Credit Card Payment Trends and Legislation: What s the Impact for Associations? Tuesday, December 8, :00 3:00pm (Eastern)

Transcription

1 Credit Card Payment Trends and Legislation: What s the Impact for Associations? Tuesday, December 8, :00 3:00pm (Eastern) Hosted by ASAE Business Services, Inc. and Chase Paymentech December 7, Presenters Eric Mock, director of program management at Chase Paymentech, manages eight strategic partnership portfolios including the ASAE credit card processing program. He has been with Chase Paymentech for five years and his responsibilities include new partner launches, developing marketing campaigns, and generating overall partner growth. Before joining Chase Paymentech, Eric worked in the Sales and Promotions department for the Dallas Cowboys Football Club for six years Eric holds a bachelors degree in marketing from Texas A&M University December 7,

2 Presenters Aaron Press, Director of Market Strategy at Chase Paymentech, leads research and analyzes programs to identify market opportunities for Chase Paymentech, its partners and customers. He has been with the organization for two years. Prior to joining Chase Paymentech, Aaron managed corporate development and innovation programs at Alliance Data, a leading provider of payments and marketing services. His experience also includes 15 years of experience in market analysis, competitive intelligence, and strategic planning for companies including BMC Software, IBM, and IDC. Aaron holds a Master of Public Administration degree from George Mason University and a Bachelor of Arts degree from The University of Texas at Austin. December 7, Today s Agenda 1. Discuss the changes occurring in the electronic payments industry as a result of today s economy. 2. Explain regulatory and legislative issues related to payment card processing. 3. Explore new forms of payment that your association can use for member and nonmember purchases. December 7,

3 Why is a Merchant Processor Talking to Association Executives? Associations are merchants Sell a variety of products and services Accept various forms of payments Many associations have merchants as members The payments processing industry can effect both the merchant and the buyer Polling Question #1 Does your organization accept credit and debit cards for member and nonmember purchases? Yes No December 7,

4 Economic Trends December 7, The Near-Term Economic Picture is Showing Signs of Improvement Record low consumer confidence has rebounded somewhat, but remains unsteady and low. Unemployment continues to rise, but more slowly, and actually dipped in Nov. Retail sales show signs of life Housing market is stabilizing Consumer Confidence Index Civilian Unemployment (1985=100) Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Retail Sales Source: Federal Reserve December 7,

5 A Tough Economy Effects Spending The spending picture is down overall General pessimism about employment and the economy is continuing to limit spending for businesses and consumers Adjusting for oil and auto sales, retail sales are essentially flat. E-commerce is a relative bright spot, but varies from vertical to vertical and organization to organization 59% of e-commerce retailers reported a year over year increase, vs. 32% with a decrease (2Q09) Average year over year growth was 11.8% December 7, Spending Patterns Will Change Slowly US consumer savings rate highest in 15 years Business debt levels are down Businesses and consumers appear to be adjusting -frugality as the new normal at least for a while Increased bargain hunting and decreased conspicuous consumption are likely to remain the norm for some time after recovery McKinsey & Company consumer survey (March 2009)* 90% had reduced spending as a result of the recession 33% of them significantly so 45% of those who reduced spending did so by necessity 55% by choice *As published in How US Consumer Spending is Changing, McKinsey Quarterly, June 2009 December 7,

6 Spending Changes Impact Payment Choices Downward pressure on payments Consumers and businesses spending less Card issuers slowing the rate of new credit accounts Credit balances declining Resistance to taking on more debt Issuers reducing credit lines and accelerating payback schedules Some upward pressure on payments Buyers making smaller purchases more often, keeping transaction volumes on the rise Debit growing as a replacement for cash and checks Debit cards beginning to replace credit cards Small businesses are increasingly turning to business credit cards as an alternative to traditional loans Cards replacing checks for B2B transactions December 7, Regulatory and Legislative Trends The following slides do not represent legal advice December 7,

7 IRS pushed for, and is getting, new regulations Housing and Economic Recovery Act of 2008 Includes a provision requiring merchant processors to make annual reports to the IRS for every business served The report will state the net total amount paid to the merchant during the calendar year Department of the Treasury is currently working on full set of regulations to implement this program. Scheduled for implementation for Tax Year 2010 Merchant processors are working to implement in anticipation of final regulations Associations with merchant accounts should be prepared to reconcile against their own accounting Department of Treasury estimates the program will raise $10 billion in tax revenue December 7, New Regulations for Card Issuers Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 Enhances, and in some cases replaces, the Unfair and Deceptive Practices (UDAP) regulations Limits on when and how fees are charged Restrictions on how interest charges are calculated and applied Limits on when and how changes in interest rates can be made Requirements for more thorough disclosure of repayment terms Restrictions on marketing credit cards to college students Restrictions on gift card fees and expiration Overall effects will be unclear for some time but theories abound Direct effects on merchants are limited New law does apply to business cards Businesses should keep an eye on how regulation changes client behavior Potential to affect instant credit programs December 7,

8 Interchange was Under Legislative Pressure in Legislative activity (partial list) Credit Card Fair Fee Act of 2008 (H.R.5546, S.3086) To create an anti-trust exemption and allow for interchange negotiation House version received some committee attention and mark-up Senate took no action Credit Card Interchange Fees Act (H.R.6248) To eliminate higher interchange for different card types (rewards, etc.) To prohibit many association rules, including restrictions on steering, payment minimums, discounting, etc. House took no action Gas Pump Fair Payment Act of 2008 (H.R.6620) To limit interchange on motor fuel to 1% House took no action State interchange bills 15 states introduced legislation to regulate disclosures and fees None of the federal bills passed in December 7, Interchange is Under Legislative Pressure Again in Legislative activity (so far) CARD Act of 2009 Included provision for GAO report on interchange Released in November Credit Card Interchange Fees Act (H.R.2382) Essentially a re-introduction of H.R from 2008 Eliminates different interchange for different card types (rewards, business, etc.) Allows merchants to decline cards based on interchange costs Prohibits many association rules, including restrictions on steering, payment minimums, discounting, surcharging, etc. Credit Card Fair Fee Act of 2008 (H.R.2695, S.1212) House version resembles a committee mark-up version of H.R.5546 from Senate version is essentially a re-introduction of S.3086 from 2008 Creates an anti-trust exemption to allow groups of merchants to enter into direct interchange negotiations with payment brands Senate version includes the creation of a panel of Payment System Judges to settle disputes if negotiations fail December 7,

9 Consumer Financial Protection Agency (CFPA) President Obama is backing H.R To create an independent executive agency to regulate the consumer financial products and services industry The agency would be responsible for policing consumer financial products, practices, terms, and conditions for products such as mortgages, loans, credit cards, and overdraft fees Both banks and non-banks that offer financial products (such as mortgage brokers, payday loan providers, and retailers with credit or layaway programs) would be subject to regulation Status of the bill is currently unclear December 7, Quick Question Break December 7,

10 Payment Product Trends December 7, Polling Question #2 When your members make purchases through your association (membership dues, books, meeting registration, etc.), how do most members pay? Cash Check Credit or Debit Card Other December 7,

11 Polling Question #3 What forms of electronic payment does your organization accept? Credit and Signature Debit PIN Debit PayPal or other alternative payment ACH (e-check) None (Cash and check only) December 7, Electronic transactions continue growing, while paper continues shrinking Cash and checks continue their decline, but remain important ACH (Automated Clearing House) has been growing for bill payments Debit traditionally took share from cash and checks, but has recently been taking share from credit as well Source: Nilson Report December 7,

12 ACH is Rapidly Replacing Traditional Check Processing 50 Transactions (In Billions) Bill payments are driving a move to ACH Check conversion Online banking Biller-direct online payments (est) Check ACH ACH showing some growth at retail as well POP and BOC check conversions (use of ACH to make deposits from the POS) Decoupled debit experiments Increasing options for ACH use in e-commerce Source: Tower Group December 7, Bill Payments are Shifting from Checks to Cards and ACH ACH bill payments have grown dramatically Growth of online banking Expansion of biller-direct online payments Plastic s share of total bill payments is rising 9% Debit 7% Credit 25% of Phone and Cable bills are paid with plastic Checks still account for over half of all bill payments, but that number has dropped sharply % of Consumer Who Made a Bill Payment With Plastic 40% 38% 39% 30% 35% 32% 27% 10% 0% Share of Bill Payment Captured by Plastic 15% 16% 14% 10% 12% 10% 5% 7% 0% Source: 2008 Visa Payments Panel Study December 7,

13 The Mix of Card Payments is Shifting Debit is becoming the preferred card payment type, exceeding credit in transaction count Visa Debit volume (including PIN) has surpassed Visa Credit volume Source: Nilson Report, 2009 December 7, Debit is Becoming the Preferred Card-Based Payment Type 100% 90% 80% 70% 60% 50% 40% 30% 10% 0% 100% 90% 80% 70% 60% 50% 40% 30% 10% 0% Purchase Transactions Market Share Purchase Volume Market Share Debit Credit Debit Credit Debit transactions (PIN and signature) have surpassed credit transactions Credit still dominates on volume, but share is shrinking PIN Debit has been growing faster than signature Expanded numbers of PINpads at merchants Merchant steering at POS Recession pushing more nondiscretionary spend, where PIN acceptance is widespread. Overall debit balance is roughly 65% signature, 35% PIN Sources: Nilson, Federal Reserve, Pulse December 7,

14 Share of Payment Type Varies by Vertical Credit and Debit have grown sharply across most verticals Bill Payments are still dominated by checks but electronic payments are gaining traction. Other (primarily ACH) has grabbed share in Bill Payments Share Retail - Methods of Payment Auto, Grocery, Drug, Department Stores, Discounters, Wholesale Clubs, Apparel, Hardware, MOTO 100% 15 80% Other 60% 28 Debit Credit 40% Checks Cash % Share Restaurant - Methods of Payment Fast Food/QSR, Mid-Priced, High Priced 100% % % % % Other Debit Credit Checks Cash Share T&E - Methods of Payment Travel Agents, Airlines, Car Rental, Hotel/Motel, Tickets, Movie Theaters 100% % Other 60% Debit 40% Credit Checks Cash 0% Share 70 Bill Payments - Methods of Payment Utility, Telephone 100% % Other 7 60% Debit 78 40% 75 Credit Checks Cash 0% Source: First Annapolis December 7, Alternative Payments Growing for E-Commerce Alternative Share Forecast % 18% % % 27% % 0% 40% 60% 80% 100% Traditional Alternative Source: Javelin Research Alternative Payments at Top 500 Internet Retailers 50% 41% 40% 27% 30% 23% 17% 17% More and more e-commerce merchants are signing up to accept alternative payments PayPal has reached over 40% of top CNP merchants Google Checkout changed business model, losing merchants Amazon is making a push into the payments business 10% 0% 4% 3% PayPal PLCC BML Google ebillme Amazon Other Source: First Annapolis Credit and debit continue to dominate both merchant count and total volume December 7,

15 New Payment Options Emerge on a Regular Basis PayPal, Bill Me Later, and Google Checkout are the established players Cash Alternatives are coming online Green Dot Money Pack PayByCash Online banking as method of payment ebillme Moneta Alternative Credit Revolution Money Online PIN Debit Pilots coming soon December 7, Digging Deeper: What Exactly is PayPal? Four different concepts: For Making Payments A peer-to-peer payment system Funded through originator s choice of sources (ACH, card, prepaid) Both parties must be registered PayPal users A method of payment An alternative network brand Funded through purchaser s choice of methods (ACH, card, prepaid) Integrated into other payments processes, offered as a brand choice For Accepting Payments A third party processor PayPal is an intermediary and the merchant of record Funded through purchaser s choice of methods Forwards funds to ultimate product/service provider A merchant gateway Acts as an ecommerce merchant processor Provides connectivity to payment card networks, as well PayPal as a method of payment December 7,

16 Contactless is Growing, but not Overtaking Mag-Stripe Contactless payment growth has been disappointing to many Value proposition to merchants has been limited Cost to implement Associate training issues Consumer awareness Speed advantages of new no signature rules Issuer adoption has been uneven Source: Aite Group December 7, Mobile Payments are Emerging, but Slowly Mobile banking is being added to on-line banking infrastructure Bank-based mobile bill payment is growing Billers with online bill payment can add mobile bill payments SMS (text-based) remittances and payment authorizations are small, but growing in some niches NFC (phone-based contactless) payments are live in parts of Asia, and being piloted around the world Banks, carriers, handset manufacturers, networks, merchants, and processors are still working to figure out the business models Mobile acceptance (phone as POS terminal) generating buzz It is still very early in this market, and the environment changes almost daily December 7,

17 A Framework for Thinking about Mobile and Payments Mobile as a Method of Payment Using a phone as a payment device at POS NFC (contactless), some SMS schemes Mobile Banking and Bill Payments Mobile enabled interface to online bill payment systems through banks and billers Mobile Commerce Using a mobile browser to transact web-based ecommerce Can be either regular or mobile specific sites Mobile Acceptance Using a mobile device for POS processing December 7, More about Mobile Acceptance Smartphone as Terminal Mobile web or app-based virtual terminal interface allows merchant to key in payment information Add-on magnetic reader allows phone to act like a regular terminal Mobile terminals Often resemble regular POS terminals Use mobile data infrastructure (cellular) Touch tone capture Dial-in interface allows merchant to key in card data December 7,

18 Thank You! Questions? December 7, For Additional Information: Eric Mock Director, Partnership Development Chase Paymentech Solutions Ph: December 7,