By Cyndie Martini
In the rapidly evolving payments world, technology is driving the next generation of innovation. 2014 will be a landmark year for the industry as mobile technology, EMV and the trend toward a cashless society picks up steam. Here are the top 10 payment trends to keep your eye on in the coming year.
1) Mobile Banking Increases in Popularity
In the U.S., 140 million people own smartphones as of the end of 2013. By the end of 2014, that number is expected to reach nearly 160 million. As smartphones and tablets grow in popularity, more and more people will turn to their mobile devices to manage their finances. In 2014, members will expect their credit unions to provide remote deposit capture, account access and card controls directly from their phones.
2) Mobile Wallets, Bluetooth and NFC Jockey for Leadership
The unanswered question plaguing mobile payments is: How will we pay with our phones? QR codes have failed to gain traction and other mobile payments technology are fighting to become the standard. Near field communication, commonly known as NFC, and Bluetooth are both in the running to become the technology of choice to allow phones to talk to POS devices. Meanwhile, expect a flood of competing mobile wallet choices from retailers, issuers and networks. 2014 will be the year the glut of options starts to be weeded out. Mobile payments won’t be a major player until there is some consensus on the method of payment.
3) Fraud Hits Hard
As we learned from the December Target breach that let criminals steal the card information of 40 million customers, the U.S. is a hotspot for all kinds of fraud. High EMV penetration rates around the world will continue to drive fraudulent activity to the United States, where magnetic stripe cards are easy targets for criminals. Counterfeit fraud is already up 300 percent in the U.S., according to Visa. Financial institutions that begin to switch their card portfolios to the EMV standard will escape the onslaught.
4) The CNP Problem Persists
Although the security of new chip cards will take a bite out of card present fraud, EMV cards are just as susceptible to card-not-present fraud schemes perpetrated online, over the phone or through the mail as mag-stripe cards. U.S. shoppers spent $1.8 billion on Cyber Monday alone and online sales will continue to grow. Expect issuers to deal with higher levels of CNP fraud, along with harder-to-crack authentication systems, like one-time use virtual tokens.
5) Plastic Continues to Replace Cash and Checks
According to the Federal Reserve, credit, debit and prepaid card payments are growing as the economy recovers from the recession. In 2012, there were 122.8 billion noncash payments made in the U.S.–a 14 percent increase from 2009. Checks only accounted for 18.3 billion transactions. The convenience of cards will push cash and checks further into the margins in 2014.
6) Consumers Search for Peer-to-Peer Solution
The popularity of Bitcoin in 2013 sent a clear message that consumers are searching for an easy way to make electronic peer-to-peer payments. While online and mobile innovations have revolutionized the payments ecosystem for transactions between business and customers, banks and credit unions have been slow to roll out an electronic equivalent of cash. Today’s consumer is looking for a quick way to transfer money from their checking account to their friend’s without having to deal with cash or having to write a check. Until financial institutions find a way to do it, savvy consumers will rely on virtual currency like Bitcoin and services like PayPal.
7) A Decision on Contested Durbin Amendment Provisions
The debit interchange cap and the network exclusivity rules languished in court in 2013. In July, a federal judge ruled that the Federal Reserve had violated the spirit of the Durbin Amendment in setting the cap on debit interchange charges for issuers with more than $10 billion in assets. The judge also weighed in on the issue of requiring all cards to support two unaffiliated payment networks, saying that the Fed rule still allows issuers to make only one network available for many transactions. The Federal Reserve has appealed the ruling to a higher court, which will hear the case in 2014. If a final decision is reached this year, it will affect credit unions, which depend on interchange fees to cover the costs of maintaining their card programs.
8) Automation is the Rule, Not the Exception
Everything is automated these days and banking is no exception. In an effort to streamline their operations and the user experience, financial institutions are rolling out the next generation of ATMs that can do just about everything a teller can do, from dispensing multiple denominations and coins, to selling gift cards or allowing a member to open a new checking account.
9) The Death of the Password
Identity theft is on the rise, with millions stolen in 2013. Passwords have long been the chink in the armor of online transactions, since they are easily cracked or stolen. Customers often choose weak passwords because they are easy to remember, but this also makes them easy to guess (especially if your password is “password”). In 2014, security-minded institutions will begin to move away from the venerable password in favor of more advanced authentication methods, like biometrics, which can use a combination of fingerprint, facial and voice recognition to verify a user’s identity.
10) Credit Cards Make a Comeback
Americans cut back on their credit card usage during the recession, which saw average balances dip for the first time in years. Now that the economy is picking up steam, consumers are reaching for their neglected credit cards again. Federal short-term interest rates are expected to remain near zero in 2014, discouraging saving and encouraging spending. Financial institutions are seeking to build their base of cardholders again and will likely start extending offers to the consumers with less-than-perfect credit who they would’ve passed over just a few years ago.
Cyndie Martini is CEO of Member Access Pacific, Tukwila, Wash.
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