Debit Use Climbs at Issuers That Provide Proper Support

Debit cardholders initiate an average of nearly 30 debit transactions a month for the top issuers, but the rate of activity can vary wildly — with those top issuers seeing about twice as many transactions as those without strong debit business.

"Some issuers are not as focused as others on their debit programs. Those less focused are leaving money on the table from an interchange perspective," said Steve Sievert, executive vice president of marketing and communications for Pulse, which published this finding in its annual debit card usage report.

Even though debit card programs for larger banks took a hit about five years ago when the Durbin Amendment nearly cut their interchange rates in half, consumers are making up for this reduction by using debit cards more often.

As a result, many issuers — even those that do not qualify for exemption from the debit fee cap — have overcome the difference in revenue, Sievert said.

Pulse, the debit network unit of Discover, has delivered its debit issuer research for 10 years, and this year's "Decade of Debit" report examines the changes since 2005, the year in which debit card use first surpassed credit card use among consumers.

Seventy financial institutions, including banks, credit unions and community banks, participated in the study. Pulse conducted its research on 2014 numbers in February and March of 2015.

The monthly debit transaction average per active card hit an all-time high in 2014 at 21.2 at the point of sale, and 23.2 including ATM, or a 32% increase from the first study at 19.5 for point of sale and ATM combined in 2005.

"It's very indicative of the fact that consumers prefer debit cards at the point of sale," Sievert said.

Average annual spend per active debit card rose to $9,291 compared to $7,807 in 2005. Average ticket size went down to $37 from $40, indicating that consumers are now using debit cards to make smaller purchases.

"Ten years ago, I don't think consumers thought as much about using a debit card to make a purchase at a quick-serve restaurant, and now it is quite common," Sievert said.

Debit has also enjoyed consistent climbs since making an initial leap during the 2008-2009 recession, when consumers were loath to add to their credit card debt.

"The uptick of transactions per month has not really slowed down since the recession year," Sievert said. "Consumers want those controls and to be mindful of spending, showing the durability of debit to last beyond that recession timeframe."

Many issuers reshaped their card portfolios and business models during the recession and again with the Durbin mandate, at a time when consumers were becoming more used to debit cards as their go-to payment type, said Brian Riley, principal executive advisor with CEB TowerGroup.

Debit transaction volume has also benefited from the influx of new payment schemes in the past few years, Riley added, since many new payment providers favor debit over credit.

More than 50 billion PIN, signature and prepaid debit transactions occur annually in the U.S., a figure that is more than twice the number of credit card transactions, the Pulse study reported, citing Federal Reserve statistics.

"Debit is a lot easier than cash," Riley said. "You can get through life with payment cards and no cash, but you can't get through life the other way around."

The U.S. banking industry issues 165 million new debit cards per year, some it from mass reissuance after data breaches, but much of it for new customers, the study said. This year's study marked the first in which Pulse collected information on the rate at which financial institutions acquire new account holders.

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First Data's Ready for Its Second (Public) Life

Payments processor First Data, purchased by private equity firm KKR in 2007 for $29.8 billion through a leveraged buyout, recently filed a registration with the SEC for an initial public offering.

Many Wall Street analysts have pegged First Data as the next big thing. However, that’s quite contrary to the debt-saddled company those same analysts criticized just a few years ago.

Ultimately, First Data looks ready for a second public life. First Data is expected to bring about a turnaround after going public, giving KKR the opportunity to cash in on its investment. The IPO should help alleviate the company’s debt burden, enabling improved cash flow and profitability, thereby helping First Data compete more effectively. The challenge in this latest phase will be to disrupt, not be disrupted.

It is no surprise that First Data has struggled under its debt load (KKR financed the deal with more than $20 billion of debt) for several years under a succession of CEOs. High interest rates made it difficult for First Data to dig itself out of debt and the revolving door of executives couldn’t straighten out the ship.

However, the transformation of First Data has started to surface. In 2013, KKR recruited Frank Bisignano from JPMorgan Chase as CEO and raised an additional $3.5 billion in equity to help First Data invest in emerging opportunities. The two bets that KKR placed in 2013 paid dividends and the door was now closed on the old First Data. Yes, it was a pioneer in card payment processing. And yes, it has struggled with debt. But it’s a new chapter for First Data.

And it is a payment processing behemoth, First Data processed more than $1.7 trillion in U.S. payments and 74 billion transactions globally in 2014. First Data made its name in providing payments processing services and technology to banks and merchants, but has been working to keep up with the evolving payments landscape.

Since 2013, it has acquired point-of-sales device startup Clover; Perka, which helps retailers with their customer loyalty programs; and gift card startup Gyft. When KKR invested more into First Data, it did so in the hope that the company would grow into new areas like cybersecurity and data analytics and counter the moves of emerging payment players. Consider that First Data planted an innovation base in

Palo Alto, California, where it opened a venture capital arm with a team of three in 2013. That office today has more than 100 people and examined 300 startups for potential investment or acquisition in 2014. Ultimately, First Data wants to be merchants’ partner in not only taking payments, but also marketing, collecting, and using shoppers’ data. Bisignano has frequently been quoted as saying that First Data “is the industry’s grand collaborator.”

It’s a sign, insiders and outsiders say, that First Data is writing itself a new chapter. Although card swipes remain critical to the company’s continued success, its new identity moves beyond that. Nevertheless, it has still been a challenging time. As First Data moves beyond processing card transactions into a broader array of payment services, it will face an increasingly crowded field of competitors.

Historically proficient at purchasing other companies, First Data has again started making acquisitions. But where it was part of massive acquisitions between 1995 and 2004, the company’s focus has shifted to smaller and younger enterprises. The company believes it can super-charge startups with its outsized offline businesses.

In the hunt for growth, a global payment-processing land grab is also under way. Emerging markets offer headroom critical for the long term. While the U.S. remains First Data’s locomotive, to bolster growth the company needs to expand and deepen its international footprint. The payments giant has bolstered beachheads in Brazil and India. Meanwhile, Europe remains a patchwork of national markets where First Data is more pan-European than large traditional local competitors such as Worldline and WorldPay. With an enormous processing ecosystem, First Data ought to be able to deliver closed-loop-style benefits enhancing issuer and merchant profitability that its smaller and narrower competitors can’t across the globe.

First Data plans to raise $100 million in an IPO. The $100 million is a placeholder and is likely to change as the roadshow for the IPO progresses. First Data will likely use the proceeds from the offering to repay some of its debts, which stood at $21 billion at the end of March. This will provide First Data with a cleaner slate to further rejuvenate, maintain profitability, and grow.

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Starbucks CEO Howard Schultz Says He Isn't Running for President

Starbucks founder and Chief Executive Officer Howard Schultz says he won't be making a run for U.S. president.

"Despite the encouragement of others, I have no intention of entering the presidential fray," Schultz said in an op-ed for the New York Times published Thursday. "I'm not done serving at Starbucks."

His statement comes after New York Times columnist Maureen Dowd reported Saturday that his friends had been urging him to mount a bid for the Democratic nomination (and that Vice President Joe Biden also was eyeing a run). Schultz has squashed speculation in the past, saying he lacks the right temperament and has no interest in being an elected official.

Schultz hasn't hesitated to bring politics into Starbucks stores. Earlier this year, baristas were encouraged to engage customers in discussions about race relations by writing "Race Together" on cups, an initiative that prompted criticism. Schultz started the effort amid protests over the deaths of unarmed black men in police encounters.

Schultz, who returned to the helm of Starbucks in 2008 after a hiatus, says America is in desperate need of a "servant leader." He says he was floored by the image of Pope Francis kneeling to wash prisoners' feet shortly after being elected head of the Catholic Church.

The next president, he said, will need to be able to work with both parties in Congress.

"Everyone seeking the presidency professes great love for our nation," he said. "But I ask myself, how can you be a genuine public servant if you belittle your fellow citizens and freeze out people who hold differing views?"

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MasterCard's Employee Hackathon Finds Fresh Ideas from Within

Many payment companies are hosting hackathons to attract developer talent from outside their own ranks; MasterCard found that its own people are just as eager to bring their ideas to life.

The Take Initiative, a hackathon series for MasterCard employees, gave about 400 staffers at different locations access to the card network's application programming interface to develop concepts that could later turn into products. When it was over, MasterCard had developed a new way to digitize donations.

"It is common to see school kids asking for cash donations at public places such as the MRT [Singapore's public transit system] stations, as part of their volunteering activity," said Krishnadas Mohandas, an assistant vice president of mobile transaction solutions for Asia Pacific at MasterCard. "This led us to create an app to digitize such transactions."

The team's app, called Mo-daan (an adaptation of "mobile" and the Sanskrit word for "donations") is available to charities and is designed to appease government regulators, collectors and consumers.

"Consumers won't have to fiddle around with cumbersome cash or worry about not having enough change," Mohandas said. "At the same time, they are assured of the legitimacy of the charity."

Charities use the app to obtain a unique government-vetted ID. This process reduces fraud and enables them to digitally collect donations via MasterCard. it also enables donors to track tax benefits from their donations.

An additional feature allows users to receive offers and coupons from merchants as a marketing play, Mohandas said.

"In Singapore, fundraising ranges from volunteers appealing for donations on the ground with a coin box, to donations that are auto-deducted via your banking accounts, or even donations via monthly installments on your credit card," Mohandas said.

The app will work primarily in Singapore before the model is considered for export.

This project is one of several ways MasterCard is working to advance payment services for donations. Mobile technology is quickly being applied to charitable giving, as companies such as Sionic Mobile are also working reduce the amount of cash that's involved in fundraising. Separately, some Girl Scout and Boy Scout troops have used mobile card readers to facilitate fundraising efforts such as cookie sales.

Mohandas and his team do not have direct experience in using cards as part of fundraising, but they do have experience in product management and mobile technology, giving them a perspective that events such as hackathons are designed to nurture.

The pace of payments technology development, particularly around apps, has pressured traditional companies to find new sources of innovation that exist outside traditional research and development project management models.

PayPal, for example, has run a global hackathon program, while The Members Group has an innovation lab structure to find new uses for wearable technology. And Citigroup is using a World War II-era product development model to build new financial services technology.

"We don't believe innovation has to be in an innovation arm. Most ideas are buried out there with people who are working day in and day out in the business," said John Sheldon, senior vice president of innovation for MasterCard Labs, adding MasterCard also conducts tournaments for internal staff to develop new ideas. The winning teams from these events are given the opportunity to take their products to market.

The concept of giving internal staff tools to develop payment products has proven popular, Sheldon said. "Ninety-three percent of the participants said they would do it again," he said. "And for something that comes out of their personal time, that's a remarkable rate."

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Fitness Meets Finance in Intuit's Wearables Plan

Health and wellness apps may not much in common with small business payments and merchant services, but it was the fitness-tracking craze that lit a fire under Intuit to build an Apple Watch app for its clients.

Intuit on August 6 released its GoPayment Sales Goal Tracker, which allows small-business owners to view transaction performance through an Apple Watch. The idea is the client can track payments data similar to how one might use an Apple Watch or Fitbit to track progress toward an exercise goal.

"It's inspired by the health tracker apps. You set a sales goal and you track your progress against that," said Mary Lunneborg, the product lead for Quickbooks GoPayment and Mobile Payments. "And it's not just you, it's all of your employees."

Payments can be tracked by the hour, with reports of daily and weekly sales goals.

Other companies have made efforts to blend fitness with finance, usually by adding a payment capability to products that are primarily fitness trackers, including the Jawbone UP4 and the Microsoft Band.

Intuit's new app joins a growing menu of payments and merchant services connected to GoPayment, including Quickbooks, invoicing, point of sale technology and mobile card acceptance. Intuit has experimented with wearables for several years and has already integrated Apple Watch with other services, such as the Mint personal finance app.

"We were already creating an updated iOS [GoPayment app] for the App Store and wanted to develop a companion app to go with it, something that's different than what GoPayment is today," Lunneborg said.

The Apple Watch still has to be paired with an iPhone, so Intuit is positioning the Apple Watch app as a management tool rather than as a standalone app. Intuit is also developing a similar app for Android Wear devices, Lenneborg said.

"The Apple Watch provides a tremendous convenience advantage over a mobile device and therefore one of the big opportunities is to provide users with the information that they care most about," said Rick Oglesby, head of research for Double Diamond Payments Research. "For small business owners, what could be more important than the performance of their business?"

The suite of GoPayment features can also be integrated with third-party payment providers, Lenneborg said. Payments are a part of how Intuit builds merchant relationships. Intuit's partnerships run the payments spectrum. It recently integrated with Coinbase to support Bitcoin payments, and is a go-to merchant services partner for mobile point of sale providers such as Vend, Flint and Square.

Wearables are still a nascent technology for merchants and payments companies, but the technology has enjoyed some early traction at Disney resorts, and issuers such as Barclaycard and RBC have also experimented with wearable payments.

http://www.paymentssource.com/news/technology/fitness-meets-finance-in-intuits-wearables-plan-3022029-1.html

First Data, TruBeacon Picked for Scooter's Coffee Payments

First Data and TruBeacon have been selected to provide point of sale technology and business-management software for Scooter's Coffee, an Omaha, Neb., chain.

Scooter's will use First Data's Clover mobile point of sale system at most of its 125 stores and at all future stores. Scooter's will also deploy TruBeacon's software for linking data from the payment terminal over a network of multiple retail locations.

"Customers will have the flexibility to pay with their payment method of choice, including the Scooter's gift card or via the Scooter's mobile app," which is still being tested, Clay Cox, Scooter's president, said in an Aug. 6 news release.

TruBeacon's software lets chain stores or franchises handle one-click pricing updates, menu changes and reports for multiple stores. TruBeacon launched an app for the Clover platform in June, shortly after First Data released its midsized Clover Mini terminal.

Scooter's plans to expand to 140 stores in nine states by December.

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