State of the Payments Industry: Q4 2013

Merchant Warehouse THE STATE OF PAYMENTS QUARTERLY UPDATE HEADING INTO THE LAST QUARTER OF 2013, we're seeing major shifts in mobile payment usage, omni-channel implementation and consumer spending trends. Consumers are spending more conservatively than in the past, but there are there are bright spots on the horizon for businesses heading into the shopping season. Here, we look at some of these major developments and what you can expect in the upcoming season. CREDIT CHECK: How Much are Consumers Spending and Borrowing? INDEX OF CONSUMER SPENDING 2013 Q1 Q2 Q3 JULY AUGUST SEPTEMBER 8.1% 7.7% 8.1% 8.3% NON-REVOLVING 71% 6.2% 5.9% 5.6% 5.4% 5.2% 4.4% TOTAL PERCENT CHANGE (ANNUAL RATE) 1.5% 1.2% REVOLVING -1.2% -2.2% -2.6% -2.9% 2,969.5 3,012.9 3,051.7 3,023.8 3,038.0 3,051.7 TOTAL DOLLAR CHANGE (ANNUAL RATE) 2,120.4 2,161.2 2,204.8 2,174.0 2,189.0 2,204.8 NON-REVOL VING 849.1 851.6 846.9 849.8 848.9 846.9 REVOLVING Q1 Q2 Q3 JULY AUGUST SEPTEMBER 2013 TRENDS IN CREDIT SPENDING Revolving credit refers to items that do not have a fixed number of payments, such as credit cards, while non-revolving credit includes things such as student loans, auto loans, and mortgages. Although Americans are taking many loans for big-ticket items like cars or education payments, they're being more frugal with their credit cards than in the past. In September, consumer credit card debt fell S2 billion to roughly S846 billion. This decline followed a S1 billion drop in August, a S1.8 billion decline in July and an even larger S3.7 billion decline in June. This indicates that Americans are more cautious about their everyday spending and credit levels, but a still leveraging their credit for big-ticket loans. THE MOBILE WALLET: Trends and Highlights in Mobile Payments MOBILE POS PROXIMITY PAYMENTS 2011 2012 $640M 2013 $1.4B Mobile POS proximity payments reached $640 MILLION IN 2012, an increase of 283% OVER 2011'S TOTAL. That number will rise another 234% by the end of 2013. TRENDS IN MOBILE PAYMENTS According to Forrester, mobile payments are expected to move toward the mainstream, reaching S90 billion by 2017. Over the same time period, proximity (in-store) payments are predicted to experience significant growth, resulting in a dramatic shift in share of overall mobile payments with mCommerce. Proximity payments will jump from 4 percent share to 45 percent share, while mCommerce will drop from 90 percent to 50 percent. Forrester segments mobile payments into three categories: ... .. MOBILE PROXIMITY MOBILE PEER-TO-PEER MOBILE REMOTE COMMERCE PAΥΜΕNTS (P2) or remittances (mCommerce) – buying online (in-store) from a mobile device INDEX OF MOBILE PAYMENTS PROXIMITY MOBILE PAYMENT USERS (millions) PROXIMITY MOBILE PAYMENT TRANSACTION VALUE (millions) $26,442 54.1 41.2 29.3 $26,442 17.0 10.9 $9,688 7.1 2.7 $2,592 $166 $539 $1,043 2011 2012 2013* 2014* 2015* 2016* 2017* 2011 2012 2013* 2014* 2015* 2016* 2017* $61.00 $76.20 $95.95 $153.24 $31.09 $642.35 $1080.65 *Amounts after 2012 are projections AVERAGE SPEND PER USER INFORMED INSIGHT: Predictions for the Coming Months HAPPY HOLIDAYS FOR SMALL-SCALE RETAILERS Although spending has been taking a downturn, SMBS are set to do very well this holiday season, with more spending moving from Big Box to Tiers 2, 3, and 4. 41% OF SMALL 76% OF SMALL BUSINESSES BUSINESSES 41% 76% expect a much stronger 2013 report increased revenue holiday season than in 2012. for the first 6 months of 2013 vs. the same period in 2012. THE RESILIENT ECONOMY SPENDING'S BACK Paul Dales, senior U.S. economist at Capital Economics, suggested the consumer spending annual rate grew 2.5% at least 2.5% in the current July-September quarter. INDUSTRY PULSE: Trends and Regulatory Updates TRENDS T O WATCH OMNI-CHANNEL GAINS MOMENTUM Big Box omni-channel is gaining momentum. This holiday season, it will establish more traction, with retailers leveraging it to drive increased revenues and allow them to deliver a better customer experience. According to a June 2013 study 75% OF RETAILERS by RSR, creating a consistent surveyed said that customer experience remains omni-channel fulfillment was the most valued retailer "VERY IMPORTANT." 54% 75% capability, but 54% OF RESPONDENTS indicate their biggest inhibitor is lacking a single view of customer across channels. RETAILERS CURRENTLY PERCEIVE CREATING ENTERPRISE-WIDE VISIBILITY AS THE BEST OPPORTUNITY FOR TECHNOLOGY ENABLEMENT. However, customer visibility, customer insights, and a single customer interaction platform that crosses channels all present huge opportunities and returns for retailers able to incorporate them into their sales and marketing. REGULATORY UPDATE Ш RECENT RULINGS On July 31, 2013 U.S. District Judge Richard Leon sided with retailers and rejected the debit interchange rate cap set by the Federal Reserve under the Durbin Amendment in 2011. Judge Leon's decision could result in reduced debit card interchange rates by more than 50%. THE STATE OF PAYMENTS CHANGES QUICKLY. WE'RE HERE TO KEEP YOU UPDATED. SOURCES: eMarketer | Kabbage | Javelin | Federal Reserve | Forrester %24