Insight & Analysis

Don’t bank on cards being replaced

Published: Jun 2024

Retailers would welcome a reduction in the power of the card giants, but with Visa and Mastercard diversifying and looking to leverage open payments their influence will remain strong for some time to come.

Person using contactless card when paying

The results of a survey of 200 senior payment professionals at European banks published by RedCompass Labs in March found that the biggest perceived benefit of the EU’s instant payment legislation for corporate customers was creating a foundation for new collection methods to displace card payments.

More than two-thirds (69%) of respondents to the RedCompass Labs survey said they expected a significant uplift in the use of instant payments as an e-commerce or point-of-sale payment method by the end of next year.

Francesco Simoneschi, CEO of TrueLayer reckons there will be a substantial increase in the adoption of instant account-to-account payments across both e-commerce and point-of-sale transactions over this timeframe.

“We are working with leading retailers such as Topps Tiles to provide a payment solution online and in store,” he says. “We also expect to see much more widespread adoption of variable recurring payments, which apply open banking technology to regular payments such as subscriptions.”

Instant payments provides several advantages over card payments, but the latter is deeply entrenched in the payment ecosystem with established ease of use and security features, whereas instant payments requires more time to build a similar level of trust.

“While we can expect to see a significant uptick in instant payments usage in the next 18 months, it remains to be seen whether this will come at the expense of card payments or simply become a lower cost alternative and a complementary payment method, which will likely vary depending on consumer appetite and regional preferences,” says Michael Levens, Global Head of Payments at Delta Capita.

Continued growth can be expected in peer-to-peer transfers and lower-value purchases (for example, via social media networks) where the speed and user experience are compelling. Major payment providers and national real-time payment systems are investing heavily in instant payment rails.

However, while instant payments may start chipping away at card volumes major disruption over such a short timeframe is unlikely according to Sophie Flynn, co-founder and CFO of Nucleus365.

“Overall, the race is also about customer experience and whichever payment method that can provide the smoothest, most secure checkout flows will capture more volume,” she says. “But there is room for multiple payment methods to co-exist for quite some time based on consumer preferences.”

Reducing the dominance of Mastercard and Visa in the payment space will only be achieved by platforms that can match the level of trust consumers have in the biggest card issuers and are underpinned by a solid business model. These platforms will also have to convince consumers it is worth changing payment habits, which is no easy task when card-based processes offer ease of use and high levels of security.

The use of cards for e-commerce and point-of-sale purchases is a well-ingrained habit, a process many people are comfortable with and one that reliably works as expected. For these reasons it is not surprising that adoption of instant payments for e-commerce and point-of-sale purchases is moving slowly agrees Peter O’Halloran, VP and Head of Enterprise and Digital Commerce EMEA at Fiserv.

“We don’t expect a significant uplift in the next 18 months, as this type of shift in consumer payment behaviour is generally one that happens over time as consumers realise value in specific use cases,” he adds.

Traditional banks face an uphill battle introducing new, innovative solutions like instant payments due to their reliance on legacy systems. The need to reinvent their processes and create new systems means adoption of instant payments will be a slow process.

“Consequently, while there will be an increase in instant payments, the majority of e-commerce transactions will continue to be through card payments,” says Andrew Martin, CEO of SMEB.

Card payment providers offer merchants so much more than just payments acceptance, such as fraud protection, inventory management tools and reporting notes Eric Horgan, Head of Product at Elavon.

“Though a merchant may make savings in the fees for instant payments, they may miss out on some of the consumers protections offered by cards – such as chargebacks – as well as global penetration and globally recognised brands,” he says.

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