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CoverStory

Payments industry outlook Drieling noted that renewed inter-
The Strawhecker Group projected continued growth in consumer use of est in home renovation has elevated
electronic payments, where the compound annual growth rate last year hovered such categories as the floor covering,
at 9 percent. According to TSG, broader acceptance in previously untapped rug and carpet segment as niches to
segments will help fuel U.S. payments industry revenues, which are expected watch. This bodes well for lumber
to reach $831 billion in 2025. Global payments industry revenues have already and building supply, household ap-
eclipsed $1 trillion, TSG wrote. pliance and other home improve-
To monitor the health of the payments industry overall, TSG created the TSG ment-related businesses. On the other
Payments Index (TSGPX), comprised of 36 payment companies. Calculated hand, sales in the book, department
on a value weighted basis using market capitalization, TSGPX companies as a and family clothing categories have
whole have consistently outperformed the S&P 500. At the end of 2016, a $100 not fared well in recent months.
investment in the TSGPX in the first quarter of 2011 would be valued at $370,
compared with $161 if invested in the S&P 500. The expansion of electronic payments
Another reliable resource that has helped many an ISO determine which into education, healthcare, business-
merchant categories to target, TSG's predictive modeling measures spending to-business, daycare, garbage col-
in 27 merchant categories (see the sidebar accompanying this article). Several lection, micro-merchant, and other
recent retail trend shifts identified by TSG are worth noting. sectors traditionally dominated by
"Historically, there's been a trend of consumers shopping for electronic related check and cash payments, represents
devices or appliances at big box retailers," said Jared Drieling, Business new revenue channels. "There is a
Intelligence Manager at TSG. "In our model, we noticed a significant jump at huge opportunity in those areas be-
specifically electronics stores taking share back away from the big box retailers cause they are essentially untapped,"
because they're much more specialized." As devices become more complex and Drieling said. "We're also seeing ad-
connected, consumers seek higher level expertise. ditional acceptance markets, so think
about ecommerce." He noted that this
34 applies globally.

Increased debit card usage contin-
ues as an ongoing development. Ac-
cording to the 2016 Federal Reserve
Payments Study, a triennial report
released in December, the number of
card payments from 2012 to 2015 rose
19.9 billion, with debit card usage
capturing the lion's share, adding 12.4
billion payments of that total over the
three-year period.

"Clearly, we're seeing more debit
card usage," Drieling said. "Even
those small ticket items, which typi-
cally were paid with change or low
denominator bills, we're now seeing
them become electronic payments."

Another closely monitored trend is
the changing demography of the U.S.
population. Millennial-readiness to
adopt technology is expected to exert
upward pressure on emerging pay-
ments for the mobile, omnichannel
world currently under development.
Surpassing baby boomers in total
population, over 75.4 million millen-
nials (ages 20 to 36 in 2017) entering
the work force will ultimately shape
the digital commerce playing field.

To take advantage of this vast market
potential, Drieling advises acquirers