Credit Card Innovation and First World Problems

by John


Yesterday a rash of companies looking to innovate in the consumer payment industry hit the front page of hacker news. Here’s a quick roundup:

Coin is an smart card that electronically holds all your other cards. Quick-take: It relies on swiping so you’re SOL in Europe (where chip cards rule) and their taking of pre-orders seems risky.

Wallaby is a replacement credit card that routes your purchase to your other credit cards attempting to optimize reward points. Quick-take: Not sure if the payment networks can support this–expect potential problems with payment validation, charge backs, etc.

Loop is a kickstarter project that can simulate a credit card swipe using your mobile device. Quick-take: Merchants might not accept it since they can’t prove visual verification of the credit card occurred.

In many of the discussions people wonder why the US retail payment systems are slow to innovate. I suspect there are (at least) two reasons.

Replacing legacy point-of-sale (POS) equipment is expensive. Millions (if not billions) of dollars have been invested in POS systems and retailers aren’t chomping at the bit to replace that investment. As long as people can conveniently pay for purchases there is no motivation for innovation.

Credit card companies (Visa, Mastercard, AmEx) make money based on transaction volume. Credit card companies won’t do anything that may reduce that volume. Could credit card companies use thumb-print scans at POS to reduce fraud? Yes they could–but you’d have a ton of people that wouldn’t use their credit card in that case. Fraud goes down but volume goes down as well. It would be unlikely that savings would make up for the lost revenue from reduced volume.

I don’t expect any major changes at POS any time soon. (I wouldn’t be surprised to see chip cards being supported.) One comment I found funny was a European wondering why carrying credit cards is such a major problem in America. Like so many other of our first-world problems it has a fantastic low-tech solution–carry a single credit card.