This year will likely be remembered for the disruptive influences that not only shaped perceptions about the economy, but also influenced how Americans interact with converging technologies to make decisions - whether they are responding to mobile coupon offers for instant gratification or collecting data from online and offline sources for planning purposes.
Many economists accurately predicted a period of economic uncertainty surrounding the 2012 elections. Post-election indicators suggest this trend may linger as evidenced by congressional gridlock in early December debates over actionable measures to avert tax increases and budgetary cuts stipulated by the Budget Control Act of 2011, set to go into effect at midnight on Dec. 31, 2012.
Beyond the political wrangling in Washington, natural forces deeply impacted business owners and residents along the eastern seaboard when Hurricane Sandy struck the coast one week before the elections. But unlike Congress, members of the payments industry proved that cooperation has the power to dissolve barriers to progress and rebuild entire communities.
Many payments industry companies contributed to Hurricane Sandy relief efforts. U.S. Bancorp Inc. donated $250,000 to the American Red Cross Disaster Responder Program. Merchant Cash and Capital extended disaster relief funding to businesses affected. The Northeast Acquirers Association plans to conduct a silent auction to raise funds for Hurricane Sandy relief during its Winter Seminar & Outing in January 2013.
These are but a few examples of how the payments industry stepped up to the plate this year. To encourage further outreach, The Green Sheet introduced a new feature, Gift of Giving, which highlights the charitable causes ISOs support throughout the year. In another development, the publication received special recognition, earning its fifth Grand Award and a Feature Writing award in the APEX 2012 Awards for Publication Excellence.
Last year at this time, the Visa Inc. Technology Innovation Program was on course to eliminate the Payment Card Industry (PCI) Data Security Standard (DSS) annual revalidation requirement for merchants processing 75 percent of their transactions on dual-interface Europay/MasterCard/Visa (EMV) chip-enabled terminals. This marked the first step along a planned road map for migrating U.S. cardholders and merchants to the EMV standard, which is widely used elsewhere across the globe.
Stephanie Ericksen, Head of Authentication Product Integration for Visa, stated, "Migrating the U.S. market to chip will help build an infrastructure for accepting NFC [near field communication] mobile payments, enhance international acceptance and reduce fraud." After initiating an aggressive campaign, Visa estimated that 1 million Visa-branded, EMV chip-enabled cards had been issued by the end of 2011, which had grown to 1.5 million by June 2012.
Randy Vanderhoof, Executive Director for the Smart Card Alliance, reported increased activity and interest in NFC and EMV this year. In July, the SCA formed the EMV Migration Forum to support the alignment of EMV implementation steps required by all parties involved in the U.S. transition from mag stripe technology to EMV contact and contactless technology. ISOs were welcomed in the ongoing forum discussions, and a new resource was created at www.emv-connection.com.
According to Vanderhoof, with EMV one size does not fit all. A lot depends on what level of payment capability merchants manage themselves and what they contract out to third parties. He recommends starting with an internal audit for each merchant to identify the partners involved in payment acceptance, a process that takes time and should begin immediately.
"Based on experience in other countries, we've learned that it's much more complicated and takes much more planning and testing and training of merchants to be ready to begin accepting EMV," Vanderhoof noted. "There's going to be a shortage of time for that level of testing and certification when it gets to crunch time around the deadline."
Crunch time for most merchants will be October 2015, after which fraud liability will shift to merchants for contact chip cards not processed through EMV terminals. October 2017 will be the deadline for petroleum merchants. Acquirers and processors must be enabled to handle full EMV chip data in transactions starting in April 2013, or they, too, will face increased liability.
With no apparent winner on the mobile wallet front, jockeying for top position continues. In June, Google Inc. released upgrades to its software and cloud-based Google Wallet first launched in September 2011. In October 2012, JVL Ventures LLC's Isis rolled out its mobile wallet in two U.S. cities. By November, 53 banks and credit unions had signed onto Visa's V.me digital wallet.
Brandes Elitch, Director of Partner Acquisition for CrossCheck Inc. and a member of the Electronic Transactions Association's Speaker Committee, said a key question raised by analysts at the ETA meeting in April 2012 was, where is the wallet? Experts debated whether data in the future would be housed in the cloud or in the secure element of mobile handsets.
The implications of further erosion of the existing payments infrastructure also weighed heavily in ETA panel discussions. "Now there are four players in each transaction and each works independently," Elitch noted. "They all have their own agreements. It's an inflexible technology model. But in the cloud, it's a different model," and information can be stored on a server rather than in the wallet.
"There is going to have to be a new connector created from the POS device to the cloud," Elitch added. "If you could do that, you could bypass the acquirer and the processor, which is a critical issue for the ISOs, because that's how they get paid."
Another trend gaining traction is the convergence of online and offline retail channels. "There has always been a Chinese wall between online and offline," Elitch noted, but that is not the case any more.
He said that for these channels to operate seamlessly, everything has to be integrated, which means industry stakeholders will need to align with the right partners and strategic players within the ecosystem to be successful.
Bruce Dragt, First Data Corp. Senior Vice President and Division Manager of Payment Acceptance, agreed, stating that the interaction between consumer and merchant is now occurring in ways previously not possible. Because converging technologies are literally transforming consumer expectations, First Data proclaimed 2012 the year of "universal commerce," a term coined to describe the convergence of brick-and-mortar, online and mobile commerce channels.
As a first responder to these advancing payment technologies, First Data formed the Innovation Exchange about a year ago, bringing together industry thought leaders to foster partnership in the universal commerce ecosystem.
The company also developed Rapid Connect, an open platform that allows partners to launch products more quickly, in addition to its OfferWise loyalty and redemption program for merchants. Others have developed similar platforms.
In August, a consortium of the nation's largest retailers joined together to create the Merchant Customer Exchange. The stated purpose of the group is to deliver a comprehensive mobile commerce experience that is consistent across retail environments. Joining MCX in the early stages were retail behemoths Wal-Mart Stores Inc., Target Corp., Sears Holdings, Best Buy Co. and 7-Eleven Inc., among others.
"We are seeing tremendous interest from merchants of all sizes," said Dodd Roberts, an MCX executive and payment consultant. "Merchants recognize mobile payment adoption will be limited until it can be used where consumers regularly shop. MCX offers unmatched scale, representing merchants with more than $1 trillion in annual sales across nearly every merchant vertical."
Along with the emergence of the omni-channel retailer, big data surfaced as more than just a buzzword this year. The ongoing challenge for chief information officers will be to develop systems that are capable of managing the onslaught of information now available through data collection and to apply that knowledge in meaningful ways that enhance the customer experience and build brand loyalty.
Another trend that became more apparent as the year progressed was the return of record turnout at regional and national conferences. The allure of educational insights into value-added reseller opportunities during this era of revolutionary technological change and margin compression packed conference halls and filled industry forums where information exchange was the imperative.
The Northeast Acquirers Association, the oldest acquirers association formed nearly 15 years ago, hosted the industry's first event of 2012 with 500 gathering in Vermont in January. It hosted a second event in the summer and plans to do the same in 2013. In March, more than 600 payment professionals attended the Southeast Acquirers Association conference in Dallas.
In July, the Midwest Acquirers Association celebrated its 10th anniversary conference and set a record with 600 descending upon Chicago. And the Western States Acquirers Association eclipsed 900 attendees for the first time at its fall conference in southern California. In October 2013, WSAA plans to celebrate its 10th anniversary in San Francisco.
The ETA 2012 Annual Meeting and Expo in Las Vegas also saw near record attendance with 168 exhibitors and 2,850 attendees. The ETA also launched the Mobile Payments Committee, with representatives from 45 top technology and payment companies joining in the initial teleconference.
The committee's goal is to develop and implement industrywide solutions to policy and business solutions related to mobile payments. The ETA added a Mobile Payments Innovations conference to the agenda for its upcoming 2013 annual meeting in New Orleans.
Despite the best protection, fraud remains a pernicious problem. Two major data breaches joined the growing ranks of fraudulent activity that has drawn public scrutiny in recent years. On March 31, 2012, Atlanta ISO and payment processor Global Payments Inc. reported a data breach thought to have compromised 1.5 million North American accounts.
Upon further investigation, Global revealed that a limited portion of its North American card processing system had been affected.
In August, Global Payments reported the first quarter data breach incident had cost the company $84.4 million in remediation and card company penalties this fiscal year, and the company anticipates it could spend an additional $55 million to $65 million in remediation in 2013, depending on whether insurance offsets certain costs.
The second major data breach was reported on October 24, when Barnes & Noble revealed that criminals had planted bugs in PIN pad devices at 63 of its stores, forcing the company to temporarily disconnect PIN pad devices at all stores nationwide.
In this incident, the breach apparently allowed compromised devices to capture card and PIN numbers and only affected card-present transactions, the company stated at the time.
One year after debit interchange regulation took effect on Oct. 1, 2011, under the Durbin Amendment to the 2010 Dodd-Frank Act, reactions were mixed about whether the savings realized had benefited merchants and consumers as intended. Electronic Payments Coalition spokeswoman Trish Wexler said, "One year after implementation, retailers have taken home $8 billion, while many of their customers pay more at the register." The EPC said it validated this claim by making identical purchases at merchants both before and after the regulation took effect.
Heartland Payment Systems Inc. took a more proactive approach to debit interchange regulation, launching an online program dubbed Durbin Dollars to educate retailers about the new rate changes and potential cost savings to merchants. As of Oct. 1, 2012, Heartland estimated it had delivered more than $262 million in signature debit savings to its U.S. merchant customers as a result of the interchange regulation.
On Nov. 9, 2012, a New York federal judge gave preliminary approval on a $7.25 billion multidistrict litigation settlement against Visa and MasterCard Worldwide in a lawsuit brought by a class of U.S. retailers in 2005. The lawsuit alleges the card brands interchange fees violate U.S. antitrust law.
If the settlement agreement receives final approval, defendants will be protected against future litigation regarding interchange and other U.S. rules at issue in the case; defendants will also modify rules to permit retailers to impose a surcharge on credit transactions subject to interchange regulation.
According to data collected by The Strawhecker Group, the wholesale, transportation, and health and medical service business categories continued to show the most consistent growth rates overall this year.
The dongle wars accelerated in 2012, with Square Inc. reportedly on track to process an annualized $5 billion through its payment system. Terminal manufacturer Ingenico S.A. became parent company to ROAM Data Inc., whose secure ROAMpay mobile POS system competes with Square. PayAnywhere, North American Bancard's mobile POS solution, launched a national retail channel through Wal-Mart, Sam's Club, The Home Depot U.S.A. Inc., and others.
As in previous years, mergers and acquisitions continued at a brisk pace. In March, payment processor Vantiv Inc. launched an initial public offering on the New York Stock Exchange and later acquired Litle & Co., expanding its e-commerce footprint.
First Data added global electronic payment processor OmniPay Ltd. to its international network. Global Payments acquired Accelerated Payment Technologies, increasing its merchant base in a number of value-added reseller vertical markets.
Merchant Warehouse acquired Avatas Payment Solutions to jointly service utility companies. Total System Services Inc. acquired ProPay Inc., expanding its reach into the micro-merchant market.
TransFirst LLC acquired software developer CurveNorth Inc., bringing Merchant-Flo workflow automation to its merchants. ISO SignaPay Ltd. acquired Equity Commerce LP, further broadening its platforms and relationships with multiple sponsor banks.
The common thread at work in nearly every major development that occurred within the payments industry 2012 was the concept that through cooperation we can all build a better future.
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