Who Needs 'Cards' To Make Payments--II

Payment platforms are definitely becoming the future of financial transfers of all kinds based on security, finality, speed, cost-efficiency, data richness and added value. As I have written many times before, payment systems and payment platforms are becoming the foundation of banking.

During the pandemic, there has been a seismic shift in how consumers and businesses behave and this has just accelerated the place of digital adoption. Those participating in the process must now deal with two issues: How to modernize legacy infrastructure for the long term; and how to leverage software as a service in the short and medium term, to keep pace with continued changes in digital payments.

Fast, efficient, modern and flexible payment processing systems are less expensive than most legacy systems and include enhanced data-carrying capabilities that provide a means to use rich data to add real value in the form of enhanced customer experience, and automated tasks, like reconciliation.

Data have already become a currency because money, and finance, is just information and it’s the bedrock of the future state of payments systems.

As such, organizations dealing in payment services, like PayPal (NASDAQ: PYPL) and other payments companies, are, I believe, going to play important roles in the future banking system. And, because of the role that they will play, they will be a good investment opportunity for longer-term growth.

But, there are a lot of questions that are related to the evolving payments system and some of the questions came out recently in one of my posts.

Are Credit Cards and Debit Cards Needed?

On Monday, November 9, I submitted an article to Seeking Alpha titled “Who Needs 'Cards' To Make Payments.” The event that caused me to write this article was the lawsuit filed by the Justice Department against Visa Inc. (NYSE: V) concerning its acquisition of Plaid, Inc., a data network company.

What struck me about this lawsuit was how the two parties viewed the situation. The Justice Department was looking at the acquisition as an attempt by Visa to reduce competition. Visa, on the other hand, saw Plaid as a compliment the things that Visa was providing its customers.

The basic point of my article was that Visa’s effort was a part of “the progression of technology.” And, this progression of technology is just something that we have to live with, something we have to adjust to, but, this adjustment is just a personal decision connected with one’s own preferences.

There was a difference in understanding about what the technology was bringing to the situation. But, differences in understanding are not absent from this whole scene as these differences extend to regulators, customers, and to investors. Consequently, we need to deal with this fact and talk about it.

It was not really surprising the response this post received, and the nature of the comments people posted to express their feelings. Since the responses were from investors, it seemed to me that investors need to see this situation as it really is and accept that these differences exist so that they can take this knowledge into their investing decisions.

Technology Moves On

Earlier, in one of my more popular articles, I wrote about a similar situation relating to banking technology for a monthly baking journal that published articles on current affairs in the banking industry. The subject of the article was Automatic Tellers Machines (ATM’s) and the questions I asked at that time concerned the use of these machines and their future.

ATM’s were a relatively new advancement in the field of banking and bankers at the time and bankers were initially disappoint about the fact that these machines were not being used as much as had been originally forecasted. Furthermore, the primary users of the machines were younger customers.

The use of the machine actually reflected a generation gap. Younger people tended to use the new technology. More mature people tended to continue to use bank offices. And, this continued to be the case into the future.

But, the use of ATM’s actually morphed into another question, one relating to the continued use of cash. If people grew to access their money with a “card” and this usage grew to the point where people actually made purchases from merchants with such a “card” would cash go out of fashion? Would we evolve into a cashless society?

And The Responses?

Well, the basic responses to this concern were almost exactly like the comments that I received by my November 9 post.

Let me summarize the major comments received this week. First, there were comments like these: “I need my Visa card”; and “No way on earth would I give up my Master Card.”

This compares with the fact that people, particularly older customers, were not going to give up going into bank offices or branches and they were not going to give up working with a live teller. That was just the way you did banking.

Second, people did not trust the new technology. In moving to a digital system one had to learn “a whole new technology.” How secure are the new digital systems? One commentor expressed concern that the “new” technology had glitches. Then there is the concern about “hackers.”

Back in the 1970s, there was the concern about the security of the ATM’s? Could people break into the systems and get my money? How safe was it to operate an ATM outside a bank with no other people around? “Bad people” might be waiting for me. And, what if the machine did not give me my money? How would anybody know?

Third, there was a basic concern that “bad people” might be able to access the electronic system and steal my information, steal my money, or get other information that might compromise me.

This concern was expressed about the ATM system. And yet the technology was accepted and the banking system moved on.

Coin and currency are still used; checks are still used; ATM’s are still used; and it is expected that debit cards and credit cards will still stay in use…at least for the foreseeable future.

But, the system is changing and evolving and the future will become more and more digital.

Conclusion

In a very real sense, the basic questions about the financial system have not changed given the changes in technology that have taken place. But, as the first few paragraphs of this article state, we have moved on and will continue to move on to a new banking future. People will have differences on what the system is about and how they will use it, but there is not stopping the change.

I may need my Visa card…others may not need theirs. I may not trust the new system…others may not. I may not want others to have my information…others may not. And the world moves on.

Investors need to look beyond the resistance to the change, to the misunderstanding bout the change, and to the distrust of the system and it security fears. In fact with the new payments systems and the companies offering them, the investor needs to look solely to the future.

I may need my Visa card…but, that will not stop PayPal and the firms creating the future.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.