The evolution of payments and the future of credit cards
By Chris Wood
The digitisation of payments is accelerating at an
eye-watering pace, which, in all likelihood, means that the days of plastic
cards may be numbered. But using this digitisation trend to justify a belief
that credit cards, as such, will not be around for much longer is a somewhat
misguided approach.
One that demonstrates a misunderstanding of what credit
cards actually are, and why they remain one of the most popular ways of
transacting across the world. In fact, a 2018 TransUnion Industry Insights
report revealed that the popularity of credit cards as a payment mechanism is
still rising, with a 2.6% increase in the number of credit card accounts
between the first quarter of 2017 and the first quarter of 2018.
Against that backdrop, it’s very unlikely that the physical
plastic form of today’s credit cards will be making an exit from wallets and
purses around the world anytime soon. Apart from the convenience and security
of having a physical card to pay with, it still gives most consumers a sense of
comfort in that it is a tangible representation of the money they have.
Are cards the new
cheques?
In the past, cheques fulfilled this role for many people,
but now that they are effectively dead and buried, and people’s interactions
with cash is typically very fleeting, the plastic card is the only long-term,
physical representation that people have of their relationship with their
money.
So, while digitised credit payment methods offer even more
convenience and transactional flexibility, the actual card is something that
can be physically handled. Much like the fears of e-readers causing the demise
of printed books are yet to be realised, it is going to take a significant
amount of time for consumers to get comfortable with the fact that they don’t
need a piece of plastic to tap, swipe, or insert into a point of sale machine
to make a purchase.
Then there’s also the merchant part of the equation. A
wholesale shift away from the use of physical plastic requires the full buy-in
of retailers and service providers which, in turn, will require a significant
mindset shift from the cashiers who are manning the register and accepting
payments. Perhaps understandably, therefore, there is a measure of reluctance
by merchants, many of who have only recently come to grips with remote POS
devices, to throw their weight behind a move to cardless digital payment
methods.
Comfortable with contactless
Of course, this relationship that people have with their
physical credit cards is steadily changing, particularly amongst younger
consumers. Most of these new generation consumers have also grown up with
mobile technology as a core part of their lives, meaning that they are entirely
comfortable using an app on their cellphone to pay for a purchase. In fact,
they are likely to feel more at ease with digital, or virtual, payment methods
than they are with physical ones like cash and cards.
A good example of these changing consumer dynamics can be
seen in the speed with which the majority of, predominantly young, people have
embraced contactless card payments, like tap to pay. These types of advances in
payments that require little to no interaction with payment devices will
undoubtedly pave the way for entirely cardless, mobile technology enabled
transactions sometime in the future.
Ultimately, a fast-growing need for mobility and flexibility
of payments will drive the evolution of credit payment transactions and, in all
likelihood, lead to the eventual disappearance of plastic cards entirely.
When that day might come is, of course, anyone’s guess. But
irrespective of if, or when, plastic credit cards do become obsolete, the onus
remains firmly on financial institutions to understand that the concept of
credit cards has very little to do with the actual plastic card, and everything
to do with the customer need for convenient, secure and instant payment
mechanisms.
No matter what form credit cards take in the future, most
people will still always require credit in one form or another to meet their
needs – the primary one being the need to be able to make payments wherever
they are, whenever they need to, secure in the knowledge that their bank is
there to enable and support the transaction.
Ultimately, that’s all that any person making a payment
desires. And for the financial institution that can fully understand that, and
innovate to deliver solutions that meet, and exceed, the payment expectations of
consumers, the evolution of credit cards and payments is not a scary prospect,
but rather a very exciting opportunity to deliver for their clients, enhance
their brand and expand their success. – GeekWire.co.za
Chris Wood is
Executive: Card Issuing and Payments at Nedbank
