In our 2015 year-end review, we promised we would provide some predictions and expectations for payments in the United States during 2016. Predictions are usually pretty…unpredictable, so by waiting a couple of months to release ours, we're hoping they will end up being more accurate than usual. Disclaimer: These predictions are through the collective wisdom of the Retail Payments Risk Forum staff and do not reflect the opinions of the Federal Reserve System or the Board of Governors. So here we go in no particular order or probability of happening.
- Cyberattacks will be the top threat to payments security: Cyberattacks and data breaches will be as robust as ever and will be the number one threat in the payments ecosystem. As retailers and financial service companies strengthen their defenses, the Risk Forum predicts that hackers will widen their focus.
- This will be the year for mobile point-of-service (POS) payments…not!: Like the broken analog clock face that is correct twice a day, we believe that those forecasting 2016 as the "year of mobile payments" (as they did in 2013, 2014, and 2015) will be a little bit right, but will still be waiting for this optimistic prediction to be fully true. While the adoption pace of mobile payments is growing because of the increasing influence of millennials, the issues of limited merchant acceptance points, fragmentation, and consumer concerns over security and privacy will remain as substantial hurdles. Major educational efforts will be launched stressing the increased security provided by mobile payments through tokenization and biometrics.
- EMV (chip card) POS migration will pick up the pace from 2015: The liability shift for POS took place October 1, 2015, and projections for both card and terminal capability missed their optimistic marks for a variety of reasons. Credit and debit card reissuance will continue during 2016 and should reach significant conversion levels by the end of the year. The Risk Forum expects the pace of merchant terminal conversions to pick up as certifications are completed and merchants targeted by counterfeit card fraudsters feel the sting of losses. However, we also think some merchant categories, such as restaurants, will continue to proceed at a tepid pace.
- ACH same-day service will not be a huge hit: The Risk Forum forecasts that the roll-out of NACHA's mandated same-day ACH service in September will, at least initially, have modest adoption because corporate originators will have to update internal systems to support faster payments, the dollar cap of $25,000 per payment, and the imposition of the interbank fee. Consumer payment applications will have modest uptake due to competing payment alternatives.
- EMV ATM liability shift will cause the number of ATMs to shrink: The implementation of chip card readers in ATMs will follow the same pattern as POS terminals did in 2015—the large ATM owners and operators will meet the October 2016 deadline but many of the small and mid-sized operators, especially those owned by nonfinancial institutions, will not and will be faced with absorbing the loss of transactions made with counterfeit cards—a fraud loss they haven't experienced in the past. Overall, the Risk Forum looks for the ATM base in the U.S. to contract by 10 to 15 percent because of financial institution mergers and the cost of EMV upgrades.
- Mobile wallet space will continue to see turbulence: 2015 saw the launch or announcement of more mobile wallets by payment stakeholders such as Samsung, Google, Chase, Capital One, Walmart, and Target. Then add the retailer and credit union consortiums (MCX CurrentC and CU Wallet) that are struggling to emerge from uncertainty. How many wallets will the consumer be willing to load on a phone and which providers do they trust to keep their payments and banking credentials safe? We believe we'll see continued turbulence in this space during 2016, with some settling of the dust by next year.
- Blockchain technology interest will accelerate: Cryptocurrencies will continue to exist in the "novelty" space, but we think large payments players will direct efforts to leveraging the distributed ledger technology for various uses and will proceed at an accelerated pace.
- Biometric technology improves, but passwords remain supreme: Despite continued cries for intervention, the user ID and password will remain the primary authentication method that consumers use to access their various applications. Biometrics technology for payment and customer authentication applications will continue to improve while decreasing in price. Fingerprint, facial recognition, and eye/iris recognition will dominate as the most-used biometrics although voice recognition will serve as a key method in certain environments such as call centers. The Risk Forum believes that the technology will continue to face critical adoption challenges due to concerns about privacy, security, and safety, but educational programs will lower this resistance.
Mary Kepler
Steven Cordray
Doug King
Dave Lott
Jessica Trundley
Julius Weyman