As digital channels continue to grow in importance, from mobile devices to the ever-expanding Internet of Things, Credential-on-File (CoF) payments will play an increasingly significant role in the future of digital commerce. E-commerce is forecast to increase from $398B in 2016 to $692B by 2020,1 and mobile commerce (m-commerce) is predicted to have an even more dramatic increase, from $116B in 2016 to $336B in 2020.2 Meanwhile, according to a 2016 Deloitte study (“Default” Payment Methods, 2016), the increasing availability of CoF is not only providing opportunities in the payments ecosystem, it’s also reshaping consumer behavior.3
To fully benefit, issuers should analyze their data to determine which merchant categories provide the greatest opportunities for shifting payment volume from non-card methods (such as Automate Clearing House or ACH) to their card products. Then, by using Visa’s digital products and capabilities like Visa Checkout and digital controls, issuers can work to gain and maintain top-of-wallet positioning. After all, cardholders most often change the cards they use for CoF when those cards expire.4
Consumer payment preferences
Consumers tend to have different payment strategies for different types of merchant categories or transactions. In the Deloitte study, they were more likely to use ACH for recurring expenses, like rent and utilities, while credit cards were more likely to be used for discretionary spending, such as e-commerce or retail purchases.4 Nonetheless, even the discretionary spending categories present a significant opportunity for issuers to migrate payment volume from non-card to card options. Building upon Deloitte’s consumer payment preference data and IR 500’s 2015 e-commerce payment volume for top U.S. merchants, Visa analysis estimates that up to approximately $98 billion in payment volume was made through non-card methods at the top 500 U.S. online merchants in 2015 for product categories like electronics, digital media and e-commerce goods.
Intent to use CoF payments is expected to rise over the next two years, although Visa estimates that increased usage will not be uniform across all digital use cases and will likely be correlated with consumer perceptions of security. For example, according to the Deloitte study, 96 percent of respondents believe online marketplaces like Amazon are moderately or highly secure. Furthermore, 50 percent of respondents indicated that they are extremely likely or likely to increase their use of CoF payments with merchants in this category.4 Mobile apps on the other hand, such as those used for ordering ahead at restaurants, are viewed by more respondents as low or not very secure and only 22 percent of respondents indicated that they are extremely likely or likely to increase their use of CoF payments in this use case.4
How issuers can further drive CoF
As more and more devices become connected, and Credential-on-File payments continue to change how cardholders approach the digital payment process, issuers need to act quickly to take advantage of this trend. For example, issuers should:
- Develop digital strategies to extend their top-of-wallet status where CoF payments are dominant
- Facilitate the updating of stored default payment information when cards are replaced or renewed
- Deliver compelling, ubiquitous end-to-end customer payment products like Visa Checkout that are secure, reduce friction and provide value beyond the payment itself
The Visa advantage: today and tomorrow
As the move to CoF payments accelerates, Visa Checkout is evolving to meet the shifting payment preferences of digital buyers.
- Core Value (Security): Offering a seamless and secure online and in-app payment solution to merchants remains critical as consumer trust in mobile apps and retailers to store their payment credentials is low. Conversely, 96 percent of Visa Checkout-enrolled customers feel secure making a purchase with the service.5
- Enhanced Value (Acceptance): The Visa Checkout Open Platform (VCOP) enables mobile wallets enabled by Visa Token Service (VTS) to leverage Visa Checkout’s online acceptance footprint, driving a frictionless consumer experience while preserving issuer economics and keeping issuers at the center of the payment experience.
- Future Value (Network Effect): Visa Checkout is currently developing a feature called VCO Push Provisioning that promotes the issuer top of wallet at participating large CoF merchants. This feature will enable Visa Checkout to leverage its merchant and issuer integrations and connect the two parties in a secure and scalable manner.
While the growth in CoF payments poses new challenges, Visa is there to help issuers develop and execute digital strategies that enable them to benefit from the transformations rampant in the payment landscape.