January 2013

2013 Outlook

Want to know what the future holds for the payments industry? From mobile wallets to device-based commerce, our industry experts have the inside line on what to expect in 2013 and beyond. Plus, we share The Credit Line’s latest survey data to give you a snapshot of what consumers would like to see in 2013 and seven trends that will have the greatest impact on U.S. financial institutions in the year ahead.

Meet our Experts

  • Dominic Venturo
    Chief Innovation Officer, U.S. Bank Payment Services
  • Harit Talwar
    EVP and President of US Cards at Discover Financial Services
  • Ken Moy
    Group Head of Emerging Payments, United States for MasterCard

Click on each box to learn more.

Looking Back at 2012
In the face of ongoing economic headwinds, the payments industry has shown impressive resiliency as consumers move seamlessly to embrace new payments technologies and transform how they transact and use their money. Innovation in payments continues to reach new heights and businesses are embracing technology that makes life easier for them and their customers. In uncertain economic times, customers have used payments technology to make their finances more certain.

Looking back at the payments marketplace in 2012, what’s surprised you?

Dominic Venturo – Chief Innovation Officer, U.S. Bank Payment Services

The payments marketplace has long been an area of innovation in terms of product design, value propositions, and customer experience. In 2012, we have seen this innovation reach new highs. The number of new entrants into the marketplace and the technical innovations that are arising as a result of technical advancements in network and computing capabilities, as well as the frenetic adoption of smart mobile devices by consumers have, I believe, enabled this to occur. This has created a variety of new options for consumers and small businesses, but, having many options also increases the complexity of the buying process.

Harit Talwar – EVP and President of US Cards at Discover Financial Services

I continue to be surprised but also impressed by consumer resilience. Despite uncertainty in the economy, consumers continued to use banking and alternative payment forms for spending on both discretionary and non-discretionary items. In fact, Discover’s U.S. Spending Monitor regularly indicates that consumer spending intentions remain steady in both good times and bad.

Through innovations, banks and other institutions have continued to attract new customers while maintaining the soundness of the payments system. This, in turn, has helped merchants see increased demand for goods and services.

Ken Moy – Group Head of Emerging Payments, United States for MasterCard

We are in the midst of a dramatic global transformation in consumer behavior. In developed markets like the United States, as well as emerging markets, what is changing is nothing less than how consumers interact—with their families, with their friends, with their communities, and also with merchants. And these fundamental changes in how consumers interact will also transform how they transact and use their money.

Innovations in 2013
The future of payments is about making customers’ lives easier and empowering them with new tools and technologies. In 2013, innovation in emerging payments will be headlined by developments in mobile wallets, new programs that make redeeming rewards easier and device-based commerce. Payments technology is rapidly evolving and customers will be introduced to new products and tools in 2013 that represent only a tiny fraction of the innovation taking place behind the scenes in the payments industry.

What is your company doing in terms of product and service innovations to improve the card customer’s experience in the coming year?

Harit Talwar – EVP and President of US Cards at Discover Financial Services

At Discover we are always working toward customer experience excellence. We are proud of our work and recently won recognition for 16 straight years as the industry leader for customer loyalty, which we believe is driven principally by favorable customer experience.

Our key activities for providing excellent customer experience include:

  1. Increasing consumer understanding and transparency. We recently improved and simplified our card member agreement and continue to improve our interactive tools designed to help consumers manage their finances and make smarter spending choices.
  2. Empowering self-service. There are many account-related activities our customers can conduct online and we are focused on improving those options, optimizing them for the many devices consumers now use to manage their accounts (e.g., email and mobile alerts).
  3. Creating a more convenient shopping experience. Discover is committed to making it easier for our customers to earn and redeem their rewards—whether they are online or on the ground—as well as providing them with great value through our online shopping mall, ShopDiscover.

This is the essence of the opportunity and the focus for our organization: To create more secure, easier to use, enhanced shopping experiences—both in-store and online. Consumers will shop and pay in whatever way best fits their needs and lifestyles, from every device they have, with a simple tap, click or touch at the register, in the aisle, at home or anywhere else.

Ken Moy – Group Head of Emerging Payments, United States for MasterCard

MasterCard is leading this transition to digital. We’re moving beyond the simple transaction to create better shopping experiences for consumers, generate more value and increase sales to merchants, and deliver new revenue streams and competitive advantages for MasterCard and our partners.

Today, there is an intense interest right now in transforming payments—from people both inside, and outside, of our industry. As a result, I believe 2013 will be a monumental year for emerging payments.

The key themes as we look at the year ahead will be centered on the movement to connected, device-based commerce, which is converging the physical and digital worlds, and the security and authentication principles that enable this movement.

Dominic Venturo – Chief Innovation Officer, U.S. Bank Payment Services

We have been busy working to improve how, when, and where our customers do business with us for years, and have made great progress. We have a dedicated Customer Experience office at U.S. Bank that focuses on the whole customer experience for all customers, including card customers. In addition to that work, and the great work our product and service staff do every day to simplify processes, provide great service, and keep our customers data safe and secure, we continue to innovate around customer experience, largely through enabling technology in a seamless way for the customer.

We have created specialized mobile applications for our co-brand partners, for example, that move the card sales process from the check-out counter to the customers mobile device. This allows potential card-holders to apply securely right on their device, be instantly approved, and receive a virtual card to begin earning rewards immediately. We have also partnered with Visa to make it easier for our customers to use V.me from Visa, a new secure digital wallet offering that greatly simplifies the online purchase experience.

We are also increasing the number of cardholders who have EMV capable cards well ahead of the industry compliance dates (EMV cards contain a security chip in addition to a magstripe) so that customer who travel abroad will have a better experience. These are just a few examples and we have more plans that we have not yet announced. It should be an exciting year.

Projections Beyond 2013
If the last five years are any indication of what’s to come during the next five, we’ve only just begun to scratch the surface of what’s possible in the payment space. By all accounts, innovation will be driven not just by the convergence of the physical and digital worlds but, above all else, by what the customers want. While the migration to mobile devices is currently leading the charge, it’s possible that mobile devices will soon move to the background as the next generation of payments technology emerges that places less emphasis on the actual device.

Looking ahead to the next five years, what technology, product or service in the payment space are you most enthused about?

Ken Moy – Group Head of Emerging Payments, United States for MasterCard

We continue to be focused on our business and efforts to deliver value in—and beyond—the transaction for both our customers and the end consumer. To do this, we constantly seek innovative ways to enhance the value of every transaction for all players by developing creative solutions, investing in new technologies and building partnerships. We expect that the convergence of the physical and digital worlds will continue to accelerate and have a large impact on this road forward.

As we migrate from an “analog” to “digital” world, MasterCard is focused on transforming the purchasing experience and drive future payments innovation. Part of this evolution is the migration of EMV to the United States. As that migration takes place, it’s important to note that EMV is not about a specific device, nor simply a technical migration for enhanced fraud mitigation; it’s about an upgrade to an overall platform to maximize the consumer purchasing experience and benefits.

We have and will continue to work with our customers to drive collaboration and effectively create the infrastructure in the next 12-plus months to continue to drive the next generation of payments technology. We believe this coordinated approach will help each participant in the ecosystem make the best decisions that will maximize their business and deliver a safe, simple and smart consumer experience today and in the future.

Dominic Venturo – Chief Innovation Officer, U.S. Bank Payment Services

I get excited about the possibilities of what’s next after mobile, in terms of a mobile phone. There has been so much innovation in such a short time as a result of this always on, always connected device, that, I believe the next phase will be where the device actually moves into the background and we are able to create products and services that are accessed more naturally, and with less emphasis on the device itself. We’ve been experimenting with technologies like augmented reality, where digital information can be combined with physical information to add value to a customer’s experience. We piloted a branch and ATM locator and received great feedback on the concept. This currently requires looking through the viewfinder of a mobile device. Not ideal, I agree, but there are some emerging technologies that will enable that experience to be much more useful.

Harit Talwar – EVP and President of US Cards at Discover Financial Services

Our enthusiasm is driven by the changes the consumer is experiencing. New consumer behaviors are re-defining lifestyle norms. For instance, technology today is ubiquitous –many people are using their tablets or phones to buy things or chat with friends while watching TV. We feel these multi-purpose sessions are becoming more commonplace and we are working toward solutions to help make these experiences more convenient for consumers.

The goal for Discover is to harness technology to provide relevant solutions by empowering consumers. We feel giving consumers what they want, when they want, it is the best strategy.

Beyond the Hype
Despite representing the future of the payments industry, some in the industry believe mobile payments have received much more attention in recent years than is warranted. While it’s clear that mobile payment is where the industry is headed, for the time being, customers say that the card at the point of sale works just fine. Some believe that instead of hyping the progress of mobile payments, we should focus on ensuring the customers receive the experience they expect and deserve.

What technology, product or service in the payments space do you think is the most over-hyped right now?

Dominic Venturo – Chief Innovation Officer, U.S. Bank Payment Services

I think mobile payments have received much more attention than is warranted, for a number of reasons. First, to be clear, we are strong supporters of mobile payments and believe that they will, eventually, be a way we do business in the future. However, most of the energy has been centered around the actual payment itself when customers (consumers and merchants) tell us the card at the point of sale works just fine. There has been a lack of an industry standard, which has led to a number of competing technology models requiring significant investment. While some of these are gaining modest acceptance, the issue is, long term, that convergence on an approach has to happen in order for scale to take place.

Harit Talwar – EVP and President of US Cards at Discover Financial Services

It’s not about any one technology, product or service – it’s the way people use them. We focus on the consumer and their needs, ultimately choosing solutions capable of providing meaningful value to our customers. We will continue to innovate by developing solutions that have a high degree of relevancy to the consumer. In this way, we ensure the consumer receives the experience they expect and deserve.

Hurdles to Innovation
As is almost always the case, regulation was most often cited as the biggest impediment to progress and innovation in the payments business. This age old conflict between business and government became particularly acute the past few years in the payments industry due to the addition of many new regulations that reduced the financial and technical capacity for innovation at many organizations. Privacy and security issues, too, are often cited as hurdles blocking the march towards innovation.

What do you see as the biggest hurdle to payments innovation in 2013?

Harit Talwar – EVP and President of US Cards at Discover Financial Services

We expect the following will impact payments innovation in 2013:

  1. Security
  2. Privacy
  3. Pace of economic recovery
  4. Regulatory uncertainty

Dominic Venturo – Chief Innovation Officer, U.S. Bank Payment Services

The payments business has always been a fairly complex business, however, it became significantly more complex over the past few years due to many new regulations. This has reduced the financial and technical capacity for innovation at many organizations. At the same time, emerging players start up seemingly every day with new products and services that touch the payments space directly or indirectly. Nearly all of these entrants are not financial institutions and, as a result, are not subject to the same level of regulation. This can create a situation where a product offered by a non-regulated entity might not even be allowable if offered by a regulated financial institution. It can also lead to customer experiences that are different than what customers have come to know and trust. For example, in the case of a disputed charge, or fraud on an account, while we plan to continue to innovate across our payments business, we sense that not all organizations will be able to do so or will chose not to.

Consumer Pulse: What They Want to See in 2013

Trends That Will Impact the Payments Industry in 2013

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