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
Use
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
700,000
>
30 Million
>
700,000
110,000
Millions
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:
http://www.tomsguide.com/us/mobile-wallet-guide,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 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 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 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
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.
Conclusion
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.
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.
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. 
