Credit and debit cards have existed for decades, but fintech is changing how they operate. Big Tech companies and cryptocurrencies are eager to offer cards so they can capture more retail sales. On the other hand, smartphones could replace all cards. Chips are already replacing magnetic stripes on cards, and some fintechs want to consolidate multiple accounts on a single card. This new convergence has significant implications for the financial industry.
Almost half of all point-of-sale transactions take place via cards, so they are a natural target for fintechs. Coinbase, Wirex, and BitPay all offer solutions for making cryptocurrency transactions with debit cards. However, Apple’s announcement of a new card in 2019 is attracting more attention. The
Apple Card will be the integrated default option on Apple’s popular iPhones. On a theoretical level, Nobel Prize winner Richard Thaler’s research indicates that default options exercise a powerful influence. In actual practice, Microsoft’s integration of Internet Explorer with Windows was highly effective. Internet Explorer went from 4% to 96% of the web browser market between 1996 and 2002. The subsequent decline of Microsoft’s web browsers provides some hope for financial institutions facing Apple. The future may be more rather than less competitive. For example, the Fuze Card allows consumers to consolidate up to 30 cards onto a single physical card.
At the same time that so many firms are rushing into cards, others are trying to eliminate them. It is possible to perform almost all financial transactions via smartphone apps and eliminate cards entirely. This idea seems to have started in technology publications like InfoWorld and more recently moved into the mass media. Worldpay projects that eWallets will rise from 16% to 28% of global point-of-sale transactions by 2022. Despite this dramatic growth, most licenses, ID cards, and cash cannot be stored on smartphones. The end of cards seems to require government support.
Regional differences also help to explain these opposing views on the future of cards. Cards remain the key to mass acceptance in markets like North America, where the card infrastructure is well established. 75% of POS (point-of-sale) purchases in North America took place via credit and debit cards in 2018. Worldpay estimates that will rise to 76% by 2022. In Asia, eWallets already have a 27% share of POS transactions compared to 42% for cards. Worldpay forecasts that they will both have about 42% of the Asian market in 2022. Europe, the Middle East, and Africa are somewhere between these two extremes. Cards have a 43% market share in this region, and that is projected to increase to 54% by 2022. Card market share is still growing elsewhere, so we can see that Asia’s high eWallet usage is only one possible future.
Regardless of which format is adopted, there seems to be a movement toward convergence in fintech. In the 1990s, there was much speculation about how television sets and desktop computers would converge into a single device. Today, many people use a smartphone for all their information needs rather than a TV or a PC. It is easy to imagine a future where smartphones the size of credit cards perform all financial and communication functions. As financial convergence proceeds, the old advantages of cards and financial institutions will diminish. Everywhere we look, economic moats are drying up. Now is the best time to use existing advantages to build a strong fintech presence for the future.
