Payments in 2019: Will These Changes Be Harmful or Helpful for Merchants?16th January 2019
New Year… new changes in the industry to keep up to date with. We review which market trends and changes will hurt (or help) merchants the most in 2019, and what merchants need to be aware of for the new year.
If history is to be believed network fees will almost certainly continue to rise for U.S. merchants in 2019. Since the Durbin amendment took effect in 2011, Visa and Mastercard have implemented 28 new and amended fees on merchants. Visa has already announced fees for January and April 2019 which we estimate will cost the merchant community an additional $570 million annually. Until network fees are brought into regulation we see no reason to believe these fees will not continue to increase.
Management Information and Processor Reporting Tools
Management information and reporting tools often don’t readily provide merchants the level of visibility required to easily make informed decisions about their business. While we are seeing more processors push to optimize their MI and reporting tools, it is happening at a slower pace than the merchant community would hope. Even though many reports merchants need are usually available in some format from processors, there is a lot of inconsistency merchant-to-merchant – while a report may be available for one merchant, processors may say it is unavailable for another merchant. Merchants need to be cautious of newer players who could push for blended rates and reporting that doesn’t give full transparency of the cost of processing.
Secure Remote Commerce (SRC)
SRC promises to shake up the industry but it remains to be seen whether this new initiative will be a good or bad thing for merchants. Is it the future of eCommerce or another play for market share from the global networks? Will merchants have to give up the right to route debit transactions in exchange for better acceptance rates and lower fraud? EMVCo is pushing SRC and 3DS to prevent CNP fraud but with other vendors in this space offering their own payment methods, we would expect to see some pushback and possibly some alternatives. Merchants need to keep in mind that EMVCo is a consortium of the card networks and historically has acted in ways that benefit those networks, rather than merchants or consumers.
Contactless has been slower to penetrate the U.S. market than other countries around the world, but as it rises in popularity merchants must carefully consider their changing payments mix. Chase has already announced that it will be issuing contactless cards in the U.S. in 2019 and we would expect other issuers to follow suit. Many of the payment terminals in the field today are NFC capable and as long as the certifications are complete, contactless acceptance should be as easy as enabling this functionality. While this offers merchants an opportunity to provide the cardholder with a quick and easy form of payment, they will need to be proactive about protecting saving opportunities that can be hindered by contactless. Ways to do this include adjusting the CVM limits, PIN/Common Debit steering during application selection, and PINless debit for low value transactions.
The debit acceptance market is changing fast. What was once a tool for only the largest merchants in the U.S. now presents opportunities for all merchants. Is 2019 finally the year it takes off? We definitely hope so! Contactless presents an opportunity to increase conversion to PINless debit. It is possible to configure a device to select the common debit AID for contactless and have a no CVM transaction when the amount is below the CVM limit set on the device. Instead of sending these transactions to the global networks, merchants can utilize PINless debit. PINless would help protect debit volume while still giving the cardholder an easier transaction. However, it is important to note that there are still some significant barriers to PINless debit acceptance such as issuers not enabling BIN ranges for PINless and some processors remaining unable to process PINless transactions.
The U.S. market is decidedly more fraud-prone than most other mature card markets despite being the largest card market in the world. Global card fraud is on the rise and merchants must carefully consider how to successfully combat this trend. Like other countries following EMV rollout, U.S. merchants has seen increased fraud in the card-not-present space. In card present, EMV still fails to address lost/stolen fraud. Ultimately, this type of fraud can be better prevented with increased PIN conversion/mobile CVMs. This is important to remember with contactless as well. Contactless introduces CVM limits (these vary by vertical), which some of the card networks allowed to be set pretty high in the U.S. This could result in transactions that previously would have been authenticated through PIN not being authenticated through a CVM at all.
Consolidation, Outsourcing and New Technology in the Cash Industry
The cash industry is complex and 2018 saw lots of large changes. Volumes are declining, and the cash supply chain is adapting to deal with that – often to the detriment of merchants. While the main story of 2018 was the Brink’s-Dunbar acquisition there was also lots of other M&A activity pushing the cash industry further and further down the consolidation path. The Cash Visibility initiative (GS1) is starting to take shape with buy in from banks and armored transport providers. Merchants will soon have the option to track their cash from store to vault, making managing exceptions a little easier – something already possible with DTS and non-armored solutions like mail order services.