The Future of Debit Card Payments

Posted on February 3, 2010
Filed Under Prepaid Debit Cards

We’ve gotten to the point in our economic history where just about every aspect of our economic activity has some form of electronic payment attached to it. It may not be a direct electronic payment by you to your grocer, but it may be your grocer paying his payroll electronically or buying some or all of his supplies with an online transfer of money. Electrons are everywhere.

Still, cash hasn’t gone away. It’s still used more than any other form of payment. But it is an expensive way to do business when compared to electronic transfers. And it is less secure. Money can be counterfeited, lost, or stolen. It must be kept under lock and key, and transported under guard. And it must be replaced quite often because it simply wears out.

That’s a large reason why debit card payments are on a steady rise. Card payments are more secure than cash. They’re more convenient to make too. They can be faster. And they can be used to make purchase over long distances almost instantaneously. Is it any wonder than why more and more merchants accept card payments for their goods and services? And that number is just going to increase until cash (as a dominant form of payment) truly starts to evaporate.

This isn’t going to happen overnight, mostly because retailers get to use cash freely and each card payment solution carries with it some sort of cost. And even though retailers pass that cost back onto their customers, it’s still an expense and most companies shy away from increasing their expenses. But payment service providers are constantly trying to bring new innovative solutions to the debit card marketplace and it’s just a matter of time.

It’s also going to happen because it will be largely driven by the customers themselves. As they see the greater convenience they will enjoy from making their payments with debit cards, they’ll push retailers into making the switch. Also, as they become more familiar with online card payments and such, they’ll feel more secure about the method too.

The real drive behind greater acceptance of card processing and online payment solutions is going to be innovation. Companies (especially payment processors) are going to have to come up with smarter and smarter machinery as well as faster and faster solutions. But they’ve been on that road for a while now.

Back in the day, a credit card or debit card payment was made with an old-fashioned “knuckle-buster.” A merchant would slam your card over a multi-page carbon-copy form; you’d sign on the bottom and off you’d go. How primitive that looks now.

Today, you’re likely to swipe your own card, enter your private PIN, and walk out of a store without even flashing an ID or making small-talk with the clerk. This is a lot faster and more secure than the older methods but it’s still not as fast as it can be. Companies are building point-of-sale devices that will be even faster and require even less effort on your part. We’re already seeing kiosks and check-out devices that let us swipe our cards over a sensor that reads our card’s information and finishes the sale. We’re also seeing “card-ready” vending machines that accept prepaid debit cards and regular MasterCard or Visa credit cards. What will come next?

Another big driver to accepting card payments will be the generational change we see happening every day. My daughter is part of an age group that constantly surrounds itself with electronic devices of all kinds. It is not uncommon for her to do her homework with iPod buds in her ears while her cell phone sits next to her ringing and pinging every couple minutes as a friend or remote study-buddy checks in. Having grown up in that kind of environment it will make perfect sense to these kids to use electronic payments. In fact, it will no doubt seem odd to use cash.

As a result, they’ll make purchasing decisions and account payments based at least in part on the payment options businesses offer. This will push some businesses that work mostly with cash now, into the payment card and card payment arena.

The real impetus behind changing over from cash to cards is simply stated this way – there’s a lot of money in it. Banks and other financial institutions make money whenever we use our cards and save money when we don’t use cash. The more market penetration they can achieve with online credit card payments and card processing the better their bottom lines. This is the real engine behind the move to plastic.

Right now, just about everyone carries at least a little plastic in their wallets. Some carry way too much of course, but that’s another story (see bad credit and debit cards). Suffice it to say that everyone has the opportunity to carry some form of payment card because even if you have little or no credit, you can still obtain a reloadable debit card (like a Visa card debit card). And we carry them because they offer us what we want.

We want convenience because we want the ability to buy items that we’ve both planned and saved for as well as items that we just impulsively want. We want our transactions to be fast because no one wants to wait in line anymore for anything. We don’t want to be hassled because we just want what we want when we want it. We want a certain amount of privacy because we no longer see writing a check to make a purchase and flashing our driver’s license as a viable way to make a purchase. And we want a certain amount of status too because we all want to feel just a little bit special.

In the end, all consumers will naturally gravitate toward that which is the most convenient and secure. If it pleases them, they will come. And to make them come, retailers will change their ways and methods. Now we use our cards at the grocery store and dry cleaners, tomorrow we’ll use them just as easily at the newsstand or hot dog vendor. We’ll make fewer trips to the ATM machine for cash because it will just be a hassle to carry it and keep track of it. And we’ll just grow to accept that plastic card in our wallets as our electronic checking account. Card payments and debit card payments in particular will rule the day.

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