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Charging into the future: What's in the cards for your payments?

by Peter Andrew

If it ain't broke, don't fix it. That's often a fine apothegm, and one that you may well wish to see applied to your credit card use. But there are armies of technologists out there bent on changing the ways in which you can spend your money.

And, to be fair, many of their ideas could have positive outcomes. The current payments system may not be exactly broken, but it's certainly creaking alarmingly, and some innovation may be necessary if it's to continue to meet consumers', merchants' and credit card companies' needs and expectations.

There are two areas in which technology is likely to affect your credit card use: making credit cards more secure, and making them easier to use.

Making credit cards more secure

  • EMV

    IndexCreditCards.com recently ran a feature article about Europay, MasterCard, Visa (EMV) credit cards. Each of these has embedded in it a fingernail-size microprocessor chip that makes transaction processing much more secure than the magnetic stripe that runs across the back of existing cards.

    EMV is already used in most other advanced countries in the world, where it almost invariably comes in the form of "Chip and PIN," the PIN bit referring to the four-digit personal identification number that is keyed into a terminal to authorize a transaction in place of a signature. Visa says that EMV could be introduced in America with the chip but without the PIN. However, some believe it more likely that we could all soon be "pinning" instead of signing.

  • On/off switch

    EMV is probably going to be the biggest advance in credit card security that we'll see over the next few years. However, there are others. For instance, in August, American Banker magazine reported on a trial of a new technology that allows you to turn on and off a card remotely using either a smartphone browser or SMS text messaging on a simple cell phone. You can choose whether to keep your card permanently turned off except for brief periods when you actually want to use it, or to leave it active unless and until it goes missing. You've probably already spotted a potential problem. Imagine how you'd feel if you were standing in a gas station in the middle of the night, waiting to pay with your deactivated card, and your cell phone or smartphone's battery had gone dead.

  • Behind the scenes

    Innovators are developing and testing plenty of other technologies to help improve card security. However, many of these are invisible to end users, because they involve defending the networks over which transaction data pass, keeping customer information safe, and finding new ways to detect fraud earlier.

Making credit cards easier to use

  • Mobile payments

    The Yankee Group, a research and analysis company, predicts that worldwide in 2015, $1 trillion worth of transactions will be made using mobile devices (smartphones, tablet computers and so on). This is a technology that is not going to go away. Indeed, when Starbucks introduced its own mobile payments platform for use only in its stores, it processed 3 million transactions in the first two months after launch.

    Paying with a mobile device at the point of sale usually involves waving or holding your smartphone or other mobile device near a payment terminal, allowing the two devices to "talk" to each other using near-field communication (NFC) technology. Some credit cards are equipped with a tiny transmitter that achieves the same thing without a mobile device.

    MasterCard describes PayPass®, its Tap & Go™ version of this:

    PayPass is a payment method that lets you make everyday purchases without having to swipe the magnetic strip on your card or provide your signature. It's faster than fumbling with paper money or waiting for change, and it makes checkout easier than ever… To use PayPass, just tap the PayPass symbol on the reader at checkout. When you see the green light and hear the beep, your payment has been accepted. That's it--you're ready to go.

    That's easy, although if the transaction value exceeds $50, you need to enter your PIN to authorize the payment.

  • Mobile enabling of balance transfer credit cards

    In September, Mitek Systems unveiled a clever new capability for mobile devices that uses the company's image-capture and data-extraction technologies to help consumers find new balance transfer credit cards. According to a press release:

    The mobile application enables a bank's customer to use a smartphone camera to take a picture of a competitor's credit card payment coupon. The customer transmits the information to the bank, which then can offer the customer a better interest rate to incent the customer to open a new credit card account and transfer an existing balance.

  • Dual debit and credit cards

    Meanwhile, back in August, Fifth Third Bank announced that it was launching Duo Card, a combined credit and debit card. You present the card as normal at the point of sale, and then choose whether to have the payment deducted from your debit card or credit card account.

    Brilliant. Except that even those with unusually sensitive body parts or restrictive clothing rarely find the difference between carrying one and two cards an insurmountable problem. And, if you lose a dual card, you're denied access to two accounts rather than one. There must be a point to the Duo Card (a bank spokesperson raved about "added convenience, flexibility and security") but it's so far escaped this writer.

What's in it for you? Lower credit card rates?

And that's the problem with many of these (and countless other) new credit card technologies. They're unlikely to do much to enhance your life. True, mobile payments are going to appeal to early adopters (the sort of people who unroll their sleeping bags on the sidewalk outside their local Apple stores on the nights before something (anything) beginning with "i" is launched), but for every one of them there are probably 10 technophobes who run screaming from such innovations.

Indeed, most of the new services may well benefit credit card companies more than their customers. It's to them, not to you, that the system's broken and needs fixing.

Take EMV. There's hardly a grassroots movement clamoring for it. However, card issuers could save a fortune through reduced fraud losses. But perhaps they plan to pass those savings on to you through lower credit card rates and fees. If you believe that, welcome to IndexCreditCards.com. You are clearly a new reader.

Published 09/15/11 (Modified 10/03/11)

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