Similar to the evolution from floppy disks to virtual hard drives, the physical part of credit might also become a relic of the past. As technology advances, everything around us is moving to ‘the cloud,’ and the payment industry is far from immune.
Rapid growth in both digital wallets and payment systems has created a huge disruption in both online and offline payments. And thanks to a helping hand from the shift to EMV, retailers across the US are simultaneously upgrading to NFC-enabled payment terminals, making it even easier for mobile wallets to overtake their plastic counterparts. EMV, named after EuroPay, MasterCard, and VISA, (the companies that created it) is a security standard for smart cards and the terminals that accept them. NFC refers to near-field communication, which is the technology that allows for contactless payments such as with mobile. But what does this transformation mean for the future of payments?
Improved User Experience
One reason customers will shift from plastic to digital is because of the improved user experience; mobile payments allow consumers do everything from one device in a faster, easier way. A report on contactless payments found they are 63% faster than cash and 53% faster than traditional credit cards.
To further fuel their adoption, many mobile wallets are attracting retailers by supporting loyalty and branded credit cards. This means that customers can now shop, save, and manage their purchases all on their phone from any location. Customers will still get all the same benefits of each branded card they own, but carry them all in one convenient place – their phone.
Security is another reason why mobile payments could make physical credit cards obsolete. Rather than trusting cashiers with customers’ names and credit card numbers, mobile wallets like Apple Pay keep all transactional data quite literally in the hands of customers. They have full power over the payment process and never have to relinquish control of personal information.
Additionally, there is a lot of real-time data associated with mobile devices that is simply not available on a plastic card. Payment providers can use this data to further secure transactions. For example, the location data on a mobile phone can be used to determine if an attempted transaction falls outside of that device’s normal area of use. This will flag the transaction and ask the user to input secondary authentication, such as their PIN.
Not so Fast…
But even the most connected consumers haven’t yet thrown away their plastic. The biggest reason plastic still lives on? Many retailers still don’t accept mobile payments, and as a result many customers don’t see the benefit of using them – the chicken and the egg. A recent report found that 87% of merchants don’t accept mobile payments. However, that number could grow drastically as the new EMV regulations increase the ROI of investing in new NFC-capable terminals and consumers see the benefits of paying sans signature.
What else is keeping plastic cards around? Looking at the reasons why Apple Pay has experienced a slow rate of adoption can provide some insight. Security remains one of the main concerns holding people back from mobile payments with 19% of potential Apple Pay users citing it as their reason for abstention. Additional reasons include reluctance that it even works (4%), forgetting it’s there (34%), and not knowing how it works (34%).
The Future of Mobile Payments
The next evolution in payments will focus on providing customers with not just a payment option, but a payment experience. Starbucks has already started doing this with their own mobile wallet app. Customers can choose their drink ahead of time, pay with their phones, and even receive bonuses and rewards for paying via mobile. And Starbucks is reaping the first-mover advantage – just over 20% of their transactions today are made using their mobile wallet.
What does this mean for the future of plastic cards? Some are predicting they will disappear within 5 years while others feel that there will always be a group of people that prefer plastic cards over mobile payments. Ready or not, the way customers pay will undergo massive changes in the next few years.