When will customers no longer pay with traditional credit and debit cards? That depends on how long it takes for a true convergence of four trends — adoption of multifunction cards, acceptance of contactless cards, mobile payments and advances in fraud protection.
The Future of Payment Cards
As a business owner, it’s important to keep up with trends and know where the future of payment cards is heading.
Regardless of the size of your business, the changes in payment technology to improve security will significantly affect you. Smartcards or EMVTM cards will be available soon. Growing in popularity are smartphones and mobile devices and their payment apps and software as well.
There are four key topics in the credit card space that you should spend time learning more about: multifunction payment options, mobile phone technology, fraud protection and advanced security.
Around the world more customers are choosing to pay with debit cards instead of credit cards.
Even as the economy has slowly improved, consumers remember lessons they learned during the recession, and they continue to be frugal about spending. In the payment industry that means they are buying less on credit and more on a pay-as-they-go basis, including directly from their bank accounts with debit cards.
Historically, banks and card issuers used rewards programs to encourage consumers to choose a particular credit 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, multifunction card.
Multifunction cards have the capability of giving the holder access to multiple accounts on a single plastic card. The most common multifunction card structure gives consumers the ability to access both a debit and credit account on the same card. While multifunction 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.
Due to the increased cost associated with this type of card, however, it seems more likely that this technology will act as a bridge technology to mobile wallets.
Also watch for updated approaches to rewards like Perka™ from First Data®, which connects businesses directly with their customers over their mobile phones. Perka™ uses beacon technology to recognize and check in customers when they arrive, personalize deals and perks and recommend additional products.
PayPal has grown into a force in global payments, creating a foundation upon which other non-card payment models are being erected, including payments via mobile phones.
Users of smartphones and tablets running Apple, Android and Windows software now check their account balances, review recent purchases and perform more complex tasks (including using their phones as a payment mechanism). This enables them to dispose of traditional card-based payment methods entirely.
The general consensus is that mobile phones will become the de-facto platform for financial services in the near future.
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 over a reader instead of swiping it, remain relatively underused. Many gasoline stations and convenience stores issue these cards, but few other businesses currently take part.
The success of contactless cards has been mixed, with most customers never using them.
It remains unclear if the lack of interest in these cards is due to an ingrained preference for traditional payment mechanisms or that customers see little benefit to using them.
The cards might not be the right answer. It could be that contactless technology inside new smartphones (such as Apple Pay) will catch on with consumers. That could pave the way for mobile devices to replace traditional payment cards.
Such a change will require businesses to provide point-of-sale terminals that work quickly and securely with their customers’ phones and tablets.
Payment card issuers and solutions providers are working together to create more advanced security measures like the EMV chip card, also known as the smartcard.
Nonetheless, fraud remains a huge risk for businesses of all sizes. 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 and learn to use additional security codes. While new solutions like these offer an additional layer of protection, they can disrupt the user experience and leave your business with unhappy customers.
Easy-to-use protection like the TransArmor solution from First Data deters hackers and malicious software. TransArmor monitors your point-of-sale terminals and alerts you when possible tampering is detected. More important, TransArmor accepts the new chip smartcards, so there’s nothing new for customers to learn.
It appears likely that the future of the payment card market will be free of plastic cards.
The coming changes also likely mean that businesses big and small will need to update or change their point-of-sale terminals and software.
How long this will take will be determined not only by card issuers’ willingness to embrace the concepts and invest in long-term innovation opportunities but also by how much and how fast consumers’ preferences change.