For much of the world credit cards are indispensable. We utilize them every day to pay bills, buy important and not so important things, and can hardly think of our lives without them. The big three credit card issuers, Mastercard, Visa and American Express have been vital for decades and have become some of the world’s most trusted financial institutions.
It may sound strange to hear these credit card companies referred to as financial institutions but the reality is that each year literally trillions of dollars passes through their electronic and online systems. In fact, they move more money than any bank and more than any government generates annually.
The current system for delivery of credit card services and the fees associated with using or accepting credit cards is well established. Technology is showing that perhaps both the systems and the fees associated with credit card usage are perhaps antiquated and vulnerable. Here are two of the biggest challenges facing credit cards today
Security is a huge issue for credit card companies.
Their desire to be ubiquitous has placed them in locations and forced them to conduct ways of doing business that is much riskier than in the past. Every piece of hardware and software along the system whether it is an ATM machine, or a POS terminal, has the potential of being hacked. Also as new technologies for compromising their systems have become more prevalent and effective, credit card companies have opened themselves up to new ways of being attacked by illegal operators.
As a result of credit card companies creating robust online options for their customers, they have created a myriad of ways that hackers and other bad characters can wreak havoc on them. This has opened them up to all sorts of raids on their databases and other valuable customer data. It has also exposed the banks, corporations and individual customers they serve to a daily onslaught of potential harm.
Today, online security systems to protect their data is a key topic at every credit card issuers. They each spends tens of millions of dollars every year maintaining and upgrading their security systems. This includes in-house professionals and tools, and consulting agencies who specialize in security threats. It is an ongoing battle but one the credit card companies have to fight every day.
Cryptocurrencies have come on the scene seemingly out of nowhere with a promise to make obsolete the current credit card issuers. The key benefits they claim that their systems will provide over credit cards are in the areas of speed, security and fees.
Cryptocurrencies claim that they will be able to offer transactions faster than credit cards allowing for better processing and improved efficiencies for merchants. Although increased speed is true in theory, in reality, this has not been shown. In fact when Bitcoin transaction rates have increased, processing times have been thousands of times slower than that of credit cards. However, new cryptocurrency tech is promising to surpass credit card processing speeds within 24 months.
Cryptocurrency transactions all happen on a blockchain which is a public ledger that anyone can view and whose transactions require a decentralized group of computers to verify. This theoretically eliminates and possibility of fraud. When compared to credit card companies back ends, which is a centralized network of computers, blockchain has a clear advantage. However blockchain has not been adequately stress-tested to see if they are hack-proof.
Credit cards are infamous for the high fees they charge to both business for the convenience they provide and for consumers. They have annual fees, monthly fees, late fees, and different fees depending on how you use the card. These fees can make using a credit card a very expensive proposition.
For business owners that accept credit cards, there are fees that they must pay to the credit card companies and absorb. Many argue that credit card companies have gotten very comfortable charging high fees and have not looked to innovate and reduce fees to users. Cryptocurrencies promise to remove virtually all of the current credit card fees. Many claim to literally charge a few pennies where credit cards currently charge several dollars to use. This is a real concern for the credit card issuers. Lower fees hit their bottom lines. They have actually began looking into blockchain as a potential new tech to adopt in order to head off the cryptocurrencies in this area. We are at the beginning and only time will tell.
What we do know is that many of the larger credit card issuers have stopped allowing customers to buy cryptocurrencies with their credit cards. They claim that the industry is too volatile and they are concerned with their customers, many of whom are using cryptocurrencies as investments.
Cryptocurrencies appear to have some promise but they are a new technology that has not been fully tested in the marketplace. As mentioned, their small sample testing revealed serious flaws in the system that will take years to correct. In other words, credit card companies have time to work on the speed, security and fees issues.