The Revolution/Evolution of Payments Continues

Credit and charge cards are mainstays for payment transactions of all sorts – certainly more so here in the US. We have seen the evolution of the card from a mere account number on plastic and utilized via a zip-zap device, to a mag-stripe swipe on a POS device, to chip cards and now using smartphone tech to execute transactions without the need to have a physical plastic/metal card present. Current total volumes for all card brands is roughly $6.5T USD in 2019. Experts predict that within 10 years volumes will be about $80T USD. A staggering assessment.

A growing, but still not even approaching credit/charge card volumes, are debit cards which are linked to one’s checking account. Personally I only use a debit card for the very few times per month that I may need physical cash via an ATM withdrawal. Certainly credit/charge cards come with significantly more fraud protection and should your debit account be stolen, the process to get back your lost funds tends to be a lengthy and excruciating process. But many do use debit of course, some refusing to be lured into a credit card balance with high interest rates reality.

The various card brand Issuers typically have tiers of card options ranging from no annual fees to annual fees of $95-550 or more. Some cards come with few to no extra benefits while others have offered valued benefits such as cash back, auto rental insurance protection, extended warranties on purchases, and membership points which can be used for free air travel and a host of other options.

In recent months, we have seen a trend from the major card Issuers where the benefit perks are being eliminated or greatly reduced. It is evident that the only cards with real perks are those with the high annual fees attached. There are rumors within the card industry that the end of no annual fee cards could be drawing closer. The exception would be perhaps for Financial Institution customers with an established checking/savings/investment/loan account,

Credit is certainly a different payment device than debit and the projected $80T USD in annual volumes within 10 years may be an attainable goal by card issuers or will payments evolve into something different ? Consider China with a population of 1.4B. Generally, they shun credit cards and prefer paying via a debit schema by using online systems such as Alipay or WeChatPay. About 1B citizens in China utilize these systems to make all of their financial payments and transfers. It has been proven to be efficient, effective and safe for their needs. In addition, it has eliminated almost all of the so called credit card interchange fees which sellers had to pay to execute transactions.

When I first joined Visa in the early 90s as a senior management technology executive, I read various books on the impending cashless society. Cash here in the US is still certainly still in abundance. A recent Federal Reserve report indicated that 55% of all transactions under $10 are executed with cash. Personally, from what I see in my daily meanderings around town – cards rule whether the charge is over or under that $10 threshold.

In the mid-90s, I was in China on Visa business and met with their equivalent of our Federal Reserve Chairman and his staff. They laid out their plan to move to a non-physical currency society by 2005. They missed that target, but when you look at China today with their payment technologies well established, the use of physical currency has been dramatically reduced – at least in the major population centers. Still a long way to go, but significant progress towards elimination of the need for physical currencies or even cards.

While I do not see a major shift in payment methods here in the US in the nearer term future, changes will occur though gradual over a long period of time. Change in anything is inevitable.

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