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Payment Possibilities

posted by Katie Porter

If "What's in Our Wallets?"  left you bored, this is the counter post. Last week I attended an event called Innovations in Payments organized by David Evans, an expert on credit cards. My take-away: if I want to be at the cutting edge of payments technology (and be able to teach my students the law they'll need to deal with popular payments 20 years from now), I need to step it up and start acquiring new payments tools. Exactly which one to get though, in the face of so many businesses wanting my consumer dollars?

 Much of the talk at the conference was about mobile payments, which is different than mere mobile banking (using your cell phone to check your bank account balance), but the word from Scott Schuh at the Federal Reserve Consumer Research Payments Center is that only about 1-2 percent of Americans made a mobile payment in 2009. But I can assure you, there are lots of entrepreneurs who are going to be trying to get you to go mobile. In this regard, lots of people noted the very slow rate of adoption for debit cards, which have been around for more than twenty years now, and wondered if we can expect a similarly slow rate of adoption for mobile payments. 

Some companies are trying to breathe new life into credit cards, where use has declined a bit in the last two years. Indeed, someone reported that over $1 trillion in credit access on credit cards has disappeared; this was, of course, blamed on the CARD Act, rather than perhaps more reasonably, the combination of the CARD Act and a big recession and bank instability. Regardless, the issuers are on the hunt for more profits. One innovation was the TSYS hybrid card, described by the company's president as "a credit card on steroids." It's a single card that a consumer can link to up to five bank accounts from multiple institutions and then set preferences about whether to pay off that charge from one of the accounts or use the credit function and be billed for the transaction. On the one hand, I like the way this card could let consumers decide, for example, that they want all their everyday bills to come out of joint checking account, splurges to come out of a money market savings, etc. Perhaps if consumer think about their preferences in advance, rather than when reaching for the top card as a matter of habit, fewer things will need to be paid at the end of the month. The bad news, and it is very, very bad, is that merchants apparently pay a credit-card rate (read "high")  interchange fee every time the card is used to pay, regardless of the consumer's behind-the-scenes preferences. Ultimately, this means higher costs for goods as merchants incur more interchange fees.

You may have already heard about the 2G cards coming from Citi. These cards are the same thickness of a typical credit card but have functional buttons on them. The consumer can choose at the point-of-sale whether to use the card in the usual way or to pay for the purchase by making a redemption from their rewards points. I think the technology is cool and could have lots of applications, but at some level, I don't see value to this product. The vast majority of consumers do not earn many rewards--maybe something like $63 a year (as explained in a New York Times article on the cards), and so how many purchases is that really going to pay for--it's a lot of work to put a button on a card to make spending relatively modest amounts of rewards easier. It seems to me that the real idea here must be to make rewards earning more salient in consumers' minds, getting them to swipe away on the credit button in an effort to build up enough rewards to get to use the rewards feature.

iCache is cool. I'm not going to lie; I want one. It is a digital wallet that consolidates all cards and other bar-coded thigns (loyalty cards, gift cards, boarding passes, etc) into one place. It doesn't store them physically, it just stores the information. Then at the point-of-sale, you access your iCache using your fingerprint (very secure) and either a barcode appears to be scanned or the iCache plastic card is ejected that is magnetically-readable by swiping by the ordinary merchant terminal. As I understand it, the card info is then deleted and the card is reloaded when you go to make another purchase (so you are not just physically storing all your cards). iCache--the perfect birthday gift for Katie Porter in January 2011!

After all this excitement, the final panel closed with an emphasis on just how far we are away from iCache and just how much regular old green CASH is still king. More on that in a future post.


iCache sounds pretty amazing. I'm sure there will be a huge market in the black market for stolen credit card numbers. It'll be a lot easier to go on a shopping spree with this when fence the goods. Well, the legitimate use is convenient too but the black market potential is even greater.

Well, I'm a neanderthal as far as credit/debit cards go, but here's a question I have: if a consumer wanted to give these thieves a little 'pushback' and not use any cards, what other options are there for continuing an aggressive consuming lifestyle? I mean other than checks and cash and buying by mail. That might be a good topic for one of your posts.

These "high-tech" cards are really interesting and actually innovative, but another potential area of interest may be some of the more recent innovations(?) in actual consumer credit card financing. I've seen and heard a lot about Chase Slate recently, and from what I can glean from the website, the card allows consumers to segregate purchases by categories and also pay off some purchases and categories before others. E.g., you can pay off groceries in full each month while allowing auto expenses to "ride." I would be interested in whether this is actually allowing consumers flexibility in payment or whether it's just a glossy overlay to normal credit card financing.

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