• Siamac Rezaiezadeh, Director of Product Marketing at GoCardless


• 01.10.2021 02:15 pm
#credit #card #payment

The recent decision by Mastercard to phase out the magnetic strip on credit cards is a sign that these pieces of plastic introduced in the 1950s are slow to keep up with how businesses and consumers actually pay today.  In today’s digital age, cards will soon be extinct.

A bold claim maybe, but look at the evidence. Cards were designed in an offline world, for an offline world. Though the industry has tried to bolt on features - such as extra authentication for online transactions - to adapt them, the truth is that cards are no longer fit-for-purpose in today’s digital society. 

Payment methods that were designed for an online world to move funds directly and electronically --such as account-to-account (A2A) payments which make it easy to pay from one bank account to another --are much more secure and provide a better customer experience for payers. At the same time, they lower costs and eliminate manual admin tasks for businesses. These will be the preferred payment types of the future.

As the subscription economy takes off, the death of the card follows. Cards are not the best payment option for these types of business models.  Not only do businesses lose customers every time card details expire -- in some markets, customers would prefer to pay with something else. Our research shows that consumers in the UK, France and Germany most prefer to use  bank debit to pay for both digital subscriptions and traditional subscriptions. Even in the US, it’s second only to cards and ahead of digital wallets like PayPal. 

Consumers move toward A2A because it is a better match for their needs. People today want security, speed and simplicity. Other factors which are commonly associated with cards, such as rewards and benefits, are becoming less desirable. It’s no wonder that in many markets, when a viable A2A option is presented, uptake is high: for instance, in the Netherlands, A2A payment system iDEAL is now used for over half of all ecommerce transactions.

Incremental changes to credit cards simply can't keep pace with our fast-changing digital lives. With new forms of payments that are faster, easier, safer, and with fewer intermediaries involved to make or receive payments, cards will soon face extinction.