The future of credit cards

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Old Dec 7, 13, 1:14 pm
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The future of credit cards

I work in the fintech space and am a frequent FT lurker. I very much believe that the 40-year old "credit card" as we know it today will be, in Silicon Valley terms, "disrupted" at some point in the not so distant future.

Despite all of the rewards for premium cards, there is certainly still a lot of ugly with this product for many people. For one, it is specifically designed to keep anyone who actually revolves in debt for a non-obvious length of time with high interest and nontransparent card terms.

Even for those of us who do not revolve, I frequently come across a lot of pain points with using credit cards (high friction to online purchasing (esp. with mobile), lack of basic card security in the U.S. with EMV-less chips, frustrating/unintuitive consumer-facing user bank portals, broken credit scoring/rating system, etc.)

Just as Apple reinvented the mobile phone, I predict there will be a reinvention of the credit card sooner or later.

I'd be curious to hear what other FTers think about the future of credit cards. What would the perfect card look like in terms of rewards, design, agreement, etc.?
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Old Dec 7, 13, 1:28 pm
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I'm reminded of Charga-Plates ...

http://departmentstoremuseum.blogspo...rge-cards.html

That direction was from merchant to middle-man/bank ... I've been reading about phone/swipeapps the eliminate the bank, send percentages to local non-profits ...
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Old Dec 7, 13, 1:44 pm
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They will be here for the long haul but look at Google wallet, PayPal and even bitcoin as disrupters. Then there are 'pay anyone from your mobile phone' apps by banks.
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Old Dec 7, 13, 1:51 pm
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The future of credit cards

As a consumer who does not run a balance, somebody will have to give me a good reason to abandon the [very valuable] rewards I earn for paying with plastic (not to mention free 30-59 day float) and move to a "mobile wallet" system with no rewards and fewer consumer protections.

People who pay off their bills on time aren't idiots... We won't make a move unless the grass is greener.
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Old Dec 7, 13, 2:00 pm
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I'm not suggesting credit cards will go away - more that some unknown company in the not so distant future will come in and make it much, much better i.e. the next Apple or Tesla of the consumer credit card.
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Old Dec 7, 13, 2:02 pm
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I find it interesting that whenever I read about "the future of payments" there is always an assumption that the market is homogenous. And worse, that that homogeneity is basicaly composed of upper-middle class, technologically savvy, white people in California.

By this I mean that there is a complete disregard for the fact that the vast majority of people in the world who use payment technologies other than cash are using debit. And of those, the larget network is China's UnionPay. If you want to know where changes and innovation are going to happen, that's where you should be looking at. Instead, I find endless articles being written about "mobile payments" and how the smartphone is going to replace the silly plastic cards in our wallets. It is an attitude that compeltely ignores the fact that perhaps if you travel outside of the Bay Area you might come across a merchant or two that aren't equipped to handle you just waving your iPhone at the register.

I think China UnionPay is dramatically changing the nature of payments. They've very openly thrown down the gauntlet at Visa and Mastercard in their bid for dominance of the payments market. Already they're the largest card-issuer, and it is only a matter of time before their impact and influence is felt in North America and Europe. And because of that, I think the future is likely to be debit, and not credit.
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Old Dec 7, 13, 2:13 pm
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Originally Posted by Vasco View Post
I find it interesting that whenever I read about "the future of payments" there is always an assumption that the market is homogenous. And worse, that that homogeneity is basicaly composed of upper-middle class, technologically savvy, white people in California.

By this I mean that there is a complete disregard for the fact that the vast majority of people in the world who use payment technologies other than cash are using debit. And of those, the larget network is China's UnionPay. If you want to know where changes and innovation are going to happen, that's where you should be looking at. Instead, I find endless articles being written about "mobile payments" and how the smartphone is going to replace the silly plastic cards in our wallets. It is an attitude that compeltely ignores the fact that perhaps if you travel outside of the Bay Area you might come across a merchant or two that aren't equipped to handle you just waving your iPhone at the register.

I think China UnionPay is dramatically changing the nature of payments. They've very openly thrown down the gauntlet at Visa and Mastercard in their bid for dominance of the payments market. Already they're the largest card-issuer, and it is only a matter of time before their impact and influence is felt in North America and Europe. And because of that, I think the future is likely to be debit, and not credit.
Some good points, but there are different markets for credit and debit card users. Yes, the markets are intertwined, but credit card users are generally looking for a short-term loan, while debit card users are mostly looking for convenience. Debit card is nothing but a check that doesn't have to be written at the register.
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Old Dec 7, 13, 3:12 pm
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Originally Posted by youngmoneyhack View Post
I'm not suggesting credit cards will go away - more that some unknown company in the not so distant future will come in and make it much, much better i.e. the next Apple or Tesla of the consumer credit card.
You cannot compare credit cards with things like mobile phones. The first is a payment method, the second is a device. Big difference.
Adding rewards to a cc is nothing more than an incentive to USE the cc payment method, while upgrading the features of a mobile phone or changing its function is making it "better."
You can make the payment method more safe by adding layers of security, but that does not change the method.

If you don't like the high interest and nontransparent card terms, use another payment method such as debit cards, PayPal or mobile methods.

Conclusion: there will be no "re-invention" of the credit card as there is nothing to "re-invent". The only thing you can do is either change the incentives that come with credit cards or come up with other payment methods.
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Old Dec 7, 13, 4:37 pm
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Originally Posted by youngmoneyhack View Post
...
there is certainly still a lot of ugly with this product for many people. For one, it is specifically designed to keep anyone who actually revolves in debt for a non-obvious length of time with high interest and nontransparent card terms.

Even for those of us who do not revolve, I frequently come across a lot of pain points with using credit cards (high friction to online purchasing (esp. with mobile), lack of basic card security in the U.S. with EMV-less chips, frustrating/unintuitive consumer-facing user bank portals, broken credit scoring/rating system, etc.)
...
ďJane, you ignorant slut.Ē (SNL circa late 70ís: http://www.youtube.com/watch?v=ttqgwlCsXZM )

A counterpoint if you donít mind. There is also a lot of beautiful with this product for many people. A byproduct of the design mentioned above is that for those who actually pay off their balances in full every month and for whom it is not an incitement to riot (spend impulsively) it can be incredibly rewarding. Many of us here at FT have reaped these rewards, often at little or no cost other than a few moments of our time.

Iíve experienced little pain associated with credit cards. These days one Visa or MC card can be used nearly universally, in person or online, with little liability for fraudulent activity and occasional (actually welcomed) fraud alerts, when spending seems out of character, which are easily cleared with a brief phone call.

My only significant gripe with credit cards is overseas customer (non)service call centers although even that is a self-induced phenomenon. (Now that AmEx has eliminated Secure Messaging, attempting to get a Bonus Bump is basically impossible. You could talk to someone for whom English is not their first language for 2 hours and they still would not understand what you are trying to accomplish.)
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Old Dec 8, 13, 2:52 am
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Originally Posted by youngmoneyhack View Post
I'd be curious to hear what other FTers think about the future of credit cards. What would the perfect card look like in terms of rewards, design, agreement, etc.?
I don't revolve. I mostly get cards for the signup bonuses. I've learned how to work the current credit scoring system so I don't want credit scoring to change. I would like larger signup bonuses and/or increased opportunity to churn cards at a faster rate. For ongoing rewards I would like a 5% or higher cash back on all purchases so manufactured spending is worth my time.
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Old Dec 8, 13, 5:37 am
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As a non-US citizen...

Many years ago in Sweden something called "Cash" evolved (all but gone now) which were free cards that could be used a specific merchants with lower fees for the merchant and was charged with $x and used until empty. Unlike debit or CC they weren't tied to a single person.

Now however there's a couple of apps for phones used to buy things. There's "Swish" which is for bank transfers but unlike bank transfers are instantaneous and you are identified by your telephone number. Not usually used by companies but great for transferring money between friends or splitting bills.

Then you have the SEQR/BART apps which must be tied to a MasterCard or Visa but you use QR codes created by an app in your phone to actually pay (and the QR code is scanned by a device in participating stores). The SEQR app is reversed where you scan a QR code and authorise it with a pin code.

I've even been to stores where I paid the bill with a paypal invoice sent to my e-mail adress. In the long run that wasn't a bright idea (and they changed it) but still. I regularly pay for Spotify using Paypal.

Still, I prefer my CC when buying trips (and receiving the travel insurance tied to it) rather than using any of the disruptive ways I could pay for my trips. Going to the store I usually have my CC with me, and there are no benefits from not using it that I can think of.
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Old Dec 8, 13, 8:35 am
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Originally Posted by youngmoneyhack View Post
Just as Apple reinvented the mobile phone, I predict there will be a reinvention of the credit card sooner or later.
Hasn't it already happened? Wasn't it called the debit card? (Debit cards, especially ones running on the same payment networks as credit cards, came decades after the spread of credit cards. Now look how many people use them instead of credit cards now that they can be used almost anywhere that credit cards can?)

But here's the thing. You can disrupt things all you want, but if you disrupt the compatibility, you don't get very far. The iPhone was able to disruptive because what was new was the user experience, but it still let you call the same phone system in the background and access the same internet in the background.

Credit/debit card processing networks are worldwide and have to use worldwide standards. So at that level, it's hard to disrupt the technology by yourself (as one company).

Now, if you take that away, cards are not primarily technology any more: They're financial instruments. And when the financial industry tries "disrupting" things, we get 2008!

All alternative payment systems are very fractional disruptors, because not that many people want a payment that doesn't work everywhere they already use their credit/debit card.

The Apple iPhone worked from the start for calling any number in the world. And new payment system has to be just about as compatible (in the payment world) to have a good chance of succeeding.

Look at how long EMV is taking to spread out around the world, and it's just a change to the card-terminal interface (everything on either side of that is staying the same).

So exactly what aspect of the credit/debit card that is technology do you expect to be disrupted?

(Much more likely is regulatory disruption, like in Australia: Domestic transaction fees for everyone. )
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Old Dec 8, 13, 11:06 am
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Originally Posted by sdsearch View Post
So exactly what aspect of the credit/debit card that is technology do you expect to be disrupted?
I don't have any specific expectations of what disruption would look like...

It could be as incremental as a new credit card issuer (i.e. similar to the rapid emergence of Capital One in the 1990s) with a better customer-facing experience and UX. Something similar to what Bank Simple (www.simple.com) is doing now with debit and "card as an app" but for credit.

It could be as complex as developing an entirely new closed-loop payment network to compete against the likes of Amex/Discover that could do away with the bulky 16-digit card number system that was never designed for online payment in an increasingly online world.

It could be an entirely new consumer credit product with a completely different structure and terms than traditional revolving credit lines that gives the other half of America that would otherwise revolve a little more breathing room.

Or maybe we'll be paying with our elbows in 10 years.
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Old Dec 8, 13, 4:31 pm
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Originally Posted by sdsearch View Post
Hasn't it already happened? Wasn't it called the debit card? (Debit cards, especially ones running on the same payment networks as credit cards, came decades after the spread of credit cards. Now look how many people use them instead of credit cards now that they can be used almost anywhere that credit cards can?)

But here's the thing. You can disrupt things all you want, but if you disrupt the compatibility, you don't get very far. The iPhone was able to disruptive because what was new was the user experience, but it still let you call the same phone system in the background and access the same internet in the background.

Credit/debit card processing networks are worldwide and have to use worldwide standards. So at that level, it's hard to disrupt the technology by yourself (as one company).

Now, if you take that away, cards are not primarily technology any more: They're financial instruments. And when the financial industry tries "disrupting" things, we get 2008!

All alternative payment systems are very fractional disruptors, because not that many people want a payment that doesn't work everywhere they already use their credit/debit card.

The Apple iPhone worked from the start for calling any number in the world. And new payment system has to be just about as compatible (in the payment world) to have a good chance of succeeding.

Look at how long EMV is taking to spread out around the world, and it's just a change to the card-terminal interface (everything on either side of that is staying the same).

So exactly what aspect of the credit/debit card that is technology do you expect to be disrupted?

(Much more likely is regulatory disruption, like in Australia: Domestic transaction fees for everyone. )
This is a good line of thought - thanks for the post. It definitely made me think, and it makes me realize that, due to the internet, disruption is just a lot easier today. The adoption of a new payment scheme can be much faster, because we have the internet to facilitate it.

We've all seen the Android phones with Google payment on them at checkouts at edgier stores, and you can use PayPal and Square and things at some places. These options would have had NO traction without the internet.

So whatever comes can take advantage of the network effect much faster than credit and debit cards did when they emerged.

And my feeling is, the push for new payment options will come from the merchants - not the banks or consumers. The merchants are eating the fees here and enabling the credit and debit card networks and the perks and rewards. When they find viable cheaper options, they'll push them. When Google Checkout was free for merchants, there were tons of promos from those merchants.

Now that many merchants can discount for cash or debit, the cost to their businesses is clearer. Once some start actually doing it, it'll pave the way for cheaper but still safe payment mechanisms.
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Old Dec 8, 13, 8:54 pm
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Originally Posted by josephstern View Post
...And my feeling is, the push for new payment options will come from the merchants - not the banks or consumers...
This is a very good point, and I'm glad you brought it up. I've been thinking about this thread the whole day, and what I was forced to realise was that there are at least 4 players involved right now: the consumer, the merchant, the financial institution, and Visa/MC/Amex/Etc. In addition, many other players have decided they want to join the game (Amazon, Google, PayPal, the phone companies, etc.) With everyone pushing and pulling in different directions, it'll be very difficult to get a standard that everyone will agree on.

I can only speak as a consumer. As a consumer, primarily I want the following: a method of payment that allows me to pay for anything, anywhere in the world without having to use cash.

For the most part, that exisits today. I can carry a Visa card, and it is very likely that I can pay for just about anything, anywhere. But there are still problems. For example, last week I was in Mexico City and needed to buy some supplies at an OfficeMax. Pretty straight forward transaction. Except at the POS their system would not accept my EMV-enabled Amex card. They can accept Amex, just not my Amex because of the EMV chip.

A few hours later I was shopping at a high end mall visited by many tourists and expats. I went to pay for my purchases at one store, and the man at the counter informed me that they only accepted "national" cards. His terminal could not process transactions from foreign cards.

So there are still limitations, and room for improvement, to the method we use today. Anything that comes in the future has to address this problem. There has to be a more uniform, standardised method. What works in Toronto should also work in Mexico City and in San Francisco and in Nairobi and in Moscow.

But as you say, to what extent do consumers have the power in this market? It was the networks (Visa/MC) that pushed for EMV with merchants kicking and screaming all the way. The banks are not known for innovation themselves these days. They'd rather throw tons of rewards points at the consumer and charge the merchants for them. And as I said, consumers just want to be able to pay. But the merchants? They're the ones bearing the cost, for the most part. Whatever comes next has to make it easier and especially cheaper for them than dealing with cash or cards as we know them today.
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