The Hottest Payments Topics of 2012 (January 2013)
If anyone thought last year couldn’t compare with the events of 2011, they quickly were proved wrong as 2012 turned out to be every bit as transformational.
In the U.S. market, we saw a fledgling federal watchdog agency, the Consumer Financial Protection Bureau (CFPB), go from crawling to a full sprint as it began investigating and taking action against several financial services companies. At the state level, all eyes were fixed on New Jersey as the prepaid value chain players—including retailers—battled the state over the requirements of its gift card escheat law. Meanwhile, emerging payments continued to make significant inroads in pockets around the world, including mobile payments joint ventures and prepaid card launches in Africa, Canada, Europe and India. And it seemed a day didn’t go by without another company launching another electronic wallet, in some form or another, or a mobile card reader. 2012 also was a big year for acronyms as RDC, MCX, NFC and EMV grabbed headlines.
Above all, the emerging payments and prepaid industry took a giant leap into the financial mainstream all over the world last year by addressing concerns regarding consumer protections, lowering fees, adding features, and launching a spate of prepaid and mobile payments products. For proof, catch up on what moved the market in 2012 with our “Year in Review.”
President Barack Obama kicked off 2012 by playing CFPB kingmaker. He appointed former Ohio Attorney General Richard Cordray as the agency’s first director during a congressional recess, much to the displeasure of congressional Republicans.
Last summer, the bureau issued an advance notice of proposed rulemaking (ANPR) in what it called “a first step in adopting consumer protections for the prepaid card market.” The ANPR was issued several hours before the CFPB held its first field hearing on prepaid cards.
The industry learned in October that it would be 12 to 18 months from then before the CFPB would follow up on the approximately 250 comments from its ANPR because of more pressing priorities. In November, President Obama was reelected, Democrats maintained a majority in the Senate and Senator-elect Elizabeth Warren (D-Mass), architect of the CFPB, was named as a member of the Senate Banking Committee.
- Personnel Changes at CFPB, Senate Banking Committee Spark Speculation (November)
- CFPB Strengthened in Wake of Election, ‘Larger Participant’ Definition for Prepaid Likely Before GPR Rules (November)
- A View from CFPB: Prepaid ANPR Follow-Up Unlikely for 12 to 18 Months (November)
- CFPB Issues ANPR for Prepaid Hours Before Today’s Public Hearing (May)
- Prepaid Becomes Topic of CFPB Meeting on Overdraft Fees (February)
- Obama Makes Recess Appointment of Cordray (January)
Wallets, Wallets Everywhere
This time last year, many, including Paybefore, were calling 2011 the year mobile payments began. If they began in 2011, then 2012 was the year a slew of market entrants began offering their versions of a mobile wallet. These digital wallets come in all shapes and sizes: some offering myriad features, others targeting a single solution; some are cloud-based, while others rely on NFC or barcodes; some are backed by telcos, while others are supported by payment networks or tech companies like Google and PayPal.
The year’s bigger stories include the pilot (finally) of Isis in Austin, Texas, and Salt Lake City; MasterCard’s digital wallet entry and Visa’s growing list of issuers supporting V.me; U.K.-based joint venture Oscar’s European Commission speed bump and subsequent change of name (Weve) and focus (mobile marketing rather than NFC-based payments); Google’s acquisition of TxVia; and PayPal’s continued expansion of its e-wallet and mobile “shopping experience” by introducing a GPR prepaid card, signing in-store payment deals with Discover and several large retailers, and by launching a cloud-based mobile app pilot in Australia.
If 2012 was the year of mobile wallet announcements, might 2013 be the year of digital Darwinism, in which some of the weaker offerings succumb to the intense competition in the marketplace?
- Mobile Wallet Roundtable (December)
- V.me by Visa Makes a Statement with Its 50-Plus Issuers (November)
- Canada Sees NFC, Mobile Wallet Rollouts (November)
- Vodafone Taps CorFire for Mobile Wallet Venture in Europe (October)
- Google Nears Launch of Next-Generation Wallet (October)
- Isis Test Launch Underway in Austin, Salt Lake City (October)
- Google Drops Prepaid Card from Wallet (September)
- PayPal Makes Major POS Move with Discover Partnership (August)
- Big Names Form Committee to Steer Development of Mobile Payments (August)
- Mobile Wallets Flood Market, but Hurdles Remain (June)
- O2 ‘Digitizing’ U.K. Consumers’ Wallets (May)
- MasterCard Unveils Digital Wallet (May)
- Google Acquires TxVia to Accelerate ‘Google Wallet Vision’(April)
- Google Wallet Fixes Prepaid Security Flaw (February)
The Future of NFC
Long the rallying cry of hapless Chicago Cubs fans everywhere, “Wait until next year!” also could be adopted by proponents of mobile payments that rely on near field communication (NFC) technology in mobile phones and at the point of sale. In 2012, the conversation shifted from when to if. There was much debate during the latter half of the year about whether NFC would ever become ubiquitous in the handsets of American consumers or merchants’ POS terminals.
Whether it’s PayPal’s president predicting an end to the debate this year or Walmart’s corporate vice president doubting the chances of NFC’s widespread adoption, too many of the industry’s heavy hitters, such as MasterCard, Visa, Isis and Google as well as the device manufacturers, support NFC for it to fade away.
- Doomed NFC Debate ‘Will Slowly Die’ Next Year, PayPal President Predicts (December)
- SMP: Americas: New NFC Numbers Challenge Skepticism (November)
- NFC’s Future in U.S. Debated at Mobile Conferences (October)
- NFC: Your Move, Apple (June)
Escheat Battle in the Garden State
The U.S. Court of Appeals for the Third Circuit’s decision regarding New Jersey’s hotly contested abandoned property law handed down on Jan. 5 presented a mixed bag for the prepaid industry. But after two years of intense discussions between the two sides, industry representatives were victorious in getting an extension from two to five years before which funds on prepaid cards are considered abandoned and, although the legislation still requires card issuers to collect the purchaser’s ZIP code, the mandate’s effective date has been pushed back to July 1, 2016. Prepaid card providers and retailers have vowed to continue the fight to have the data collection requirement removed.
The court ruled that the place-of-purchase presumption enabling the state to claim unused funds based on where the prepaid card was sold contradicted a Supreme Court decision. The court, however, upheld the law’s data collection mandate, which meant prepaid card sellers would need to collect, at a minimum, purchasers’ ZIP codes. Several members of the prepaid industry, including American Express, Blackhawk Network and InComm, had drawn a line in the sand regarding data collection and announced in April plans to remove their gift cards from the state.
In late June, New Jersey Governor Chris Christie signed S 1928 amending the controversial escheat law related to gift cards. Although the new law includes significant changes, such as an extension from two to five years before which funds on prepaid cards are considered abandoned, the legislation still contains the personal data collection provision, but delays the enforcement of the requirement for four years.
Serving as epilogue, the U.S. Supreme Court in October denied the State of New Jersey’s petition asking the court to review the Third Circuit’s opinion regarding New Jersey’s treatment of stored value cards, thus laying to rest, for a while anyway, a tumultuous couple of years in the Garden State for the industry. Or as Kristine M. Andreassen, associate, Bryan Cave LLP, and Paybefore contributing editor, put it: “The New Jersey issue is about as settled as it’s going to get.”
- Supreme Court Denies N.J. Cert Petition in Stored Value Case (October)
- N.J. Prepaid Sellers Heave Sigh of Relief over Escheat, For Now (July)
- N.J. Escheat Bill Clears Hurdle in Senate; Both Houses Expected to Vote This Week (June)
- Mass Exodus: Amex, Blackhawk, InComm Pull Prepaid Product from N.J. (April)
- Land of Confusion: New Jersey’s Escheat Decision Raises Questions (January)
Gaggle of Dongles
According to the Chinese calendar, 2012 was the year of dragon. However, one could argue that for the payments industry, it was the year of the dongle. Though San Francisco-based Square was one of the first companies to offer a device that attaches to mobile phones or tablets enabling merchants to accept card payments, and arguably has the most name recognition for this particular product, the field of competition became significantly more crowded this year.
Several other companies in recent months launched mobile card readers, including Brookfield, Wis.-based Fiserv Inc.; Chicago-based Groupon Inc.; PayPal Inc.; Austin, Texas-based Rêv Worldwide; Intuit Inc., the Mountain View, Calif.-based maker of QuickBooks accounting software; U.K.-based mPowa and O2; Stockholm-based iZettle and startups payworks, payleven and SumUp. Despite the flurry of product launches, there was one casualty of sorts—VeriFone exited the direct-to-merchant market in mid-December, citing a “maturing” niche, in favor of marketing the reader through its financial institution partners.
In November, when Bank of America Merchant Services, a joint venture of Bank of America and First Data Corp., launched its mobile POS program, Trevor Rubel, Bank of America Merchant Services product chief, told Paybefore: “Having a mobile solution is something that is now going to become commonplace in the market and is a critical offering.” Truer words might not have ever been spoken.
- VeriFone Exits Direct-to-Merchant Mobile POS in ‘Maturing’ Niche (December)
- BofA Merchant Services Launching Mobile POS Program with Marketing Bent (November)
- Startups Launch Mobile Chip-and-PIN Card Readers in Europe (October)
- Starbucks Says It’s Hip to be Square (August)
- Rêv Takes on Square with Card Reader/Prepaid Card Combo (June)
- PayPal Unveils Mobile Payments Card Reader, App (March)
- Presidential Candidates Turn to Square for Donations on the Go (January)
- Intuit Launches Mobile Card Acceptance in Canada (January)
Merchant Customer Exchange (MCX)
Several large retailers—including Best Buy, CVS, Darden Restaurants, Publix Super Markets, 7-Eleven, Shell Oil and Walmart—caused a stir in 2012 when the coalition announced the creation of MCX, a company dedicated to developing a mobile payments platform and consumer application. Soon after, MCX representatives were addressing misconceptions that the new company was all about interchange fees. While interchange is a factor, customer data and a streamlined consumer experience of mobile payments played a larger role, according to the retail group. While many industry experts say the consortium, with its membership of very large merchants, likely will play a key role in determining the winning mobile payments technologies for the entire industry, others are skeptical that the fierce competitors can agree on a standard. One thing is certain, however, MCX has a scale advantage with its initial partners serving nearly every smartphone-enabled American and accounting for approximately $1 trillion in annual sales.
- MCX: It’s More About the Data, Less About Interchange (November)
- Viva la Revolución: M-Commerce Driving Shopping Revolution (October)
- Merchants Join Forces for Mobile Commerce to Shake Up Status Quo (August)
- Viewpoint: Can Merchants Go It Alone? (May)
A trend that has carried over from 2011 is the industry’s sustained interest in mobile remote deposit capture, in which consumers deposit funds into their prepaid accounts by photographing checks with their smartphones.
Mobile RDC is an intriguing feature for prepaid card providers because of the additional revenue stream, the added convenience for cardholders and retention implications. On the other hand, the service could be tempting for fraudsters, who might attempt to forge or alter a check before it’s sent, or try to reuse the same check multiple times. Many technology companies, however, are willing to take on that risk because of security systems they have in place.
- Cachet Financial Provides Technology for PreCash’s FlipMoney RDC Service (November)
- Visa, Chexar Offer Cardholders Mobile Remote Deposit Capture (October)
- Laura Kelly on Bluebird: A New American Express Product Takes Flight (October)
- Chexar to Acquire Clear Payments Inc.; Working with Visa on MDC for Prepaid (June)
EMV Is Coming to America
Visa announced in August of 2011 its commitment to bringing contact and contactless chip technology to the United States. The remaining three card networks, MasterCard, Discover and American Express, announced in 2012 they were taking steps to accelerate migration to the EMV standard for payment cards in the United States. Many believe the adoption of EMV will be a boost to mobile acceptance, as well as providing more security benefits than traditional mag stripe cards. While the deadlines for a merchant liability shift are in place, it’s not clear that the U.S. merchant and issuing communities will be ready or are sold on the need. Approximately 60 percent of U.S. merchants are likely to be compliant with the EMV chip-card technology when the card networks’ liability-shift deadlines take effect in late 2015, according to a Javelin Strategy & Research study. As of October 2012, Javelin estimated only 10 percent of U.S. terminals are EMV-ready and less than 1 percent of cards comply with the standard.
- Javelin: 60 Percent of Merchants to Meet 2015 U.S. EMV Deadline (October)
- Money2020: EMV a ‘Stepping Stone’ to Mobile Payments Adoption (October)
- Amex Sets out EMV Road Map (July)
- EMV Adoption Continues to Grow Globally (May)
- Discover Announces 2013 EMV Mandate for North America (March)
- MasterCard Announces EMV Plan for U.S. (January)
Globally, prepaid and emerging payments were taking center stage, especially in Canada where we saw an unprecedented number of announcements on prepaid and mobile payments initiatives, including a national push from the government to turn Canada into a payments innovator. But, companies operating in Canada also are facing proposed new rules that would require prepaid card issuers to provide more extensive disclosures, limit fees and prohibit expiration dates.
Across the pond, Europe still struggles with the implementation of the Second E-Money Directive, but we’ve also seen companies, such as The Bancorp and Yalamanchili, expanding in Europe to take advantage of the continent’s significant growth potential. In emerging markets, prepaid and mobile were proving a potent combination with launches in Latin America, Africa and across Asia-Pacific.
- Prepaid Heating up in Markets across Africa (December)
- In ‘War against Cash,’ MasterCard Takes Fight to Brazil with New Mobile Service (December)
- EC Takes Belgium to Court for Lagging on E-Money Regulation (November)
- Vodafone, ICICI Bringing M-PESA to India (November)
- Canada Proposes Prepaid Cards Regs: Comments Due Nov. 26 (October)
- Bancorp Enters Europe with Transact Network Asset Acquisition (August)
- Asia-Pacific: Prepaid Success and Opportunity (May)
- Canadian Banks Set Sights on Mobile (May)
- Canada to Adopt Digital Currency (April)
- Canadian Task Force Calls for Govt. to Push Mobile Payments (March)
- Monitise-Visa JV Signs Deal with Indian Bank to Offer Mobile Payments (February)
- Itz Cash, IDBI Bank Target Teens with Prepaid MasterCard (February)
- Citi Prepaid Services Comes to Latin America (February)
- Prepaid Fastest-Growing Payment Card Segment in Western Europe (January)
- Swedish JV Chooses Technology for Mobile Wallet (January)
The stories throughout this article showcase key developments in 2012 and many highlight what industry experts are predicting for 2013: phenomenal growth and innovation. (For more New Year’s predictions, see Industry Views.)