The Credit Cards of the Future

NEW YORK ( MainStreet) -- Banks and credit card issuers may be beefing up their digital offerings, but it's going to be a long time before the plastic credit card disappears.

While efforts are being made to move away from plastic, consumers are reluctant to adopt mobile payments because they're unclear of the benefit they provide and security concerns persist. Many people also don't have the technology -- to make mobile payments you need a smartphone or other mobile device equipped with an NFC chip, the mobile equivalent of a credit or debit card's magnetic strip (which is actually more secure, since the codes associated with them change periodically).
The functionality of credit cards is evolving, even if the plastic itself remains the same.

"To work the average consumer away from their cards is going to take a while," says JJ Hornblass, executive editor of the blog Bank Innovation. "Plastic works. It's hard to get consumers to change payment methods."

This isn't to say the credit card itself isn't evolving. There has been a big push by several issuers, particularly Visa ( V), to move U.S. cardholders onto EMV chip cards, which are programmed to change their verification value each time a purchase is made. The cards, which are more resistant to counterfeiting than magnetic strip cards, are already widespread in Europe. They have yet to catch on in the U.S., largely due to the fact that merchants don't have terminals equipped to accept them.

Beyond these chips, many financial technology companies have developed products that build upon the plastic payment method as we've come to know it. These cards feature, among other things, dynamic magnetic strips, contact-less payment capabilities and buttons that let cardholders toggle back and forth between various accounts.

Some of these products have been adopted by major financial institutions. Last year, Citi ( C) announced a Thank You 2G card, which allows its cardholders to pay with their credit line or rewards points. US Bank ( USB) has offered its Mastercard ( MA) Pay Pass VITAband -- essentially a wristband that gives its wearer the ability to make purchases via a reloadable prepaid chip -- since July, and Fifth Third Bank ( FITB) introduced a dual credit/debit card in September.

But thus far, these products have failed to trigger a full on revolution. Citi debuted its 2G card at the Consumer Electronics Show in 2011, but has yet to offer it to the mainstream public.

"It is available to a small group of people and is something we are continuing to accept feedback on," a Citi spokeswoman said.

Hornblass believes mass adoption has been delayed because no bank or issuer is featuring a product advanced enough to inspire consumers to switch from what they are used to. Citi and Fifth Third's cards, for instance, don't have a feature that allows for secure contact-less payments, while US Bank's wristband doesn't link to multiple accounts.

"If the payment method doesn't have the full menu of innovations available, that's a strike against it," he says, adding that many of these products may cost the issuer more to provide than a traditional credit card would.

These complications have led to a wave of innovations that focus on adding to what the credit card can do without having to change the plastic itself.

Transaction processor First Data, for instance, recently launched OfferWise, a program that allows merchants to attach offers, coupons and loyalty programs to credit or debit cards and mobile applications. Cardholders enter their credit card account information either online or through their phone so the merchant's specified discount can be applied when the card is swiped at the point of the sale. Online couponing site RetailMeNot, for instance, let cardholders link coupons for Texas food trucks to their credit cards, which could then be used at this week's SXSW music, film and interactive conference and festival.

A similar program is offered by Cardlytics, the company behind Bank of America's ( BAC) deal program, which enables cardholders to get exclusive deals from merchants in the form of an end-of-month cash-back account credit.

Both models essentially mirror American Express' ( AXP) latest feature allowing cardholders to get deals loaded directly onto their credit card after tweeting merchant hashtags from their Twitter account.

But thanks to First Data's recent partnership with CardSpring, consumers won't have to wait for the credit card issuers themselves to come up with ideas and launch additional services. The payments infrastructure company has developed an application programming interface that allows third-party developers to add Web or mobile applications to payment cards.

"It's just like the way mobile phones used to work. You had to wait for the carrier to come out with new features on their phones," CardSpring CEO Eckart Walther says. "Then the iPhone came out and developers could add functionality to your phone. The carrier didn't have to create these functions."

In the future, Walther expects the platform will allow consumers to elect to get digital receipts following all the purchases they make on the card, link frequent-flier programs to their credit cards and put gift cards on select payment methods.

"The whole idea is that more and more of these physical cards and little pieces of paper get turned into software components," he says.

The open market means the possibilities concerning credit cards are endless, but it also means digital payment methods may stand a chance since most of these programs work just as well, if not better, on mobile phones. The app ShopKick, for instance, uses a phone's GPS capabilities to feed customers deals and other rewards when they walk into participating retailers.

"The loyalty angle gives consumers incentive to switch their payment methods," says Mary Wisniewski, another blogger with Bank Innovation.

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