The mood was upbeat. But attendees at the 23rd Annual Card Forum & Expo — hosted by American Banker and PaymentsSource — definitely were still feeling the heat. And it wasn't because they were in Miami Beach.
"You listen to these speakers talk about the future of payments and how a payment will be a small application inside a phone, and you realize that banks are going to have a major challenge ahead in retaining their brand images in the midst of all this," said Dennis Moroney, a research director at TowerGroup and a participant in a conference roundtable about coming growth trends. "It's exciting, yes, but it is also going to be extremely challenging."
With three years of retrenchment behind them, the 2011 Card Forum crowd-about 750 payments industry leaders representing card issuers, merchants and technology firms-finally seemed ready to greet disruptive change instead of bracing against it. Sure, everyone was talking about open platforms and market interlopers and the need to drive down costs — and who needs bank-branded plastic anyway? — but the focus this year was on the opportunity side of the equation.
Dan Schulman, American Express Co.'s group president for enterprise growth, told attendees in a keynote speech that payments in the next few years must move from a bank-centric model to a customer-centric, mobile paradigm. Throwing around phrases like "massive redefinition," Schulman, who was the founding CEO of Virgin Mobile USA, spoke of a future in which payments were seamlessly integrated into retailers' efforts to deliver products and provide information, across multiple channels.
Through Serve, the alternative-payments service AmEx sprouted in March from the seed of its January 2010 purchase of Revolution Money Inc., the company hopes to develop a more efficient, multi-channel, cloud computing-based payments service that will be device-agnostic. In a conversation after his presentation, Schulman told me that Serve's fledgling efforts to gain awareness through micro channels such as farmers' markets in Eugene, Ore., are only the service's "first iteration as we evolve."
He predicted Serve eventually will leverage highly versatile mobile-payments technology that will find its way to the mainstream propelled by AmEx's vaunted marketing prowess. "Today all of marketing is primarily about pushing, and it's incredibly inefficient," he said.
Like banks and issuers, merchants and telcos are short on certainty about their future roles and responsibilities. At a panel featuring retail industry executives' perspectives on payments, there was plenty of debate over who would control the risk and revenue streams associated with next-generation transactions.
While costly new EMV chip-and-PIN technology would add a layer of security to transactions by embedding chips in cards used at the point of sale, the implementation expense could be overwhelming for banks and merchants alike. And of course, the transition from card-based to mobile payments presents its own economic challenges.
"That's the piece that's getting in the way of it: The cost of implementing mobile payments can't be higher than what we are paying today," said Dan Olstad, the director of financial services at Best Buy. "It's very important that it has to work for everybody across the chain."
Looking ahead, an increasing number of banks have been testing mobile payments. "From a technology perspective, I see all players embracing different modes of payment technology, whereas three years ago many were stuck in a mindset of clinging to old technologies such as magnetic stripes and uncomfortable with talking about change," said Jack Jania, a vice president with transaction-security software maker Gemalto. "I sense that the fear of change we saw a few years ago is gone."
When it all comes together, the rate of adoption for mobile payments will dwarf "anything we've seen before," said Paul Galant, Citigroup Inc.'s top enterprise executive. Getting there "may take little longer," he said, "but it will provide all of us with a very rich future."
And hopefully one in which data is kept safer. Concerns about security wove their way into nearly every presentation at this year's forum. As attendees gathered for the first sessions on April 27, word was spreading about a major breach of the Sony PlayStation Network, which prompted the gaming service to warn 77 million customers their account data may have been exposed.
A month after the conference, there were reports criminals had been intercepting debit card data since early this year through 90 terminals at Michaels Stores outlets in 20 states. The tampering came to light when dozens of consumers reported that funds were missing from their accounts, and it is still not clear how other retailers can be sure the same thing won't happen to them.
At the panel on retailer perspectives, argument broke out over who bears the greatest share of the financial burden for card fraud-banks or merchants. "What we're told day in and day out is that fraud would go down 80 percent to 85 percent" if chip-and-PIN were adopted, said Troy Carrothers, Kohl's Corp. senior vice president of retail payment solutions and multichannel sales and services. "Why are we not taking steps faster?"
Meanwhile, another set of pressures is closing in on the industry: the impact of lawmakers' and regulators' intervention in interchange.
"Banks are really angry about new rules about debit interchange, but the truth is that everyone needs to be prepared for interchange rates to eventually decline in both debit and credit," said Deborah Baxley, a principal with consulting firm Capgemini. "Anyone who doesn't think interchange rates in the U.S. will someday decline is putting their heads in the sand."
Susan Ehrlich, president of financial services for Sears Holding Corp., said the payments industry has not yet struck the right balance on interchange.
"We have to go back and look at the evolution of the credit and debit marketplace and school ourselves on the history of how all these elements came together and created value and catalyzed adoption," Ehrlich said. "It has to work for everybody equally and strongly."
Fitzgerald is a reporter with PaymentsSource, an American Banker Magazine sister publication.
