For the last half a decade, banks and credit companies have slowly tried to kill paper money with technology.
They’ve tried to get us to use digital wallets, pay with smartphone apps, and use frictionless systems. Their next attempt will be all-in-one credit cards.
Imagine a single card in your wallet that represents all of your credit, gift, loyalty, and membership cards. Whenever you need one, you just whip out this one card, pick what it needs to be used for, and then scan it. Recently, there’s been a tremendous wave of interest in these not-yet-available devices, thanks to a gimmicky device called Coin.
Coin looks just like a black credit card with a little LCD screen on it. It pairs with your smartphone and lets you add as many cards as you need. It’s got a low-power Bluetooth transceiver inside, and it runs on a non-replaceable battery that lasts approximately two years. Coin has a $100 price tag and is expected to hit the market some time in the summer. It’s similar to a product called Echo that was first unveiled early in 2012 by Ann Arbor, Michigan startup Protean. That product doesn’t have a release date yet, but it offers the same general features as Coin, minus a few bells and whistles.
The main selling point of these devices is that they reduce the number of plastic cards the user has to carry around in his wallet. They are convenience products.
Convenience and Not Much Else
Coin and Echo are both equipped with low-power Bluetooth radios so the cards can communicate with the user’s smartphone. This brings in the main value-added benefit to the user over a traditional mag stripe card.
The user can set up proximity fencing for his card, so that whenever his phone and card are separated by too much distance, the user is alerted. This means losing Coin becomes slightly more difficult, and the user can set the card to automatically erase itself if it is missing for too long.
This is literally the only additional security Coin adds over traditional magnetic cards. If the user dips his card into a compromised card reader, he’s just as screwed as if he’d used his plain old credit card there.
The Benefits go to Banks and Retailers
The value to consumers is small. With Coin’s two-year lifespan, the customer is effectively paying $50 per year for the convenience of carrying around fewer cards.
For retailers and credit companies, there is a much greater reward.
First, let’s examine why cards are beneficial in the first place, starting with loyalty, promotion, and gift cards.
For retailers, loyalty cards help track shopping and purchasing behavior. They are beneficial because they give the retailer a better picture of where their supplies are going. With this information, they can keep their shelves stocked with goods that are likely to sell. It also helps create a picture of aggregate shopping trends based upon time of day, time of year, and even the effectiveness of advertisement and merchandising.
Gift cards, meanwhile, are essential in a couple of unique shopping behaviors. One of these, a phenomenon known as buyer uplift, occurs when a consumer has a gift card, and they buy something that’s worth more than the amount of money on the card. To the shopper, they’re getting a discount on their purchase. To the retailer, they just got two people to pay for a single product.
Next, let’s think about the benefits that credit cards give to lenders.
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This one should be obvious. Companies take annual fees and pull in interest on revolving debt. This remains unchanged with a new card like Coin. But there are other cards like Coin that give creditors some advantages in squeezing more revenue out of users.
Credit bureaus generally label people in two ways: revolvers and transactors. People that are less likely to incur credit debt fall into the transactor category. They pay off their balance every month.
Because transactors are unlikely to generate interest revenue for credit companies, they’re targeted with reward cards so creditors can make more on interchange fees. A card from Wallaby Financial addresses this consumer segment, and offers it a tool to increase credit use.
The Wallaby Card is a single card that represents multiple credit cards, and Wallaby’s cloud infrastructure intelligently routes transactions to the card that will yield the most benefits to the user. The user doesn’t need to switch back and forth between cards at all, making the credit-using process easier and more carefree.
The benefit to creditors is that they’re automatically given the charges where they offer the best rewards to the user, without the user’s intervention. Essentially, the card eliminates user error from picking the “right card” for each purchase.
A cashless Main Street America
A recent story from Agence France-Presse highlighted homeless magazine salesmen in Sweden who now accept payments via smartphone card swiping terminals. It sounds ridiculous to American ears, but only 27 percent of transactions in Sweden are done with cash today.
With personal card scanners like Square and Intuit GoPay, credit cards have entered the person-to-person transaction market. Conventional wisdom says customers are more likely to spend an increased amount of money if they’re paying with credit. In theory, this means mom and pop outfits (or indeed even the homeless) can reap the benefit of someone else’s credit line.
Of course, the reality is a bit different.
A 2013 study from Tufts University entitled The Cost of Cash in the United States determined that small businesses do not stand to realize significant cost savings by accepting payments other than cash. Though cash theft is a huge risk to independent retailers, the cost of security (armored car transport, safes) is negligible, and the budget for cash-handling staff does not vary based upon the payment method of customers.
Even the increased likelihood of customer spending does not have a tangible impact on operating expenses. In short, mom and pop don’t expect their business to improve if more people use credit cards.
The loyalty card-storing aspect of Coin and Echo could be beneficial to them, but only if their company already has magnetic rewards cards.
Small businesses can already adopt loyalty cards without requiring physical cards at all. Some of the earliest applications for the Android smartphone platform, for example, could scan and store barcodes, and reproduce them on screen when they were needed.
Similarly, QR codes tied to a rewards database can be scanned directly off of a customer’s smartphone screen, and Chicago-based company Belly Inc. offers a platform to small businesses for this very purpose. Square, likewise, debuted a new feature this week that turns gift cards into QR codes with Apple’s Passbook.
These systems eliminate the need for businesses to print out mag-stripe cards, so there is little overlapping benefit with Coin or Echo.
In the end, these new cards are really just a tiny convenience for consumers, and a minor help for medium-to-large size retail outfits. They’re more a tool to increase in interchange revenues for credit companies.