Are card payments going north or south?
With number of ways for consumers to make payments which compete with a rapidly increasing traditional credit and debit cards, what are the long-term prospects for card payments and the Payment HSMs that protect them? Bernard Foot, Strategy Analyst at Payment HSM as a Service provider MYHSM, wonders whether its’s time for a career change.
It’s only human to consider the world around you and ponder whether your career has a future or whether it’s time to consider your options. So, my interest in what’s happening in retail consumer-to-merchant payments, and the impact that will have on Payment HSMs, is both professional and personal.
The raison d’être of Payment HSMs is to protect the traditional payment rails, originally designed for credit card payments. The more payments going over these rails, the higher the demand for Payment HSMs. But is there going to be a continuing increase in the decades ahead?
There are two things to consider:
1. Will consumers make more payments that would traditionally use payment cards?
2. Will other payment methods nibble away at the plastic card?
Will payments traditionally made by card be increasing?
Absolutely, and there are a number of reasons why.
Merchants are increasingly prepared to accept cards for small amounts.
With a card you can buy a postage stamp or a newspaper, or pay for parking at a ticket machine. Online you can make all sorts of purchases for only a pound or two. Merchants who operate a minimum payment rule are rare now – apart from pubs (so I’m told).
It’s getting faster and easier to use cards.
The increasing speed of transactions attracts users and reduces checkout abandonment rates. Contactless cards make it easier to pay for low-cost items, such as public transport, without causing queues. The introduction of 3D Secure 2 will make online payments not only more secure but faster too and avoid the tyranny of the password. And in the US the major card schemes are introducing Click to Pay – a one-click online payment mechanism.
And it’s becoming easier for merchants to accept cards from their customers. The growth of mPOS and PIN-on-glass technology, like that from MYPINPAD, will bring large numbers of new merchants into the card ecosystem.
There is still room for greater penetration of the consumer base.
In countries like the UK where credit card adoption is already high, there may be little room for increased penetration. But in many other countries far less people use credit cards – Germany is the prime example, where only 25% of people have a credit card. There are cultural reasons for this, but cultures can change. It’s also interesting to see what effect the expansions of China’s UnionPay and Russia’s MIR into the west and the entry of the western card schemes into China will have – will they increase the amount of card usage, or just take business from incumbent card schemes?
What about competition from emerging alternative payment methods?
Some alternative payment methods are aimed at payments not traditionally handled by cards – B2B or payments to individuals, for example. However, there are others that have the potential to nibble away at plastic.
Mobile phones and Wearables
These are the most obvious examples, but as often as not they are currently used like contactless cards, putting more transactions onto the payment rails. Whether these payments start going off the rails will depend on whether alternatives become easier to use, cheaper, and widely accepted. As I see it, mobile phones and wearables may be bad news for the plastics industry, but are still good news for payment processors and their HSM suppliers.
Digital wallets, on the other hand, offer the ability to make payments which are charged to cards but may not use the payment rails. But where this is going is not clear – the biggest uptake is in markets such as India and China, where credit card penetration has been low. As a result, they are more likely to be limiting future growth of card payments rather than reducing existing levels. The inclination to use digital wallets will be tempered by the increasing ease of using cards, and concerns over dispute and fraud resolution and customer service.
PISP (Payment Initiation Service Providers) and other mechanisms for rapid bank account to bank account payments could replace payments by cards, and in particular payments by company cards. Certainly, merchants will be attracted by the simplicity and lower charges. But what’s in it for the retail consumer? It will need to be easier, and merchants will need to pass on their savings, to persuade consumers to lose the benefits of bonus points on their cards and deferred payment. These payment methods also require a legislative and banking infrastructure which may only be available in some geographies for the foreseeable future.
Arguably the most high-profile challengers to the payments status quo are cryptocurrencies. These get a lot of press attention, but this often paints a picture of volatility, crime, mystery, and a lack of control – which is unlikely to convince the typical consumer anytime soon.
And so … ?
After chewing all that over, the card ecosystem and Payment HSMs have a strong future.
There are indeed alternatives nibbling at the same pie as card payments, and while some of these will be taking large bites, others, such as cash and cheques, are losing their appetite. And of course, the pie is getting bigger all the time. So, the inevitable incursion of new payment methods may reduce the market share of the traditional, proven methods but won’t prevent their continuing growth; especially as those traditional methods re-invent themselves to take advantage of new technologies, such as the cloud.
All this to say, I’ll be hanging on to my shares.