Cards Payments - Out of Box Thinking :)

Americans spend about $4 trillion per year on their credit cards. That’s more than the GDP of both the UK and France. Yet, when it comes to  Cards payments infrastructure, we have not seen "drastic"  improvement for decades. I dont think many of the readers will agree . But thats my observation.

The most significant innovation in payments happened in the early 1970s when the card associations established their interbank network and the complementary messaging protocols. That infrastructure paved the path for instant purchases, instant credit issuance, and cross-border commerce. As long as Anyone had a relationship with a bank that was willing to issue a card, that could take advantage of the plumbing.

Since then, most of the payments innovation has happened at the edges (I’m unfairly discounting the efforts to implement ISO 20022 standards).

Focusing on the last mile of the transaction is understandable because that is the core of the user experience, and improving infrastructure is hard and costly. The problem is that user experience optimization is forever hindered by the limitations of the infrastructure. At some point, an infrastructure lift is required to push the user experience to a level that is orders of magnitude better. We are at that point now.

Having a relationship with a bank is just the accepted reality of how we use card products today.

In the current model, each card is provided by a single issuer. That means my card issuer has a monopoly on every transaction I make. Merchants have little control over what they are charged, and the fees they pay vary depending on which card is used at the point-of-sale. The fancier cards cost merchants more than the basic ones. As a consumer, the banks have taken for granted my limitations to go elsewhere for a robust offering, and my inability to diversify, who holds my credit for each transaction.

Recently I read an article on NEW way of thinking in the Cards infrastructure. Its interesting and definitely out of box thinking from the Author . Just wanted to share that here. 
Enter a new way of thinking: an improvement to infrastructure. Rather than having cards issued by a single bank, what if each card had multiple issuers? A different bank could provide credit for each transaction. In this scenario, various banks would ingest the parameters of a transaction, assess risk, and provide a cost decision in real-time to the merchant. The cheapest provider wins and is rewarded with holding the credit on that transaction. This is an oversimplification, but not far from a potential reality.

The implementation of this type of platform requires
- a new frame of thinking for how money moves.
- requires a brand new infrastructure to be built, but it enables a whole new paradigm of customer experience.
It’s on this point where the tech GAFA giants have a role to play in financial services. The tech-focused consumer brands are well-positioned to deepen their relationship with customers by offering a simplified financial services experience. Apple Card exists for this reason. A tech-focused company has been inserted at the center of the payments experience with a plan to win your relationship away from the retail banks.

Why Debit Cards are having EDGE in Europe?

According to the European Central Bank, the rate of adoption of credit and debit cards varies by nation, with eastern and central Europe largely preferring cash transactions. But when it comes to cards, debit ruled nearly everywhere on the continent.

The United Kingdom, France and Germany all also preferred debit, but they do tend to be much more credit friendly.

For example, in 2018, 99% of card-based transactions in Estonia and Croatia were done through the debit system. Whereas the U.K. processed 85% of card transactions through the debit system.

But just because credit is more welcome in the U.K., that doesn’t mean it is the preferred method of payment. Debit transactions — and in particular, contactless debit — are the most common types of transaction in the United Kingdom, overtaking cash as the primary payment method in 2017, according to the industry trade group UK Finance.

Part of the reason credit transactions are so scarce in much of Europe comes down to tradition, history and good old fashioned market forces, said Sam Murrant, senior payments analyst for GlobalData.

“In general, it is more that the European consumers don’t have so many credit cards,” he said. “Partially it comes down to cultural attitudes toward card fees, but since so few customers are carrying credit cards, that tends to have a strong bearing on whether a merchant would accept them.”

He said many people in eastern Europe see credit and debt in generally negative terms, whereas attitudes toward credit in the U.S. and U.K. tend to be much more permissive and forgiving.

Bridging the gap between credit and debit across Europe is the emergence of so-called deferred debit cards, Murrant said. Deferred debit cards act much like a charge card, where a balance accumulates throughout the month and then is paid in full at the end of the month. There is no carried-over balance or overdraft function.

Many countries that tend to frown on credit are warming to these deferred debit cards.

Regulation also stunted the growth of credit across Europe. While banks in the U.S. offer juicy incentives like airline miles or points — paid for through relatively high transaction fees — to entice cardholders to swipe their credit over their debit cards, European regulations have made that much more difficult.

Through 2015's Interchange Fee Regulation, the European Union capped transaction fees for both credit and debit transactions — a maximum of 0.2% of the transaction for debit cards and 0.3% for credit cards.

Before that, these fees varied considerably from one European country to another.

But even before those regulations took place, credit cards struggled to gain popularity in many European nations. For example, in the Czech Republic, credit cards were culturally seen as expensive and not really worth getting, said Petra Vodstrčilová, spokesperson for Czech National Bank.

And after the interchange regulations took place, their popularity declined even further, Vodstrčilová said. “Some banks actually stopped issuing them,” she said.

Businesses will ultimately accept the payments that their customers demand, Murrant said.

“If you know most customers will carry cash, you will lose less by refusing card payments. But if you are in a place where people just don’t carry cash, if you are refusing card payments, you are losing money,” Murrant said.