By Ann Train
In many respects, 2017 was a challenging year for the United States. Discord and disasters seemed to dominate the news. For the payments industry, however, much progress was made.
Encouraging EMVCo data revealed EMV (Europay, Mastercard and Visa)-enabled card-present transactions globally had reached 58.9 percent by midyear, up from 42.4 percent a year ago. In the U.S. market, 31 percent of transactions were EMV-enabled by midyear, compared with 7.2 percent in 2016, and usage of EMV was expected to rise entering the holiday season.
A number of acquirers and card issuers reported better than expected earnings results during the first quarter of 2017, setting the tone for the year. An analysis of leading companies, from card issuers to payment facilitators to acquirers, pointed to healthy growth across the board.
Following is a sampling of third quarter net revenue results from 10 publicly traded companies. Also included, where available, are company-projected year-end net revenue totals and year-over-year percentage changes in net revenue.
The research team at global investment banking and fintech advisory firm Financial Technology Partners LP publishes real-time analyses of trends driving the fintech market drawn from an extensive proprietary database.
"We've seen a fairly healthy volume of activity this year to date," said Andrew McLaughlin, Managing Director at FT Partners. As of mid-November, the firm had tracked 196 mergers and acquisitions in the payments sector for a total combined value of $30.6 billion, more than double the value of the 231 M&As executed in 2016. He noted that financing activity in the payments sector has also remained vigorous with $4.5 billion invested in 275 transactions year-to-date; 99 of them originated in the U.S. region. Following are additional transaction insights gleaned from FT Partners and from industry sources.
Equifax is the poster child for data breaches in 2017, a year that is likely one for the record books for volume of sensitive personal data exposed and subsequent failure to release timely public disclosures. A forensics team confirmed in October an Equifax breach, first disclosed on Sept. 7, 2017, exposed the personal data of 145.5 million Americans, 8,000 Canadians and an undetermined number of individuals in the United Kingdom.
From May 13 to July 30, 2017, the exploit involved a known vulnerability in open-source software used by Equifax for which a patch was issued in March 2017. The type of data exposed poses an indefinite security and identity risk threat to consumers, whose Social Security, birth date, address, driver's license and credit card numbers, and certain dispute documents were compromised.
Also on the hot seat was Uber Technologies Inc., which in November admitted it concealed an October 2016 data breach, a clear violation of multistate data breach notification laws. During the breach, hackers gained access to the names, email addresses, phone numbers and license plate numbers of at least 57 million Uber drivers and customers. Uber further admitted that it paid said hackers $100,000 to destroy the data exploited and to keep the breach secret. Within hours of these public disclosures, a lawsuit was filed against Uber in Los Angeles federal court. Five state attorneys general subsequently opened investigations, and multiple class-action lawsuits have since been filed in this case.
Other high profile companies reporting data breaches included Deloitte, Dun & Bradstreet Inc. and TIO Networks. Several restaurant chains detected system breaches, among them Arby's, Chipotle and Sonic. In each of these cases, breach investigations and public notifications were executed in compliance with legal and regulatory frameworks.
Fraud attempts from Black Friday through Cyber Monday rose sharply this year. Kount Inc. tracked a 206.37 percent increase in such attacks on businesses year-over-year for the peak holiday shopping weekend, which saw a 26.09 percent increase in ecommerce sales, according to Kount.
As of early December, 172,432,587 records had been exposed in 1,222 data breaches for the year, according to the Identity Theft Resource Center, which tracks U.S. data breach incidents in seven categories. The highest number of incidents were reported in business, with 628 incidents; and medical/healthcare, with 343 incidents.
On average, companies globally reported 130 breach attempts in 2017, 27.4 percent more than last year, and nearly double the number reported five years ago, based on annual global surveys of security and IT professionals conducted by the Ponemon Institute LLC. In its latest survey, malware and web-based attacks were cited as the most costly to organizations, averaging $2.4 million and $2 million per incident, respectively.
Despite market availability of omnichannel commerce solutions, a large percentage of small and midsize businesses (SMBs) have yet to embrace them. In November, Cayan LLC released results of a survey in which it asked 500 retailers and more than 1,000 consumers how they felt about certain omnichannel capabilities. Following are key findings from the survey.
The Cayan survey revealed that many retailers have not kept pace with growing customer demand for convenience and speed in the shopping experience. Cayan Chief Executive Officer Henry Helgeson believes that small and midsize retailers right now are at an inflection point.
In addition, WorldFirst estimated that of the 29.6 million U.S. small businesses operating today, 28 percent don't have a website, and of the 72 percent that do have websites, 74 percent aren't online ecommerce enabled.
Guiding SMB omnichannel expansion through integrated systems will remain a top challenge for ISOs; however, the rewards could pay off, especially for merchants that cater to women, which as a group tend to place a high premium on buy online/pickup in-store and buy online/return in-store channel options, according to consumers surveyed by Cayan.
A Worldpay global payments report published in the fourth quarter of 2017 indicated online e-wallet usage in the United States surpassed debit cards by 7 percent, and researchers predicted within five years e-wallets will overtake credit cards as the leading payment method.
For an accurate bead on which payment methods dominate e-commerce today, Worldpay analyzed data from 36 countries and released the following report.
For a quick snapshot of the U.S. market, ecommerce was expected to edge upward 15.8 percent and generate $452.76 billion for the year, capturing 9 percent of U.S. retail sales, according to eMarketer. And the top 10 ecommerce websites, collectively, were expected to produce 64 percent of those sales. Positioned at the top, Amazon was projected to reel in 43.5 percent of U.S. retail sales online this year totaling an estimated $196.75 billion.
While the millennials (also known as Gen Y) have grabbed the spotlight in recent years for abandoning traditional retail stores in favor of ecommerce, the post-millennial generation, Gen Z, prefers to shop brick-and-mortar.
In a first-time poll of Gen Z girls (ages 13 to 22), digital media company Sweety High confirmed this generation unanimously supports in-person shopping, which could bode well for physical stores that engage this growing segment.
Without question, Gen Z will be the next consumer group to watch as their spending power and influence take shape. First Annapolis Consulting estimated this segment of the population will represent up to 40 percent of U.S. consumers by 2020. Armed with technology and omnichannel convenience, this new generation and the generations that preceded it will continue to drive the trends we saw blossom in 2017.
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