Credit cards are generally considered a critical part of the payments infrastructure. However, a myriad of factors may shape new pathways in the payments landscape, undermining the current dominance of credit cards. This may create new opportunities for revenue growth for banks, fintechs and other financial institutions.
There are, however, certain obstacles facing the credit card model such as:
As a result, new pathways are emerging in the payments landscape that could undermine credit card dominance. While the dual-message-network-barrier-to-entry creates a lack of legitimate alternatives to credit cards, a promising new movement towards open banking may be imminent. Open banking refers to the secure interoperability of the banking industry, enabling third-party payment service providers and other financial service providers to access personal and financial information from their customers’ banks. The customer must grant access to the sharing of information, and the relevant data is then shared with third-party providers through exposed application programming interfaces (APIs), facilitating faster and more secure transactions. While open banking is already well established in the European Union and certain parts of the Asia-Pacific region, the United States has been slower to adopt this innovation. Nonetheless, with the help of open banking and new technologies, potential alternatives to credit cards are gaining ground:
Although credit cards are unlikely to become obsolete anytime soon due to their significant technological advantage and market penetration that has grown over decades, the advent of open banking presents new opportunities for banks and their partners to collaborate in the development of innovative products and experiences. With the growth of open banking and other technologies, the barriers to entry in the payment landscape are gradually eroding.
As the payment ecosystem evolves, cards and new instant digital payment methods will very likely strike a new balance. We expect increased competition as well as collaboration both amongst players as well as payment networks being utilized, including card and non-card rails. What is clear, especially for use cases where card is predominantly utilized, is that fraud-prevention and consumer experience will be the key drivers to success for anyone who looks to compete or collaborate in this space.