Vantiv Improves the Delivery of Innovation with CA Technologies ...
Rising Above Uncertainty: Opportunities and Challenges for Credit Unions in Payments | Vantiv 2013
-
Upload
nafcu-services-corporation -
Category
Economy & Finance
-
view
332 -
download
1
Transcript of Rising Above Uncertainty: Opportunities and Challenges for Credit Unions in Payments | Vantiv 2013
Rising Above Uncertainty: Opportunities and Challenges For
Credit Unions In Payments
NAFCU 2013 Congressional Caucus September 9, 2013
Royal Cole, President Vantiv Financial Institution Services
Key Market Dynamics – Evolving Retail Financial
Services Models
– Regulatory Impact
Emerging Strategies – Impact to Credit Unions
– EMV
– Prepaid
– Mobile
Preparing for the Future
Agenda
2
Key Market Dynamics
The retail financial services market is in a transformative period where new stakeholders and business models are reshaping the industry.
Legacy financial services are under increasing pressure and re-engineering using new technologies that leverage virtual delivery channels is increasingly necessary.
New stakeholders and existing market participants are looking for tighter control over threatened revenue/expense streams.
Credit unions have aggressively competed for and won market share, but members are increasingly interested in the digital-based experience and services delivered through non-traditional providers.
Credit unions still have opportunity for retention and growth, but must continue to compete.
3
Modern Dynamics Shifting Payments Market to Next Generation Products and Business Models
Consumer Adoption
Shifts
Merchant Segment Control
Regulatory Control Mobility
Financial Inclusion
Fraud/ Risk
Payment Efficiencies
Network Expansion
Macro-economic
Trends
4
Legislators and Litigators Exert Increasing Influence on the Payments Industry
5
Card Act goes into effect, requiring issuers to take a longer view of credit risk, limiting access to credit for emerging consumers and sub-prime market.
• Consumer credit industry retrenches into smaller opportunity market, impacting credit unions’ ability to compete against institutions with more diversified product portfolios.
2009
Combined impact of Regulation II (Durbin Amendment) and Overdraft Fee Act shifts retail financial services business model towards fee-based services.
• Over time, exempt financial institutions realize interchange fee income losses due to merchant control over debit network relationships.
2010
U.S. Courts rule on credit card surcharges, credit card interchange fee reimbursement, and potentially a rewrite of Regulation II interchange fee and network routing rules pending appeal.
• Interchange fees, especially for debit, continue to be de-stabilized, but larger impact could be the requirement of issuers to support two debit signature networks.
2013
Durbin Amendment Ripple Effect Felt Across the Industry
6
Federal Reserve Survey (2011) highlights the true impact of Regulation II on exempt (unregulated) financial institutions.
• Overall interchange fee revenue decreased 4% for unregulated issuers and network fees were higher than those of regulated issuers.
• The average ticket of a prepaid card transactions was reported to be $34.42, more than $4.00 higher than the average card-present signature debit transaction of $30.23 as regulated issuers incorporate these products into their debit portfolios.
Supporting dual network routing on EMV-compliant cards add cost and complexity to reissue strategies. Recent court ruling vacating Regulation II rules threaten further disruption and potential for debit card issuers to have to support four networks with no control over final routing.
Finding a Balance in the New Normal – Lessons Learned
Credit unions’ competition may not be a bank or a physical entity; expanding digital service capabilities should be a key near term activity.
As financial institutions exit a period of branch expansion, a gap in local services exists, especially in non-metro areas.
Partnering for compliance and risk-related activities protects organizations and allows more room for strategic product planning.
While credit union needs and values have been communicated effectively so far, credit union lobbying efforts need ongoing support to keep their profile high with Congress and regulators.
7
Key Market Dynamics
– Regulatory Impact
– Evolving Retail Financial Services Models
Emerging Products – EMV – Prepaid
– Mobile
Preparing for the Future
8
Agenda
Overview of EMV
• EMV is a set of international standards developed by Europay, MasterCard, and Visa in 1996 (now joined by Discover, AEXP JCB, CUP)
• Standards define interoperability of a new secure transaction type across the international payments enterprise
– US and China most recent and largest markets to join
• EMV provides comprehensive protection against:
– Counterfeit and skimming fraud
– US issuers can select to add PIN or Signature as CVM preference
• An EMV card is inserted into a terminal, and removed when the transaction is completed.
9
Overview of EMV US Roadmap
April 2013 • Processors must
support EMV April 2015 • 3rd Party ATM must
support EMV
October 2015 • Liability shift of
counterfeit transactions
October 2017 • Liability shift for AFD • Liability shift for ATM
April 2013 • Processors must
support EMV • International ATM
liability shift October 2015 • Liability shift of
counterfeit transactions October 2016 • Liability shift for ATM October 2017 • Liability shift for AFD
April 2013 • Processors must
support EMV
October 2015 • Liability shift of
counterfeit transactions
October 2017 • Liability shift for AFD
April 2013 • Processors must
support EMV October 2015 • Liability shift of
counterfeit transactions October 2017 • Liability shift for AFD
10
A Business Case for Change Exists in U.S. Market
Counterfeit Fraud Volume (Visa only)
Europe (Liability Shift
in 2005)
Asia Pacific (Liability Shift
in 2006)
U.S. (Liability Shift
in 2015)
- 56%
- 52%
+ 307%
2011 2004
› Gift cards most popular target after cash
› Cross border fraud migration increasing in US as more markets adopt EMV (Canada and Mexico latest to adopt)
11
Dual Network Debit Routing Requirement Will Drag on EMV Implementation Timeframes
12
Regulation II has created a unique operating model in the U.S. – The main problem for the U.S. is that EMV is designed to operate as a one to
one relationship between the issuer and their network. Regulation II requires that issuers support at least two, unaffiliated networks on their debit cards.
– Networks want to retain ownership of their AID (Application Identifier) as proprietary software, but this leaves the industry having to support a wide variety of AIDs.
Solutions are converging around inter-operability across networks in 2013, but implementation scope and timeframes remain unclear.
– Smart Card Alliance EMV working group agreed to license the D-Payment Application Specification (D-PAS) as a common U.S. debit chip payment solution.
– Visa and MasterCard agree to license their AID software.
Issuers are grappling with cost differentials between PIN and signature EMV deployment, but recent threats to further decrease
debit interchange may swing the market towards PIN.
Merchant Deployment of EMV Terminals Is Likely To Extend Through The Decade, With Many Uncertainties and Delays
13
Sources: Mercator Advisory Group Estimates, Vantiv Insights Executive Interviews
We don’t have EMV implementation plan but we are focused on figuring that out now… We need to know whether or not we should invest in EMV.
We still haven’t made a decision about EMV and whether to convert our operations by 2015. There is some discussion in the industry of the value of EMV vs. the cost of implementation. We are studying the issues now.
It will take at least 2 years to update all the stores, but we will have the EMV capability by the liability shift date.
EMV Card Issuance Is Slowly Ramping Up In The US
14
Yes 15%
No 66%
Not Sure 19%
Own Chip-based Cards for Security (Base = Own debit or general purpose credit cards
• While 15% of debit or credit card owners say they own at least one chip card, 19% are not sure if they have one or not, despite seeing an image of one in the survey.
• Chip cards issued today in the US are more likely to be credit cards given to frequent travelers and/or high volume customers who tend to be among the highest income earners.
Source: Vantiv Insights consumer surveys 2012-2013, N=1,200 US adults
Key Market Dynamics
– Regulatory Impact
– Evolving Retail Financial Services Models
Emerging Products – EMV
– Prepaid – Mobile
Preparing for the Future
15
Agenda
Prepaid Card Purchases Continue to Grow, Some To Replace DDAs
16
60%
50%
25% 19%
63%
52%
27%
15%
Any prepaid card
Retailer specific
prepaid card
General purpose, not reloadable
General purpose,
reloadable*
Type of Prepaid Card Purchased (Base = All, year refers to year
purchased)
2013 2012
*Statistically significant difference 2012-2013 at the 95%
• Prepaid cards of all types continue to gain traction with consumers.
• 23% of consumers report having purchased a prepaid card as a checking account/ share draft account replacement, up from 16% in 2012.
• 32% of consumers 18-34 see prepaid as a DDA replacement.
Source: Vantiv Insights consumer surveys 2012-2013, N=1,200 US adults
General Purpose Reloadable Prepaid Cards Are Showing Dynamic Growth In the U.S.
17
$0.4 $1.6 $2.7 $5.3 $12.0
$19.5 $28.6
$40.8
$56.8
$76.7
$99.7
$129.5
$168.4
$ -
$20
$40
$60
$80
$100
$120
$140
$160
$180
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013(f) 2014(f) 2015(f)
Amount Loaded onto GPR Cards ($Billions)
Source: Mercator Advisory Group Estimates 2012
American Express/Walmart’s Bluebird Account Is Actively Competing For The Underserved Banking Market
• The account is fully electronic, meaning that no checks are issued (the company has stated that checks will be available in 2013).
• Account servicing and statements are online only. • Cardholders use a mobile application that
supports money transfer, bill payment, remote deposit capture, text alerts, and account balance and transaction information.
• Other features include: – Supporting up to four subaccounts, controlled from the
main account – Purchase protection – Fraud protection – Global assist services for travelers – Roadside assistance – Entertainment access – Live customer service – No minimum balance – No foreign transaction fees
18
Key Market Dynamics
– Regulatory Impact
– Evolving Retail Financial Services Models
Emerging Products – EMV
– Prepaid
– Mobile Preparing for the Future
Agenda
19
Consumer Adoption of Mobile Devices Continues to Grow Strongly
20
61%
56%
31%
27%
23%
7%
48%
45%
39%
12%
26%
6%
Smartphone or tablet*
Smartphone*
Voice and text phone*
Tablet*
Basic cell phone
Do not own mobile device
Mobile Device Ownership by Type: (Base=All)
2013 2012
*Statistically significant difference 2012-2013 at the 95% level
• A majority of credit union members should be considered mobile-enabled.
• Over 8 in 10 consumers under age 35 own a smartphone.
• Due to the speed of growth in device ownership, many are new users who will grow their use of mobile banking apps over the long term.
Source: Vantiv Insights consumer surveys 2012-2013, N=1,200 US adults
Mobile Usage Has Already Changed How Consumers Interact With Their FIs
21
6%
4%
8%
14%
22%
27%
22%
18%
36%
39%
46%
50%
67%
64%
83%
3%
3%
4%
8%
9%
10%
15%
20%
34%
35%
39%
43%
61%
62%
79%
Sent an SMS text to rep or inquiry address
Spoke with advisor or service rep using video conferencing
Accessed a special mobile app using my tablet computer
Used online chat on customer service website
Accessed customer service website using my smartphone
Accessed a special mobile app using my smartphone
Sent an email to a rep or inquiry address
By mail
Called 800 service number and used the phone menu
Spoke with my personal financial advisor, banker, or broker
Called 800 service number and spoke to a person
Use a customer service website
Through an ATM
Went into branch and spoke with customer service rep
Went into branch and spoke with a teller
Total Respondents
Smartphone Owners
FI Communication Methods Used in Past Year
(Base = All and Smartphone Owners)
Source: Mercator Advisory Group CustomerMonitor Survey Series 2011
Soon, Mobile-Based Payments Will Force Issuers to Think About Their Brands in a Different Way
Card Brand Acceptance Marks
Mobile Wallet Brands
22
Consumers Increasingly Expect Mobile Payments Will Be Common In The Future—But The Form Is Unclear
23
• Two thirds agree that mobile payments will be common in five years.
• Nearly 8 in 10 consumers under age 35 expect mobile payments to be common in five years.
• But just two in five expect they themselves will use them in five years--they do not have a clear picture how mobile payments will work or what their value will be.
Source: Vantiv Insights consumer surveys 2012-2013, N=1,200 US adults
31%
36%
17%
21%
31%
30%
19%
18%
10%
9%
8%
9%
22%
18%
18%
20%
7%
7%
37%
33%
Mobile payments will be common
(2012)
Mobile payments will be common
(2013)
I will use mobile payments (2012)
I will use mobile payments (2013)
Expectations About Mobile Payments Use
(Base = All)
1-2 yrs 2-5 yrs 5+ yrs No idea Never
For Those Willing To Consider Mobile Payments, Trusted Financial Providers/ Brands Are The Preferred Sources
24
50%
43%
20%
13%
13%
13%
12%
9%
28%
Bank or credit union
Major card network (Visa, MasterCard, AmEx)
Online payment provider like PayPal
Major technology company like Apple
Major eCommerce retailer like Amazon
Wireless cellular phone provider (Verizon, Sprint)
Major retailer like Target or Walmart
Third party, independent developer like Google
I would never use a digital wallet
Preferences for Digital Wallet Provider (Base = All)
• Financial institutions are preferred providers, in part due to their established presence providing online and mobile banking services to members today.
• Consumer and industry visions for mobile payments could benefit from the strong support of trusted financial institutions.
Source: Vantiv Insights consumer surveys 2012-2013, N=1,200 US adults
Key Market Dynamics
– Regulatory Impact
– Evolving Retail Financial Services Models
Emerging Products
– EMV
– Prepaid
– Mobile
Preparing for the Future
25
Agenda
Preparing for the Future
• Credit Unions have maintained their reputation as trusted financial services providers throughout the economic crisis period.
• Banks are disadvantaged in today’s regulatory environment and continue to be a target for legislators and litigators.
• Credit unions can effectively compete on a digital basis and also offer local services being increasingly abandoned by banks.
• Creating appeal to a younger demographic should be a near-term focus; mobile represents a major opportunity.
26
What’s Your Next Step?
• Now is the time to plan and start your EMV strategy.
• Anticipate the needs and interests of members--match demographics to products as closely as possible.
– Members want next generation products from their financial institutions, but relevancy is key.
• Mobile payments are just appearing on the horizon but mobile banking is here now.
– Build out as much functionality into your mobile banking services as possible.
• Accentuate the fundamentals of a credit union.
– Members and businesses need credit. Consider new ways to reach the disenfranchised.
27