We are likely to be making payments on existing card rails for the foreseeable future, given their popularity and the attendant benefits of incentives and security. But there are serious questions about the physical cards themselves, and whether the form—physical credit and debit cards wielded at the point of sale—will survive in the long term.
A report from Javelin Strategy & Research, Imagining a Cardless U.S. Payments Landscape, Vol. 1, looks at the future of physical cards and what it would take to move them off center stage. If there’s a game-changing innovation that could dethrone cards from their dominant position, it’s not visible yet. Analysts Craig Lancaster and Christopher Miller suggest that an increasing number of challengers will gradually chip away at their use, pushing the physical form to the sidelines.
The Three U’s
Credit and debit cards didn’t gain widespread use until the 1970s, but in the 50-plus years since, they have become far and away the preferred method for consumers. The card’s core function—debiting a bank account or accessing a line of credit—remains durable and is likely to be around well into the future.
“A card, essentially, is only an account,” said Lancaster, Analyst/Content Specialist at Javelin and the lead author of the study. “It’s about the form that you use to access that account. So we considered a future where people no longer reach into their wallets and pull those things out. The card rails and networks themselves are going to be around for a long, long time.”
Lancaster said that cards have shown so much longevity because they have been able to fulfill what he calls the three U’s: utility, ubiquity, and usability. Utility means it fills a need or erases a pain point for the consumer. Ubiquity means it is widely available, and usability refers to ease of use.
But there are other benefits as well. Card users enjoy rewards such as airline miles as well as the peace of mind that comes with robust security protections. Payment methods that could challenge cards, such as pay-by-bank, are at a disadvantage because they don’t offer similar benefits to their users.
“Anything that is going to come along knock cards from their position of dominance is going to have to capture the things that make them so widely popular,” Lancaster said. “What’s more likely to happen in our view is that there will be a number of contenders that threaten cards. We describe them as being like sharks, each one taking a few percentage points away from cards.”
The Threat From Digital Wallets
Digital wallets are one obvious alternative already prevalent in today’s payments landscape, as along with account-to-account payments such as those enabled by Venmo and Zelle. More exotic possibilities, like wearables, may allow consumers to pay with a watch or even an item of clothing.
“The thing is, card networks and card rails will be underpinning much of those,” Lancaster noted. “My digital wallet, for instance, is loaded up with card accounts.”
The Promise of Digital ID
Another tipping point for a cardless future isn’t directly about payments at all: digital ID. Consumers still carry wallets largely because they need their official identification, whether boarding an airplane or dealing with a traffic cop. As digital ID become more widely accepted—11 states currently offer virtual driver’s licenses—people will feel less need to carry a physical wallet.
“When I buy alcohol, I don’t have a lot of problems making that transaction because I look my age,” Lancaster said. “But I could see that digital ID would be something that might appeal to a younger person in that scenario.”
Lancaster pointed out that a digital ID can provide more privacy than a physical driver’s license. As it stands now, a young person trying to buy liquor has to present an identification card that tells the merchant more than what is required to complete the transaction, such as legal age. This includes details like hair color, eye color, weight, address, and even organ donor status.
Digital ID will presumably start to rein that flood of personal information in. A consumer could give a merchant access only to the specific information needed to answer the question at hand.
In fact, Lancaster can see a future where a digital ID represents all a consumer needs to carry, with payment and account information built right in. The future of payments is about providing choice and streamlining access to those choices through digital ID authorization and authentication. That would make the ID itself the actual payment—and send the flow of a transaction to the background. And, presumably, away from physical cards.