Financial Transaction Processing
Companies in this industry provide services such as credit card processing, electronic funds transfer, and check clearing. Major companies include Alliance Data Systems, First Data, Global Payments, Heartland Payment Systems, MasterCard, Visa, and Western Union (all based in the US), as well as China UnionPay (China), Cielo (Brazil), and Moneris Solutions (Canada).
Worldwide, markets with strong growth in payment services include Europe, the Asia/Pacific region, and South America. Many large credit card processors operate and maintain processing centers globally. About half of all credit card transactions occur in the US and Canada; about 25% of transactions are in Europe and 20% in the Asia/Pacific region, according to The Nilson Report. More than 11 billion credit, debit, and prepaid cards are in circulation around the world.
The US financial transaction processing industry includes more than 4,600 establishments (single-location companies and units of multi-location companies) with combined annual revenue of about $66 billion.
Technology is transforming the financial transaction processing industry and consumers' interactions with money. The use of cash as a payment method is plummeting, although it remains the predominant form of payment for small purchases: Approximately 60% of in-person payments under $10 were made in cash, compared to 20% of in-person transactions for $25 or more, according to the Federal Reserve. Noncash payments increased at annual rates of 5.3% in volume and 3.4% in value between 2012 and 2015, according to a 2016 Federal Reserve Payments Study. Debit, credit, and eCheck/ACH (automated clearinghouse) payments all grew during the period; traditional paper check payments fell. Digital payment transactions are expected to reach 726 billion by 2020, according to a study by Capgemini and BNP Paribas.
In recent years, the financial transaction processing industry has come under increasing pressure from fast-growing financial technology (aka fintech) companies that are developing new platforms and business models for delivering financial services, including the making, receiving, and processing of payments. Paper checks, credit card fees, money transfers, lending, and more are all being disrupted by new technologies. Innovations posing a threat to established industry players include the cryptocurrency Bitcoin; smartphone-enabled payments, such as Google Wallet and Apple Pay; mobile banking; and "smile to pay," a technology that allows consumers to authenticate mobile payments by scanning their faces with a smartphone. In Sweden -- fast becoming a cashless society -- more than 4,000 people have had microchips implanted in their hands to pay for things. More than 60 million US adults used a peer-to-peer (P2P) payment app, such as Venmo, in 2017, equal to about a third of smartphone users, according to eMarketer. The transaction value of P2P payments in the US is expected to more than double from about $120 billion in 2017 to nearly $245 billion in 2021.
The profitability of individual companies depends on efficient operations, as services are sold largely based on cost. Large companies have economies of scale in processing and typically can provide more services; small companies can compete by specializing in industries and providing custom services. The US industry is highly concentrated: the top 50 companies account for about 85% of industry revenue.
Products, Operations & Technology
Processors provide transaction services to banks that issue credit cards and to merchants that accept credit card payments. Merchant products include authorizing,
Sales & Marketing
Finance & Regulation
Regional & International Issues
Also includes the following chapters:
Quarterly Industry Update
Trends and Opportunities
Call Preparation Questions
Glossary of Acronyms