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The Green Sheet Online Edition

November 22, 2010 • Issue 10:11:02

Insider's report on payments
A look at this season's payment data

By Patti Murphy
The Takoma Group

Payments is a business of numbers, and I'm not just talking dollars and cents. For those who enjoy quoting numbers, autumn often brings on a smorgasbord of metrics about the state of the payments industry and consumer sentiments about spending for the upcoming holidays. And there's plenty of data to suggest consumer spending may be picking up. There's also good news on business payments moving from paper check to electronic form.

The holiday data

In October 2010, the National Retail Federation's initial polling showed consumers will spend an average of $688.87, each, on gifts and other holiday-related shopping this year, up slightly from 2009.

According to the NRF's 2010 Holiday Consumer Intentions and Action Survey, conducted by BIGresearch, consumers are concerned about the economy and are planning to shop wisely this holiday season by shopping for sales (54.1 percent) and using more coupons (40.6 percent). The survey found more shoppers are planning to take advantage of holiday sales to make non-gift purchases for themselves (57.1 percent this year compared to 52.9 percent in 2009).

The NRF expects 2010 holiday sales to rise 2.3 percent over 2009 tallies, and total $447.1 billion. That forecast is based upon an economic model that uses several indicators, including employment data, industrial production, disposable personal income and monthly retail sales reports. "While consumers have shown they are once again willing to spend on what's important to them, they will still be very conscientious about price," said NRF Chief Economist Jack Kleinhenz.

Some would say this is the "new normal." Booz & Co. dubbed it the "new frugality." Frugal behavior is "now considered trendy by many shoppers and will continue for years to come," said Matt Egol, a Booz & Co. partner.

Data on holiday shopping plans just released by Western Union Payments shows 94 percent of U.S. consumers are planning to spend the same or less on holiday gifts this year, which for most people ranges between $200 and $500.

Here are some other interesting stats about holiday shopping from Western Union: 19 percent of consumers plan to shop only at discount stores, 60 percent will set holiday budgets, and 30 percent had already purchased gifts long before the traditional start of the holiday shopping season.

Forrester Research, meanwhile, issued a report in early November predicting huge increases in online sales during November and December (the period it defines as the "holiday season"). As related in US Online Holiday Retail Forecast, 2010, the firm expects online U.S. sales to top $52 billion this holiday season - about 16 percent higher than last year.

In addition, U.S. online consumers expect to make 37 percent of their purchases online this holiday season, up from 30 percent in 2009. "Consumers are showing a willingness to spend this season," said Forrester Vice President and Principal Analyst Sucharita Mulpuru. And online retailers seem to be universally optimistic, she added.

Mobile shopping is another trend worth watching this holiday season. NRF research shows 26.8 percent of U.S. adults with smart phones will use the devices to look for and purchase gifts; among 18- to 24-year-olds that number jumps to 45 percent.

Forrester reported that 18 percent of adults online in the United States plan to use mobile devices to compare retail prices, and 16 percent expect to use mobile phones to locate nearby stores.

Also, preliminary results of the Consumer Payment Preferences Study, released by Hitachi Consulting Corp. and the Bank Administration Institute, present a different scenario: 88 percent of consumers do not currently use mobile telephones for in-store purchases nor do they plan to do so within the next two years.

Changing payment habits

Every couple of years Hitachi and BAI team up to study consumer payment trends; the study this year was sponsored by First Data Corp., Fidelity National Information Services Inc., MasterCard Worldwide, PULSE (the EFT network owned by Discover Financial Services) and U.S. Bancorp (which owns Elavon Inc.). The firms released preliminary data in October; a final report is due soon.

The preliminary data confirms a consumer trend toward increasing use of debit cards at the expense of credit cards, cash and checks. In 2005, checks were used for 11 percent of in-store purchases; today only 5 percent of store purchases are paid for with checks, according to Hitachi/BAI. During the same period, use of cash for in-store purchases fell from 33 percent to 26 percent.

Today, credit cards make up 19 percent of in-store payments, down from 22 percent in 2008. Debit cards, meanwhile, are used for 42 percent of in-store payments, up from 37 percent in 2008, according to Hitachi/BAI.

And it's not just consumers moving from paper to electronic payments. Results of a survey conducted by the Association for Financial Professionals, released in November, point to huge shifts away from paper for business-to-business (B2B) payments. The AFP reported that the typical corporation today makes about 57 percent of its B2B payments by check; that's down from 74 percent in 2007.

The 2010 AFP Electronic Payments Survey, which was underwritten by J.P. Morgan, an investment banking arm of JPMorgan Chase & Co., contains other noteworthy data. For example, half of the treasury management executives polled said their firms are "very likely" to convert most B2B payments to major suppliers from checks to EFT methods within the next three years.

The AFP survey also revealed that corporations are more likely to have integrated accounting systems with automated clearing house (ACH) payment systems than with card systems (70 percent versus 46 percent), and that 25 percent are at least evaluating whether to deploy mobile tools for business payments over the next three years.

The bottom line

First: consumer spending is picking up, generally, and debit cards are now the top-of-wallet choice for most Americans. Second: the holiday season is shaping up to be better than the past two years, in terms of consumer spending.

Third: mobile payments probably aren't ready for prime time. Fourth: banks, the card networks and other payments companies need to find a way to adequately and cost-effectively support card-based B2B payments, or risk losing this potentially lucrative market to the ACH. end of article

Patti Murphy is Senior Editor of The Green Sheet and President of The Takoma Group. She is also the founder of InsideMicrofinance.com. Email her at patti@greensheet.com.

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