SpendTrend –
October 2013
On Nov. 18, 2013, the U.S. based e-‐commerce and payment-‐processing services provider First Data Corp. released its October 2013 SpendTrend analysis for same-‐store consumer spending by credit, signature debit, PIN debit, closed-‐loop prepaid cards and checks at U.S. merchant locations in the First Data POS Network.
Overall, October dollar volume sales increased 6.8% on-‐year, a healthy uptick from last month’s 5.3% growth, mainly owing to higher seasonal merchandise sales, due to onset of cooler temperatures, higher shopper foot-‐ traffic due to the impact of early holiday advertising and strong growth in Food Services & Drinking places and Leisure categories, partially offset by declining dollar volume at gas stations.
Notably, widening gas price discounts, as opposed to declining volumes, drove the noted dollar volume decline at gas stations, which corroborates continued strength, and even tailwinds, as savings on gas translate into more purchases across other categories that are discretionary in nature.
Average ticket size grew 0.5% in October, up from September’s growth of -‐0.2%, despite a nearly 8% decline in gas station average ticket size. Excluding gas stations sales though, retail average ticket growth jumped to 1.8% from last month’s growth of 0.8% as retailers slowed their discounting activity.
Separately, even through the government shutdown and debt ceiling talks were widely expected to dent consumer confidence and potentially spending growth, October data belied such expectations.
Moreover, credit cards remained the fastest growing payment method, marking the tenth straight month in which consumers have turned to their credit cards more often for spending. Dollar volume on credit spending increased 7.7%, while signature debit was 6% and PIN debit 6.2%. The credit growth increased over September’s 5.8%, indicating that consumers are increasingly turning to credit cards to fund discretionary purchases.
Consumer spending using closed-‐loop prepaid cards, which we note has experienced considerable volatility over the past-‐year, posted dollar volume growth of only about 3.8% whereas check payments continued their secular downtrend posting a nearly 5% dollar volume decline.
Exhibit 1: Same-‐store dollar volume year-‐over-‐year growth, by payment type
Source: First Data Corporation 7.7%
6.2% 6.0%
3.8%
-‐4.8%
Credit Card PIN Debit Card Signature Debit
Card Prepaid Card Check
Mobile Point of Sale (MPOS) Terminals
poised for rapid growth
Mobile point of sale terminals are likely to reach 46% market penetration by 2017, up from the 17% share of the point of sale terminal market, according to a November 2013 study published by Mobey Forum, an industry association for financial institutions offering mobile financial services.
Mobey notes that between 2011 and 2012, the number of MPOS terminals grew by about 110% (from 4.5 million to 9.5 million) and is likely to reach 38 million in 2017. Moreover,70% of merchants in the U.S., or about 19 million businesses, do not currently accept electronic payments and could benefit from MPOS solutions. Adding the spending at these merchants, MPOS represents an opportunity to migrate more than $1.1 trillion yearly from paper to electronic payments.
This large growth potential, however, remains largely untapped by most financial institutions, as they have followed a 'wait and see' strategy with regard to investing in the MPOS space since it began in 2009, mainly because of their belief that 'micro merchants' – a price sensitive segment of the market – was unprofitable.
This belief, coupled with rapidly increasing penetration of smartphones, cloud and app distribution has allowed non-‐traditional payment services providers / start-‐ups like Square (North America) and iZettle (Europe) to establish themselves firmly as market leaders in the MPOS space.
As a result, Mboey cautions, that the payments industry could see a gradual shift in the 'balance of power' between the industry's various stakeholders, while noting potential for market share losses and margin pressures for ISOs, processors, card networks and issuers. Conversely, Mobey expects that the shift in the balance of power will prove beneficial for merchants as they gain from relatively more economical pricing structures as well as from integrated mobile commerce capabilities of MPOS systems – a view that seems validated from the results (below) of a recent McKinsey & Co. study.
Exhibit 2: Small businesses are largely open to alternative POS systems
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Recent Developments
PRODUCT LAUNCHES
Fiserv, Inc. (NASDAQ: FISV) Broadens Frontier Reconciliation Solution to Help Clients Meet Compliance Demands
On Dec.3, 2013, Fiserv, Inc. (NASDAQ: FISV), a leading global provider of financial services technology solutions,
unveiled Frontier Reconciliation New Account Certification module that automates critical period-‐end close processes and controls to simplify the adoption of a sound financial governance strategy. Additionally, the module supports
financial transformation by enabling increased
efficiency, operational risk mitigation, and internal control, provides
unprecedented view of the reconciliation process, and can attest to balance sheet accuracy.
PayPal Launches Website to Sell Virtual Gift Cards
On Dec.2, 2013, PayPal, the eBay Inc. (NASDAQ: EBAY) subsidiary, announced the launch of its PayPal Digital Gifts store
offering virtual iTunes gift cards for PayPal users in the U.S. who can select a gift card and denomination, enter their PayPal ID and password, and send the gift to the recipient. Over time, PayPal intends to expand and sell virtual prepaid cards from other partner merchants.
Canadian Imperial Bank of Commerce (TSX: CM) Launches eDeposit for Cheques Deposit Using Smartphone
On Nov. 29, 2013, Canadian Imperial Bank of Commerce (TSX: CM) unveiled a new product eDeposit, which enables the bank's personal and small business clients deposit paper cheques with the bank by taking a photo of the cheque using a mobile device, saving time and gaining faster access to funds. The bank noted that eDeposit is safe and secure as it does not accumulate any financial information and securely encrypts all wireless transmissions.
Fair Isaac Corporation (NYSE: FICO) Launches Cloud Enabled Loan Origination Solution
On Nov. 14, 2013, Fair Isaac Corporation (NYSE FICO), a leading predictive analytics and decision management software
company, announced the launch of a cloud enabled version of its loan origination software FICO® Origination Manager 4.5, an analytic solution that streamlines the lending process from application through decision. According to FICO, the most significant advancement in Origination Manager 4.5 is the new Application Processing Module, which can
enhance lending officer and underwriter productivity in initiating, managing and reviewing applications. Additionally, with the introduction of FICO® Application Studio (a rapid application development platform), customizations including user interface and workflow changes can be made quickly and easily, with less reliance on IT. FICO estimates that clients will see a 50 percent faster time to value by implementing Origination Manager 4.5 with the new capabilities.
CONTRACT WINS
Crédit Agricole (EPA: ACA) selects Ingenico (EPA: ING) for its 3G mobile payment solutions
On Dec. 4, 2013 Ingenico SA (Euronext: ING) announced that Credit Agricole (Euronext: ACA) has chosen its iWL250 3G
mobile payment solutions to roll out mobile and contactless payment terminals to its merchant clients.
Bank of China Selects NCR Corporation (NYSE: NCR) to Support New ATM Software Application Development
On Nov. 27, 2013, NCR Corporation (NYSE: NCR), the world's largest supplier of multivendor ATM software, announced
that Bank of China Limited (OTCQB: BACHY) has awarded the company professional service contracts to develop new ATM applications to support the bank's "paperless ATM transaction flow" initiative and its Financial Integrated Circuit Card (“IC”) 5.0 project. The IC 5.0 project aims to enhance the bank's IC card product features and business process by enabling new features such as chip-‐based, automatic top-‐up, transaction short messaging, new reporting format, as well as converging with new payment channels such as point-‐of-‐sale, mobile and internet terminals.
Swiss Re (SIX: SREN) Selects Wolters Kluwer Financial Services for Global Credit Risk Management
On Nov.27, 2013, Wolters Kluwer Financial Services announced that Swiss Reinsurance Company Ltd (Swiss Re), has
selected its Summix Credit Risk solution.
The new system will provide credit exposure analysis, aggregation and reporting as well as credit limit management and monitoring across the reinsurer's global operations.
ACI Worldwide (NASDAQ: ACIW) Payment Platform Helps BCBSRI Strengthen Policyholder Servicing Capability
On Nov. 12, 2013, Blue Cross & Blue Shield of Rhode Island (BCBSRI) announced that it has selected a payment
platform from ACI Worldwide (NASDAQ: ACIW) that allows mobile, web, IVR, call center and eLockbox (consolidated remittances) payments in a move that strengthens its capabilities to service increased number of policyholders resulting from the rollout of the Affordable Care Act.
Diebold, Incorporated (NYSE: DBD) Introduces Cash Recycling ATMs To UniCredit's Fleet
On Nov. 11, 2013 Diebold, Incorporated (NYSE: DBD) announced that it is adding cash recycling capabilities to the
automated teller machine (ATM) fleet of UniCredit Banca, part of UniCredit Group, one of Europe's leading commercial banks operating in 20 countries. Under a three-‐year hardware and maintenance services agreement, DBD will add approximately 970 Diebold Opteva(®) ATMs across UniCredit's network. More than half of the terminals will be Opteva Flex Performance Series ATMs featuring deposit automation and full cash recycling capabilities, which enable
customer-‐deposited cash for reuse in future withdrawal transactions.
MARKET EXPANSION / PARTNERSHIPS
Oberthur Technologies, mBank to Offer Mobile Branchless Banking in Emerging Markets
On Dec.4, 2013, Oberthur Technologies, a leading provider of digital security solutions for the mobility space,
announced its partnership with mBank, an entity affiliated to the PlaNet Finance group that aims to facilitate financial inclusion through mobile technology, to offer mobile branchless banking in emerging markets.
ACI Worldwide (NASDAQ: ACIW) Opens LatAm Headquarters in Brazil
On Dec.3, 2013, the US-‐based payment services provider ACI Worldwide (NASDAQ: ACIW) announced that it has
established a new Latin America headquarters in Sao Paolo, Brazil and has made a number of executive appointments to strengthen its management team in the region. ACI has appointed Andreas Suma as vice-‐president and general manager for Latin America, Jonathan Lerner as vice-‐president & general manager for US Banks, and Cliff Elam as vice-‐ president of Americas operations and planning. They join recent appointments Rob Cameron, vice president and general manager for US retail, US processors & Canada; and Erik Golz, vice president of solution consulting.
Ingenico SA (EPA: ING) Announces Partnership for MasterPass™
On Nov.26, 2013, Ingenico SA (EPA: ING) announced that its group company Ogone, a leading online payment provider,
has entered into a partnership with MasterCard Inc. (NYSE: MA) concerning integration and deployment of MasterPass™ – a digital platform to help simplify online purchases using PCs, touchpads and smartphones. Initially, Ogone will deploy the solution for e-‐commerce transactions and will later enable merchants to offer their customers option to pay in store with MasterPass™ and encourage the convergence of technologies such as NFC and QR code.
MERGERS AND ACQUISITIONS
NCR Corporation (NYSE: NCR) to Acquire Digital Insight Corporation for $1.65 Billion
On Dec.2, 2013, NCR Corporation (NYSE: NCR), announced that it had entered into an agreement to purchase Digital
Insight Corporation, a Menlo Park, CA -‐based provider of online and mobile banking solutions majority -‐owned by a PE firm Thoma Bravo, LLC, for $1.65 billion. The acquisition will help NCR strengthen its mid-‐market retail banking solutions capabilities and will come with Digital Insight’s customer base of more than 1,000 financial institutions with 12 million online banking users and nearly 4.8 million mobile end users. The deal is likely to close in 1Q2014. In
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provider of secure transaction switching and fraud prevention software, for approximately $84 million. Together, these acquisitions complement and extend NCR’s capabilities in the banking industry to form a complete enterprise software platform that will deliver services across all digital and physical channels including mobile, online, branch, and ATM.
VIRTUAL CURRENCIES
Wedbush Says Bitcoin and the Associated Technology are Game Changers
In a recently published interview with Barron's, Wedbush Securities Inc., a Los Angeles -‐based privately held financial services and investment firm, said that Bitcoin and its associated technology represent a potentially game-‐changing disruption to payments companies. According to Wedbush, they see the intrinsic value of Bitcoin as the conduit in a new global crowd-‐funded open-‐source payment network that has three sources of demand – a crypto-‐currency technology that provides a powerful alternative to branded networks, particularly in processing micro transactions and cross-‐border payments, an alternative uncorrelated-‐asset class, and a safe-‐haven currency.
China Bans Financial Companies from Bitcoin Transactions
On Dec.5, 2013, Bloomberg reported that China’s central bank barred financial institutions from handling Bitcoin transactions, moving to regulate the virtual currency after an 89-‐fold jump in its value sparked a surge of investor interest in the country. Bitcoin plunged more than 20 percent to below $1,000 on the BitStamp Internet exchange after the People’s Bank of China said it is not a currency with “real meaning” and does not have the same legal status. The public is free to participate in Internet transactions provided they take on the risk themselves, it said.
