2006 Payments Industry Highlights - A Year In Review
2006 was a momentous year for the payments industry in the US - as one of the two major bank card associations completed an initial public offering of its shares and the other announced its own plans to do so. Late in the year, the second largest closed loop card network announced it would be spinning out from its parent Morgan Stanley in the summer of 2007.
MasterCard, after initially announcing its plans in August 2005, successfully completed its IPO on May 25, 2006. Since the IPO, MasterCard's stock has traded up substantially - moving from $39 at the IPO to over $98 at year end - representing a market capitalization for MasterCard of over $13 billion.
After initially saying it was going to wait and watch MasterCard's effort to go public, Visa announced its own reorganization plans on October 11, saying it would first consolidate its regional structure (with the exception of Visa Europe) and then pursue an initial public offering. Visa International CEO Christopher Rodrigues departed a month after the reorganization announcement as the company announced plans to recruit a new CEO as well as new independent non-bank-affiliated board members.
Late in the year, Morgan Stanley announced plans to spin off its Discover Card business unit into a new public company.
Early in the year, First Data Corp. announced it had concluded that it needed to focus on its customer segments - and that consumers weren't one of those segments (banks and commercial enterprises like merchants were). FDC successfully spun off its Western Union remittance business in September.
Many bankers spent 2006 preparing to meet the year-end deadline for compliance with theFFIEC guidance issued in late 2005 regarding online banking authentication and security.
In terms of new services, 2006 will likely be remembered as the "tipping point" year for contactless payments as more merchants deployed readers and as millions of contactless cards were issued to consumers in the US. MasterCard's PayPass initiative provided much of the leadership in contactless with both Visa and American Express also seizing the opportunity. Late in the year, Barclaycard in the UK announced an exclusive deal with Transport of London's Oyster card to combine contactless payments, transit payments, and Chip and PIN payments onto a single card.
Visa's Small Ticket Payment Service helped accelerate card payments into low-risk, cash dominated merchant segments by eliminating the requirement for signing the sales draft on purchases of less than $25 - independent of whether a traditional mag stripe or contactless card was used by the consumer.
2006 also saw the distribution of gift cards reach critical mass in the US - with major players like Safeway's Blackhawk Network and InComm helping to ensure they were available for purchase by consumers at high frequency shopping locations like supermarkets.
2006 will also be remembered for the re-launch of mobile banking and mobile payments. Startups Obopay and TextPayMe announced their initial mobile payments services early in the year followed by PayPal launching its PayPal Mobile payment service in March. Firethorn Mobile followed in the fall with its mobile banking service - launched in partnership with CheckFree and announcing Synovus as its initial bank customer and Cingular as its network partner.
A new business model to emerge in 2006 was that of person-to-person lending, intending to use the Internet to bring borrowers and lenders together and reduce the friction and fees associated with traditional banking. Prosper.com launched its service first - in Februrary - with UK-based Zopa also announcing plans to enter the US person-to-person lending market. CircleLending launched a new service to help families with intra-family lending.
Late in the year, a new personal finance startup named Wesabe launched intending to bring social smarts to how consumers spend and help them save money. Wesabe's basic notion is that a consumer's payment activity provides implicit recommendations that may also be useful to others.
The three large US credit bureaus (Equifax, Experian, and TransUnion) got together in 2006 to announce VantageScore, a new credit score that competes with long-time industry stalwart Fair Isaac's FICO credit scores.
During 2006, Payments News served over 1.2 million page views to almost 700,000 unique visitors, over twice as many as during 2005. We thank you very much for your readership and support of Payments News - and wish you all the best for 2007!
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