can accept NFC.
partly behind the formation of the Mer-
chant Customer Exchange, a consortium At the same time, executives are con-
of 14 major retailers that aims to come fronted with a long and changing list
up with a standard mobile platform for of mobile wallets in the marketplace.
its members. “Efforts like this are a sign There are no mobile wallet standards
of how much desire there is for a clear in place, and wallets are available from
way forward,” he adds. a wide range of providers. Overall, says
Weingart, “executives fear that early
Few interviewees felt it was certain implementations may be quickly outdat-
that near field communication contact- ed, and they don’t want to waste limited
4. 4
Executive Views:
resources on something that won’t ing to figure out when and how to start
The Challenge serve their purpose for very long.” actually issuing these cards. And some
of Change bank executives are doubtful about the
Looking at a shorter-term issue, the eventual enforcement of the mandates
“The most challenging is to interviews showed that the impending and whether an extensive installed base
figure out which payment types rollout of EMV technology is a source of EMV terminals will actually emerge.”
a bank with limited resources of anxiety for merchant executives. As
should offer…. We can’t offer ev- one might expect, they are focused on Finally, executives expressed concern
ery type of solution that comes the Visa and MasterCard implementa- about the emergence of nontraditional
along.” tion mandates and the 2015 shift of players in payments. Financial institu-
—Senior VP, fraud liability to merchants. But they are tion executives are worried about new
large regional bank also concerned about the challenges mobile payment providers. “Many fear
of weaving EMV implementation into that the new non-card-based entrants
“A major pain point is having a list their point-of-sale technology update may quickly make significant inroads
of 25 things to do.… How should cycles—and the fact that EMV does and cut out their card network-based
we allocate our resources in the not address card-not-present fraud. interchange revenues,” says Royal Cole,
payment world that is changing president, FI Services, at Vantiv.
so fast? We need to move more But these executives aren’t alone. Inter-
quickly in some areas, but how?” viewers found that financial institution Merchant executives also worry about
—EVP, community bank executives are perhaps even more con- new players—such as Google and
cerned than their merchant counter- perhaps Amazon, Apple, and even social
“Some of the new companies parts about EMV implementation. Es- media networks—becoming interme-
developing mobile wallets are not sentially, EMV does not address banks’ diaries that gather a wealth of informa-
in the payment industry—we see security concerns; it is effective against tion about their customers. This could
right through them. They’re trying card counterfeiting, and it helps bank not only result in merchants having less
to make the marketing compo- customers use their U.S.-issued cards control over customer relationships, it
nent more valuable, but their busi- in the EMV networks found abroad, but could also enable those intermediaries
ness is run by advertising.” it does not strengthen security against to use that data to offer marketing and
—Supermarket retailer the kind of database breaches and advertising services to a merchant’s
compromises that affect banks. competitors, targeting the merchant’s
“Our biggest pain point is un- customers. However, the executives do
derstanding which payments Nevertheless, implementing EMV will see an upside to the arrival of new play-
customers really want to use, create a significant expense for finan- ers which, they hope, can help reduce
even if they don’t know yet. It’s cial institutions. “It’s primarily a cost their costs around mobile payments.
too expensive to invest in all the issue for them—a big cost issue,” says
technologies that come out. We Ken Paterson, vice president of re- Executives and Consumers:
have limited resources and want search operations at Mercator. “In some Differing Opinions
to focus only on the most impor- ways they are even more confused than
tant ones to our customers.” merchants because they’ve been given With all of these concerns in mind,
—Drugstore retailer less of a mandate. So they are just try- the merchant and financial institution
5. 5
executives told interviewers that they also felt that current mobile payment AGE
were moving forward very cautiously strategies are not in their best interest 18-34 57%
with new payment methods. But in a and benefit only the issuer. “There is a 35-64 33%
rapidly evolving environment, a wait- consensus that these are coming, but 65+ 14%
and-see strategy may be ill-advised there is a lack of clarity and agreement
because it is out of sync with what about how fast they’re coming and
customers want and expect. Waiting how they’re going to work,” says Peter GENDER
too long could mean missed opportu- Kulik, vice president, Product Manage- Men 41%
nities and even lost customers. ment, at Vantiv. Women 33%
The research identified several key The research also uncovered some
differences between executive and differences of opinion around the role INCOME
consumer attitudes—and a number mobile payment platforms will play in Less than $50K 34%
of these “disconnects” underscore consumers’ lives. Executives tend to $50K-$75K 33%
the risks involved with a wait-and-see see mobile payments as a vehicle for
$75K-$100K 42%
strategy. For example, consumer inter- using traditional card accounts—an
est in mobile payments is quite high: electronic form of plastic—and little More than $100K 43%
Vantiv research found that 62% of con- more. Consumers, however, expect
sumers expect mobile payments to be mobile payment platforms to bring 0% 20% 40% 60%
widely used within five years—and 31% more information and convenience
think that will be the case in just two to their entire purchasing experience.
years. Consumers see challenges, such They want mobile platforms that not WHO’S INTERESTED IN
as security and reliability issues, but ex- only handle payment transactions but MOBILE?
pect the industry to work through them also help them manage receipts and
and deliver mobile payments capabili- coupons, track spending, and so forth. Executives are cautious
ties sooner rather than later. about mobile payments, but
Indeed, the Vantiv research found that younger consumers are es-
But executives see a slower transi- for consumers a key barrier to the pecially interested in them,
tion and believe that the widespread greater use of mobile payments was suggesting future growth.
use of mobile payments is farther off. that mobile payments, by themselves, Desirable customers—high-
Financial institution executives foresee are no more convenient than a credit er-income consumers—are
a somewhat shorter timeline than do card. At the current state of evolution, also interested.
merchants. That presumably stems many consumers see no compelling
from the fact that banks consider reason to change. They want more
mobile payments a natural extension than just the ability to pay with their
of mobile banking and card operations. phones. Without additional tools and
Many merchants, on the other hand, more information on the mobile plat-
cited their disappointing pilot pro- form, they may stay away from mobile
grams and frustration with the mobile payments—or find providers that have
payment tools being offered. Some those broader offerings.
6. 6
Consumers are also looking for more accounts, so they are kind of lukewarm
when it comes to prepaid cards, and they toward prepaid,” says Paciolla.
like the inherent spending discipline of
having a set amount of funds loaded Merchants, too, are paying relatively
on a card. The research also found that little attention to the potential of pre-
consumers see prepaid cards as the paid cards. Although they are familiar
most secure form of in-store payment. with closed-loop cards and are aware of
And nearly half considered prepaid cards the recent growth in the sales of such
useful for online purchases—a “surpris- cards, they generally do not view them
ing finding, since open- and closed-loop as a critical form of payment. “Mer-
cards have not generally been marketed chants usually do not link their loyalty
for this use,” says Ed Paciolla, product or rewards programs with their closed-
management director at Vantiv. Looking loop cards,” Paciolla says. “And general-
at consumer interest and awareness, the purpose prepaid cards are essentially
research concluded that prepaid card off their radar.” Merchants may also be
usage is likely to keep growing. missing an opportunity to use closed-
loop prepaid cards to reduce the overall
The research suggested that mer- cost of payments.
chants and financial institutions may be
missing the significance of the growing Meanwhile it seems that consumers
consumer interest in prepaid cards. The and executives have different views on
MOBILE AND PREPAID: interviews found that in many cases, what drives consumer payment choice.
HITTING THEIR STRIDE banks are only in the planning stages Vantiv’s consumer research has shown
with general-purpose reloadable card that consumer payment preferences
The use of both prepaid programs, and many are just beginning are determined, in order of importance,
cards and mobile financial to think about issues such as reloading by low fees and low costs, speed and
tools are following adoption capabilities and online usage. Few are convenience, security, and spending
curves that indicate contin- including prepaid cards in their rewards control. Consumers are clearly fee-
ued growth, with prepaid programs or actively marketing them to sensitive, with nearly 90% saying that
cards being further along their customers. “At some larger banks, cost is a critical factor. Eighty percent
the curve. executives think that prepaid cards will consider their worst payment experi-
only pull customers away from core ences to be unauthorized, unexpected,
or added fees based on payment type.
100%
In contrast, executives tend to believe
90%
that consumer payment preferences
JANUARY 2012 CONSUMER USAGE LEVEL
80% are driven primarily by convenience
and/or rewards, rather than costs.
70% Incidentally, financial insitutions think
60%
of convenience in terms of offering an
✦ Retailer closed-loop gift cards
50% ✦ Smartphones (iPhone intro)
40%
30% ✦ General-purpose open gift cards
20% ✦ Mobile banking* (initially SMS-based)
✦ Tablets (iPad intro) ✦ Prepaid cards online
10% ✦ General-purpose reloadable cards
✦ Mobile P2P services
✦ ✦ Open and single-merchant e-wallets, Downloaded prepaid mobile app like Starbucks
0%
0 years 5 years 10 years 15 years 20 years
YEARS IN U.S. MARKET
Source: Vantiv/Mercator Insight Series Research, February 2012. * Data from Mercator Advisory Group Survey, October 2011.
7. 7
organized, easy way to manage spend- offerings out there, getting to know Either
ing, payments, and receipts, while mer- which customers use them and how general-purpose 26%
or retailer cards
chants think of it as speed at checkout they use them, understanding the use
and being easy to carry. cases that their customers are most in-
terested in—those types of things are
Finally, in considering these various very important,” says Kulik. “Whether Retailer-specific 20%
disconnects, it’s worthwhile to con- it’s a mobile banking application that’s prepaid cards
sider some demographic realities. The accessed through the phone browser
research found that young adults are or a single-use case like mobile check
more interested in mobile payments deposit, banks can provide some value
and prepaid cards than older consum- to customers while learning how to General-purpose
18%
cards
ers are, and they are more likely to see make the best use of the platform.”
themselves using mobile payments.
Thus, consumer interest in these areas The idea is to strengthen relationships
0% 10% 20% 30%
is not a short-term event. As these with consumers and hold on to them
types of tech-savvy consumers come as the mobile payments space evolves.
to make up more of the consumer pop- The Vantiv research found that some
ulation, the marketplace’s expectations banks are adopting this kind of defen- PREPAID PURCHASES
around these payment methods is only sive strategy with mobile wallets, intro- PLANNED
going to increase. These consumers ducing their own wallets using their own
Executives may be luke-
are not likely to reward those providers bank cards or branding “white label”
warm about prepaid cards,
who took a wait-and-see attitude. wallets from partners. “Even if they do
but more than a quarter of
not expect their digital wallets to be a
surveyed consumers expect
Taking Action— leading payment type in the near future,
to purchase more of them in
and Finding What Works they want to introduce their customers
the next 12 months. Young-
to the experience early to gain loyalty
er consumers, women, more
In this environment, merchants and and seed their market,” says Paterson.
affluent consumers, and
financial institutions need to move “These financial institutions will be bet-
smartphone/tablet owners
ahead—and they can do so in incremen- ter positioned to combat nontraditional
are more likely than average
tal steps. They can get beyond wait- mobile competitors.” That’s important,
to plan such purchases.
and-see strategies to gradually build he adds, because “the window of op-
the capabilities needed in an evolving portunity for financial institutions is
payments environment—without having closing as non-traditional vendors step
to commit solely to one approach. up the pace of their mobile network
development.”
Financial institutions, for example, can
leverage their existing mobile banking Merchants can take similar action and
platforms by adding functions and fea- explore the use of mobile platforms
tures, even if they not ready to include without including payments, allowing
payments. “Getting various mobile them to make progress while they wait
8. 8
Executive Views:
Growing
Opportunity
for terminal standards to emerge and and skills. That can be a lot for individ- “Prepaid cards are very impor-
infrastructure decisions to be resolved. ual merchants and financial institutions tant.... I think there’s an op-
That can mean focusing on smartphone to cover, making it difficult to tackle portunity for someone to come
applications that enhance the in-store these initiatives alone. Like other indus- up with a mobile gift card mall
experience—providing features such tries, merchants and financial institu- where it is easier to redeem
as coupons, e-receipts, and product tions are likely to benefit from working points and convert to gift cards
search capabilities to customers, who with partners that can bring mobile, and access your prepaid ac-
can then make payments with their tra- processing, and other payment-related count using mobile phones.”
ditional credit card. Case in point: the expertise to the table. “Forging part- —Home improvement retailer
recently released Apple Passbook ap- nerships that are focused on strength-
plication lets consumers organize and ening payment initiatives is becoming “The technology is moving so
manage their virtual cards and coupons more critical to the success of financial fast, there’s a lot of opportu-
for use with mobile payment systems. institutions and merchants, because nity to move to new payment
“By integrating mobile into the shop- it can help them navigate through the types…. We don’t want to lose
ping experience and the overall process development and deployment of new membership to another finan-
for consumers,” says Kulik, “customers technologies to more adeptly address cial institution, and we want
can then be transitioned to mobile pay- market needs,” says Paterson. to attract the younger gen-
ments when the merchant is ready.” erations. Are we on top of the
At the same time, executives can ques- market? Are we identifying the
On the prepaid card front, merchants tion assumptions—always critical in a best alternatives and partner-
and financial institutions can look for changing environment. The research ing with the right vendors?”
opportunities to strengthen their identified several areas where consumer —SVP, credit union
programs to take advantage of that attitudes appear to be out in front of
growing market. Improvements could merchants and financial institutions. But “Mobile technology will help
include providing better access to those disconnects are not insurmount- us better engage our custom-
balance information, simpler redemp- able, and by understanding them, execu- ers and guide them through
tion and reloading, the ability to split tives can take action to shape strategies our stores.… They can set up a
transactions across prepaid and credit around consumer wants and needs. “Fi- profile within our rewards appli-
cards, and so forth. Companies can nancial institutions and merchants have cations to include preferences,
also integrate open- and closed-loop an opportunity to take a leadership role shopping lists, and preferred
prepaid cards into their mobile wallets in the evolution of payments and shape payment method. It will recog-
and their rewards and loyalty programs. standards, technologies, and offerings nize through geo-fencing when
that keep them in step with changing they will be in or near our stores
Altogether, such initiatives, combined demand,” says Weingart “Those that and know what they want to
with ongoing loyalty, security, compli- take early steps to engage their cus- buy and direct them to the
ance, and cost-management efforts, tomers will be better positioned to keep best product in that category.”
require a wide range of technologies those customers tomorrow.” —Drugstore retailer
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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