The R&D Tax Credit Aspects of Payment Technology

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        In recent years, the payments industry has experienced significant innovations, changing the way millions handle monetary transactions.  Technology is expanding in the payment industry, making it easier and quicker to provide and receive funds for both individuals and businesses. R&D tax credits are available to companies developing and working with these innovative payment technologies.

The Research & Development Tax Credit

        Enacted in 1981, the Federal Research and Development (R&D) Tax Credit allows a credit of up to 13 percent of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

  • New or improved products, processes, or software
  • Technological in nature
  • Elimination of uncertainty
  • Process of experimentation

        Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent.  On December 19, 2014 President Obama signed the bill extending the R&D Tax Credit for the 2014 tax year. As of this writing, proposed tax extender legislation would extend the tax credit through December 31, 2016.

The Global Payments Industry

        In 2013, the volume of non-cash transactions exceeded $350 billion, with the U.S. leading the way with over $120 billion transactions annually.  The majority of these non-cash payments were electronic  and in recent years a slew of innovations in this industry have allowed for greater and easier connectivity between payment transferors and transferees.

        The well known payment technology company, PayPal, allows users to link bank accounts and credit cards electronically for quick monetary transfers.  While the service was largely used in conjunction with Ebay in its early years, many online retailers have utilized PayPal to process online customer transactions.

        Since the advent and success of PayPal, many competitors have attempted to offer their own solutions to capitalize on the market's potential. Such offerings include Google Wallet, Apple Pay, Dwolla, Braintree, Venmo, and Striple. Many of these companies offer secure, quick transfers for a per transaction fee or even free.  Numerous banks have developed their own money transfer applications in an attempt to provide a more complete offering to their customers.

Emerging Trends

        The payment technology industry is currently experiencing several major trends that will continue to shape and define the market: 

Big Data Boost
  • Detailed consumer data can be retrieved quickly and analyzed, which can be used for marketing messages or delivering customized approaches
  • These messages will help deliver "the right offer to the right customer at the right time through the right channel"

Mobile Payments Explosion
  • Consumers want to use their device for shopping and banking at their convenience
  • Mobile payments software is more frequently being used by financial services companies

Locking Down Customer Data
  • Layered security measures and encryption of customer information
  • Electronic Shredding - unnecessary electronic information will be permanently destroyed

Mobile Deposit Grows in Popularity
  • Increased presence and usage of using mobile banking and check deposit solutions
  • 42% User growth from 2013 to 2014

Increased Compliance
  • Federal and state regulations are frequently changing to keep up with the technology
  • Many smaller companies with limited staff are  having difficulty from a time and financial commitment aspect in meeting these regulations

Payment Technology Challenges

Although the payment technology industry is rapidly growing and shows great promise, this industry faces numerous challenges including:

Security:  Security features are cited by many users as the most important concern regarding their payment transactions. Neutralizing such concerns and convincing doubters is a major challenge for payment technology innovators. Application developers, wireless network service providers, and IT departments must work together to ensure the security of each and every financial transaction. Stolen devices, authentication processes, and encryption of data are among the aspects to be addressed.

Device Compatibility:  At a time where 'smart' devices are released to the market at an unprecedented rate, developers must develop solutions that run well on different platforms. Interoperability is still an important challenge in the way of widespread electronic transactions.

Scalability and Reliability:   Developers are expected to provide high-speed mobile services without interruptions or malfunctions, thus fulfilling the expectations of high-paced customers.

Mobile Wallets

        As the use of payment technology among consumers rapidly increases, companies that include Apple, Samsung, and Google are eager to expand within the industry.

        The following chart illustrates some of the main emerging payment technologies.

Apple Pay

Samsung Pay

Android Pay

Current C

Google Wallet

Supported Devices

iPhone 6/Plus, Apple Watch

S6, S6 Edge/Plus, Note 5

All NFC-Enabled Android Devices

All iOS and Android smartphones via downloaded app

Select NFC-enabled smartphones


Tap to pay with NFC at supported terminals

Tap to pay with NFC at supported terminals or swipe

Tap to pay with NFC

Scan a generated QR code on your phone

Tap to pay with NFC

Accepted Locations


> 30 Million

> 700,000



Major Retailers

Walgreens, Whole Foods, Toys R Us, Staples, Panera, Subway, McDonald's, Macys, Aeropostale, Disney Store

Majority of credit-card accepting retailers

McDonald's, Gamestop, American Eagle, Best Buy

Best Buy, Dunkin Donuts, Kmart, Walmart, Lowe's, Sears, Gap, Old Navy, ExxonMobil, Khols, CVS

Walgreens, Subway, American Apparel, McDonald's, Urban Outfitters, Whole Foods

Information Retrieved from:,news-20666.html

Apple Pay

        Apple Pay’s iOS mobile payment system enables payments through NFC-enabled credit card terminals at the point-of-sale (POS).  To make a purchase, users wave their mobile device
Apple Pay over or on the NFC or magnetic strip POS terminal and approve the payment with a fingerprint. Apple Pay has participating financial companies that include Visa, MasterCard, American Express, Chase, Citi, and TD Bank.  As the Apple Pay technology advances, challenges of growth are appearing. For instance, the only devices that are supported for Apple Pay include: iPhone6/6s, 6/6s Plus, Apple Watch, iPad Air 2, iPad Pro, and iPad Mini 3/4.

        Other major challenges Apple faces that may hinder growth in the payments industry include:

  • Lack of usage of NFC-enabled terminals: only 10% of all payment terminals are NFC-enabled. The cost associated with having a terminal makes this an unattractive option for many.
  • Instances of fraud:. cards have been easily accessed and authorized due to the fact that a secondary ID is not necessary. Apple struggles with this issue largely because 80% of their own stores were responsible for the fraudulent activity.
  • Major retailers such as Wal-Mart, Target, and Best Buy do not currently accept Apple Pay, and utilize competitor solutions.

Samsung Pay/Loop Pay

        Samsung's mobile payment platform allows for payment on almost all POS systems. The payment transaction is similar to Apple Pay where a user can open the app, choose their
Samsung Pay card and hold it to the NFC terminal, which is verified with a fingerprint. Participating financial companies include: Visa, MasterCard, American Express, Bank of America, Citi, Chase, and U.S. Bank. Samsung Pay offers compatibility with any standard magnetic strip terminal or NFC terminal and therefore is more widely accepted than Apple Pay.

Android Pay
Android Pay
        Android Pay functions similar to Apple Pay by utilizing NFC systems for quick mobile payment. Android Pay credit card information is stored on the device used in specific applications.  Google has expanded Android Pay to be compatible with all Android devices, giving an advantage over Apple Pay and Samsung Pay, which are limited to the iPhone 6 and Samsung Galaxy 6. The platform has major retailers as hosts for support and is heading towards being as instant and fast as Apple Pay.

        CurrentC uses QR codes displayed on the cashier's screen and customer's phone to complete transactions. The system automatically applies discounts, loyalty programs, and charges purchases to multiple payment methods. CurrentC also has a key security feature that allows multiple payment methods to be used without sensitive information being passed through to the merchant.

        CurrentC has planned retail partners that include Rite Aid and CVS.  CurrentC uses QR codes so there is no credit card swipe fee to the retailer, giving merchants the opportunity to offer discounts for paying with the service.  CurrentC is available for download on all iOS, and Android smartphones.

Importance of Data Analytics

        Virtually every major industry has been impacted by the emergence of big data and data analytics. Companies in the financial services industry are investing heavily in these activities with the intent to aggregate and make use of high quality analytics that will help reach targets and engage consumers with a personalized approach.

        For example, monitoring buying behavior will allow for a better understanding of when, where, and why an individual makes a purchase. Marketing automation is generally built off of predictive data that will deliver the right information to the right customer, at the right time. These activities are expected to grow and evolve as payment technologies grow and evolve.

Millennials: The Early Adopters

        There are an estimated 80 million Millennials in the U.S., approximately 25% of the country's population.  As in many cases with younger generations, Millennials have been early adopters of the new payment technologies. Approximately 80% of this generation performs basic banking activities online and 65% transfer money online.

        Many companies involved in the payment technology industry are initially focusing on this well-connected generation, where word-of-mouth influence to peers and older generations can be a significant driver of user growth. Surveys have shown that Millennials look for speed, convenience, and features in the technologies they use, leading many innovators in the field to develop and offer those desires in their value propositions. 

The Threat of New Entrants

        The payment industry is centered around major technology changes from both new and existing firms competing in the industry. Many of the new entrants have the ability to expand as they attracted substantial investment capital.

        Square, Inc. (based in San Francisco) is a recent success story, as the company received $717 million in funding prior to filing for its IPO. Other examples of companies in this space receiving substantial investments include:  

  • Square, Inc. (U.S.) $717 Million
  • One97 Communications (India) $585 Million
  • Klarna (Sweden) $289 Million
  • Adyen (Netherlands) $266 Million
  • Beijing Lakala (China) $242 Million
  • Stripe (U.S.) $190  Million
  • TransferWise (U.K.) $90 Million

        Among these private payments companies, only two are based in the U.S. while the rest are international. This funding data demonstrates the increase of investors interested in emerging payments companies. With the continuous threat of new entrants, substantial investments will help start-up payment companies compete with existing payment companies.


        Companies in the payment technologies industry are constantly developing applications and offerings that provide ease of use, speed, and convenience to users. Challenges such as increased regulations, security concerns, and convincing users to try the new products and services are among the hurdles that these companies must face when innovating. Those involved in this field should be aware of the federal and state R&D tax credits available to help support and stimulate these efforts.

Article Citation List



Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.

Raymond Kumar is a CPA and Tax Manager with R&D Tax Savers.

Tricia Genova is a Tax Analyst with R&D Tax Savers.

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