Shaping the Future of Credit Cards
As a merchant it is important to keep abreast and know where the future of credit cards is heading. It is with this in mind that we review four important trends of innovation and technological advancement in the credit card space.
A common challenge faced by the global credit card industry is combating attrition and diminishing wallet share, particularly as the use of debit over credit continues to increase. Historically, rewards programs were used to encourage consumers to choose a particular card over another. As these programs decrease in perceived value, issuers are searching for another tactic to encourage customer loyalty. One way is with a single, multi-function card.
Multi-function cards have the capability of giving the holder access to multiple accounts on a single plastic. The most common multi-function card structure gives consumers the ability to access both a debit and credit account on the same card. While multi-function capability has generally been used to enable consumers to choose between credit and debit accounts, the functionality can also allow different categories of accounts or different modes of credit to be accessed.
Already trialed by Citi, and being tested further this year, the MultiAccount card could revolutionize the concept of multi-functionality and push it from curiosity to mainstream adoption. Due to the increased cost associated with this type of card, it seems more likely that this technology will act as a bridge technology to mobile wallets.
The emergence of PayPal as a force in global payments has created a bedrock upon which other non-card payment models are being erected, including payments made via mobile phones. The iPhone, or more specifically, the affiliated “apps” marketplace, initially took advantage of the fact that many consumers essentially have a portable computer in their hands. Across a variety of handsets and operating systems, consumers are now able to check their account balances, review recent purchases, and perform more complex tasks (including using the phone as a payment mechanism), potentially allowing them to dispose of traditional card-based payment methods entirely.
The general consensus is that mobile phones will be the de facto platform for financial services innovation for the near future. And beyond using these devices to facilitate payments, it is expected that mobile devices will be the preferred (and most effective) channel to deliver customer service messages (e.g. fraud alerts, payment reminders) and marketing offers going forward.
Today, contactless cards (which enable a customer to wave or tap a card instead of swiping it) remain relatively underused. The success of contactless cards has been mixed to-date, with many customers seemingly indifferent about using the contactless option at all.
It remains unclear if the lack of widespread interest in these cards is due to an ingrained preference for traditional payment mechanisms or to an informed view that there is little benefit to using contactless cards. It could be argued that contactless cards are a means to an end. It is the uniting of contactless technology with mobile phones that will really lay the foundation for rapid and sustainable growth. Should issuers be successful in overcoming consumer reluctance to using contactless technologies, it could pave the way for mobile phones to replace cards in their entirety.
Despite issuers and solutions providers working together to deploy progressively more advanced security measures, as well as the international success of the EMV “chip + PIN” initiative, fraud remains a material risk. Traditional magnetic stripe skimming and card-not-present fraud remains prevalent.
Advanced fraud protection solutions, such as Visa’s Emue card or the Hidden card created by Dynamics, often require consumers to change their existing, ingrained behavior. While these solutions offer an additional layer of protection (for merchants, consumers and issuers), they can disrupt the customer experience and can result in an adverse reaction from cardholders.
It appears likely that the future of the credit card market will be free of physical cards—requiring a true convergence of the four trends examined. How long this will take will be determined in part by issuers’ willingness to embrace the concepts and invest in long-term innovation opportunities, but also by the evolution of consumer preferences.
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