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Fearless 2016 projections

No matter where you sit in the payments field, buckle up and be prepared for what could be a wild ride.

January 7, 2016

by Daryl Cornell, CEO, Triton Systems

For a variety of reasons, we might look back on 2016 as one of the most disruptive years ever in payments. No matter where you sit in the payments field, buckle up and be prepared for what could be a wild ride. Here are what we see as the likely payments headlines this year:

Mobile payments will surge ...

mostly at the expense of the check, which continues its march towards oblivion.

And credit aggregators (think Apple Pay and Google Pay) will dominate. While not revolutionary, 2016's strong growth in mobile payments aggregators will pave the way for future disruptive payment technologies.

A blueprint for harnessing both customers and merchants has thus far proved elusive for genuine payments disrupters, particularly in the face of opposition from the deep-pocketed card brands. This year the mobile aggregators will continue to gain payment share off of a relatively small base.

The payment revolutionaries are coming, but not in 2016.

Liability shift POS chargebacks will be a nonevent

Big box retail chains and high-dollar retailers have upgraded to EMV. The other 80-plus percent of merchants mostly have decided that an upgrade at the register simply is not worth it.

And while consumers are in the process of being EMV educated, they are far from demanding EMV POS terminals. 

They may be right not to. Card issuers likely won't reach 90 percent card penetration until late 2016. Meanwhile fraudsters are busy exploiting card-not-present vulnerabilities when they are not skimming ATMs and gas pumps or hacking databases.

Already ninety days past the POS liability shift and having completed a busy holiday retail season, reports of liability shift chargebacks are scant. Unless the card brands decided to simply eat these non-EMV fraud expenses in Q4 2015, we probably won't see a spike in chargebacks.

Meanwhile, the majority of POS terminals will remain "mag stripe only" through 2016.

Retail ATMs will be shut off in large numbers by year-end

This might be the biggest payments story of 2016.

While ATMs owned by banks and large ISOs will be largely EMV ready by October, those owned by smaller ISOs and merchant will not.

This means that as many as half of all U.S. ATMs will be "mag stripe only" by the MasterCard liability shift deadline in October.

Unlike POS devices, ATMs are prime targets for fraudsters. Using fistfuls of cloned mag stripe cards, international crime rings will easily exploit non-EMV ATMs as fraud bypasses EMV ATMs. By year-end, liability shift chargebacks will quickly reach the six-figure levels we saw in Canada.

Presumably, sponsor banks are already busy evaluating the ability of ATM-owning ISOs and merchants in their own networks to absorb these levels of financial losses.

Service to deployers who elect not to upgrade and who cannot absorb the projected financial losses will, as we saw in Canada, simply be turned off.

Many of these ATMs will subsequently be upgraded or replaced; others will not. In the interim, expect a significant contraction in active U.S. ATMs in late 2016.

Cash will remain king

In spite of the recent modest Fed rate hike, cash tailwinds will continue to exceed cash headwinds in 2016.

Global interest rates near or even below zero have already reduced the attractiveness of banks as a warehouse of cash for many customers. Recent depositor limitations or expropriations, as we saw in Cyprus and Greece, have done nothing to inspire global depositor confidence in banks.

Mattresses are increasingly being filled with Benjamins. Despite U.S. Treasury printing presses working overtime, the dollar remains for now a store of global value.

Finally, the apparent death of bitcoin and a hiatus in the governmental war on cash will provide a 2016 lift in cash use.

For all of these reasons, cash use should continue to grow at 2–3 percent and will remain the dominant payment method in 2016.

.  .  .

Like most forecasts, this one will almost certainly be proven wrong. One guarantee, though, is that 2016 will be a most interesting year in payments.

photo istock

This article was republished from the Triton blog, atmAToM, with permission from Triton.

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