The Ten Hottest Trends in Payments

Sure, security is on everyone’s mind these days, as no one wants to be the next poster child for data breaches. But other fundamental issues and market changes also are affecting the industry as well, and it’s important not to focus on one issue to the detriment of the others. But where else to place that attention?

Vantiv, in conjunction with Mercator Advisory Group, recently completed an Insight Series white paper, based on the two companies’ research, designed to help address just that dilemma. The report, which combines consumer survey data with the perspectives of executives from merchants, financial institutions and independent sales organizations, offers insights into addressing the top 10 trends of 2014, as identified by the companies’ research.

Vantiv and Mercator plan to hold a webinar at noon ET on April 2 to provide additional insights into the identified trends. To enroll, click here.

According to the report, consumers have woven their smartphones and tablets deeply into their daily lives, and they are beginning to use them to make mobile payments, both in the store and online. Companies also are trying to determine how to efficiently bring EMV on board, with a minimum of disruption, as well as how to balance schedules, costs, and risks of fraud/non-compliance.

The market also is seeing the emergence of omniconsumers – those who operate across all channels, such as the young, the technologically proficient, and the affluent. Omniconsumer attitudes likely will become the mainstream attitudes, crossing all demographic lines, the report notes.

Here’s a brief overview of the top 10 trends identified in the report, and some insights that Vantiv and Mercator also provided in the document. These issues are addressed in much greater detail in the 16-page report.

1. Omnicommerce takes hold

Merchants are attempting to integrate electronic channels into their operations, and a key factor is the mobile revolution, as 66% of consumers today have a tablet or smartphone, according to the Vantiv/Mercator research.

“Consumers are now enabled with smart handsets, and merchants are refining their capabilities to meet consumer interest in shopping and making purchases electronically,” said Donald Boeding, president of Vantiv Merchant Services. “The findings show that the infrastructure of omnicommerce is falling into place.”

2. More omniconsumers, more expectations

Omniconsumers often fall into the 18-to-24 age group, but they are not always Generation Y, the report noted. They embrace new channels but continue to use existing channels – from phone to brick-and-mortar stores and bank branches.

For omniconsumers, evolution of new channels is an additive process, and they are willing to make use of all channels. And merchants are challenged to reach consumers with so many channels.

“Merchants selling online and merchants advertising over multiple media must work harder to gain and retain consumer attention,” said Daniela Mielke, Vantiv chief strategy and product officer.

3. E-Commerce: Popular, with room for improvement

Consumers are accessing e-commerce sites from their computers and mobile devices, and with activities such as showrooming, they continue to blur lines between physical and online commerce, the report notes. Among the key challenges is that consumers are saying they have difficulty shopping online, even with basic retail functions. These include complaints about inconsistent pricing and inventory, the lack of one-click checkout functionality, problems navigating the checkout process, and the inability to use coupons and discount codes.

Debit/credit card is the most common method of payment for online purchases. A fair number of consumers said they would be interested in using a cloud account to pay, however more than half were concerned about security with these accounts, according to the report.

“At this point, retailers have had a lot of experience with e-commerce, and it is somewhat surprising that many of the functions that you might think are now fairly standard are still not in place,” said Bill Weingart, president of Vantiv E-Commerce Services. “And with rising expectations for a good online experience, there is a lot of consumer concern about this out there.”

4. Mobile inroads at the point of sale

Mobile payments are not in wide use but are starting to have an impact on the POS experience. Mobile-payment use increased significantly over the last year, led by growing use of POS tablets, the report notes.

Paying at a point of sale using an app on smartphones rose from 2% last year to 11% this year, presumably the result of more fast-food and quick-service restaurants introducing payment apps similar to the Starbucks program, according to the research.

The use of mobile devices for online payments also grew significantly, and many consumers are interested in using various mobile-payment methods, with young consumers’ interest being much higher than average. Consumers’ willingness to use mobile payments depends on the availability of associated functions: getting a discount or rewards, the ability to organize loyalty cards and redeem them at the POS, and the ability to organize e-receipts, the report found.

5. Mobile payments: still unfolding

Many consumers are not aware of the various types of mobile payments that are in place or are on the way, the report states. Even though mobile-payment use increased in the past year, consumer awareness for all forms of mobile payments decreased.

One possible reason: In general, mobile payment products have been deployed in a limited fashion and concentrated in certain segments and markets, rather than implemented widely, according to the report.

Thus, “a great many consumers are only hearing about mobile payments in advertising, without seeing them actually being used in the stores,” said Elizabeth Rector, Vantiv general manager of merchant services and mobile. “In response, they may simply be paying less attention to the whole issue.”

6. Loyalty, rewards, and the mobile opportunity

According to the research, 73% of consumers now carry loyalty cards, up significantly from last year, and this number continues to grow. Moreover, nearly one out of every 10 consumers carries six or more loyalty cards.

The benefits that come with these cards can also be an effective tool for shaping consumer payment behavior, the report states.

“Consumers see more value and less risk to these mobile loyalty programs,” said Rector. “They are carrying more plastic in their wallets, and they like the idea of consolidating all of that into a single mobile solution. So this is an area where merchants and financial institution might grow program participation, and potentially influence the consumer’s choice of payment type as well.”

7. Smaller merchants: moving forward

Small and midsize merchants face special challenges, with the need to adopt payment technologies. The Vantiv/Mercator research found that most small businesses already conduct sales in multiple channels, and most understand and embrace the omnicommerce concept.

Small merchants are dealing with the challenge of rolling out EMV, and 51% reported they can already accept EMV cards. Smaller merchants are also adopting POS tablets, with 56% now using the devices in some, according to the report.

These businesses have very high expectations for mobile-payment adoption, and they’re higher than those of consumers. However, these merchants tend to underestimate the prevalence of negative consumer experiences when shopping online, one of their critical sales channels, the report states.

“These merchants are concerned about the future, but the question is, are they worried about the right things? More insight into the consumer perspective could help them focus resources more effectively,” said Donald Boeding, Vantiv president of merchant services.

8. Prepaid: broadening its reach

Consumers are using prepaid cards for a variety of purposes, but 1 in 3 would use them more if issuers offered services that made it easier to manage their accounts. Some 57% of consumers said they had bought some type of prepaid card in the previous 12 months, slightly less than last year, according to the Vantiv/Mercator research.

“However, some of the most enthusiastic prepaid users are in core omniconsumer segments, the younger consumers,” said Royal Cole, president, Vantiv Fl Services.

Although confidence in the security of prepaid cards declined this year, consumers still see them as being the most secure form of payment, the report states. In fact, a sizeable number of prepaid buyers expect to use their cards in place of traditional checking and debit accounts.

“Consumers are clearly expecting to use prepaid products at the expense of debit, and financial institutions should be thinking about how to serve those customers and contend with this shift,” said Cole.

9. Change in the competitive landscape

Consumers are fairly open to innovation, especially in mobile and person-to-person payments, according to the report. However, a growing number of consumers report a personal experience with data theft or fraud, which is dampening confidence in the security of payments methods.

Merchant executives made it clear they are worried about new players like Google and Apple moving into the mobile payment space and taking control of customer purchase data, the report notes.

ISOs face many similar issues. The Vantiv/Mercator research found that they are focused on today’s strong competition from other ISOs while also being worried about new competitors, with half or more citing concerns about aggregators, specialized POS vendors, and mobile payments acceptors affecting their markets.

“While they recognize the growing demand for technology-based offerings, many ISOs still lack experience in these key areas,” said Matt Downs, general manager of Vantiv Integrated Partners. “Certainly, it’s hard to invest in the future when you are fully occupied with competitive challenges today. But if you don’t, you might be scrambling to catch up in the near future.”

10. Coping with high-profile security issues

Security is very much on the minds of consumers following several well-publicized data breaches at major retailers. Consumers are worried, but not as worried as one might think, according to the report.

In spite of the focus on security breaches, consumer anxiety about security has actually decreased since last year, perhaps a sign that they are accepting the security risks as normal, the report states. “With all the news about security, it may be that consumers have become a little numb,” said Ken Paterson, Mercator vice president of research.

At the same time, confidence in mobile payments increased slightly year over year, a trend that has been occurring for some time as consumers become more familiar with mobile technologies. But consumers still consider cards to be significantly more secure, the report notes.

“They may also be seeing how solutions, such as zero liability and the reissuing of cards, have helped rectify security breaches,” Paterson said.