I’ve spent a little time reflecting on 2015 and wanted to share with you my thoughts on what trends we might see with payments in 2016.
Plastic Card PaymentsExpect much of the same for plastic card payments in 2016. Plastic payments will still be king and the obituary for plastic cards won’t be written in 2016 for the simple reason that there is no payment type that is as ubiquitously accepted around the world just yet. U.S. issuers will continue with their rollout of chip cards, and you’ll continue to see more check and cash conversion to plastic payments.
We’ll continue the crawl toward ubiquitous chip acceptance at U.S. point of sale retailers, too. Toward the end of 2015 only 15% of retail locations enabled chip acceptance, which was a far cry from the 40% projected by many industry experts. And there was even less debit card chip acceptance thanks to Senator Durbin due to debit-specific network routing complications. The checkout process when using a chip card can feel slower than the swipe of a card, especially at retailers where purchases under $50 didn’t historically require a signature. Perhaps the proximity of the October ’15 liability shift to the busy holiday spending season caused some merchants to delay enabling chip acceptance out of concern for how their checkout performance might be impacted.
Hopefully we can expect to also see a spike in dual acceptance (contact and contactless chip payments) as merchants continue to replace point of sale hardware and enable chip acceptance at their retail locations. This might be the lift needed to help Near Field Communication (NFC) based mobile payments take off.
Wallets & Mobile PaymentsWe’ll continue to see further fragmentation (and confusion?) with mobile payments wallet options between handset and OS manufacturers, merchants, and white label financial institution offerings all battling for adoption. Expect a lot of ‘build or participate’ decisions to be made or solidified in 2016.
A strategy around participation in a number of mobile wallet and payment platforms acknowledge financial institutions can’t prevent consumer adoption of multiple platforms, and that their customers are more empowered than ever before to choose how they will transact with their financial institutions. This approach helps keep financial institutions payment products top-of-wallet even if the financial institution isn’t providing the wallet or payment method.
Whereas a strategy around building a white label wallet indicates there’s a value proposition at play greater than just maintaining top-of-wallet position for customer’s cards and accounts within these platforms. This strategy is more likely to be successful when a financial institution has economies of scale with both the issuing and acquiring side of the payments ecosystem as a value proposition can be created for the financial institution, retailers who need to accept the wallet for payment, and the customer they share.
Apple Pay, Samsung and Android Pay have created some really great frictionless payment experiences from their devices. At the end of the day these payment methods need to deliver a consistent experience for the user, and need close to ubiquitous acceptance at retailers to deliver on their promise of replacing your traditional wallet and plastic payment cards.
Retailers will jump into the fray with Wal-Mart already announcing a debut of their mobile payment app later this year. Target has also been rumored to be working on a similar solution. Look for these developments to further retailer’s efforts to delivery an omni-channel shopping experience and to leverage ways to reduce payment acceptance costs.
The Long Awaited MCX & CurrentC Debut2016 could be the year when retailer’s customers finally have access to the Merchant Customer Exchange’s (MCX) long awaited CurrentC app. The strategy behind the MCX consortium and their CurrentC app was always to reduce payment acceptance cost for participating retailers. Last year MCX inked an agreement with Chase that could very well help MCX achieve this objective through lower card acceptance costs while potentially providing Chase with preferred top-of-wallet position in the CurrentC wallet for their issued credit and debit cards.
The wild card will ultimately be consumer adoption of the CurrentC app. One barrier they, and any other retailer or white label wallet faces, will be delivering the frictionless experience handset manufacturer’s have with their respective mobile payment solutions. CurrentC will also need to deliver a rich value proposition for consumers to ensure adoption. Beyond breaking through the payment acceptance barrier other mobile payment and wallet solutions face with NFC, perhaps the consumer’s value proposition revolves around richer loyalty perks and discounts at participating retailers.
Look for the CurrentC app to debut later in 2016.
A White Knuckle Year For Payment Fraud?Chip acceptance at retail locations, and other payment developments that remove sensitive card data from systems all together, like tokenization, will eventually make counterfeit cards and retailer data breaches less desirable options. Fraudsters will always target the path of least resistance, and right now the next path appearing leads us to ATMs and Automated Fuel Dispensers (AFD).
ATM and AFD terminal owners have less incentive ahead of October 2017 to enable chip acceptance at their respective terminal locations. Data skimming technology is also getting smaller and more sophisticated which makes it harder for the average cardholder to determine if a terminal has been compromised or not. Look for more aggressive attempts to capture card data at these types of terminals through skimming devices, which could also include PINs, and as well as the actual fraud occurring at these terminals, too.
Faster PaymentsWe’ll see phase 1 of Same Day ACH debut in 2016 with Receiving Depository Financial Institutions (RDFI) required to accept Automated Clearing House (ACH) credits as the first Same Day ACH transactions. Who, and maybe more importantly how Originating Depository Financial Institutions (ODFI) and their respective 3rd party partners adopt Same Day ACH will ultimately determine if we’ll all be drinking from the fire hose, or if we’ll all have time to adjust and learn with a slower, more gradual volume of transactions.
Be sure you’re thinking beyond just achieving compliance with accepting Same Day ACH credits, but how ACH transactions originated by your business partners may intentionally, or unintentionally fall into the Same Day ACH processing windows. These could include your bill pay providers, person-to-person payment providers, credit card processors if you’re products are offline from your core system, and others that may create ACH files or originate payments on your institutions’ behalf.
Be sure to proactively engage your respective Regional Payment Association for guidance and support well ahead of September.
We’ll also likely learn more about the Federal Reserve’s plans for providing a near real-time ubiquitous payment solution for the United States. There are currently two task forces; The Faster Payments Task Force and the Secure Payments Task Force, comprised of professionals representative of the entire payments ecosystem collaborating with the Federal Reserve to help develop a solution that will work for everyone.
Fintech & Payment TechnologyThe land of unicorns (and rainbows?) where Fintech startups backed by millions of venture capital dollars plot to reinvent how we all bank, transact, and manage our money might end up becoming business partners for the traditional financial institutions they set out to disrupt. Look for more strategic partnerships, or outright acquisitions of the most promising Fintech ideas by individual financial institutions, industry consortiums, as well as many of the solution provides that already serve financial institutions with platforms and products today.
Tokenization of payment data made its debut late 2014 with Apple Pay followed by Samsung and Android Pay also adopting the technology. Watch for more adoption of tokenization, first with services like Visa Checkout and MasterCard’s PayPass, and eventually with merchants who maintain card data on file for recurring payments.
And last but not least, watch out for more Blockchain technology developments in various mainstream financial services industries. It might seem rather boring on the surface, and I’ll do my best to try and explain why Blockchain is attracting the attention it is. First, Blockchain isn’t Bitcoin, but instead is the ledger of accounts for all transactions that have ever been made through a system that utilizes Blockchain technology. When transactions are authorized they are added as blocks to the blockchain. The blockchain can’t be altered which makes it more secure than traditional databases where data is authored by a single system or administrator. Before a block is added to a Blockchain its authenticity must be validated by a number of different systems or entities simultaneously which helps ensures fraudulent transaction can’t add as legitimate blocks.
The list of mainstream financial services brands that are actively pursing Blockchain opportunities, or who are initially investing in R&D to validate opportunities is pretty impressive. The list includes names like Visa Europe and the NASDAQ. Consider adding Blockchain to your list of weekly industry reading if it isn’t already topic you’re following.
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Picture Credit: Microsoft
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