Back on January 1, we brought you eight predictions for 2013 from around the payments industry, and had our own expert, MPD CEO Karen Webster, break them down. Now that we’re past the half-way point of 2013, Webster revists her predictions with the past six months in the ever-changing payments world in mind.
How has the industry-wide perception of NFC, EMV, prepaid cards and other key payments topics changed – or not changed – since January? Webster gives her new take on each of our eight PYMNTS Propheices below.
Key Quote: “The NFC payments debate will slowly die in 2013.”
Summary: David Marcus, president of PayPal, made plenty of waves with this prediction in mid-December, sharing the popular view that NFC doesn’t offer enough to change consumer behavior. “Is tapping a phone on a terminal any easier than swiping a credit card? I don’t think so,” Marcus writes. PayPal has dabbled with contactless payments in the past, but its PayPal Wallet largely functions as an NFC-free platform.
Karen Webster: Woo-hoo! Been singing this tune since 2006. Marcus is right that until NFC delivers a value proposition to merchants and consumers that moves beyond “tapping is better than swiping,” NFC will remain on life support just about everywhere in the world. There might be exceptions, of course. In Poland, for example, NFC has better prospects because paying with plastic is pretty new for consumers and banks are making contactless their first cards, merchants are buying terminals for the first time and consumers are being given devices (cards + phones) with chips. But, in most other places where rip and replace is the path to NFC, and everyone has gotten comfortable with swiping or dipping, watch for merchants to sit on the sidelines and wait it out — EMV-mandate and terminal refresh cycles and all — and consumers to yawn or just ask what the fuss is all about.
KW’s take on the 2013 half-year mark
Well, I would say that six months into 2013, it would be awfully tempting to say “I told you so,” but I will refrain. I did a quick scan of the NFC launches in the U.S. since January and they seem really odd and one-off-ish: embedding NFC payment capabilities in rings and pet collars and shoelaces. There are a few niche use cases such as NFC loyalty apps, vending machines and tolls (now that one makes sense) but not much else. Ditto with the rest of the world. Just to be clear, the issue isn’t whether NFC is a “bad” technology but rather that it requires too many players in the ecosystem to change at the same time to ignite – without a clear business case or value proposition for making the change. So, not only do I think that the “debate” will languish for the remainder of 2013 – shoot – even the analysts and consultants that had the love affair with it for the last 5 years have soured on it – I believe it will become less of a conversation well into 2014 just about everywhere in the world. Its two biggest hoped for catalysts: Apple (which I believe wont adopt it and ignite it for the rest of the ecosystem) and EMV (deployments in the U.S. are questionable), are on the ropes. And, as I have said before, the biggest risk to NFC is that the longer it takes for it to ignite, the more likely it will be that something else will come along that doesn’t require all of the merchant and consumer gymnastics and ignite instead.
Key Quote: “[Apple] might be the safest stock to own right now.”
Summary: This prediction comes to us via Mark Rogowsky of Forbes who makes one of the boldest and most specific 2013 predictions we’ve seen, writing that Apple stocks will close the 2013 year at $800. Apple is currently valued at $513.11, so why does Rogowsky see massive growth? “Look for a cheaper iPhone (around $400 to carriers), faster product refreshes to become the norm (as with the 4th-genertion iPad), and a deal with China Mobile later in the year,” writes Rogowsky. He also sees Apple battling Android for the global smartphone market share.
Karen Webster: I will leave the stock market forecasts to those who are far more astute on those matter than I, but it seems hard to believe that Apple is going to do anything in 2013 but secure its position in the mobile commerce ecosystem as the player to beat. Smartphones and smart-devices are the devices that all consumers want to own, and Apple’s move into lower priced versions, e.g. the iPad mini, just further fuels their growth. But, what locks them into position more so than that is the fact that there is essentially one version of iOS across all devices and the hardware is standardized too. That means that developers are motivated to write to the iOS since they can capture the biggest number of consumers with smartphones with just one code base. So Android may have the line on cheaper phones in the market today, but until they solve the operating system and hardware fragmentation problem they will continue to struggle to get the kind of developer adoption that they need to make their devices more desirable than Apple’s.
KW’s take on the 2013 half-year mark
See, this is why I leave stock market prognosticating to the pros. Apple stock has tanked pretty much since the beginning of the year, with poor performance based on a variety of things – the eBook case (which was just decided against them), the lack of any “wow-wee” products at its annual Developer conference, shrinking margins on existing products, and consumers who aren’t buying products on the store shelves because they are waiting for the “next new” release, and the lack of a lower-priced product for developing economies. That said, Apple’s market share in the U.S. has been increasing at the expense of Android (Apple has grown from 34.3 percent to 39.2 percent since November of 2012, Android has fallen from 53.6% to 52% over that same time period) and the people who buy those phones are more affluent and better educated. Apple announced in June that is has 575 million “paid” customer accounts on iTunes, who have downloaded 50 billion apps that bring in ~$5.1 million a day. Android, by comparison, has logged 48 billion downloads, accounting for only $1.1 million in revenue a day. Given Apple’s history of announcing cool stuff right before a major holiday season, its grip on the developer community that makes users’ interest in its products sticky and its many use cases for its products – it recently announced a partnership with Square to sell integrated Square iPad registers at Apple Stores – I believe anything can happen in the next six months as far as the stock market and Apple are concerned.
3) The Dodd-Frank Reforms Will Work
Key Quote: ”The rolling series of scandals surrounding global megabanks makes it difficult for anyone to keep a straight face when executives insist that our largest banks must maintain their current scale and scope.”
Summary: This is likely to be one of the most controversial predictions on the list, but according to Simon Johnson of Slate, there are real reasons for optimism surrounding Dodd-Frank in 2013. Johnson’s reasoning includes indications that the Fed has already said no to some major bank mergers, the changing tone of many government officials and the poor example set by European banks. Johnson is also effusive in his praise of the FDIC, labeling them “a bastion of sensible thinking on financial-sector issues.”
Karen Webster: Being from the great state of MA where we just elected a Senator who will end up on the Senate Banking Committee and who has said that she absolutely will press for the breaking up of banks, I’d rather not touch this one! But, my brave colleague, David Evans, MPD Founder and Financial Services regulation guru, is fearless on this topic. He says, “Yikes! If the anti-bank crowd wanted some last nails to drive into the reputation of the megabanks, the price-fixing and manipulation of the LIBOR (and it looks like many of the other ‘BORs: you got the Eurobor, the Tibor…) is more than they could have asked for. Rigging the interest rates for hundreds of trillions of dollars of derivatives LIBOR alone covers $300 trillion plus in notional value — and for mortgages and other loans for millions of consumers makes the financial crisis debacle look minor league. But it doesn’t just make the mega-banks look bad: their regulators look like they were napping while this was going on in full daylight. And if a pro-capitalist generally bank-liking guy like me says this, you know that the big banks are going to have a tough time getting a break from regulators or governments for a long time coming. Add this to the top of the list of why the banking business needs to be reinvented.”
KW’s take on the 2013 half-year mark:
So I went back to Evans. Well, the news of Libor and all the other ‘bors just got worse and worse during the first half of 2013. Every other day there seemed to be a new allegation that some combination of bank employees were manipulating some index. But a judge tossed out an antitrust case agains the banks in the U.S. On Simon Johnson’s prediction about Dodd-Frank reforms working, I don’t think things have panned out so well for this thorn in the banks’ side. A lot of the reforms from Dodd-Frank are still up in the air, some have been rolled back, and the CFPB Director is still in Congressional limbo (and Richard Cordray’s original appointment may have been unconstitutional—wait for the Supremes to say for sure). Johnson is probably way too optimistic that the Dodd-Frank reforms really reform much.
4) Mobile Wallets Will Be All Hype
Key Quote: “You can expect the talk to continue in 2013, but not much else.”
Summary: Predicting that NFC won’t take off in 2013 is one thing: forecasting a mobile wallet stall is quite another. But according to Odysseas Papadimitriou, CEO and founder of Card Hub, that’s what we should expect. “The market is simply too fragmented, there are still too many security concerns, and the requisite infrastructure is not yet in place for merchants to accept smartphone-based payments,” Papadimitriou claims. He also doubts that people are prepared to be “walletless.”
Karen Webster: Mobile wallet stall in 2013? Uh, not on your life. For as surely as the sun rises in the East and taxes will rise for just about everyone in some fashion in 2013, mobile wallets will continue to be an important topic of conversation in payments. And, although I don’t think that 2013 will be the year that we crown the mobile wallet king or queen, I do think that it will be the year when several of the big players put on the full court consumer adoption press to get wallets populated and add consumer accounts to their roster. But let’s clarify what we mean when we say “mobile wallets.” This prediction was referencing mobile being used at the physical point of sale and the being used with a digital “container” that aggregates multiple payment methods, loyalty cards, coupons and the like. Now I agree it will continue to be a tough slog for most – but we’re certainly going to see PayPal, in particular, leverage its Discover partnership to drive physical point of sale mobile wallet acceptance and use. In addition, we’ll likely see the Square/Starbucks partnership expand beyond Starbucks, and we can expect the wallets enabled by Paydient come into the market. At the same time, “veteran” mobile apps players like LevelUp and Starbucks will continue to gain traction, while newbies like Cardfree will focus on specific vertical applications of its mobile wallet. As for whether consumers are prepared to be walletless, it will be a LONG time before any of us are walletless, since it will be a long time before all of the place we like to shop are mobile payments enabled but that doesn’t mean that we wont want to — and like to — and will use our mobiles to pay when it is available and convenient to use.
KW’s take on the 2013 half-year mark:
Mobile wallets have done anything but stall. They really are what everyone in payments is coveting, regardless of where service providers play in the space for the obvious reasons – they are a consumer access and control point. So, 2013 has seen more new startups enter the space (Dash, Clinkle), expanded efforts on the part of existing “alternative” players (PayPal, Square, LevelUp) and caused incumbents (Visa, MasterCard) to ratchet up their mobile payments playbooks. We’ve also seen bold new moves that could potentially change how existing players deploy and scale digital wallets (The Clearing House/Secure Cloud), a host of players who are in other businesses and who want to close the loop using payments (Yelp, Twitter) and big players dancing close to payments but introducing things that might move them in that direction at some point (Apple/Passbook, Wal-Mart/Shopping Lists). And, there are a number of new ventures percolating under the surface, too. All that said, there is scant evidence of wide-spread ignition outside of Starbucks, which reports 10MM mobile users and 4MM transactions a week via mobile devices after about 2.5 years into the launch of its program, and several well funded and publicized players who have struggled to get any appreciable traction at all (Google Wallet, ISIS, Serve). I would imagine that the closer we get to the holiday season, the more we will see specific use cases launch by this group of players (and others) who will continue to evolve the “killer app” for mobile payments
5) Curated Commerce Will Continue To Evolve
Key Quote: “Shopping for a lifestyle or look is another richer, more engaging trend we’re seeing across eCommerce industries.”
Summary: Rakuten, one of Asia’s largest eCommerce sites and a growing force in the U.S., makes the prediction that “curated commerce” will become and even bigger driving factor in the online retail industry in 2013. Rakuten notes that visually heavy sites, such as Pinterest, give people a way to create and combine very personalized shopping and social experiences. “Not only does this fuel personal expression in shopping, but other shoppers will use these collections to inform their own purchase decisions; it’s an evolution of the powerful personal recommendation,” they write.
Karen Webster: I agree — but to a point. The good news about shopping online is that you can about find just about everything you want or need. The bad news about shopping online is that you can find just about everything you want or need. You can spend your entire day surfing for stuff, comparing prices, looking for the same thing at other sites that might not have inventory, etc. And then, once you find that one thing, then you have to go thru the whole process all over again to find the things that go with it. The success of OneKingsLane or Zulily or The Fancy can be attributed to having a curator organize and assemble “picks” that narrow down the range of options for consumers and then allow you to buy what you see. Lots of retail sites have followed suit, offering “stylists” who assemble outfits, rooms, table settings, etc. so that consumers have an easy way to buy, and the operative word is buy, the stuff that all goes together, and feel more comfortable buying those things since “an expert” has done the hard work of locating and matching those items. What isn’t helpful, I think, is seeing “pins” of stuff that doesn’t tell consumers where to buy things. Fashion and Pinterest are examples of sites that organizes really interesting outfits, but basically gives you no information about where to buy the items you see. So, while they do a great job of curating, they do a lousy job of sourcing — which I find not only unhelpful and useless but annoying. I think most people that I have talked to do as well. Who wants to be teased???
That said, there is also something to be said for online marketplaces that don’t necessarily curate and edit the selection of goods, but offer you a one-stop place to search and buy whatever you feel like looking for. eBay and Amazon are two examples of marketplaces that have done a really great job of putting the worlds goods under one URL. Places like 1st dibs do the same for antiques and vintage jewelry. It sure saves time when you have some idea about what you’d like to buy but just need a convenient way to source it.
So, I think that commerce on line in 2013 will be about curation, but actionable curation from marketplaces that make it easy to source goods and “expert-driven” sites that edit down the world into a few interesting choices.
KW’s take on the 2013 half-year mark
I stand by my prediction! Curation is only as good as the ability to action on it. And I think that Will Smith must agree with me. His investment in The Fancy, which is a curated site where users can “Fancy” rather than “pin” the things they like and then buy them, but also see how many other people “Fancy” it too. That investment suggests that he (and American Express. who also contributed to the round) find value in the mash-up of curation and commerce. Fancy is reported to generate ~$3M a month in revenue (more than one month than Four Square made all last year). But curation, as a concept, isn’t just limited to sites where items are crowdsourced. As a concept, it is taking hold in retail. Retailers increasingly promote their “editor’s picks” or “lookbooks” with ensembles that consumers can purchase, JCrew promotes “What Jenna loves,” and some sites enlist celebs or other “experts” to “curate” and sell looks or individual items. There are just so many options to choose from, that having someone else do the “hard work” of deciding what is in or out takes the pressure off! It’s also why I think that marketplaces like Amazon and eBay will also continue to do well. Having a single place to search for “Nike Air Maxx Running Shoes – Women” and then being able to buy it with a registered card on file is also pretty sweet.
6) Identity Security Will Be A Big Issue
Key Quote: “The race is on to protect every endpoint, every device and everything connected to the Internet.”
Summary: Verizon looked into its crystal ball to predict five business-tech trends for 2013, and one of their forecasts for the next year involves identity security. As more people share more information from more sources, the ability to protect that data will become increasingly vital. David Small, senior vice president and chief platform officer for Verizon Enterprise Solutions, writes, “While the Internet affords us countless opportunity it also comes with a price. No longer is strong security an option; it’s a mandatory requirement for all organizations.”
Karen Webster: Well, maybe, but history tells us more likely this concern is overblown. Face it, credit and debit cards in the U.S. really aren’t all that secure. We give our card numbers out all the time and there isn’t a lot to protect us. But it works by and large, fraud rates are low, the system is able to eat much of this for credit and a lot of debit, and by and large consumers don’t worry enough about this for it deter them for getting and using cards willy nilly. And, then, back in the mid to late 1990s lots of people were obsessed about Internet security. There were two competing standards — the heavy duty-rock solid one and the “it ain’t as good but it works” one. It “works well enough” won and security hasn’t been much of a barrier to the growth of eCommerce. Should we worry about security at these end points? Sure. Should be sweating big time over airtight solutions? Probably not.
KW’s take on the 2013 half-year mark:
As I pointed out in January, this is a complicated issue. When asked about security, of course consumers say it is a concern, but it really doesn’t keep them from registering cards right and left on line and even on mobile apps like LevelUp, Uber, Square, etc. They have been trained, as I said in January, that the banks will take care of them in the event of a breach. Security has been cited as an obstacle to mobile payments igniting, but I’m not sure I buy that. I think that the lack of ignition is due to the lack of a compelling reason to want to dump cards for phones. In fact, we’ve seen that eCommerce via mobile devices has exploded because it is now easier for more people to shop online. Secure Cloud, The Clearing House solution that will launch later this year that will basically keep cardholder account information behind the bank firewall, is designed to keep mobile wallet information where consumers expect it to be safe. I still think that mobile wallets need way, way, way more than that to ignite, but when part of the package, could very well ease whatever lingering consumer concerns there are over security.
7) Prepaid’s Popularity Is Here To Stay
Key Quote: “Prepaid cards are an obvious choice since they offer basically all of the same features and functionality as the combination of a checking account and debit card.”
Summary: This prediction also comes to us from CardHub.com’s Odysseas Papadimitriou, who uses several stats from the Federal Reserve and the Mercator Advisory Group to back his claim. Papadimitriou notes that prepaid cards have doubled since 2009 – up to seven million in the U.S. now – and that the amount of money placed on cards increases 33-50 percent every year. He calls Mercator’s projection that consumers will load $117 billion onto prepaid cards next year “low,” and cites the Durbin Amendment as another reason for prepaid’s growth.
Karen Webster: This is simple. Lots of “experts” seems to have overstated the growth of prepaid since the beginning of prepaid a decade ago! So last year wasn’t so great, but next year! Maybe this is sort of like predicting financial crisis — if you predict if every year, and live long enough, you are bound to get it right. More likely, Mercator and others are wrong yet again. It’s not hard to figure out why. There isn’t a great business case for prepaid, there are too many mouths to feed, and consumers aren’t sticky — therefore it’s really hard to make money. The fact that so many consumers convert their GPR prepaid card balances to cash as soon as they can also tells you that not everyone thinks prepaid is better (and cheaper) than cash. Sure, Durbin and its whack to DDA economics have made it less attractive for a lot of consumers to have checking accounts which, in turn, gives prepaid a lifeline, but that is hardly the match that is going to spark the roaring prepaid fire. Government benefit programs will give prepaid a boost, but this sector will need more creative approaches than that to ignite this product once and for all.
KW’s take on the 2013 half-year mark:
This is still a tough one I think. Open loop prepaid products that function like DDA accounts SHOULD be a popular product since they offer an alternative to people who don’t have access to more traditinaal financial products. And sure, they are growing, but from a very small base they are far from exploding. Consumers aren’t particularly in love with them, because if they were, they wouldn’t extract all of the money off of them the instant they are loaded via remittance, via their employer or via the government. Fees are cited as one of the reasons for this behavior, as is the need to change behavior (which is always hard) and even the lack of acceptance where prepaid card customers shop or pay bills. Now mobile could, could, change this by making the funds on the card more tangible for consumers to see and interact with, along with the ability to link other things of value like promotions or offers or even paper checks for bill payment. And, for sure, there are particular use cases for open loop prepaid that are situational, like kids going to summer camp, but other things will have to change (e.g. business model) for this to be the manna from heaven that everyone is and has predicted for years.
8) EMV won’t make it in the U.S.
Karen Webster: Here’s a prediction that no one has made, but I will offer as food for thought in 2013. I will go out on a limb and say that EMV as a technology standard won’t make it in the U.S. Yes, I know that there is a liability shift expected in 2015, but that date will shift since there is no earthly way that merchants in the US will be able to comply – and there’s precedent everywhere in the world for that to happen. Once it does, then I say it is Katie bar the door. Merchants will make the point that the problem that EMV was intended to solve a decade or two ago in Europe doesn’t exist in the U.S. today, and a smart alternative will emerge to leapfrog the EMV deployments as they are currently envisioned. It is hard to imagine the U.S., on a wholesale basis, spending tens of billions of dollars to implement an “old” technology. Rather, this smart alternative will pave the way for a global standard that will enable the global compatibility that it is argued EMV would provide. This also means that the future of NFC in the US will remain uncertain, since there won’t be a critical mass of terminals at merchants for some time to come.
KW’s take on the 2013 half-year mark:
Still thinking this way and merchants are now starting to, as well. Some have even gone as far as to do the calculations and say that they it would take them 60 years of bearing all of the fraud losses before they would then be better off installing EMV terminals. EMV is a solution that is wrapped around cards, and we are all moving away from cards. Sure, it will take time for that to happen, but it’s a tough case to make to merchants that they need to invest in technology to be compatible with a standard that the rest of the world adopted more than a decade ago to solve a problem they don’t have now, and in a mobile world won’t have moving forward. What is it with card initiatives with 3 letter acronyms? NFC…EMV…well at least PIN and ATM were good ones. Anyway, I didn’t see it in January and I still don’t six months later.
**In case you missed it, check out Webster’s 2012 Year In Review where she offers another glimpse into her crystal ball for 2013.**