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Commercial Payments Overview Oct 2014

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Presentation on theme: "Commercial Payments Overview Oct 2014"— Presentation transcript:

1 Commercial Payments Overview Oct 2014
Orson Morgan Sr. Account Executive Public Sector

2 Agenda Commercial Payments Visa at a glance Commercial Payments Trends
Fraud/Risk Mitigation Tokenization Regulatory update RPMG study

3 14,600 2.2 billion $6.9 trillion 175 88 billion 36 million
Visa at-a-glance Visa is the world’s largest electronic payments network and provider of tailored payment solutions; driving business growth by streamlining procure-to-pay processes, while delivering enhanced control, transparency, and insight 14,600 Financial institution clients1 2.2 billion Visa cards1 (as of June 30, 2013) $6.9 trillion Total volume2 175 Currencies Processed 88 billion Total transactions2 36 million Acceptance locations Visa settles the majority of volume from public sector credit card programs, and has relationships with most issuers competing for public sector business.3 83% of GSA is Visa-branded4 41 of 49 states are Visa-branded 76 prepaid programs in 40 states Note: Figures are rounded, exclude Visa Europe and are as of September 30, 2013 unless otherwise noted; figures from 4Q13 operational performance data except number of financial institutions and ATMs. Source: 1Based on payments volume, total volume, number of transactions and number of cards in circulation; 2Includes payments and cash transactions; U.S. Commercial Card Market Update, Mercator Advisory Group; 4GSA website, 2013 Visa Payments Forum

4 Current Economic and Fiscal Situation

5 U.S. Commercial Opportunity
Commercial Consumption Expenditure (CCE) spend capture opportunities exist across business segments Segmentation By Revenue Small: <$25M Medium: $25M-500M Large: >$500M 2012 U.S. CCE Distribution 100% = $22.8T 5 Year CAGR = 4.8% $ Trillions Government $1.6 USA 20% Small Business $5.5 Asia Pacific 36% LAC 7% CEMEA 8% Large Market $11.4 Europe 27% Middle Market $4.4 $ Trillions Source: Visa Commercial Consumption Expenditure Index; Economist Intelligence Unit (EIU) modeling and analysis, September Global CCE index data sources include Bureau of Economic Analysis (BEA), U.S. Census Bureau, Organization for Economic Cooperation and Development (OECD), STructural ANalysis (STAN) Database, EuroStat Database, General Government Accounts from the National Accounts of OECD Countries, United Nations Statistics Division National Accounts Main Aggregates Database, EIU proprietary databases, government data and EIU model estimates where government data was unavailable. Large contracted defense spending not included in CCE index. Note: Figures updated September 2013

6 Large/Middle Market Trends
U.S. Commercial Payment Card Purchase Volume by Type Large and Middle Market Trends Anti-fraud and security measures continue to be top- of-mind for companies, even with fraud rates on the decline Purchasing and Prepaid are primary drivers of U.S. product growth Traditional Corporate Card volumes will benefit from strong business travel levels Mobile innovation and reporting/auditing tools will be two key options for growth outside of classic card benefits Green and Eco-business Initiatives are at the forefront of successful product strategies U.S. Markets show greatest opportunity, but Emerging Markets will play a key role in growth U.S. Commercial Card Growth is Greater than Small Business and volume growth will be led by Visa $Billion USD Source: Packaged Facts, December 2012 Visa Commercial Payments Overview 2014

7 “State and local government fiscal conditions have improved dramatically, but not as much as the overall economy. Subnational government contributions to GDP growth were essentially flat in 2013… The recovery has continued into 2014, particularly in state hiring.” Dan White, Moodys

8 GF Spending Expected to Grow for 4th Straight Year, Although Below Average
36-year historical average rate of growth is 5.6 percent *Fiscal 2014 numbers are enacted Source: NASBO Fall 2013 Fiscal Survey of States 8

9 GF Spending Exceeding Pre-Recession Level
Source: NASBO Fall 2013 Fiscal Survey of States *Fiscal 2014 numbers are enacted

10 State and Local Employment Cuts
State and local employment has declined 735,000 from the start of the recession through January State employment declined 161,000 from Aug – Jan State government employment declined by 6,000 positions in January Local employment declined 574,000 from July 2008 – Jan. 2014 Locals reduced positions by 11,000 in January Source: Bureau of Labor Statistics

11 Improvements to the State Fiscal Environment
Revenues improving, surpluses expected Enacted net tax cuts in 2 of the last 3 fiscal years State and local sector is contributing (some) to GDP growth rather than detracting

12 Challenges: Long Term Tighter Resources Debt and Pension Liability
State Revenue Infrastructure Federal Cuts

13 State Debt/Ratings Outlook
Stable rating outlook for states currently Fitch (Dec. 2013): The financial position of most states has noticeably improved since the recession. Standard & Poor’s (Dec. 2013): State governments come into with revenue and spending better aligned Moody’s (Dec. 2013): US states sector is supported by broad and diverse economies, low debt burdens…

14 Fraud Awareness, Prevention and Mitigation

15 Fraud, Abuse, & Misuse: Definitions
Fraud – The theft card information by fraudsters Account takeover (information change) Mail thefts Counterfeit cards Lost/Stolen cards Mail order/telephone order Skimming Database Hacking Franchise Software Hacking Sniffing Phishing Abuse – Intentionally or unintentionally violating policies and procedures for personal gain Misuse – Intentionally or unintentionally violating policies and procedures for work related gain

16 Our Strategy PREVENT Minimize fraud in the payment system
A layered approach Build and enhance stakeholder trust in Visa as the most secure way to pay and be paid ADVANCE Execute risk strategies for emerging products and channels PREVENT Minimize fraud in the payment system PROTECT Protect vulnerable account data Trust and Partnership To address these top global risks, we maintain our  Global PSR strategy which focuses on Prevent, Protect, Respond, Advance, and most importantly to deliver this, we rely on Trust & Partnership. As you well know, our risk strategy takes a multi-layered approach. Prevent, Protect, Respond. At the center of these pillars is our commitment to trust and partnership and working with all the key stakeholders. You are already very familiar with this. We have an extensive and sophisticated toolbox to meet today’s threats already. But we know the world of payments is changing, so we want to emphasize that we have evolved this visualization of our strategy to focus on Advancing security to support innovations such as mobile payments and digital wallet services. This isn’t to say that this is new to our thinking. We have always operated this way. But, with the rapid change we’re operating in, it was important for us to be explicit about it here. RESPOND Monitor and manage events that occur

17 Our Strategy: We have the Tools
A layered approach A layered approach PREVENT Minimize fraud in the payment system Dynamic Authentication Intelligent Authorization EMV chip Verified by Visa Visa Advanced Authorization Visa Consumer Authentication Service PROTECT Protect vulnerable account data Non-storage Encryption, tokenization PCI standards Payment gateways Data Security Data Elimination PREVENT, PROTECT & RESPOND: Visa have extensive and sophisticated solutions to meet the issues/challenges of the market, such as dynamic authentication, data security, etc. Last year, we introduce the Visa Consumer Authentication Service as an enhancement to the 3D-Secure platform to enable risk-based authentication. Rather than prompting cardholders to enter a password for every Verified by Visa transaction, we can focus on the small fraction of risk transactions by using richer, more dynamic authentication tools that do not have to inconvenience the cardholder. We have also extended this risk-based thinking into smart ways to expand the no-signature or no-PIN program, called the Visa Easy Payment Solution. Now, the VEPS has been extended to more low risk merchant segments and the limit has been raised from $25 to $50. And by focusing on low risk merchant segments, we are able to improve speed and convenience while continuing to control fraud. We have an extensive and sophisticated toolbox to meet today’s threats already. Breach Response Cardholder Empowerment Shrink Zone of Impunity RESPOND Monitor and manage events that occur Proactive Alerts (CAMS) Transaction Alerts Law enforcement support Chargeback & Fraud programs Global Brand Protection programs

18 Visa U.S. EMV roadmap October 2015 October 2012 April 2013
Technology Innovation Program (TIP) Acquirer Chip POS Processing Mandate POS Liability Shift U.S. domestic and cross-border Acquirer Chip ATM Processing1 Mandate AFD Liability Shift ATM Liability Shift U.S. domestic and cross border Note: POS = point of sale; AFD = automated fuel dispenser 1Requirement for third-party processors only

19 EMV deployment status Visa – U.S.1 7.4 million EMV cards issued
520,000 merchant outlets EMV enabled 8% of U.S.-issued cross-border transactions are chip-on-chip Visa – Global1 1 billion chip cards issued 43% of all POS transactions originate from chip terminals 54% of all ATM transactions originate from chip ATM terminals 10% of cards are dual interface 31% of merchant outlets are dual interface Industry Status Based on EMVCo Q data combined from American Express, Discover, JCB, MasterCard, UnionPay and Visa (does not include U.S.) 2.3 billion EMV cards have been issued globally 36.9 million EMV terminals have been deployed globally 1Visa data as of end December 2013

20 Losses from Misrepresentation and Internal and External Frauds
Source: RPMG Purchasing Card Benchmark Survey 2012

21 Tokenization

22 Payment Token Standard
Payment Token Standard at a glance… A Payment Token is a “non-financial identifier” that can be used in place of an original payment credential to initiate a payment transaction. Tokens replace sensitive data with a surrogate value that is not mathematically reversible while encryption scrambles information into an unreadable format which is reversible only with the right key. Global & Multi-Channel Able to be passed through or routed by existing and new payment ecosystem players Distinct and identifiable in system Deployable as static or dynamic (limited use, time limits) Compatible with existing payment technologies (Web, NFC, POS standards) Supports all regulatory obligations (e.g. routing decisions)

23 Regulatory update

24 Surcharging Frequently Asked Questions
What will it take for a merchant to be able to surcharge? How will the process be regulated? What can a client do if they feel a merchant should not be surcharging? How does surcharging notification work? Are Purchasing Cards considered Credit Cards? Does this impact Debit Cards? How many merchants have already signed up to surcharge?

25 Visa Merchant Presentation

26 Settlement Update – “Check-Out Fees”
The card networks (Visa and MC) and several bank issuers have reached a preliminary agreement on the interchange lawsuit filed by merchants. The lawsuit was brought in 2005 by merchant plaintiffs alleging that banks and card payment networks restricted competition on interchange rates. With the preliminary agreement, Beginning Jan 27, 2013, merchants will be able to add “checkout fees” (surcharge fees) for Visa & MasterCard credit card transactions per the terms of the settlement agreement.  The terms apply to all Visa and MasterCard credit cards. Debit and Prepaid cards cannot be assessed “checkout fees”. 10 U.S. states have surcharging restrictions including California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.

27 Settlement Update – “Check-Out Fees”
Check-Out fees are being imposed solely at the merchant/supplier discretion. A merchant/supplier must disclose the check-out fee at the point of sale (or online check out screen). Also, merchants/suppliers are required to provide a separate line item on the receipt that shows the dollar amount of the fee. (example provided on next slide) Each merchant will determine how much the “checkout fee” will be if they decide to charge one, however, no merchant may charge more than 4% of the transaction amount. Merchants are required to disclose the amount of the surcharge before you make a purchase; look for signs at the store entrance and at the cash register or point of sale. U.S. Merchants that intend to surcharge must complete a notification form with Visa or MC 30 days in advance of charging the fee

28 Settlement Update – “Check-Out Fees”
Client Questions and Disputes Clients can access information from Visa directly: Follow the links below for additional information: Visa: rcharging-faq-by-merchants.pdf If a cardholder believes that a charge is questionable (they were charged more than 4% or the fee was not disclosed upfront), they should contact Visa. Follow the link below in order to report a merchant violation: Visa Customer Assistance Center: Report a Merchant Violation Online Form: https://usa.visa.com/checkoutfees/contact.js p

29 RPMG

30 Purchasing Card Spending in North America (in $ billions)
Actual Expected Spending has grown steadily and is expected to continue to expand moving forward. Source: 2014 Purchasing Card Benchmark Survey, RPMG Research

31 Purchasing Card Volume Growth
Across all respondents, the percentage growth in (27%) was higher than the previous six years. Source: 2014 Purchasing Card Benchmark Survey, RPMG Research

32 Key Benchmarks Spending per Transaction, 2005-2013
Monthly Transactions per Card, Spending per Card, Source: 2014 Purchasing Card Benchmark Survey, RPMG Research

33 Current P-Card Spending by Category (in $ billions)
Source: 2014 Purchasing Card Benchmark Survey, RPMG Research

34 Purchasing Card Wallet Share Transactions under $2,500
The percentage of under $2,500 transactions have been increasingly shifting to purchasing cards, largely shifting from paper checks. Percent of Transactions Under $2,500 Paid with Card * In 2003, the capture category was under $2,000 Source: 2014 Purchasing Card Benchmark Survey, RPMG Research

35 Purchasing Card Wallet Share Transactions $2,500- $10,000
Percent of Transactions $2,500-$10,000 Paid with Card The percentage of $2,500 to $10,000 transactions have been increasingly shifting to purchasing cards from paper checks. * In 2003, the capture category was $2,000-$10,000 Source: 2014 Purchasing Card Benchmark Survey, RPMG Research

36 Key Purchasing Card Benefits
Traditional paper-based PO format $90.20 PER TRANSACTION Cost per transaction $20.38 Plastic purchasing card PER TRANSACTION Savings of $69.82 PER TRANSACTION Traditional paper-based PO format 11.4 DAYS Cycle Time 3.4 Plastic purchasing card DAYS Savings of 8.0 DAYS Process Simplification Traditional paper-based PO format 2.3 MANAGER APPROVALS 1.4 Plastic purchasing card MANAGER APPROVALS Source: 2014 Purchasing Card Benchmark Survey, RPMG Research

37 Achieving High Performance
Organizational policy, internal processes, and program controls are fundamental components of the architecture of a Best Practice program. Policy Control Process Source: 2014 Purchasing Card Benchmark Survey, RPMG Research

38 Policy Best Practice Areas
Leading organizations adopt best practices in five key card policy areas. Source: 2014 Purchasing Card Benchmark Survey, RPMG Research

39 Policy: Client Checklist of Best Practices
Ensure optimal card distribution Regularly evaluate policies related to allowable spend categories and update as needed Mandate card use for all eligible categories of purchases Foster ongoing senior management support of the purchasing card program Implement rewards related to purchasing card program performance Source: 2014 Purchasing Card Benchmark Survey, RPMG Research

40 Control Best Practice Areas
Leading organizations adopt best practices in three control related areas. Source: 2014 Purchasing Card Benchmark Survey, RPMG Research

41 Control: Client Checklist of Best Practices
Revisit transaction and monthly spend limits to ensure maximum utility from the card program Conduct regular data mining to ensure effective control and compliance Evaluate and optimize card issuance criteria Source: 2014 Purchasing Card Benchmark Survey, RPMG Research

42 Process Best Practice Areas
Leading organizations implement best practice processes to optimize purchasing card use and use p-cards as an innovative tool to improve business processes Source: 2014 Purchasing Card Benchmark Survey, RPMG Research

43 Process: Client Checklist of Best Practices
Quantify and track purchasing card program cost savings. Implement an electronic accounts payable (EAP) solution to augment the purchasing card program Implement a virtual card solution to augment the purchasing card program Conduct regular spend analyses and policy and procedure reviews to ensure program optimization Integrate and automate card program data in the ERP system Source: 2014 Purchasing Card Benchmark Survey, RPMG Research

44 Unanswered Questions?


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