An evolution is under way in the global payment system. Advances in mobile phones and internet technology are giving rise to apps and other digital platforms that allow people to pay for goods and services with their smartphones instead of with cash or traditional credit and debit cards.
How quickly U.S. consumers adopt these technologies—and whether they ditch the plastic as a result—remains to be seen.
A survey by Accenture Consulting found that while 56% of U.S. consumers are aware of technologies that allow them to use their smartphones to pay, less than 25% regularly do it. Still, the survey suggests adoption is poised to rise.
Some experts say reports of the credit card’s death have been greatly exaggerated. Cards aren’t going away soon, they say, and neither is the credit-card account, which consumers value and are comfortable using. Others say credit cards won’t be needed in five years because mobile payments are more convenient, cheaper and more secure.
Tom Miller Jr., the Jack R. Lee chair of financial institutions and consumer finance at Mississippi State University and a senior affiliated scholar at George Mason University’s Mercatus Center, says credit cards aren’t going away soon.
the head of consumer credit research at Moody’s Analytics, sees a faster transition to digital payments.
YES: Credit cards still offer services that new platforms don’t
By Tom Miller Jr.
Are credit cards going away in five years in favor of new payment technologies or new ways to transfer funds? Not likely. For most Americans, plastic credit cards are an example of “low tech, good tech.”
Mobile wallets and other forms of digital payments compete with plastic credit cards, but adoption rates in the U.S. have been relatively slow, with 45% of respondents in a recent survey saying it’s just easier to pay with a card. Consumers aren’t clamoring for a way to stop using credit cards because they aren’t bulky, there is no battery to charge and they can survive drops and exposure to water. They also can be given to family members to use or their numbers can be read over the phone.
A millennial colleague recently opined that the future will likely bring a smaller chip-carrying form. She’s right: Visa has tested a payment ring. Fingerprint or retina technology might ultimately become the “chip” used by many consumers. These technologies might end up being superior to what we have now in terms of security and convenience.
But no matter what form the credit card of the future takes, demand for credit-card accounts will endure far longer than five years.
The ability to buy goods and services anytime and anywhere, coupled with the flexibility to pay for those purchases over time, is what makes credit cards so attractive to consumers. Once a luxury reserved for the wealthy, access to credit via a credit card is now available to consumers across many demographics.
Americans’ commitment to credit cards is strong, even among the millennial generation. My consumer-finance students talk about cellphone apps that facilitate fund transfers, yet most of them also have a credit card—as do three-quarters of U.S. consumers, according to a 2015 Federal Reserve Bank of Boston survey. Some 44% of U.S. families carry balances month to month, and among families that do maintain this kind of debt, the average balance is roughly $5,700, according to a survey from the Fed’s Board of Governors.
Internet technology has given rise to new online payment networks and lending platforms that some say will reduce transaction costs and the cost of supplying unsecured credit to borrowers. While these platforms benefit some businesses and consumers, they aren’t a complete substitute for credit cards. Subprime borrowers might not have access to new lending platforms. All consumers benefit from credit-card features, including the freedom to access credit instantly without having to get outside approval each time, the option to carry a balance, protection from disputed charges and the variety of rewards programs.
Airline tickets, hotel rooms and rental cars are easy to reserve with a credit card. It is also easy to channel daily living expenses through credit cards to earn airline miles or cash-back bonuses. For the people who use credit cards this way, and for many others, not having one seems almost unimaginable.
Dr. Miller is the Jack R. Lee chair in financial institutions and consumer finance at Mississippi State University and a senior affiliated scholar at George Mason University’s Mercatus Center. Email [email protected].
NO: Electronic payments are safer, easier to use and cheaper than cards
By Cristian deRitis
Credit cards have played a vital role in our economy, but the need for them will fade away in the next five years. Electronic payments are more convenient, cheaper and more secure, and adoption of these technologies is going to accelerate as a result.
The credit cards of today perform two key functions. They facilitate commerce by allowing consumers and businesses to quickly and easily pay for goods and services. They also are the primary method for delivering unsecured credit to consumers. The economy will still need a system to perform these roles, but credit cards won’t have to be that system.
Given high barriers to entry and large economies of scale, only a few credit-card networks exist, leading to relatively high transaction fees of 1% to 4% on every purchase. Mobile phones and the internet are quickly disrupting this model as the cost of establishing a new, online payment network plummets.