The U.S. Payments Forum is providing an inside look at the industry with its latest market snapshot. It offers perspectives from key stakeholders, including payment networks, technology innovators, leading merchants, issuers, acquirers and payment processors. The insights provided in the snapshot were gathered during the Forum’s recent Fall Member Meeting in Charlotte, North Carolina, which brought together hundreds of payments professionals from across the ecosystem and included a keynote address delivered by Bank of America and Netflix.
Burgeoning biometric payments
Today’s consumers are increasingly embracing emerging technologies, especially those that promise to provide swift and seamless experiences at the checkout. Although the use of biometrics in payments is nothing new, Amazon One’s pay-by-palm use case has brought the technology to the forefront. Are biometrics the future of digital payments? During a panel on payment acceptance trends, members of the U.S. Payments Forum weighed the benefits.
One obvious benefit is its fraud resistance. Multi-factor authentication is built into biometric payments since the current model requires users to enroll with a specific merchant and register their biometric data, whether it be a palm, iris, or fingerprint. According to information shared by a major bank, card issuers are already seeing the benefit of reduced fraud with biometric transactions. Another potential benefit of biometric payments is strengthening loyalty and rewards on the merchant side. Some merchants are exploring ways to utilize a consumer’s biometric profile to identify their shopping habits, preferences and brand loyalty. For example, in a food service setting, customers can scan their palm and instantly be recommended their favorite coffee or a frequently purchased lunch special. Biometrics can allow customers to prove their identity, select an item for purchase and pay in one or two simple steps.
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The Forum is also working to stay ahead of potential pain points in the biometric payments space. Members raised concerns about the data privacy implications during a joint merchant and issuer special interest group. While many stakeholders agreed that the consumer would ultimately “own” their personal biometric data, it is important to acknowledge the risks associated with storing this sensitive information. This sparked many questions, for example, once a consumer enrolls their biometric data with a specific merchant, can they un-enroll? Payment stakeholders are also interested in whether biometric data will still be stored if customers decide they no longer want to take part in the program. Additionally, there is concern about which entities have access to the biometric data. Will it be solely accessible to the merchant involved, or other stakeholders in the payment process? Ultimately, the industry stands firm in its belief that standards and requirements must be put in place to ensure that security and privacy are fundamental as biometric payments are implemented on a larger scale.
Growth in SoftPOS, contactless and PINless transactions
Contactless adoption is widespread in the U.S. payments market, and as a result, the desire to quickly transact anytime, anywhere is growing among both merchants and their customers. During a roundtable for global payment networks, Discover shared that 90% of its Discover Card portfolio will be contactless by the end of 2023. Visa is also seeing success. It shared that the U.S. was the number one region in contactless growth this year and about 40% of all its U.S. transactions are contactless. That’s up from just 28% in 2022. Meanwhile, Mastercard says it is observing differences in contactless adoption regionally. Large U.S. cities have higher contactless adoption rates than small or mid-sized cities, but overall, there has been significant YOY growth across the board.
Through Software Point of Sale technology (SoftPOS), merchants of all sizes are transforming their smart devices into POS terminals, shifting payments away from standalone systems and empowering retailers to meet consumers where they are. Discover shared that it is working with more than 40 providers for SoftPOS so far. There have been slight delays in implementation due to the PCI SSC Mobile Payments on Commercial off-the-shelf (MPoC) security standard as stakeholders work to become compliant. American Express shared that the average size of a SoftPOS transaction is around $160. Currently, the most popular use case is tap-to-phone for payment, however, some stakeholders believe that innovation could eventually pave the way for tap-to-prevision or tap-to-verify use cases.
Another byproduct of contactless growth is an increase in PINless debit transactions. A spokesperson for FIS and NYCE said that contactless is steadily overtaking PIN across their payment network. One back-of-card debit network, which is part of Discover global network, said that more than 50% of its volume is now PINless and more than half of that is card-not-present (CNP). Additionally, some issuers shared that they are seeing strong approval rates on PINless.
Next steps for AI in payments
Artificial Intelligence, particularly generative AI, remains the hottest tech topic across several industries. Earlier this year, the payments sector weighed the pros and cons and began brainstorming ways to incorporate AI advancements into day-to-day operations and transaction processes. Today, we are beginning to see the results of those efforts. During the Forum meeting, one domestic network shared that it has implemented AI bot tools to analyze authorization rates for e-commerce transactions. This has allowed the network to get ahead of pre-authorization fraud attempts and CNP fraud. AI validates large data sets quickly and learns from every single transaction. It evolves its action plan using those lessons learned. A leading bank services provider also shared its success in AI implementation. It has been using AI scoring models to identify chargebacks, cardholder spending patterns and other data points relevant to the fraud prevention process.
In weighing the next steps for AI in payments, the Chairman of the U.S. Payments Forum’s Steering Committee shared several potential use cases. In addition to fraud mitigation, payments stakeholders can explore the use of AI against money laundering and implement generative AI tools to reduce false positives. In customer-facing use cases ChatGPT is being utilized to improve customer engagement. The chatbot can handle more basic customer service tasks so that only truly complex issues are escalated to human representatives. Generative AI can also be used to strengthen loan origination efforts, streamline customer onboarding and maintain compliance.
Forum priorities
The U.S. Payments Forum’s primary focus is to provide a platform for solving cross-industry challenges and promoting innovation. This is achieved through collaborative discussion, networking events and educational resources. During the Forum’s member meeting, stakeholders identified key opportunities for improvement and growth and development within the payments landscape.
Those opportunities are highlighted by the numerous projects the Forum currently has underway that will benefit stakeholders throughout the payments ecosystem, including resources on:
- Phishing-resistant authentication
- Contactless adoption at the ATM
- Post-quantum computing and crypto agility
- Secure Remote Commerce (SRC)
- Connected car contextual payments
- Expanding open payment use cases
- Streamlining EMV L3 testing with OML
- Role of digital IDs in mobile payments
Resource recap
The U.S. Payments Forum has recently published the following resources:
- Maximize EV Charging Payments: The Power of Using MCC 5552 – An infographic with best practices on the use of the correct Merchant Category Code (MCC) in electric vehicle charging transactions.
- Migrating Fleet Cards to EMV – A resource with guidance on the shift to EMV fleet transactions aimed at making EMV fleet testing more efficient and consistent across all fleet brands.
- Synthetic ID Payments Resource Brief – A synopsis of fraud trends related to synthetic IDs, including suggested techniques for preventing and mitigating this fraud.
- Public Electric Vehicle Charging Terminal Payment Flow Guidelines – A resource that provides high-level considerations for clarifying ways to pay at public EV charging stations.
Organizations, associations, government agencies and individuals interested in participating in upcoming Forum projects can visit the Secure Technology Alliance’s website to learn how to become a member. By joining the Secure Technology Alliance, members will have access to activities within the U.S. Payments Forum and additional Alliance-affiliated organizations.
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