The future of cards: replaced or revitalised?

  • Deutsche Bank to pilot new way for Europeans to buy airline tickets online – no card needed – by end-2018; supported by PSD2 and forthcoming fast payments system, TIPS

  • An ‘old product’ can do new tricks: Splitit brings credit purchases to American debit cardholders: targets millennials who prefer debit to credit cards

  • Fast payments are here, open banking is emerging and millennials prefer debit: how will this change the world of cards, will innovative products based on card networks continue to appear?

Sources: Financial TimesPR Newswire


Point of View
The evolving payments landscape continues to present opportunities for third parties to create different customer experiences and new value propositions. While some commentators suggest that emerging technology and new infrastructure might reduce the market share of cards, others point to these developments supporting innovation in the cards space. This range of views is evidenced in a number of recent developments.


Instant payments and open banking
Deutsche Bank and IATA, the worldwide airline industry association, plan to introduce instant account-to-account online ticket purchasing in Europe, as an alternative to cards. Open banking provisions under PSD2 allow Deutsche Bank to access the customer’s account to initiate payment to the airline. TARGET Instant Payment Settlement (TIPS), will allow those payments to be transferred instantly, once it is launched by the ECB in November 2018. 


According to Deutsche Bank, passengers will have “more choice, a smoother and less complex payments process and ultimately more convenience…” More detail on customer benefits has not been revealed, including whether consumer protection features to match those offered with card purchases, such as guarantees or cooling off periods, might be offered. 


The pilot will take off in Germany at the end of 2018. 


Card innovation
Debit cardholders in the US and Europe can now use Splitit to pay off purchases of US$400 or less, over three monthly instalments. The new service, announced in early May, builds on Splitit’s credit card-based flagship product, which gives the merchant discretion over value and repayment period.

 

Splitit does not charge interest, late fees or penalties to cardholders, rather Splitit charges merchants. User approvals are instant and do not require a credit check or registration. On the credit card service, Splitit manages credit risk by applying a pre-authorisation on the customer’s card for the full value, which it adjusts each month as funds are repaid. It is, however, unclear how Splitit manages credit risk on the debit card service.


Afterpay offers a similar product in Australia, where consumers can use either a credit or debit card. Afterpay settles the full purchase amount upfront with the merchant, then enters an agreement with the user and itself assumes credit and fraud risk. Splitit on the other hand pays merchants in instalments and liability continues to lie with the merchant.

 

Implications
Currently, credit and debit cards dominate the payments landscape in Australia. In late-2016, more than 80 per cent of non-cash consumer payments were made with cards, based on statistics included in the AusPayNet Digital Economy Report, published in November 2017. Although, millennials use credit cards less than other age groups. According to the Reserve Bank, in November 2016, 70 per cent of survey respondents aged 18-29 did not hold a credit card. By contrast, 40 per cent of respondents aged 30 and over reported holding a credit card. 


Millennials elsewhere have similar preferences. For example, those in the US prefer to use debit cards and cash over credit cards, and hold half as many credit cards as their gen-X counterparts, according to a survey by TransUnion in 2017


However, ASIC and consumer groups have expressed concerns that ‘buy now, pay later’ services, including Afterpay, zipPay, Openpay and Certegy are not subject to the National Consumer Credit Protection Act 2009 because they do not charge interest. “This means that they're not required to lend responsibly or do affordability checks", according to Katherine Temple, senior policy officer at the Consumer Law Action Centre. ASIC confirmed plans in November 2017 to collect data from providers, in the first quarter of 2018. These data do not appear to be publicly available at this time.


More than three-quarters of merchants expect real-time payments to replace cards over time, according to a 2018 global merchant survey by ACI Worldwide (see Figure 9). This view apparently prevails in Australia, with 80 per cent of local merchants surveyed supporting this sentiment.


With the steady evolution payment rails, greater access to data and near peak smartphone penetration, accelerated innovation in payments is certainly on the cards. 

 

The opinions and views expressed in this publication are those of the authors exclusively and do not purport to reflect the opinions, views or official policy position of AusPayNet or its members. This publication is also subject to the AusPayNet Terms of Use and Privacy Policy available on the AusPayNet website.

 

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The opinions and views expressed in this publication are those of the authors exclusively and do not purport to reflect the opinions, views or official policy position of AusPayNet or its members. This publication is also subject to the AusPayNet Terms of Use and Privacy Policy available on the AusPayNet website.

 

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