For centuries, we’ve seen the way consumers pay for goods and services undergo an evolution. What began as a simple bartering system transformed into precious metals, and then to a physical currency system backed by gold. When credit and debit cards first entered the consumer market, many began to wonder if cash would disappear. Though it’s not as widely used as it once was, could the following payment disruptors remove it from the landscape entirely?
The United States is long behind Europe when it comes to credit and debit card processing. EMV technology, named for its creators Europay, MasterCard® and Visa®, replaces the old fashioned magnetic stripe with a micro-processor chip that provides secure storage of cardholder data that cannot be copied. American financial institutions and retailers are slated to make the transition in October 2015, with the primary driver of the switch focused on decreasing credit card fraud at the point of sale. With credit card fraud costing the United States $8.6 billion a year and the cost expected to balloon to $10 billion if adoption of EMV chip technology is not widespread, the transition needs to be made sooner rather than later.
The Durbin Amendment, passed in 2011 as an addition to the Dodd-Frank Act of 2010, disrupted the payment industry with the caps it placed on fees for processing debit card transactions. This major source of revenue for financial institutions was capped at 23.9 cents per transaction if the financial institution had more than $10 billion in revenue. No cap was placed on institutions that have a lower revenue threshold, but the law mandated that two, unaffiliated networks process transactions.
Bitcoin has long been the subject of controversy, with its fair share of supporters and detractors. Since it does not require any central agency or bank to function, it does have potential as a global currency, the value is not at all stable. As it becomes more widely adopted, more regulation will follow. Right now, it’s not regulated by any particular entity, though some states are stepping in to regulate its use.
Bluetooth Low Energy
Bluetooth® Low Energy (BLE) beacons make up for unreliable GPS signals inside buildings. They could be used to instantly notify a merchant about your presence, enabling them to not only greet you by name, but to truly personalize your shopping experience. Whether or not customers will accept this technology is still undetermined, though research does suggest that more than three quarters of smartphone owners would be willing to share their location data with retailers as long as they received value in return.
What started as a way to protect your financial data when making online purchases has morphed into something much larger. Now, according to Javelin Research, many merchants are accepting PayPal in store, without the PayPal debit card, over the Discover® Network. PayPal is extending credit with BillMeLater®, and offers customers the ability to cash in and out via a partnership with MoneyGram®. While PayPal still relies on partnerships with central banks, it is creating a ripple with the alternative financial services (AFS) it provides.
Amazon® Payments Account
Much like PayPal, Amazon Payments offers consumers the ability to pay for products and services online using information already stored in their Amazon account. Beyond paying for products and services, consumers can also send and receive money from friends and family. Though not as widespread as PayPal, growth is coming.
Apple® Payment Programs
Though not a major player in the mobile payments space yet, according to Mashable, Apple is working on leveraging the existing iTunes® customer data and Passbook® feature to build something more reliable and secure than the simple near field communication (NFC) technology that allows payments to take place with Passbook. Like PayPal and Amazon, the system will rely on partnerships with existing financial companies, but could be enough to cause disruption.
Regardless of how consumers transact: cash, credit or debit card, bitcoin, or an alternative financial service, one thing remains the same: currency is exchanged. Banks may have to step up their game in order to be able to compete, but they are still an integral part of the system.