KEY POINTS

  • The ecosystem for credit- and debit-card processing involves a complicated set of players interacting to process every transaction. Five types of players are involved: acquirers/processors, issuers, card networks, gateway providers, and independent sales organizations (ISOs). 
  • To process a typical transaction, three steps must occur: authorizing, batching, and funding. Each participant in this process takes a fee off of the total volume of a transaction. The remainder is deposited in a merchant's account.
  • Three trends will shape the payment-card-processing ecosystem from 2015 onward: the EMV security migration, rapid development of new payment technologies, and the massive card-fraud problem in the US. While none of these developments will completely upend the incumbent system for processing payments, each will disrupt key players. 
  • The mobile point-of-sale (mPOS) is going to have a massive impact on the payments-hardware and payments-software industry. By 2019, we forecast that nearly 80% of US retailers will have implemented an mPOS device. The move to mPOS will continue to put pressure on hardware providers that compete directly against mPOS devices, as well as ISOs that sell legacy devices to merchants.
  • While the payment-card-processing system as a whole isn't in danger, the proliferation of mobile devices will have a significant effect on the way we pay. 

    • NFC is in a prime position to become the dominant mobile-payments technology. As the industry consolidates around this solution, adoption and usage of in-store mobile payments will grow.
    • A new breed of mobile-commerce apps is promising to change how we pay at restaurants and bars. OpenTable, for example, allows customers to pay entirely from their phones so they don't have to wait for a check. 
    • Peer-to-peer mobile-payment apps like Venmo are catching on fast because they give users a way to pay each other without having to go to an ATM or make a trip to the bank to deposit a check.
    • Remittances have historically carried high fees. That's because the need for extensive brick-and-mortar infrastructure limited the market to a handful of players. But fees are dropping as mobile makes brick-and-mortar locations less necessary. 
    • Carrier billing allows users to pay for digital content by adding the value of a transaction directly to their mobile bill. Despite the high fees charged to developers for every transaction made through a carrier, this payment method holds promise in emerging markets where many people do not have payment cards. 

Payments is a complex and rapidly evolving space. In this report, we offer [...]