By Jeff Fortney
The end of the year always brings an interesting array of articles and news stories about emerging trends and predictions for the coming year. Many of these articles are based on facts and research, while others come from more colorful sources and legends. One such source is the well-known prognosticator Jeane Dixon.
During her lifetime, Dixon made thousands of predictions. Looking back, her followers would point to two that they believed predicted the assassination of U.S. President John F. Kennedy and the attempted assassination of Pope John Paul II.
When these and other predictions were examined, it could be seen that all of Dixon's predictions were extremely vague, which could allow events to appear to fit a given prophecy, but there was no conclusive demonstration that any of her prophecies predicted specific events that occurred. This vagueness allowed for ambiguity.
Given the speed at which the payments industry is changing, it may be easier to predict the future by reading the results from a Magic 8 Ball. Yet we all want to know what to expect to help us prepare for the future. So allow me to share predictions for 2013. Since many of my ideas may be like Ms. Dixon's prognostications, I will also share the results from my trusty Magic 8 Ball.
Futurist Magazine recently unveiled its predictions for 2013 and beyond. Most were not truly applicable to our business, but there was one that stood out, as it pertains to the payments world.
To quote the article, "Cloud intelligence will evolve into becoming an active resource in our daily lives." Others have predicted that the cloud will increasingly be used as a kind of external brain. And the Internet will become more "intelligent" through its ongoing evolution and interplay with society.
In the payments world, we are seeing more and more references to "the cloud." There are actual products that have begun leveraging the cloud for data transfer and storage. Much has been written about security measures and the benefits provided by the cloud. Even so, is this prediction near term or long term? Is it something our industry should begin actively selling?
When discussing this question with others in the industry, I came to the conclusion that this prediction is too esoteric. Most asked a simple question, "What is the cloud?" Don't get me wrong, techies and early adopters are definitely interested, but there is confusion about the benefits to merchant level salespeople (MLSs).
Because the cloud is constantly developing and we are seeing new uses for it emerge nearly every day, I have to say that this is a long-term prediction.
Magic 8 Ball Answer: Someday
This prediction comes from a recent study performed by IDC Financial Insights. IDC also indicated that the driving force behind this prediction is near field communication (NFC). This projection is based on the company's belief that merchant acceptance of NFC will increase.
When asked to provide their predictions for 2013, many fellow members of GS Online's MLS Forum raised the specter of NFC.
JTMERCH feels that NFC will grow in the coming year. "One thing seems pretty certain: more mobile and more players entering mobile with a simplified pricing model."
On the other hand, MBRUNO sees serious issues with implementation. "The implementation of NFC will be a cluster. Both because of technology mishaps and 'flying monkey attacks' (that is, buy this terminal or your shop will implode)."
In conversations with others, I have found the consensus to be that both ideas may be correct. Some feel that the demand for NFC will result in more offerings, added solutions for terminals and POS systems, and increased opportunity. These same people feel that the actual need may not be that great throughout the year, and that actual usage will grow slowly.
One forum member used the recent - and arguably unsuccessful - pilot of Isis' mobile wallet in various communities as an example. JGARZA went so far as to predict the company's failure, stating, "Isis will not exist by the beginning of 2014."
As with the cloud, the ultimate driver of mobile payments will be merchant acceptance. Based on my conversations, it seems that merchant acceptance will be regional in nature. Some markets may see a demand; others of equal size may lag well behind. It just all depends on who chooses to use a smart phone or similar device for payment instead of a physical card. This is another case in which the rollout will be slow.
Magic 8 Ball Answer: Not this time
Europay/MasterCard/Visa (EMV) resurfaced as a hot topic of conversation well over a year ago. Visa Inc. published dates by which it wants all merchant terminals to be able to accept payments made with EMV-equipped cards, often referred to as smart cards. Visa has even tasked authorization vendors to enable EMV acceptance as well, with dates as early as April 2013.
Because of that deadline, one would think that EMV would be a major player in 2013, but two key points must be considered. The first is a historical perspective.
In 1997, talk of smart cards dominated many conversations. New terminals were built and were smart-card enabled. Everyone was talking about how chip and PIN usage was coming later that year. In 1998 and 1999, smart-card acceptance was the main driver of almost every terminal manufacturer (and in those years there were as many as five or six major players in the terminal world).
However, within two years, the conversations waned. Terminals still appeared that had a slot for a smart card, but there was no reader inside. There was no reason to include it, as it only added cost to the terminal and served no real purpose.
If you examine the reasons why smart cards failed to penetrate the market in 1999, it would appear that it was directly tied to issuance. The cost of a smart card was as much as three or four times that of a traditional mag stripe card. This raises the second key issue related to EMV.
Issuers have until 2015 to issue EMV-enabled cards or face a change in liability on very specific transactions. Even with this date looming, cost is causing most issuers to put off reissuing cards for as long as possible. Therefore, it seems natural to many that until issuers get EMV cards into the hands of consumers, the demand for EMV-enabled terminals and readers will be slow.
MLS Forum member AGENT disagrees with this line of thinking. "I believe 2013 will be the year EMV finally arrives on American shores," AGENT wrote. "Because EMV is hardware driven, we just might see equipment companies who couldn't get 'the cloud' right switch their focus to EMV add-ons."
On the other hand, VZAGUY11 believes EMV still has to show value to the merchant, stating, "I respectfully disagree with AGENT. The economy plays a big role with merchants' interest. Maybe new merchants will be interested, but existing ones are a different story."
Magic 8 Ball Answer: In all likelihood
Depending on whom you ask, POS systems are either the only thing MLSs sell to merchants looking for a change in their POS equipment, or they are the one thing they avoid at all costs. Those who avoid them say that the cost of a POS system far outweighs the benefit to most small merchants. Those who think usage will grow in the near future feel the cost will be offset by new features and the changing needs of merchants as they grow.
MBRUNO feels strongly about the POS system question. He predicted that in 2013 "tablet devices will become more prevalent as the costs go down. More POS systems will start offering this technology either through a hybrid (traditional POS with a potential tablet add-on) or as a stand-alone (just a tablet). [Mobile] POS systems will continue to be more integrated into various payment forms (online ordering, tablets and 'off-site sales' all integrated into one system)."
Others agreed with him. JGARZA stated, "VARs and software providers will make a stronger push into payments, and they will become the new 'ISOs.' They will begin to imbed payment talent into their organizations and execute direct ISO agreements with processors."
1SLICK67 spoke clearly about his experiences representing the opposite side of the coin. "I tried adding more value-added products to my book of business, and while, yes, I wrote many deals, my overall revenue was down when compared to each of the past seven years," 1SLICK67 stated. "I compared boarded accounts, retention, residuals, time in training, time with service, and several other factors and the ROI was down." His belief is that although more accounts were added, the actual value of those accounts was less than those using conventional terminals.
Both sides have valid positions. Sure, it's logical to say that as technology improves, we will see more advanced solutions. But will POS systems overtake terminal usage in 2013? In my opinion the answer is no, but POS systems will definitely see an increase in market share.
Magic 8 Ball Answer: Yes and no
Some may call this wishful thinking, but hard facts substantiate this prediction. For example, a recent study in a large Northwestern city showed that 4,700 new businesses opened between January and August of 2012. That number appeared to represent a slower pace in new job growth when compared with corresponding numbers for 2011, except that there were only 500 closures, as opposed to over 3,700 closures in 2011. The net growth was much higher.
Other communities are reporting similar statistics. New businesses are opening, but just as importantly, fewer businesses are closing. The Small Business Administration's published statistics for the first two quarters of 2012 show similar trends nationwide. Statistically, the numbers bode well for 2013. But opportunity isn't always about the numbers. No matter how good they appear, the efforts of each MLS are what will ultimately define his or her success.
DEE MALIK predicted that merchant cash advances will make a significant comeback. "I think that MCAs [merchant cash advances] will continue to evolve and become an important part of the ISA/MLS toolbox," DEE MALIK wrote. "We hear all of these opinions about loyalty and POS, but really, any company that is not thinking about positive cash flow and working capital will not be in business long enough to worry about merchant services, loyalty or POS.
"Therefore, the future looks bright for those who offer nontraditional capital. As it relates to retail, what entity has contact with merchants daily and can provide them with the working capital that they need? You've got it ... the ISA/MLS."
Others believe that nontraditional companies will see success and help drive opportunity. JGARZA predicted that "one or two other companies similar to LevelUp will emerge and use processing successfully as a loss leader." In all cases, those who see the opportunity in 2013 recognize that success will be driven by their efforts. As Thomas Edison said, "Opportunity is missed by most people because it comes dressed in overalls, and looks like work."
Magic 8 Ball Answer: Most definitely
2012 has been an exciting year, yet not all positive excitement. 2013 has the potential to be the best year in our industry in some time, especially if we recognize that success is driven from within each of us. No prognosticator can control or diminish our individual and collective success because our efforts will define it. Onward to 2013!
Jeff Fortney is Vice President, ISO Channel Management with Clearent LLC. He has more than 17 years' experience in the payments industry. Contact him at email@example.com or 972-618-7340. To learn about how Clearent can help you grow faster and go further, visit www.clearent.com.
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