It’s more than 70 years since Frank McNamara was dining with clients and realized he’d left his wallet in another suit. This gave him the idea for a multi-purpose charge card, which became Diners Club.
These days digital payments are booming. No matter where you look or what reports you read, physical payment methods are generally decreasing. Digital ones are increasing — and nearly twice as fast as GDP in Europe and North America, according to consultancy firm McKinsey
In the UK, card and contactless payments accounted for more than half of all payments for the first time in 2019, says UK Finance
Driving this growth are:
- widespread adoption of digital wallets
- the continued success of e-commerce platforms
- the increase in contactless limits and innovation in mobile payments
Over the next five years, mobile payments will comprise two-fifths of in-store purchases in the US, four times the current level, estimates Deutsche Bank. Similar growth is expected in other developed countries, although rates will differ by country.
In emerging markets, the move to digital payments could be faster and more far-reaching still. Many customers have leapfrogged straight from cash to smartphone payments without ever owning a plastic card.
For example, both India and China have popular domestic mobile payment options and strong government support for digital payments. Unsurprisingly, cash payments in India declined from 59% in 2000 to 30% in 2016. Whereas in China, they fell from 63% to only 11% over the same period, according to Deutsche Bank.
But does this mean it’s the end for plastic cards? Not quite. The all-around proposition for cards is strong and hard to beat. So is the legacy of cards in some countries.
That plastic cards enable businesses to sell to strangers across a range of channels often gets lost in the mix. Providing they’ve accepted the card correctly, businesses know they’ll get paid. They’ll know that within seconds — milliseconds, sometimes — and 16 billion times over. This was the number of plastic cards in circulation at the end of 2018.
Moreover, any marketer will tell you it takes longer to change people’s ingrained habits than introduce something brand-new. North American and European consumers have a long history of using plastic cards. US credit card balances have increased by more than 4% consistently for the past four years. Europeans spend €4 trillion per year on payment cards, up one-third since 2014 as cards are now used increasingly for everyday purchases.
Plastic cards work. If people are happy accepting and using them, why switch?
Convenience and protection
Customers know they can buy everything from their morning coffee to a once-in-a-lifetime holiday on plastic. It’s convenient, familiar, fits their beliefs and provides a good record of payment. There’s no doubt that the seller will get paid as agreed, on time and in various non-retail situations, too. There are also in-built protections if the service isn’t provided or goods don’t arrive, are not as ordered, damaged and so on.
Merchants, acquirers and issuers have made significant investment in the card infrastructure. That’s everything from accepting chip and contactless cards, to securing payments through PCI DSS and 3D-secure. Yet the cards legacy is about overcoming legacy mindsets or ‘headware’ as much as investment in legacy hardware or software.
Populations in China, India and other southeast Asian countries may have readily jumped from a cash-based society into a digital-payment society. Digital payment services are much more convenient than cash, so the transition was natural, but starting points matter. And the future of plastic cards depends on where you start from.
The future of payment is payments
Payment habits are strongly national. They have developed over time and are formed by various factors, many of them cultural, some political or economic, others technological and infrastructural. The future will be less about cards versus other payment methods such as digital wallets. And rather more about cards and other payment methods.
There is no winner-takes-all payment method. The future of payment is payments. So, winning in the future of commerce is allowing any customer to pay how they want. This means your payment solution must allow comprehensive, customizable payments, certainly if you’re looking to expand into new markets or sectors.
In practical terms this means having a solution that doesn’t require heavy resources to implement, maintain or enhance. A solution that makes it easy to build on and manage over time as new payment methods are introduced, and business or customer needs change.