Far from Facing Imminent Extinction, Credit Cards Evolve, Go Mobile

Far from going extinct, as many headlines in the past year or two have proclaimed, credit cards are at the center of the mobile payments wave currently sweeping the U.S., Consumer Reports tells us. The new technologies only provide an additional avenue for credit card use, the study is suggesting.

This is exactly the message we have been pushing through to the readers of this blog ever since we first noticed that mobile wallets and other m-payments services were being billed as the successors of bank cards. In reality, many of the new m-payments platforms will help transform bank cards from physical to virtual carriers of credit, while the underlying basics will remain unchanged.

M-Payments Tied to Bank Cards

Here is what Consumer Reports has to say on the m-payments / bank cards link:

Most of the new electronic payment options are tied to credit and debit cards, so whatever costs consumers incur in using their plastic will transfer to the new methods. Paying by mobile phone won’t save them money. Google Wallet merchant transaction fees are the same as those charged on plastic payments, and the same is expected to be true for Visa’s digital wallet.

Far from saving money, m-payments can often be more expensive to process. CU:

Square and PayPal Mobile charge merchants even more than the average big bank fee, 2.75 and 2.9 percent of the transaction amount, respectively.

By comparison, an old fashioned payment processor would charge merchants at least a percentage point less for accepting swiped transactions, the type facilitated by Square.

M-Payments Not Tied to Bank Cards

There are, of course, m-payments platforms that have circumvented credit cards altogether and have instead enabled users to charge payments to their monthly phone bills (direct carrier billing) or have simply linked the user’s phone to their checking account.

We have covered some of these services, Dwolla and T-Mobile Direct Carrier Billing being the latest ones, and there is no question that some credit-free m-payments platforms do have a future. But then credit-free payment options have always been available to consumers and that didn’t prevent credit cards from becoming the payment option of choice for many of us. That’s not going to change anytime soon.

Just as we can now complete an online transaction with a credit card or an ACH payment, so we will be able to make that choice when checking out of an m-commerce store. The only difference will be in the size of the device we use to shop.

The Takeaway

The point is that in the mobile payments world credit cards will coexist with non-credit payment methods, just as they do in the e-commerce one and in old-fashioned brick-and-mortar retail.

Consumer Reports correctly identifies overpricing as a concern, however mobile payments processing cost will inevitably go down as the industry matures, just as it did with online payments. E-commerce store owners can certainly testify to how much cheaper it is to accept credit cards today than it was a decade ago. The same is true of direct carrier billing costs, while Dwolla types of services are already being offered for free.

It’s also important that the various mobile payments platforms are seen as what they are – technological innovations, not financial ones. Purchases financed with credit will keep accruing interest, whether they are made in person, through a laptop or a phone. That will still be the case even if / when we no longer have to carry rectangular pieces of plastic in leather wallets.

Image credit: Bestcarcoverage.com.