Plastic Is Dead, Long Live Plastic

This year more than 300bn non-cash payment transactions will take place globally, representing over 50% of all payments. Of these, 300bn plus non-cash transactions, over 200bn, will be made with a plastic payment card; that is a debit, credit, or pre-paid card.

Of the 3.5bn payment cards issued this year, over 2bn will be chip cards. But the question is whether the chip cards that are replacing magnetic stripe cards will themselves be replaced by other payment form factors? And will that be mobile payments or something else?

Tried and tested
We believe chip cards will remain the core driver in every payment market for the foreseeable future. Chip cards have proven to be an inexpensive and trusted instrument for mass market adoption. And with more than 50% of all cards currently unchipped, there is still great potential for further market penetration.

One of the main reasons why chip will remain a feature of the payment landscape is its success in preventing fraud. The latest ECB report shows card fraud is now under 4 basis points on chip cards, coming down from as high as 13 basis points with magnetic stripe cards.

Chip cards are also a channel for innovation. A contactless card with an antenna support a ‘Tap and Pay’ experience. This enables faster and more convenient transactions for consumers, and transactions beyond traditional card payment; for instance a ride on public transport, buying a newspaper, or getting a drink from a vending machine.

One of the best examples of this in action is the Rabbit card in Thailand. This started as a loyalty and transport card, before evolving into an open loop VISA card, and now to mobile payment. It’s a perfect show case for creating a more seamless, secure experience for consumers going about their daily lives.

Worldwide drivers
Pre-paid is also increasingly moving to chip and growing in volume simultaneously. Chipped pre-paid cards have a projected CAGR of 30% until 2016, opening up open loop payment to a whole new audience. MasterCard estimates that pre-paid transaction volume will reach $822bn by 2017. A great example of pre-paid in action is the TAP ReadyCARD VISA in Los Angeles. This enables people with disabilities to make payments and use the metro system all with one card.

Loyalty cards are also booming. There are over one billion co-branded or private label payment cards in circulation today. Consumers have been found to spend 46% more with companies offering reward programs. Have been privy to co-brand credit card metrics, we can say first hand that the customer loyalty, transaction numbers, and transaction volume are truly impressive. And therefore, the security offered needs to mirror the value of the card to both consumers and banks, something chip cards are able to provide.

So as we look at the world of payment cards we see that there is far more to come from chip cards than we have already seen. And that as magstripe cards are replaced, increasingly dual-interface cards will take their place alongside, but not replaced by, other payment types such as mobile.