this post was submitted on 24 Jul 2023
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Honestly, once it reaches critical mass. It will mean the end of PayPal, Venmo et al AND the credit card industry as a whole.
I think between rewards and actual credit, credit cards will probably be fine, but I'm curious if you think this solves for either of these use cases.
Yeah I'm failing to see how this replaces either of those benefits...
I can see it going either way. I think it's gonna come down to apple and Google getting on board. If they adopt tap to pay with this system vendors will have less incentive to accept credit card fees. If they don't, it won't become ubiquitous enough for any store to get away with not allowing it and consumers will look out for their own interest to keep taking the credit benefits. (I realize collective action would make that argument void, I doubt true collective action is possible in any senecio.)
That said, I cannot see a world where the banks let it get that far. This system relies on the banks cooperation and it wouldn't be the first time they bought a law.
Credit card rewards are really not worth it. These programs are largely funded by the fees that are charged to merchants which are ultimately passed on to you at time of purchase.
I would much rather have reduced costs of goods rather than have paltry credit card reward programs.
Ok, but if this new payment model takes over and there are no fees to merchants, I'm very skeptical those savings will be passed on to buyers. I think at this point credit card processing is pretty well priced in.
Probably right for most big box stores or multibillion dollar businesses. But you would be surprised how thin the margins are for local grocery stores. That 3-5% in processing could be used to compete or undercut big box competitors that price in the credit/debit card fee.
I think with the right approach (small businesses first) it could see high adoption. Plus it would make it slightly more attractive in setting up shop in places that wouldn’t otherwise get any attention (ie, food deserts)
I doubt it will hit the credit card industry that much. We have something like this in Canada, Interac, and credit cards are alive and well. They may actually prefer this, because people who keep zero balances may be less inclined to use credit cards instead of debit cards and there may be a larger market of businesses with card-processing capability to cater to those who have debit cards but don't have the credit to obtain credit cards.
Interac is not the same thing at all, the US equivalent is Zelle.
FedNow does instant EFT payments, which is something Canada does not have.
Why would this mean the end to the credit card industry...?
Processing transactions with credit cards incurs fees from middlemen and unnecessarily complicates the merchant-buyer relationship. The merchant ends up paying these fees and ultimately passes this cost to the consumer in the form of a 3-5% or more markup of goods. In some cases, even cash customers are paying the hidden markup as well.
With FedNow, this has the potential to bypass all of this messiness and severely undercut debit and credit card processing networks. Thus slowly bleeding them out of market share.
I can definitely see a new market segment of payment processing which disrupts the existing status quo. Could very easily cover expenses of running the operation on a shoe string budget, charge 1-2 cents per transaction, and become profitable in just under a year (assuming high adoption).
In the end, smaller merchants are able to compete or in some cases undercut bigger stores since they are saving money on CC fees. Consumer has the benefit of more competition in the market and getting that better price. Overall decreased cost of living.
Most of this doesn't address my specific question, but this sounds a lot more like you expect a diversification/fragmentation of the credit card industry rather than the "end" that was posed originally. Regardless of transactional fees, credit cards would continue to provide their basic function of providing access to credit and people would still desire it.
We have similar system in Europe, cc and debit cards, PayPal (And similar) payment processors remain popular.
Bad news for you. Many countries already have this and PayPal is still super convienient way to pay for stuff. We have standing orders for reoccuring payments to companies direct from bank but otherwise its still done with apps