Cards & Payments INSIGHT-02

INSIGHT Three trends to watch in 2013 Mobile payments, online goes mobile and issuer disintermediation

Interpreting today's trends. Envisaging tomorrow's.

CARDS & PAYMENTS

ISSUE 02 2012

Marry convenience and security to guarantee survival

Shifting balances in the cards market

Interview with Marc O’Brien MD of Visa UK

Welcome

Welcome to the second edition of Cards & Payments INSIGHT – our magazine for professionals in the fast-evolving consumer payments sector.

Each edition will highlight Datamonitor’s latest research into the essential issues affecting your industry. We’ll bring you a selection of topical feature articles written by members of our expert analyst team, based on our recently published research.

In this issue, we look at online payments and the new threats faced by card issuers. Senior Analyst Harry Senlitonga warns traditional payments providers to offer innovative solutions delivering convenience and security in order to avoid disintermediation and to remain competitive in this space.

We also highlight how payments are increasingly becoming mobile, a theme which is driving innovation across all areas of the payments landscape. Datamonitor’s Lead Cards & Payments Analyst Gilles Ubaghs examines the impact of this and other key trends to watch in the payments industry, including the ever-growing number of product launches, fresh-faced start-ups and entirely new ways to pay emerging all the time.

Senior Analyst Mark Storry sat with Marc O’Brien, Managing Director of Visa UK to talk about innovation, contactless payments, the Olympics and NFC technology.

Lastly, Analyst Matthew Heaslip takes a look at the big picture in the global payment card market. In his piece, he highlights the high growth countries, regions, and card issuers to watch over the next 12 months.

I hope you enjoy and find value in this selection of insights. We’d love to hear your feedback and any suggestions you have for future issues of Cards & Payments INSIGHT.

In the meantime, please continue to access your Financial Services Knowledge Center for our latest research and analysis. If you do not have a subscription, get in touch to learn more about our service, or visit Datamonitor’s online Research Store for instant access to the reports highlighted in this issue.

Thank you for reading, and enjoy.

Kieran Hines Head of Content for Datamonitor Cards & Payments

2 CARDS & PAYMENTS INSIGHT ISSUE 02

We actively encourage feedback from our readers, so if you have any comments or questions, please contact us at [email protected].

EDITORIAL Editors Giovanni Antonio Musio Melanie Blythe

Graphic Designer Snehal Sanghani

CONTRIBUTING WRITERS Gilles Ubaghs Harry Senlitonga Mark Storry Matthew Heaslip

ABOUTDatamonitor Financial ServicesAt Datamonitor Financial Services, we deliver intelligence-led insight and data on financial services markets, competitors and consumers. Our robust forecasting methodologies, proprietary databases, and the experience and knowledge of our in-house analysts help clients to make better strategic decisions in the areas of Retail Banking, Cards & Payments, Savings & Investments, Private Wealth Management, Life & Pensions and General Insurance. Our research on cards and payments covers competitor developments, consumer attitudes, market forecasts and technology developments, highlighting current and future trends. The Global Payment Card Anlayzer, our proprietary online tool, includes market size, consumer and competitor data for 60 countries.

CONTACT DETAILS To find out more about Datamonitor Financial Services contact us at: email [email protected] phone +44 207 551 9437 Or visit our website: www.datamonitor.com

DISCLAIMER While every care is taken to ensure the accuracy of the information contained in this material, the facts, estimates, and opinions stated are based on information and sources which, while we believe them to be reliable, are not guaranteed. In particular, it should not be relied upon as the sole source of reference in relation to the subject matter. No liability can be accepted by Datamonitor LTD, its directors, or employees for any loss occasioned to any person or entity acting or failing to act as a result of anything contained in or omitted from the content of this material, or our conclusions as stated. The findings are Datamonitor’s current opinions; they are subject to change without notice. Datamonitor has no obligation to update or amend the research or to let anyone know if our opinions change materially.

Contents

Marry convenience and security to guarantee survival4

Get creative with attention-grabbing tactics

89.5 million

91.7 million112.7 million

132.4 million

133.5 million

158.8 million

192.1 million

319.9 million

354.7 million

409.0 million

Shifting balances in the cards market8

10 Three trends to watch in 2013

14 Visa UK: Contactless acceptance in “five years’ time”


4 UTILITIESINSIGHT ISSUE 01

Marry convenience and security to guarantee survival As online payments increase in popularity, traditional payment providers need to develop solutions that balance consumer demands for security and convenience. Card issuers risk being squeezed from the market as new schemes and market entrants seek to meet these shifting needs, writes Datamonitor Analyst Harry Senlitonga.


According to Datamonitor’s Online Consumer Payment Model, which covers 21 key countries, credit cards accounted for 36% of

the total value of online payments in 2011, ahead of personal debit cards, which accounted for 13%. Just look back at the biggest story in the payments world in the 1990s and 2000s – the growth of online payments and the emergence of new players such as PayPal. For many in the payments industry this remains a stark example of a missed opportunity and an indicator of what can happen when companies are too slow to capitalize on new technologies.

However, while credit and debit cards are widely used for online payments, they were originally designed for face-to-face transactions. In order to cope with consumer demand to pay over the Internet, the industry faces a number of challenges.

By Harry SenlitongaSenior Analyst, Cards & Payments

How consumers pay online

Firstly, online payments made using cards are categorized as Card Not Present transactions, and from the card issuer and scheme perspective represent a greater fraud risk than other methods of using payment cards. Over the last decade, card schemes and issuers have developed different ways to make online card transactions more secure, while also trying to maintain their convenience – albeit not always successfully.

To date, one of the biggest initiatives to improve card security in online payments is 3-D Secure. It adds an extra layer of security for online card transactions and was initially launched as an opt-in feature for consumers. However, many issuers have made it mandatory, with cardholders needing to enroll after three online purchases.

Since launching, 3-D Secure has proved an effective weapon in lowering incidences of fraud, though it remains fundamentally flawed.

For instance, merchants may opt-in or opt-out from this extra layer of security, meaning that consumers only need to use their passwords if merchants opt-in. Thus it cannot provide universal coverage.

Personal credit card

Personal debit card

PayPal

Cash

Domestic online payment providers

Prepaid voucher

Bank transfer

Prepaid card

OthersOther money transfer

Total payment value $726.9bn

38%

13%

13%10%

8%

6%

4%3%

3%3%

Global consumers SOURCE: DATAMONITOR FINANCIAL SERVICES CONSUMER INSIGHT SURVEY, 2011


Perhaps more critically, the consumer interface is widely acknowledged to be cumbersome, and many consumers are (rightly) suspicious of any piece of software that asks them to enter their bank details.

In addition, the risk of abandoned shopping baskets and problems with 3-D Secure based phishing scams have led some merchants to rethink their use of the tool entirely.

Merchants need a method of security that allows for secure payments online without being so burdensome that it drives away potential business. This has led many to question just how credit cards will fit into the future of online payments.

NEW ENTRANTS WILL ERODE THE SHARE OF PAYMENT CARDS

Another threat to card issuers comes from entirely new entrants in the online payment space.

At the beginning of 2012, PayPal was the leading global non-card player in online payments. However, the emergence of a number of competitors may well see this situation change in the years ahead.

PayPal started as an online payment provider a decade ago, mostly allowing

consumers transacting via auction site eBay to pay online or with any connected mobile device using their PayPal account balance, their bank account, or their credit card. As of the end of 2011, consumers could purchase goods with PayPal in 190 markets and 24 currencies around the world.

The popularity of PayPal is high among consumers globally. A total of 22% of online shoppers have chosen PayPal as their online payment tool, positioning the service as the third most used global online payment tool, behind credit cards and narrowly trailing debit cards.

There are two factors driving this enormous popularity. Firstly, PayPal is seen as a more secure payment provider than others, as reflected by consumer opinion.

According to Datamonitor’s 2011 Financial Services Consumer Insight Survey, a total of 40% of online shoppers who use PayPal report that they do so because they see it as a secure payment tool, the highest level for security across any of the online payment tools assessed by Datamonitor. It should be noted that these figures pertain to consumer perceptions of security, and may not relate to the actual level of security offered by the services.

PayPal addresses two consumer issues around online payment security. One distinct characteristic is the way it ensures that the consumer's bank, credit card, and personal details are not shared when making payments to a third party. This provides consumers with an extra level of confidence in knowing that their information is kept securely and not passed on to third parties or retailers.

In addition, PayPal protects its users through its Buyer Protection policy on eBay, which safeguards all consumers in the event that the item they purchase does not reach them or is significantly different to the seller's description.

Interestingly, PayPal does not enforce two-factor authentication (2FA) to log in to an account, which is arguably a weak point in its online security. Theoretically, it would be possible to add this feature, but the impact of doing so on the convenience of the service is significant, and has clearly deterred PayPal from launching it.

This is not surprising when you consider that convenience is the second factor that drives the popularity of PayPal among

consumers. In addition to the payment service, consumers do not need to type in their payment and shipping details, which allows for a faster checkout process. This is an important reason why one in three consumers globally chooses to pay using PayPal.

With the growing shift of online activity toward mobile device platforms, the combination of convenience and security will become increasingly critical to remote payments. Consumers remain aware of security, but balance these demands with a need for convenience. Any platform that can successfully offer the two is likely to gain significant consumer attention in the coming years – and PayPal faces competitive challenges of its own from the card industry.

In March 2011, American Express launched Serve, a new digital wallet platform that provides a multi-channel approach to remote payments. As a digital wallet, consumers can link their bank account or payment cards to Serve and use it to pay online, offline, and through mobile devices.

Furthermore, Visa has announced that V.me is due to launch in 2012, while MasterCard announced the details of their PayPass Wallet in May 2012, both of which will allow the schemes to explore new territory as digital wallet providers.

Meanwhile, the launch of Google Wallet, a new digital wallet service for both offline and online payments, was announced in early 2011 with a strong focus on in-store mobile payments.

THE BANK-LED CHALLENGE TO THE DIGITAL WALLET

Banks are also trying to muscle in on the online payments space with new solutions. Online banking e-payment (OBeP) is a type of online payment network that allows consumers to pay merchants online directly from their bank accounts via their Internet banking service.

Through OBeP, the customer is simply directed from the online merchant to their bank’s online banking page (or a version of it modified for OBeP transactions), where they log in as normal to verify the transaction. No bank or payment details are provided to the merchant, much the same as with PayPal and digital wallets.

Merchants need a method of security that allows for secure payments online without being so burdensome that it drives away potential business.

Access the report through your Knowledge Center, or order online from the Datamonitor Research Store today.

Read the report: Online Payments: Cards Not Present?


22% of online shoppers have chosen PayPal as their online payment tool

READY OR NOT, THE DIGITAL WALLET IS HERE

The growth of the digital wallet will prompt the biggest shift in the online payment landscape, threatening traditional card providers and established players like PayPal.

However, this will not happen in the short term, and even in the medium term payment cards will remain the primary funding source for digital wallets.

The good news for card issuers is that they will continue to earn interchange fee income across their portfolios. The danger is disintermediation; without further innovation around the card product, it will be the new and innovative payments solutions offering convenience and security that will dominate the lucrative online payments market of the future.

Issuer

Consumer

Cards

Retailer

Acquirer

Scheme/processor

Payment and delivery info

Card/other authorisation

Transaction value less interchange

Pay statement

Good service

Transaction less MSC*

Card payment OBeP

Retailer

Bank account

Transaction value minus MSC*

Good service

OBeP scheme

Transaction value and request

Request to use OBePDelivery

info

Acquirer

Bank

Transaction info

MSC Merchant Service Charge* SOURCE: DATAMONITOR

Consumer

Authorisation

China’s economy has been booming while much of the developed world has stagnated, a contrast that is reflected in the global payments market. On the other hand, slowing growth in credit cards globally warns issuers to carefully select which markets to target to improve their chances of securing strong results.

Matthew Heaslip Associate Analyst, Cards & Payments

THE NEXT GENERATION OF EMERGENT GROWTH MARKETS

CARD NUMBERS GROWTH (CAGR 2006-2010)

As high growth markets such as Brazil and China enter a consolidation stage, switching from increased card issuance to increasing card usage, the focus of global attention will be upon the next generation of newly emergent growth markets. Vietnam is just one such example, where a recent boom in card issuance is sure to continue as payment cards penetrate greater segments of the population.

Four of the five largest card issuers in the world are now based in China on the back of increased consumer adoption of financial products including pay now cards. With US and EU-based issuers now withdrawing from non-core markets, and Chinese banks expanding into new markets, the balance of global payments is set to shift significantly over the next few years.

TOP 10 GLOBAL CARD ISSUERS BY NUMBER OF CARDS AND TURNOVER PER CARD

CHINESE BANKS ARE SHIFTING THE BALANCE OF THE GLOBAL PAYMENTS MARKET

Shifting balances in the cards market Emerging Markets stake their claim to the global card opportunity

68.9%65.5%

31.9%

25.8% 25.5%



133.5 million158.8 million192.1 million

319.9 million

354.7 million

409.0 million

Turnover per card ($)

Colour shows sum of turnover per card


Vietnam Kenya UAE India Pakistan

PAY NOW CARDS ARE BOOMING OFF OF STRONG GROWTH IN THE BRICS Growth in the global payment card market in recent years has been shaped by the economic climate, with pay now cards booming off of strong growth in the BRIC nations in particular. Consumers cutting back on credit cards in developed markets have stunted global growth of the credit market.

2010 CARDS NUMBER BY TYPE, AND GROWTH

BRAZILIAN BANKS ARE INCREASING THEIR ROLE ON THE GLOBAL STAGE China is not the only high growth country to have had a big impact upon global payments, with the Brazilian market now the fourth largest by value of transactions. The rapid growth seen in Brazil has resulted in Banco do Brasil entering the top ten largest card issuers in the world, with the other three of Brazil’s ‘Big Four’ banks also in the top 20. Brazilian banks are already expanding across Latin America into new markets, making it a near certainty that Brazil’s banks will soon be as significant on the global stage as those from the US, EU, and China.

Shifting balances in the cards market Emerging Markets stake their claim to the global card opportunity

Start using this interactive online tool through your Knowledge Center today, or get in touch with us for a free live demo – contact [email protected]

Source: Datamonitor Global Payment Card Analyzer

976,240696,212677,101649,215619,326614,400485,285471,977

Charge, deferred

debit 4.6%

Pay Now 10.8%

Credit 1.7%

Transaction Value (USDm) 10 LARGEST PAYMENT CARD MARKETS BY TRANSACTION VALUE, 2010

2,898,147

4,550,265


United Kingdom

BrazilJapanCanadaGermanyFranceAustraliaSouth Korea

China USA

4,885 million

278 million

1,810 million


“ 10 UTILITIESINSIGHT ISSUE 01

Three trends to watch in 2013 The pace of developments in the global payments sector is accelerating, with an ever-growing number of product launches, fresh-faced start-ups and entirely new ways to pay emerging at a startling rate. Datamonitor’s Lead Analyst Gilles Ubaghs highlights three mega-trends shaping the payments landscape.


As with so many other areas of modern life, technology is the driver of the dramatic shifts taking place in the global payments industry. While it would be foolish to predict with any certainty exactly what will unfurl over the coming months and years, three key trends are set to have a major impact on the market. TREND 1: ALL EYES ON MOBILE PAYMENTS

The mobile space will remain the key area of focus in terms of developments and innovations in global payments. Perhaps uniquely for any previous form of payment technology, there is a mobile proposition applicable to all geographies – developed, high growth, and emerging alike – presenting an enormous potential opportunity for those who develop the right solutions.

However, the mobile payment space remains in an embryonic stage of development and its future evolution remains unclear. As the struggle to survive in this rapidly shifting market gains pace, the overall payments landscape is liable to see a seismic shift in consumer payment behavior, as well as the identity of the players in the value chain.

Monetizing these services and developing adaptable mobile payment ecosystems is without doubt the biggest trend in payments through to 2013 and beyond.

59% OF CONSUMERS ARE INTERESTED IN MOBILE PAYMENTS

After several years of false starts, consumer appetite for mobile payments and wider mobile financial services is finally gathering steam. According to Datamonitor's 2011

By Gilles UbaghsLead Analyst, Cards & Payments

Financial Services Consumer Insight Survey, around 59% of consumers globally are interested in having the ability to pay for things in shops using their mobile phones.

While it is expected that younger consumers would be more willing to try new gadgets and technologies, the fact that a significant majority of consumers in the more financially secure and higher spending age brackets are also interested is a positive sign for the future of the market. However, the older a consumer is the less likely they are to be interested in proximity payments, suggesting the overall market will only grow over time as consumers of all ages become more comfortable with the technology. TREND 2: THE ONLINE AND THE MOBILE WILL CONTINUE TO MERGE

The internet is increasingly becoming mobile. This is being felt in a wide range of sectors and industries well beyond cards and payments and indeed financial services on the whole. As smart phone capabilities improve, and internet access on the move continues to progress, the once stark distinctions are becoming blurred as consumers become more focused on instant access to all online services, wherever they are. This in turn has repercussions for payments, with the digital wallet emerging as the key platform of the future.

THE CAPABILITIES OF MOBILE HANDSETS ARE RISING AT A STAGGERING RATE

This rising level of consumer expectation for instant access is demonstrated by technology provider Cisco's forecasts of mobile internet usage. According to Cisco, the volume of global mobile data traffic more than doubled in 2011, and grew at a rate of 133%. This is the fourth year in a row that mobile data has doubled. Mobile data traffic in 2011 was eight times higher than the entire global internet in 2000, the same year that PayPal was formed following the merger of Confinity and X.com.

On top of this, the rise of 4G networks is expected to increase data traffic levels by an average 28 times per handset. With this staggering rate of growth, the boundaries between what is mobile and online will become increasingly irrelevant. Consumers will begin to use and then expect online connectivity on a huge range of devices, including the seemingly innocuous like refrigerators and cars.

In the payments space, the blending of online and mobile is being adjusted to by the increasingly prevalent concept of the digital wallet.

The digital wallet, as its name suggests, acts as an electronic fund storage system that can either be tied directly to a bank account, payment card, or alternatively through a prepaid payment system.

However, the digital wallet in its widest conception can also include other services and benefits including loyalty programs, couponing, and identification services. In many instances these services can be used both online and in the real world at the POS with a mobile handset or other device.

The digital wallet is, for the moment at least, the most likely avenue by which payment providers will try to extend their capabilities in a cross platform, multifunctional payments world.

59% of consumers globally are interested in having the ability to pay for things in shops using their mobile phones.


From POS checkout proximity payments, to in-app micro-transactions for digital cows in Farmville and other virtual goods, payment services which work in a range of scenarios, locations and environments will continue to develop and emerge.

TREND 3: ISSUERS AND SCHEMES WILL STRUGGLE AGAINST DISINTERMEDIATION

As mobile and online payment platforms and digital wallets continue to develop, issuers, schemes and other payment providers face a new challenge in the form of disintermediation.

There are no indications yet of any single business model that will dominate the payments market in the online or mobile space

How do you feel about the ability to pay for goods in shops with your mobile phone?

18-24 25-34 35-44 45-54 55-64 65+ Total

Interested Uninterested I already do this

68.5%

29.0%

2.4%

69.4%

28.5%

1.9%

63.5%

34.7%

1.6%

54.2%

44.3%

1.3%

46.6%

52.1%

1.2%

35.0%

63.6%

1.2%

59.0%

39.2%

1.7%

SOURCE: DATAMONITOR FINANCIAL SERVICES CONSUMER INSIGHT SURVEY, 2011

Turnover per card ($)

This report will be available soon on your Financial Services Knowledge Center and the Datamonitor Research Store. Get in touch with us to find out more at: [email protected]

The sheer number of wallets on offer now and planned in future is simply unsustainable in the long term.

Disintermediation in its most classic sense refers to a shift or change in an existing supply chain or market structure, and was amply demonstrated by the emergence of e-commerce in the mid-90s, continuing through to today.

With changes in access to consumers, merchants across many sectors have found their business models under severe threat from online competitors able to undercut on pricing and provide wider choice to consumers. More worryingly for some, this threat goes even further to include new digital currencies ranging from Warcraft Gold, Facebook Credits, and at its most extreme end, entirely new currencies like Bitcoin.

The digital wallet threatens the link between bank and consumer

While there are no indications yet of any single business model that will dominate the payments market in the online or mobile space, the development of these new payment technologies runs the risk of disintermediating existing payment players in a multitude of ways.

This could range from more benign aspects such as losing the direct consumer-facing element of their payment tool to losing valuable consumer data, right through to outright omission from the payment cycle.

The market is reacting to this with an unusual level of vigor. A huge number of digital wallets are being released by established and new payment players, ranging from the likes of Google to local banks, mobile network operators, payment schemes, and emerging players and systems. While many of these launches will be a proactive attempt for future growth, many will equally be driven by a fear of losing market share to a potential future threat.

Ironically, this rush to offer a digital wallet to consumers is likely to backfire for many providers. The sheer number of wallets on offer now and planned in future is simply unsustainable in the long term. There is also a risk of confusing the consumer who is now faced with a range of options for a tool that they haven’t yet seen the use case for.

In fact, this plethora of choice is liable to stifle the market as consumers choose to ignore the din of competing products in favor of more established systems with a better user experience. As with any consumer product, the brands and platforms that succeed will be those that best meet consumer needs and desires.

ISSUERS WILL BE FORCED TO ADAPT IF THEY HAVEN’T ALREADY

While all three trends may seem to lie outside the scope of the traditional four corner card market structure, each will continue to have a serious impact on competition, levels of product development, and more critically, consumer behavior. How issuers react to these intertwining trends in the coming months and years ahead will have repercussions, whether issuers and payment providers like it or not.

However, this does not mean that all payment players must launch digital wallet type products with no adequate business or even consumer use case developed. The market is shifting too rapidly for ill-thought-out ‘me-too’ products to have any real impact.

It’s those players who see these trends as opportunities and not only as threats that remain the most likely to not simply adapt, but profit from them as well.


Read the report: 2013: Trends to Watch in Cards and Payments

“ 14 UTILITIESINSIGHT ISSUE 01

Visa UK: Contactless acceptance in “five years’ time” Datamonitor recently sat down with Marc O’Brien, Managing Director of Visa UK, to talk about the Olympics, contactless and mobile NFC technology, and how Visa sees the payments ecosystem developing in the years ahead.

Thanks for your time, Marc. Just to begin with, can you give us an overview of where Visa UK stands currently?

Marc O’Brien: Firstly, I would like to talk about Visa Europe’s card business and then I would like to talk about innovations and possible changes in the future.

Visa UK is currently Visa’s second largest market by volume globally after the US. In dollar terms, last year $600bn went through our systems from the UK, so it is a substantial market. In Europe, we operate as a separate entity from Visa Inc, covering 36 markets.

We are central to consumer spending, and we are also growing quickly in the business card market. In the UK, 90 million of our cards are debit cards, 20 million are credit cards, and about 5 million are commercial cards. We therefore have a substantial card business overall but we are by and large a debit business.

If we look at the acquiring environment as well, things have changed dramatically in the UK. Most banks no longer own their own acquiring businesses; for example HSBC (Global Payments) and RBS (WorldPay) have spun off their acquiring businesses. The only bank that still owns its acquiring business is Barclaycard. This means that there is a considerably more complex environment involving multiple parties, which is making the implementation of solutions trickier. Our focus is on keeping things running and making things faster. For example, we have been reducing the time taken for payments to be processed: we significantly reduced this over Christmas. Can you give us an overview of the Olympics and your role in the Games?

Marc O’Brien: This is our 26th year sponsoring the Olympics. Visa has been working with the International Olympic Committee for some time and we have a great working relationship at the top level. We also have a team that worked at the 2010 Vancouver Winter Olympics and the 2008 Beijing Olympic Games, so we are certainly experienced. We are confident that we will provide a good payment experience for consumers. We expect an extra £750m to be generated during the seven weeks of the Games this year, and the cumulative effect to be worth £5bn for the UK over the next three years, so it really will be the best games ever.


By Mark Storry Senior Analyst, Cards & Payments

Let's talk about the competitive landscape a little…

Marc O’Brien: When we look at the competitive landscape I think it depends on which channel of Visa we are talking about; for example, 22% of our value (not including transactions) is online and this goes up to 25% in November and December. This has increased from 0% of our business in 15 years.

Trust for us means a low fraud experience. When I first came into the role in 2008, fraud was tracking up at a 0.13% fraud-to-sales ratio; we have managed to reduce this to 0.048%. Fraud has been on a downward track for some time, primarily due to our focus on the online channel. We have tried to make Verified by Visa more secure; however, we have to understand that we also need to make our product more convenient.

In the offline environment, cash and checks remain our primary competition. Whilst £1 in every £3 spent in the UK is on Visa product, there remains a huge opportunity to compete with and better penetrate cash and check payments. This is why our investment in contactless and mobile payments is so important to Visa in the UK – we see this as the future of payments.

If we look more closely at digital wallets, what kind of impact will developments in the mobile sector have on V.me?

Marc O’Brien: It is clear that there are two distinct paths: we have mobile proximity innovation and remote innovation. While we are certainly developing V.me by Visa on the remote path, we also need to look at developments on the proximity path.

If we look in the mobile proximity space we have solutions for three different models because we don’t know which will be the preferred model. If we turn the clock back three years, Nokia was at the top and we had secured elements in handsets. However, a year on from that we realized that the best distribution could come from the network operators on the SIM card. Even last year we saw that operating systems such as iOS were where we would have to work with to secure our future in payments. Now we seem to be going full-circle and are again working with the handset manufacturers.

We also have to consider that contactless is a route to mobile near field communication (NFC) payments, so we are working to ensure that every terminal that comes into place is compatible both with cards and mobiles, and that they accept both high- and low-value payments.

In only three short years we have seen considerable change in the contactless sector and this will continue. Over 1 million terminals will need to be upgraded in the UK for full acceptance

We are confident that we will provide a good payment experience for consumers

16 UTILITIESINSIGHT ISSUE 02

of contactless. We have refocused our original 2006 strategy from purely aiming at low-value, high-volume locations to national acceptance. The most enthusiastic uptake of contactless technology to date has been among retailers where speed and volume are of great importance.

Does that mean that you are subsidizing the merchants to upgrade? Marc O’Brien: Broadly speaking, no. In certain circumstances we may reach an agreement to co-invest, but there would need to be a specific reason for that. To be honest, we simply couldn’t afford to upgrade so many terminals, with five to six million terminals in Europe alone at an average cost of £200 each. Instead, we are trying to leave this to natural growth; in the UK we estimate that this process will take five years. Moreover, we are seeing that the main terminal suppliers are now installing contactless terminals by default. When we speak to retailers we get the impression that it is a matter of "when" rather than "if."

The upgrade of UK terminals will take some time. For instance, retailers who bought new equipment two years ago aren’t going to upgrade until their terminals are fully depreciated. Many of these terminals will have a life span of 5-7 years and so we expect national acceptance in at the most five years' time.

With regards to mobile, how involved are you in developing the customer experience for mobile NFC?

Marc O’Brien: Mobile NFC is a key area for our business and we are one of the leaders in its development and rollout. We have developed the Visa payWave for mobile application, which

offers all the security and reliability of the Visa payWave card experience on an NFC-enabled mobile phone, and we’re working with partners across the mobile ecosystem to bring consumer-facing mobile payment services to market.

Why is it Visa’s job to change consumers' opinions of contactless payments? Marc O’Brien: We are there to provide solutions for our members and they need solutions that work for their customers; we don’t develop services that are not in the consumer’s interest. If we find that there are ways to develop payment methods, we will do it. Visa has evolved substantially over the past few years and we see our core market of payments as being between £20 and £100. Our volume remains in this range. We do, however, see an opportunity towards the low end of sub-£20 transactions; we saw 13 billion transactions below £10 in 2011 and given the cost of cash, this is a significant opportunity.

We see many parties – not just ourselves – wanting to eliminate cash, and we estimate that the cost of cash is €300 for every individual in Europe. What’s more, this cost isn’t transparent to the consumer; in some cases the scrap value of the coin is greater than the actual value of the coin! We need to convince consumers that contactless is safe and that it is an enjoyable method of payment. If we can persuade people of those two things, we believe that contactless can be successful.

Where do you see Visa in five years' time?

Marc O’Brien: We did hope for an end to checks, or at least centralized check

We are seeing that the main terminal suppliers are now installing contactless terminals by default.

clearing. While we will see a substantial reduction in checks, however, we need to make the economics work to our advantage. We can also see that NFC will eventually be integrated into mobile handsets and expect that half of all transactions will be carried out on mobile devices by 2020.

We saw 13 billion transactions below £10 in 2011 and given the cost of cash, this is a significant opportunity


If you’re reading the printed version of our magazine, please feel free to contact us to receive access to the previous issue at: [email protected] or +44 (0) 207 551 9437

INSIGHT The stakes are high NFC and the future of payments


CARDS & PAYMENTS

ISSUE 01 2012

Hey big spender How to attract and retain affluent consumers

Land of the rising cards Asia Pacific

Moving to its own beat Brazil

INSIGHT The stakes are high NFC and the future of payments


CARDS & PAYMENTS

ISSUE 01 2012

Hey big spender How to attract and retain affluent consumers

Land of the rising cards Asia Pacific

Moving to its own beat Brazil

Catch up with the previous issue now

Scan this QR code to read Cards & Payments INSIGHT on your tablet

Benchmark, defend against, or target competitors and partners with a true picture of the competitive landscape.

COMPETITOR DATA

Align your product portfolio and services to customer needs by understanding their habits, spending patterns, and brand loyalty.

CONSUMER DATA

Discsegments offeopportunity f

.

over which countries and r the greatest

or new product launches or market entry

MARKET DATA

Introducing the

Global Payment Card Analyzer Invest in the right market.

The Global Payment Card Analyzer provides market sizing and five years forecast for payment card data in 62 countries.

Access a comprehensive set of issuer and scheme/association performance metrics, such as card and terminal type, volume and value of transactions. Enhance your understanding of financial services customers with data on spending patterns and brand loyalty for consumers in 21 nations.

Request your FREE demo today

Start using this interactive online tool through your Knowledge Center today, or get in touch with us for your free demo – contact: [email protected] or +44 (0) 207 551 9437

+44 (0) 207 551 9437 [email protected] www.datamonitor.com

All the articles in this magazine are based on Datamonitor’s latest research into cards and payments. For more information about any of these features, or Datamonitor's Financial Services proposition in general, please get in touch.

Documents

Cards & Payments INSIGHT-02