2018 Commerce and Payments Outlook - First Data Information and Analytics Solutions
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2018 Commerce and Payments Outlook First Data Information and Analytics Solutions This document is a collection of opinions that are offered solely as a courtesy, and they do not represent business or legal advice. The research is gathered from a wide range of industry publications, analyst reports, white papers, websites, and interviews. The statements in this document related to future business or financial performance may constitute forward-looking statements and actual results or performance may vary.
2018 Payment industry outlook
Top trends
Retailer and Retailers Trying Mobile Only
Technology Smaller Stores Bank Accounts
Partnerships
Delivery Changing
Physical Retail
Alipay & WeChat pay
Chinese Mobile Wallets P2P 2.0
Rental &
Subscription
FinTechs Eye Services
Bank Status
Banking Augmented Reality
Environment and Virtual Reality
PSD2
On-Demand
Retail Services IoT Artificial
Digital Deals Blockchain in Physical Retail Collaboration Intelligence
2 © 2018 First Data Corporation. All Rights Reserved.
All trademarks and trade names referenced in this material are the property of their respective owners.
Retailers – smaller is better?
In the rise of online shopping, big-box retailers are experimenting with smaller brick-and-mortar stores
Retailers testing smaller physical stores Why small-stores?
Response to shifting consumer demands, growing
populations in metro areas, and increased online shopping
Scaled-back spaces can be more profitable
per square foot
Forces retailers to be smarter about inventory and can
serve as a location for online pick up/returns
Allows retailers to tailor product offerings to the local
area, making the experience feel more personal
Overall, retailers are aiming to become a more desirable
place to shop
Sources: Company websites; “How Department Stores Will Re-Invent Themselves in 2018,” CNBC,
December 2017.
3 © 2018 First Data Corporation. All Rights Reserved.
All trademarks and trade names referenced in this material are the property of their respective owners.
Delivery changing physical retailing
Same day delivery is the latest battleground for physical retailers
Retailers with Same Day Delivery Changing the Retail Experience
Consumers expect convenience both online and offline
51% Retailers leverage their local, physical footprint
Developing new services for in-store pick up and fulfillment, delivery
logistics, and real-time inventory management
16%
Pay-off is significant: slows the march of competitors and allows for more
advanced pricing, margin management, and incremental service fees
2016 2017
Selected Retailers Delivery Partner Services
32%+
of Retailers Offer
3rd Party Delivery
Services
Acquired by a Retailer
Sources: “Digital Commerce Survey 2017,” BRP Consulting, 2017; Company websites;
press releases.
4 © 2018 First Data Corporation. All Rights Reserved.
All trademarks and trade names referenced in this material are the property of their respective owners.
On-demand
services meets
acquires… acquires…
physical retailing
The “gig” economy
…to strengthen its digital customer …to create an omnichannel tech
(on-demand services) service capabilities and expand its services platform to provide IT support
coming to more stores home goods and installation offerings. services to business customers.
near you
offers… partners with…
…a marketplace of service providers …to offer home improvement
where customers can shop for professionals and advice to customers.
professional service help.
Sources: Company websites.
5 © 2018 First Data Corporation. All Rights Reserved.
All trademarks and trade names referenced in this material are the property of their respective owners.
The rise of rental and subscription retail
Consumers want value, flexibility, and personalized discovery
The concept gained prominence with startups… …and is now spreading to larger retailers
+
6 © 2018 First Data Corporation. All Rights Reserved.
All trademarks and trade names referenced in this material are the property of their respective owners.
Retail deals for digital
Increasingly retail and digital/technology are converging
Traditional retailers are turning to startup M&A to catch up on the retail transformation
Strengthen eCommerce reach Connecting with customers Add digital capabilities
Online shopping Mobile AR / VR / 3D
Product selection Chat / messaging Big data
Logistics Personalization Robotics / automation
Sources: “The state of the deal: M&A trends 2018,” Deloitte, November 15, 2017.
7 © 2018 First Data Corporation. All Rights Reserved.
All trademarks and trade names referenced in this material are the property of their respective owners.
Retailer and technology partnerships
Unexpected partnerships are formed as competition increases, particularly in rise of voice-ordering
Notable new partnerships made between retailers and tech giants:
Why partner? – If you can’t beat them, join them.
Increase customer traffic and expand online presence
Ensure a position on the next generation of platforms (i.e. voice-ordering, smart home products)
Partnerships highlight retailers’ willingness to increase dependence on shopping and payments technology
Sources: Company websites.
8 © 2018 First Data Corporation. All Rights Reserved.
All trademarks and trade names referenced in this material are the property of their respective owners.
All aboard Tech Retailers
for IoT
collaboration Grocery &
Restaurant
Banks
Industries working
together through CONNECTIVITY
connected commerce to Insurance Auto
reach more households.
Travel & Devices &
Entertainment Appliances
Third Party
Content
Developers
9 © 2018 First Data Corporation. All Rights Reserved.
All trademarks and trade names referenced in this material are the property of their respective owners.
Augmented reality and virtual
reality in retail
Two powerful technologies could reshape commerce, but we believe
AR may be the winner
Augmented Reality: It’s Real
But Virtual
Reality…?
Sources: Warby Parker app; Amazon app; The Verge 10/25/17; “Lowe’s Introduces In-Store Navigation Using Augmented Reality,” Lowe’s
press release, 3/23/17; Dailymail; “VR: The Brands that are imagining a new commerce reality,” Forbes, March 7, 2017.
10 © 2018 First Data Corporation. All Rights Reserved.
All trademarks and trade names referenced in this material are the property of their respective owners.Artificial intelligence boosts retail and banking
Utilizing machine learning and AI to strengthen products and services and streamline operations
Sample Uses Cases
Voice-activated Local Fraud Contact
Assistants Experiences Detection Centers
Sales Chat Loan Chat
forecasting Bots Underwriting Bots
Targeted/ Merchants Recommendations Identity Banks Process
Personalized Verification Automation
ads
Promotion Personal
Fashion & Trading
Management Financial Mgmt.
Beauty
uses AI to target ads to individuals based on what uses AI-based voice technology in its call centers
they are talking about on social platforms. to route customer complaints to the appropriate experts.
uses AI-based machine learning to offer consumers uses AI to enhance real-time fraud detection and to
a personalized clothing subscription service. increase the accuracy of transaction approvals.
11 Sources: Company websites. © 2018 First Data Corporation. All Rights Reserved.
All trademarks and trade names referenced in this material are the property of their respective owners.Alipay and WeChat pay
Chinese mobile wallets are forging into new frontiers
Undisputed Mobile Wallet Leaders WeChat Diving into MicroPayments Alipay Expanding Throughout Asia
MOBILE WALLET USERS
WeChat Pay
600M
Alipay
529M
PayPal
210M Tips often
range from
as little as
ApplePay
$0.15 to
87M +10% $1.50
Of WeChat
Klarna users have
micro
60M tipped
Sources: Press releases; web sites; China Academy of Information and Communications Technology.
12 © 2018 First Data Corporation. All Rights Reserved.
All trademarks and trade names referenced in this material are the property of their respective owners.Blockchain’s great uphill climb
Distributed ledger gains are being overshadowed by the cryptocurrency hype cycle
Corporates on the Enterprises Moving out of the Technical Blockchain’s Challenges
Hype Machine Research Lab Advancement
Too often blockchain experiments
are tech solutions in search of a
business problem
Massive speculation in
cryptocurrencies creates noise and
negative connotations
Solving for the fiat currency
on/off ramp
80% of Blockchain projects Blockchain’s Hope
fail to meet expectations
Advancements in speed
(Layer 2)
Development of so-called
“interledgers” to connect disparate
ledgers (bitcoin, XRP)
Flood of capital into cryptocurrency
markets could drive accelerated
innovation
Sources: Forrester: Predictions 2018.
13 © 2018 First Data Corporation. All Rights Reserved.
All trademarks and trade names referenced in this material are the property of their respective owners.Banking outlook
We expect the operating environment to remain
favorable for the banks
Wall Street Expects Mid-Single Digit Revenue
Growth to Continue
Revenue growth Key themes in 2018
6%
4%
Bull Case Bear Case
Fed Raises Interest Rates Low Single-Digit Loan
2% Three-to-Four Times Growth
Strong Economy Supports Benign Yield Curve Continues to
Credit Outlook Flatten
Favorable Regulatory Environment Tech Spend Weighs on
0% Operating Leverage
2014A 2015A 2016A 2017E 2018E
Sources: FDIC Quarterly Profile; Thomson Reuters Eikon; S&P.
Note: Growth rates from 2015-2017 come from the FDIC’s Quarterly Banking Profile. Forecasted growth
for 2018 looks at aggregate Wall Street estimates for the S&P Bank Index.
14 © 2018 First Data Corporation. All Rights Reserved.
All trademarks and trade names referenced in this material are the property of their respective owners.Banking and technology
2018 could open the door for more FinTech companies to become banks
New U.S. Bank Charters
300
200
Despite all the innovation in
100 FinTech, new bank charters
are at an all time low.
0
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Key Things to Watch
OCC Head Joseph Otting Supports the Square’s ILC Application Could Set a Regulatory Bodies Around the World
Creation of a FinTech Charter1 Precedent for Other FinTech Companies Are Adjusting Rules for FinTech2
Sources: 1) “FinTech Charter Is Still in Play”, The Wall Street Journal, December 201, 2017, 2) “Fine Tuning Licenses for Banks”, ECB, November 15, 2017.
15 © 2018 First Data Corporation. All Rights Reserved.
All trademarks and trade names referenced in this material are the property of their respective owners.US banks offer mobile only accounts
Big banks target millennials and the underserved with mobile only banking alternatives
All Mobile Banking Apps
Common features
Mobile checking and savings account opening
Offers a debit card, but no physical checks
Remote deposit capture
Send money
No overdraft fees
Spend tracking and tagging
Savings tools
Bills management
16 Sources: Company websites. © 2018 First Data Corporation. All Rights Reserved.
All trademarks and trade names referenced in this material are the property of their respective owners.PSD2: Overcoming near-term hurdles
KEY TENETS MODELS OBSTACLES
Modernization PISP Primary Challenge: Strong
customer authentication
Transparency
AISP (SCA)
Competition
Lack of clarity leading to
Security inaction
Consumer protection ASPSP Inapplicability of some
Faster payments solutions to mobile / in-app
Varying risk management
proposals
17 © 2018 First Data Corporation. All Rights Reserved.
All trademarks and trade names referenced in this material are the property of their respective owners.P2P 2.0: In pursuit of financial relevance
Venmo, Zelle, et al pivot towards merchant and biller payments
P2P 1.0 – Consumer Only, Limited Revenues P2P 2.0 – New Ways to Pay
Merchants
Businesses Consumer
P2P Apps
Billers
Big Banks Show PYPL Buys Tio
P2P Payments to Major P2P Growth Venmo Now Accepted Networks for $223M
Exceed $120B this Year at 2M Merchants
Zelle Makes US Bank Announces
it Debut Disbursements via Zelle
Sources: Press releases
18 © 2018 First Data Corporation. All Rights Reserved.
All trademarks and trade names referenced in this material are the property of their respective owners.19
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