US Financial Institutions and Digital Payments: Digital Research Panel Series Part 3

by Zilvinas Bareisis,  Jean-Marie Ubigau, January 22, 2016
Other
North America

Abstract

This is the third of a series of reports based on Celent's Digital Research Panel. Celent surveyed 42 panelists about their priorities and experience to date in digital payments.

In Celent’s first Digital Panel, banks and credit unions prioritized digital payments as a key area for further exploration. Furthermore, October 2015 had two important milestones in US payments: the one-year anniversary for Apple Pay, and the liability shift deadline for EMV. As a result, our third Digital Panel focuses on digital payments. The survey was administered in November 2015.

Selected key findings of the report include:

  • Most participants recognize the importance of digital payments, but invest only to be fast followers and to stay on par with the competition.
  • Becoming and staying top of wallet dominates the participants’ concerns about digital payments. The participants are also worried about Apple and other technology giants changing strategy and taking on a more dominant role in digital payments.
  • Most financial institutions believe they should offer digital payments under their own brand. Yet, in practice, they are more likely to engage around third party wallets than explore their own Host Card Emulation (HCE) wallets. However, they do push forward with peer-to-peer (P2P) solutions, with 51% having an offering in production.
  • Visa Checkout and MasterPass have seen limited traction among the survey participants so far, but as many as 31% of respondents consider participating in CurrentC.
  • Only the most optimistic 6% expect more than 20% of in-store transactions initiated via mobile in three years, but 42% expect to get there in five years.
  • 29% of survey participants finished migrating all credit cards to EMV, while 17% are done with debit. However, many others are just starting with debit and prepaid: 71% of respondents migrated less than 20% of their debit and prepaid cards.
  • 63% of the responding credit unions replaced their credit cards as “big bang” (i.e., all at once), compared to 35% of banks. Accelerated migration is the dominant EMV strategy for debit cards, while prepaid cards tend to be replaced at expiry.

“It is clear that digital payments are very important to many financial institutions,” says Zilvinas Bareisis, a senior analyst with Celent’s Banking group and coauthor of the report. “However, it appears to be an area in which many are struggling to determine how much and where to invest. Banks and credit unions should look where customers are experiencing most friction today, as it is an area where the financial institutions will be most vulnerable to attack from third parties. They should also accelerate EMV migration, especially for debit cards, to free up resources for digital payments.”

This 36-page report contains 20 figures.

Celent created the Research Panel to examine financial institutions’ attitudes, progress, objectives, and priorities around Digital. We recruited panelists from our client base and from industry contacts (respondents do not have to be Celent clients to participate). Celent is accepting additional requests for membership in the panel and expects to field ongoing research through 2016 with surveys roughly every other month. If you’re a banker and would like to participate in future Digital Panels, please click here to fill out a short application.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

 

Key Research Questions

1

 

Findings

1

Digital Payments in Context

3

 

Importance of Digital Payments

3

 

Investment Approach

3

 

Competing Priorities

4

 

Expected Benefits

5

 

Key Concerns

6

 

Vision for FI Role in Digital Payments

7

Experiencing Digital Payments

9

 

Experience with Apple Pay

9

 

Experience in Digital Payments More Broadly

11

 

Expectations Regarding Pace of Consumer Adoption

12

EMV Migration Update

14

 

EMV Migration Process, Strategies, and Expectations

14

 

Use of Contactless and Offline PIN

16

 

Attitudes to EMV

17

Observations and Recommendations

19

Next Steps

20

 

How to Use This

20

 

Recruiting More Panelists

20

Appendix I: Panel Demographics

21

Appendix II: Survey Instrument

22

 

Digital Research Panel #3

22

Leveraging Celent’s Expertise

31

 

Support for Financial Institutions

31

 

Support for Vendors

31

Related Celent Research

32

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