There is growing use of digital payments but does that mean the credit card has had its day?
Though credit is often given to Frank McNamara, the co-founder of the Diners Club charge card, the concept of the credit card was the brainchild of Brooklyn banker John Biggins who invented “Charg-It”, which appeared about three years before Diners Club was formed.
At the time, customers could use the card only for local purchases, and they had to have an account at Biggins’ bank, the Flatbush National.
Diners Club, the world’s first independent credit card company, appeared in 1950, apparently conceived after co-founder Frank McNamara forgot his wallet when he went out to dinner one night.
According to the book, The Dollar Code: Get Out Of Debt with One Number, McNamara negotiated his way out of washing dishes to earn back the cost of his dinner by signing for it and promising to reimburse the restaurant.
These days in Australia, Diners Club and American Express credit cards only account for around 15 per cent of transactions with Visa and Mastercard making up the other 85 per cent of the market. Worldwide, Diners Club cards account for less than half a per cent of global purchase transactions.
Credit and debit cards in Australia have remained popular, with over 57 million credit and debit cards in issuance according to a 2015 Reserve Bank report. Globally, the popularity of credit, debit and prepaid cards has surged over 13 per cent from from the previous year to more than 8.3 billion in circulation in 2013, according to the Global Cards Nilson Report.
With the arrival of digital payments many commentators have predicted that monetised plastic has had its day. But, despite the hot air, credit cards are clearly still on the up and up, at least globally.
The big players – Amex, Diners, JCB, MasterCard, UnionPay and Visa – generated $US168.56 billion in transactions in 2013, a rise of $US19.17 billion or 12.8 per cent on the previous year.
There are more than 16.3 million active credit card accounts operating in Australia, according to the Reserve Bank in December 2015, a rise of 3.5 per cent from the previous year: The average credit balance of card holders was around $3200, according to RBA statistics in August 2015.
However 2015 hints at what might be the beginning of the end for the credit card as digital payments hustle to become the norm.
The invention of the smartphone thumb scanner and face-detection password technology, consumers are becoming increasingly comfortable using their bio-markers to access their devices.
With your smartphone you can make payments even if you have left your wallet at home. Some technologists predict you soon won’t even need a phone – if subdermal implants become the norm.
Identification chips embedded in your wrist or shoulder used to be a thing of sci-fi but in 2015 parents are already using the devices as GPS trackers for their children.
Futurists such as Thomas Frey have predicted that a chip in your arm could soon replace the need to carry a physical licence, credit card or even mobile phone. You could have all the information you need stored in a nanochip smaller than the size of a fingernail.
The future isn’t here yet.
This year has barely scratched the surface of the potential for digital payments. In December 2015, big Australian banks, such as ANZ Bank, Westpac, Bendigo and Adelaide Bank, ING DIRECT and Macquarie Bank, announced that they would use Google’s Android Pay over Apple's new mobile payment and digital wallet service, Apple Pay (Apple is in the process of negotiating with those banks). The Commonwealth Bank still prefers to only use its own mobile payment platform.
Kieran Cook, northern region pre-sales engineer for Kaspersky Lab Australia and New Zealand says the banks’ rejection of Apple Pay was not necessarily contradictory. “It illustrates the banks’ enthusiasm for the technology,” he says. “It seems Australian banks have rejected Apple Pay as a business decision, rather than in opposition to the technology itself.
“They are actually investing large sums of money in technology. Their investment in contactless payments and digital wallets would fall under the same banner of control. The decisions they make are in the best interest of their bottom line and the shareholders.”
Experts were predicting the demise of the credit card in 2011. So why is it taking so long?
Credit card ownership has held steady for 15 years and the use of debit cards has nearly doubled in Australia, according to CreditCardFinder.com.au.
Security is one of the biggest reasons digital payments have taken so long to develop. The finance industry is wary of rushing into new payment technologies, particularly the big four banks.
Researchers in Britain recently proved vulnerabilities in contactless payment systems such as payWave and Apple Pay.
The researchers bought cheap and widely available card scanners to test whether they could steal personal information from a contactless card. They tested 10 credit and debit cards that claimed to mask customers' data and were able to obtain enough information to place fake orders, including for a $3000 television.
For this reason, and also the massive infrastructure costs of implementing cardless payment systems, incumbents are exercising caution.
This article represents the views and opinions of the author and do not necessarily reflect the opinions of BPAY.
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