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The death of cards 💀
There’s a great deal of talk about the so-called ‘death of cards’ as the predominant payment instrument of choice, and their replacement by alternative payment methods. As with most things in payments, the reality is more nuanced and the answer is ‘it depends’.
Cards are not going away because they don’t need to. In the majority of markets around the world, consumer purchase behaviour is already deeply entrenched - I want to buy something, I use my card. That is not going to change. Much. Change is happening, and will follow these paths:
a) The form factor of the card itself and how it is used, and
b) Incremental erosion of pure card wallet share % to compelling, value-add alternatives
The terms we use are important (and confusing) 😵💫
Global payments trends are communicated using confusing terminology, even by some who should know better. You will recognise the phrases, “What about the rise of Digital Wallets?”, or “Buy Now Pay Later will replace cards!”. These views are not wrong, exactly, but they are not wholly correct either.
At the heart of many alternative payment methods rests the humble card. What we store in Apple Pay is commonly a card. Google Wallet - cards. A huge chunk of PayPal volume is cards. In many cohorts, fintech BNPL solutions are driven by consumer use of a card product to fund their purchase. Not always, but extremely frequently.
We can see that while the cosmetic face of the specific payment method may differ, often what sits behind that pretty mask is a credit or debit card.
Apples and oranges 🍏🍊
Each individual market has its own payment culture and consumer behaviour. In many countries around the world it is true to say that cards are not the first choice. Examples include China, where at a societal level the market leap-frogged over the 90s/00s desktop computing era and implemented an App-first approach to financial services: think WeChat, Alipay et al. In Brazil, Pix pay by bank service has overtaken cards as the top consumer payment method by volume. There are many more places where cards are not ‘top of wallet’.
However, for many players with a multi-market footprint, cards remain the predominant force in their payment method mix and this will remain true ongoing for many decades to come.
The future of payments is more of the same, but tokenised 🔐
Increasingly, physical cards are being replaced by digital equivalents. Tokens replace the card number (PAN) with a string of data which is linked to the underlying card account, and are used to process transactions securely - reducing the risk of fraud and data loss.
Tokens can improve outcomes and metrics over standard card processing, such as increased authorisation rates, and reduced fraud & chargebacks. Although, token implementation requires careful cohort analysis – before and after – to measure the impact, and is not a silver bullet solution in all use cases.
Adoption of tokens is growing across industry participants. This is partly driven by the card schemes such as Visa, Mastercard and American Express who create, operate and govern the technical networks that connect participants across the card value chain. Schemes encourage, incentivise and will increasingly enforce adoption of tokenisation through updates to their rule books and requirements. So best prepare for that.
In summary 📋
Cards aren’t going anywhere
Alternatives exist but these are often only a mask
Cards are the exception not the rule in some markets
The future of cards is digital and tokenised
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