4 key takeaways on new opportunities from payment processors

Mastercard and Visa are looking at opportunities to expand their reach and capabilities in a rapidly changing, increasingly global payments landscape. Executives from the payments processing giants were among the participants at MoffettNathanson's inaugural Payments, Processors and IT Services Summit in New York this week. Here are Bank Innovation ’s four key takeaways from the event: It’s time to open up Visa CEO Al Kelly said continuing to open up and expand the company's network will open up opportunities for future growth. "We even want to connect to more networks," he said. "We need to be a very open company." To this end, Visa is creating APIs into which clients and partners can link, thereby strengthening those relationships. Kelly also noted that Visa has increased the number of people working on innovation by 30% and developers by 25% to fuel this effort during his tenure. Bill Wardwell, VP of Strategy & Business Development at Bottomline Technologies , told Bank Innovation that while APIs aren't new by any means, there's a "new willingness" among payment networks to "open up their infrastructure, document it and allow more parties to bring ideas to the table that have dramatically improved the payments experience." For example, APIs into payment networks can allow businesses to accept credit card payments more easily. Contactless payments on the horizon On contactless payments, of which adoption by U.S. consumers has lagged behind other countries like Canada and China, Craig Vosburg, President of North America for Mastercard, went so far as to say "the dream has arrived." However, he also acknowledged some false starts and, notably, offered data on contactless capabilities rather than adoption. "We see today, as a point of reference, 60% of our transaction volume in the U.S. originates from merchants who are contactless-enabled," Vosburg said. "At 60%, that's effective ubiquity and we see that growing." Large merchants like Target, 7-Eleven and CVS have either added or communicated plans to enable contactless payments. "That's enough of a ubiquitous opportunity that it will begin to register with consumers that, 'I can actually use this contactless device to make payments,'" Vosburg added. Vosburg also said consumers who are engaged in contactless payments increase their level of usage anywhere from 30% to 80%, based on what Mastercard has seen elsewhere in the world. Both Vosburg and Kelly pointed out the opportunity for contactless payments to drive growth in low-dollar transactions, a largely untapped market for them. There's a long runway for growth in new payment flows Kelly said Visa is focusing investments and attention on new payment flows, as indicated by the fact executives have set up business units focused on B2B, cross-border money transfers and Visa Direct, which offers businesses and consumers real-time payment capabilities over Visa's global network, all in the last 18 months. He added that the company is particularly "bullish" on long-term opportunities around B2B. On Visa's recent acquisition of cross-border payments firm Earthport , Kelly said Visa Direct had become "a much more important part" of the overall business faster than expected and that the addition of Earthport was the best way to expand the reach of those capabilities. On the cross-border business, he added, "It's not quite as big a yield as a payment transaction, but we definitely get economics out of it and, as volume grows, it will be an increasing contributor to revenue." Vosburg, in the meantime, hinted at a real-time payments offering in the pipeline that will target the B2B space "because of not just the speed of the real-time payment rails, but the enriched data that the transaction message can carry that will help with the reconciliation of B2B payments." Wardwell said business payments are far more complex than consumer payments, largely due to data requirements associated with sending and receiving payments. "They have a little more meaningful impact to cost, cash flow and relationships with partners," he said. "So, you have to take a methodical approach to innovation because businesses take a methodical approach to adopting that innovation." E-commerce payments are still a work in progress Visa is making an effort, Kelly said, to help clean up the online checkout process. He noted that too many people who shop online don't buy because of too much confusion and too many options at the point of purchase. He also blamed "lousy" transaction authorization capabilities for abandoned online carts. Visa will soon begin replacing Visa Checkout with a new, secure, single-button, tokenized e-commerce payment option. Vosburg said e-commerce remains a "distinct minority" of Mastercard's overall payments volume, at around 12-13% of the total, but that it's growing at four times the rate of physical commerce. He said e-commerce is an area where -- "with the advent of a lot of these digital players who are the 'Digital Natives,' who have grown their businesses on the back of providing really compelling consumer experience" -- Mastercard wants to keep pace and provide "an equally compelling user experience" with banking and merchant partners. Asked if consumers have too much choice in payments, Frank Bernhard, Chief Data Officer at Green Dot , told Bank Innovation recently that he expects there will be a "rationalization" of choices that consumers have today. He said the big winners in payments will be those who provide the easiest user interfaces. "If you can actually send money without loading an app or without having to set up other new accounts, but rather just right from a text message via your phone, which are you going to use?" Bernhard asked. "If you make it simple, people will do more in terms of transactions."

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