Are We on the Verge of Mobile Transactions Replacing the Debit Card System?
By Morag Lucey
It’s a bit early to predict the demise of the debit-card or traditional banking. Yet new debit card fee caps in the United States could put enough pressure, on what has been the most widely available form of card payment, to inadvertently push us toward the future of money. But are we ready for the mobile wallet?
While the new United States debit card fee cap implemented in July was envisioned in the Dodd-Frank Act as a measure of consumer protection, the final cap of 21 cents per transaction will cut bank income by billions and drive financial institutions to cover that money loss somehow.
To make up the difference – or at least cover the costs – some banks are considering transaction limits on debit cards as low as $100 — or even $50. And that could spell massive inconvenience for a young and significant market segment that has gotten used to swiping a card and completing a transaction. The figures and demographics behind debit-card popularity are rather staggering:
- Since their widespread introduction in 1984, debit cards have become the most popular form of electronic payment; especially for the younger generations of U.S.consumers;
- At the end of 2010, there were approximately 520 million Visa and Mastercard debit cards in circulation in the United States, with a purchase volume of $1.383 trillion;
- And while 72 percent of U.S. consumers had a debit card as of 2008, more than two-thirds of Americans aged 18-34 used them in a given month, compared to 47 percent of those over 65.
It would be fair to wonder where those consumers might turn for easy payment if debit cards are regulated off the menu. The answer could well be smartphone payments, also known as the mobile wallet.
The market overlap is striking: Those same U.S. 18-34 year-olds who have used debit cards in droves have purchased smartphones in shocking numbers. Economic woes aside, 54 percent in that age group own a smartphone (calculated from “Smartphone Ownership by Age" data, Pew Study), and those numbers are only predicted to go up. Likewise, analysts suggest that mobile transactions – smartphone payments facilitated via technologies such as NFC – will skyrocket by 2015, with mobile commerce predicted to soar as high as the $1 trillion market. But will the next step in high-tech money be there to pick up debit cards’ slack when the fee caps go into effect on October 1?
As often happens with pending technology, nobody really knows. Some experts contend that workable NFC technology is right around the corner, but much uncertainty lingers in the mobile wallet realm. Where will the “secure element" with payment info reside – in the SIM card, the NFC chip, or the device itself? What role will be played by wireless operators – or, for that matter, by banks, existing payment processors, or market changers (and disrupters) like Apple or Google (see USA Today, “When will we be paying for stuff with our smartphones," August 11, 2011)? The profit potential is there (and it’s huge), but who owns how much of it is still unknown.
Based on demographics, market stats, and similarities of purpose, it seems clear that mobile commerce is and has been poised to step into the debit-card market and, eventually, replace yesterday’s plastic technology with tomorrow’s digital. The question that remains is: when?
Morag Lucey is global senior vice president of Marketing and Product Management for Convergys’ Smart Revenue Solutions for the telecoms, cable, satellite, broadband, and utilities markets. Convergys solutions can help service providers meet the billing and customer care needs of the retail, enterprise, and wholesale sectors.