The diversity of payments in the US

The diversity of payments in the US

As a payments geek, I am always curious about payment experiences in various parts of the world. In the last month I had a couple of trips to the US – to New York and to New Orleans – and they just reminded me how diverse the US payments environment is. And I am only talking about the physical POS; I haven't really ordered anything online or in-app while I was there.

First, a few observations around EMV. As I live in the UK, all my cards are Chip and PIN, and the US market has been migrating to EMV for a while now. Of course, the migration can't happen overnight – some merchants have already upgraded their terminals, but many haven't yet. Also, there is no mandate in the US to use offline PIN, so "chip and signature" EMV cards are common amongst the US issuers. As an end-user, I experienced a full gamut of payment scenarios:

  • Majority of merchants would simply take my card, swipe it and give it back to me straight away. Not one of them checked if my card is even signed, let alone if the signatures matched…
  • On a few occassions, I was asked to insert the card into an EMV terminal and enter my PIN. And then we waited. And waited more. And a bit more. I knew EMV transactions take longer in the US, but I didn't realise just how much longer… Not surprisingly, the networks had to do something about it and have announced software updates (e.g. Visa's Quick Chip for EMV and MasterCard's M/Chip Fast) to speed up transaction processing.
  • Not a single eating establishment I visited had a handheld EMV terminal. All of them just took my card and disappeared for a while in the "back of the room" – a practice that sends shivers down the spine for most Europeans ūüôā
  • On at least one occassion, I entered the PIN, yet the salesperson was still looking for a signature box on the receipt and wanted me to sign it. I had to explain that PIN replaces the need for signature; of course, these things will disappear once merchants learn more about the EMV cards.

A number of merchants in New Orleans had a Clover POS station. It looked really sleek on retailer desks and transactions seemed fast and easy. I asked a couple of them what they thought of it, and they all said they were very happy with the device, its looks and ease of use.

As a side note, American Express cards seem to be far more widely accepted in the US. In Europe, I got into a habit to double check at new places if they take Amex; in the US, that seems unnecessary.

Of course, it's no longer just cards. US was the first market in the world to see the launch of Apple Pay, Android Pay and a number of other digital wallets. The challenge for many of these wallets is the lack of places where they can be used, as contactless terminals remain relatively rare, albeit growing. However, when they can be used, they work very well. The biggest advantage that I can see as the UK user of Apple Pay is that in the US I can use Apple Pay for any transaction, whatever the amount (as long as my issuer is happy to authorise it). I had no problem paying for a taxi ride from New York's JFK airport to downtown by Apple Pay ($70+ fare with the tip). In the UK, Apple Pay and Android Pay (which has just launched this week) are subject to the same contactless card transaction limits and can only be used for transactions of £30 or less. Again, we expect this to change, as contactless terminals get upgraded.

I was also intrigued to see a PayPal acceptance badge at one of the POS terminals. I asked the cashier if it was a popular payment method amongst their customers. The cashier said that it seemed new to him, and that he personally had yet to see anyone trying to use it. I must admit, I am a fan of the PayPal wallet and use it whenever I can, but nearly all of my transactions are online/ via a mobile app. This time, I only noticed the PayPal sign after I already started paying by card, so can't quite report on the actual experience…

And yet, cash remains hard to beat, with many places only accepting cash. I refrained from visiting any of the dodgier establishments on New Orleans' Bourbon Street, but I didn't even had to in order to experience the power of cash. Most sellers in the French Market clearly prefer cash; getting into (jazz) Preservation Hall is "cash only" at the door, and while not every place has the sign as artistic as the one in the picture below, "cash only, one drink minimum" was a common mantra of many bars with live music.

cash only

Clearly, there is a lot of payments innovation in the US. Various wallets and innovations in POS contribute to the diversity of end user experiences. Such diversity is a good thing and if anything, it will only increase, as customers will have increasingly more ways to pay. And as the migration to EMV continues, the undesireable kind of diversity should reduce as well.

The paradox of digital payments

The paradox of digital payments
At Celent we run a couple of Banking research panels – one on Branch transformation and another on Digital – where any US-based bank or credit union can participate in surveys we administer on a regular basis. Last week we published the report with findings of our survey we conducted in November 2015 on Digital Payments. 42 institutions participated and answered our questions on:
  • How important are digital payments in the context of other priorities?
  • What has been the industry‚Äôs experience with digital payments?
  • Where is the industry in its EMV migration journey?
The survey results highlighted the paradox of digital payments:
  • Nearly everyone thinks that digital payments are important, but only 13% view it as strategic priority, aim to lead and invest accordingly. 63% aim to be fast followers and another 23% only invest to stay on par with peers.
  • 71% of participants agree that financial institutions (FIs) should offer branded digital payments (e.g. own digital wallet), but they are more likely to participate in third party wallets, such as Apple Pay, Android Pay and others, than to invest into their own HCE wallets – 46% have no plans for HCE.
So, what should the FIs do in digital payments? Accept that “payments are disappearing” and focus on ensuring that their payment credentials are available for customers to use wherever they want them or fight back with their own branded wallets? Does it have to be an “either/ or” choice? Can they/ should they do both? What are your thoughts? P.S. Our panels are open to any FI in the US – Celent clients and non-clients – and we share the results report with all respondents. If you‚Äôre a banker and would like to participate in future Digital Panels, please contact

Trusting a Retailer with your Payment Credentials

Trusting a Retailer with your Payment Credentials
For some time now I have been talking about importance of payment acceptance in the digital world. I have been arguing that, by implication, in the war of digital wallets, there can be no single winner; the contexts in which consumers need to pay have become so diverse, that no single solution can hope to cover all bases. As a result, we are seeing the proliferation of open digital wallets. We are also observing the emergence of apps developed by retailers, restaurants and other service companies which focus on adding a digital layer to their primary service (i.e. shopping, serving food, hailing a taxi, etc.) with payment capabilities embedded within the app. I call this “contextual payments”; the concept is discussed in more detail in my upcoming annual report on Top Trends in Retail Payments. There are different ways how a service app (e.g. retailer’s app) can call on payments capabilities. One of the simplest ways is to ask the customer to provide and store their payment credentials (e.g. card, bank account, etc.) at the time of registration – think of Amazon and their “one-click” purchasing. In this case, a customer has to trust the service provider that their payment credentials will be stored safely and securely. That trust has just had a few big knocks. In December, Target, a large retailer in the US announced a data breach, and the latest estimates are that over 100 million customers have been affected. This was followed by a smaller-scale data breach announcement from Neiman Marcus, and apparently, there are a few other retailers that haven’t gone public yet. Debates are going on now about the impact on the industry and the effectiveness and relevance of EMV, PCI and other measures in¬†reducing the risk of such attacks. These debates are obviously important, but another issue fundamental to the success of mobile payments is the trust that customers have (or don’t) in various third parties asking for their payment credentials. I know people who refuse to open a PayPal account, as they are not willing to trust the company with their cards details, let alone bank account numbers. News from Target, Neiman Marcus and others can only do further damage to that level of trust. No wonder banks and schemes have started work on tokenization standards; tokenization by itself won’t be the answer to all the problems, but it’s a step in the right direction. The big question is what it will take to convince customers to trust mobile payments and companies that enable them.

Top Five Themes at Money2020

Top Five Themes at Money2020
I am finally starting to¬†catch up on things¬†back¬†after the intense week at Money2020. Congratulations to the Money2020 team for pulling off another impressive event! With 4,000 people attending, the energy and excitement was palpable. With opportunities to network and so many sessions going in parallel, I¬†only got a chance to attend a fraction of what was on offer.¬†Having had a bit of time to reflect, here are my personal¬†top 5 takeaways: 1. Digital wallets are starting to come of age. With interesting announcements from PayPal, Isis and a number of other players, it is¬†clear that now everyone agrees that it’s not about the underlying technology (e.g. NFC vs QR codes), but about customer and merchant adoption, which requires clear benefits,¬†simplicity, and ubiquity. My view is that of the leading contenders (PayPal, Isis, Google, scheme wallets), PayPal is showing the most promise today. It’s concept of checking-in is simple to understand, the check-out does not depend on a specific technology (the code can be scanned or entered) and¬†last year’s¬†deal with Discover gives PayPal ubiquity, at least in the US. 2. MCX is more real than¬†many people think. The panel of merchants representing the MCX initiative received a mixed reception from the attendees. However, they did say more than they have ever done in the past and where they didn’t say too much, it was¬†possible “to read between the lines.” Two of the most common questions to MCX¬†are 1) how will they attract consumers? and 2)¬†are they building a new payments network? For #1, MCX is looking to leverage the relationships they already have with millions of customers through their loyalty programs and private label cards. And if the offer is compelling, who is to say the customer won’t be tempted to download the app and give it a try? Those same private label cards will also be a starting point¬†as a funding source, although MCX are also believed to be in discussions with banks to connect directly to the bank accounts, and through FIS they have a technology partner capable of helping them navigate the¬†technical complexities. As Wal-Mart representative concluded, “do not confuse the lack of announcements [from MCX] with a lack of progress.” 3. Tokenization is going to be a big topic over the coming years. On October 1, Visa, MasterCard and American Express introduced “a proposed framework for a new global standard to enhance the security of digital payments and simplify the purchasing experience when shopping on a mobile phone, tablet, personal computer or other smart device.” A card number would be replaced by a token, which would be used instead for shopping online or on a mobile. The US banks have already started a similar effort via The Clearing House, and in my view, the announcement from the three networks is a direct response to those efforts and an attempt to influence the developments. Despite multiple panel discussions at Money2020, not many details are available at this stage how all this¬†will work, but it’s¬†obvious¬†that it is a trend to watch. 4. Card-linked offers remain exciting while entering the next stage of development. Events like Money2020 are great at bringing the entire ecosystem together: issuers, payment providers, merchants, investors, analysts¬†and others. Card-linked offers and transaction-driven marketing continue to excite different parties with their promise and the event had a number of intelligent panel discussions, acknowledging the fact that no one party has full access to the necessary data and recognizing the need to collaborate creatively while¬†respecting customer privacy. I had the privilege of moderating one¬†such panel discussion among the representatives from Affinity Solutions, Home Depot, Speedeon and Vantiv – thank you to all my panelists and to the organizers for giving us the opportunity. As a further sign of maturity, Cardlinx Association announced at Money2020 brings together companies such as Microsoft, Bank of America, Discover, Facebook and First Data in addition to¬†most of¬†the main platform players to tackle industry-wide issues such as stacked offers (e.g. multiple offers presented through different channels), product returns and others. 5. The emphasis¬†in ‘m-POS’ is shifting from ‘m-‘ to ‘POS.’ Square and others have pioneered the m-POS concept where a mobile device and a ‘dongle’ are acting as a payment terminal to accept the card. However, the development of digital technologies has paved the way for providers of new breed of POS systems, which are aimed at replacing traditional stationary cash registers/ POS systems. The new systems, such as Clover announced by First Data at Money2020, are cloud-based open platforms enabling to tap into the developer community for a wide range of apps that can help merchants manage their inventory, reconcile books or engage with customers. Combined with sleek hardware, they offer much more than simple payments acceptance and are likely to appeal to a broad range of merchants. I am sure I haven’t mentioned everything that was worth mentioning (for example, Peter Diamandis’ opening keynote was truly inspiring). If you attended the event and would like to add your observations, please leave a comment to this post.

MobeyDay Shines Again

MobeyDay Shines Again
Earlier this week I attended MobeyDay, a second annual event when the Mobey Forum opens¬†the doors¬†not only to¬†its members but the wider global mobile financial services community. As analysts we attend many conferences and it’s easy to become somewhat jaded from hearing the same messages over and over again (usually, how big mobile already is and how it is going to become even bigger.) Therefore, it is very refreshing to come to an event where all the presentations and panel discussions are content-rich, insightful and thought-provoking. And for the second year running MobeyDay has delivered exactly that. Below are just a few of my personal highlights:
  • Dave Birch gave an opening keynote presentation and talked about what the mobile wallets will “really” look like.¬†He argued that¬†for digital and mobile wallets to¬†succeed they will have to deliver something that a physical wallet can’t do, and that the “triple A play” – authentication, apps and APIs – will drive the next phase of the technology evolution.¬†If done well, the actual payments experience will fade into the background – think the Hailo app for taxis.
  • The message of payment experience disappearing and becoming embedded in the commerce transaction was also echoed in the closing keynote by Citi.¬†Chip-enabling various¬†devices gives rise¬†to M2M (machine-to-machine) interactions, some of which will require¬†seamless payment settlement (e.g. your fridge ordering a bottle of milk).¬†While I am not convinced I want my fridge to go on a shopping spree and start buying a bottle of milk today and a few slices of ham tomorrow, I do agree that M2M is an important trend that will shape commerce and payment experience going forward.
  • PKO Bank Polski presented its IKO project. In my digital wallets¬†report a few months ago, I talked about the chasm between online and offline payments. IKO solution¬†leaps¬†over¬†that chasm and delivers a solution that works across multiple mobile payment and banking scenarios, from physical payments at the POS and card-less ATM withdrawals to P2P and¬†online payments. The bank calls it “4G mobile banking ‚Äď mobile banking and mobile payments in one versatile solution.” It’s true that for now the solution is “closed loop”, i.e. only works with PKO bank merchants and consumers, but it helps that PKO is the largest universal bank in Poland. The early results are impressive and¬†PKO is¬†willing to include other banks into the IKO ecosystem in the future as they continue towards “building of a new local mobile payments standard in Poland.”
  • The notion of moving away from mobile payment solutions built on card rails towards integrated mobile banking and payments directly from a bank account was a recurring theme throughout the day. I had the privilege of moderating a panel discussion¬†among the¬†representatives from Banco Sabadell, ING, PostFinance and Clear2Pay on value-added services for mobile banking.¬†Whether the banks should be embracing the key asset only they have (the current account) and build bank account-based payments solutions was also among¬†the many questions we debated on the panel.
  • Finally, there were also very interesting presentations from Caixa Bank and PostFinance, as well as excellent panels on mobile payments disrupters, Big Data and m-POS.
A big thanks to all my panelists and to the organisers РMobey Forum and Finextra Рfor delivering an outstanding event. I am already looking forward to next year.

The Relentless Drive of Payments Innovation

The Relentless Drive of Payments Innovation
I just came back from three weeks of being on the road. I ran a workshop on merchant-funded rewards at Merchant Payments Ecosystem event in Berlin, presented on mobile payments at Celent’s own (and very successful!) Insight and Innovation Day in Boston last week, and managed to squeeze a holiday on the snow in between. While I was away, there were a lot of interesting news and announcements in the mobile payments space, particularly last week¬†at the¬†Mobile World¬†Congress in Barcelona. As I was catching up on all the latest developments, I wanted to share a few announcements that especially caught my eye. 1. MasterCard introduced MasterPass, the “future of digital payments.” According to the company, MasterPass is “a digital service that allows consumers to use any payment card or enabled device to discover enhanced shopping experiences that are as simple as a click, tap or touch ‚Äď online, in-store or anywhere”, and represents an evolution of PayPass Wallet Services, itself announced only last year. At first glance, MasterPass appears to be¬†a solution to bridge the chasm I was describing between online and offline payments in my recent digital wallets report. While the initial focus remains on e-commerce and online/ remote transactions, MasterCard was apparently demoing how MasterPass can be used for proximity payments with QR codes on posters and even TV.¬†Naturally, MasterCard will want to make sure it¬†also works well with¬†PayPass contactless to be a truly universal solution, but the direction is definitely encouraging. 2. Visa introduced Visa Ready Partner Program “designed to accelerate the introduction of innovative payment solutions globally and further drive the global migration from cash to electronic payments.” The program has two main components: the existing program for the approval of mobile NFC-enabled devices, and a new one for Mobile Acceptance (mPOS) Solutions. Ingenico’s ROAM is the first partner to participate in the mPOS solutions program. However, it was the announcement of a new deal between Visa and Samsung under the NFC program that I found particularly interesting. Future NFC-enabled Samsung phones will come with Visa‚Äôs PayWave applet and pre-certified to work with¬†Visa’s payment system. Another important feature is the new NFC integration allowing banks and others to launch mobile payment services¬†using Visa‚Äôs new Mobile Provisioning Service to download payment account information to the devices. This has the potential to simplify the existing complex process¬†of provisioning payment accounts to secure elements, one of the barriers for widespread NFC adoption today. 3. Bankinter in Spain also announced a new way to circumvent secure element hassle for mobile NFC payments. Their customers will need an app¬†on their NFC-enabled phones,¬†and then,¬†instead of using a secure element from a handset manufacturer or network operator, the customer will temporarily download virtual one-time use replicas of their physical credit or debit card every time they make a payment. The service¬†was¬†developed with Visa Europe, Net1 UEPS and Seglan. While such a solution clearly puts¬†the bank in control of mobile payments, it relies on ubiquitous network connectivity and ability to download a virtual token before a payment can be made, which may not be practical in all circumstances. There¬†were more news in the start-up world, from Stripe entering the UK to¬†PayPal co-founder Max Levchin¬†launching a new payments venture Affirm focused on streamlining the mobile checkout process. All of which only¬†confirms that there is no respite when it comes to innovation in mobile payments.

Digital Wallets: Crossing the Chasm Between Online and Offline Payments

Digital Wallets: Crossing the Chasm Between Online and Offline Payments
Despite increasing online-offline convergence in retailing, there is still a chasm between online and offline payments which today’s digital wallets are struggling to cross. It remains a challenge today to use secure element-based payment credentials online and cloud-based credentials at the physical POS, although various solutions to bridge the divide are emerging. The above statements form the central thesis of my new report to be published early next week under the same title as this blog post. With my report, I sought to address the following key questions:
  • Given the proliferation of solutions, how to differentiate between various digital wallets in the market today? How best to think about the solutions, economics and implications for various players?
  • Is there any consensus in the market on what is important in order to succeed? What are some of the big unknowns which could significantly influence the market? What are some of the key challenges that the industry as a whole needs to address?
  • How should¬†financial institutions respond to these market developments?
During¬†my research, I have been studying a number of digital wallets (or their announcements), including Google Wallet, Isis, LevelUp, O2 Wallet, PayPal, PayPass Wallet Services, QuickTap Wallet, Serve, Square Wallet, by Visa, MCX, Apple Passbook, Micosoft Wallet Hub, and FIS & Paydiant wallet, all of which are discussed in the report, along with a number of other solutions and ideas around mobile and digital payments. I am also proposing a framework how to analyse digital wallets, which should help banks and others understand the impact of wallets on the economics as well as customer and merchant relationships, availability of data, risk management and other key areas. If you are a Celent client, don’t forget to visit our website ( next week to download the new report. I hope you will find it interesting, but do let me know what you think. And to our American readers, a very happy Thanksgiving!