Many Digital Payment Systems Can't Escape Plastic Cards

The Bitcoin system is preparing to join the many digital payment options that fall back on a prepaid card — but is a plastic card even necessary for e-wallets supported by Bitcoin, PayPal, Amex and others?

BitInstant LLC's planned Bitcoin prepaid card is just one of many such products. American Express Co. offers a prepaid card with its Serve digital wallet; PayPal, in addition to offering a conventional prepaid card, also uses a plastic card as an option for its new digital point of sale payment system; and mobile-payment provider Obopay Inc. joined with Visa Inc. in May to disburse funds to prepaid cards in near real-time.

The premise behind these moves is to ease consumers' transition to digital payments. It can also be seen as an admission that many of these digital payment initiatives are still a bit too far ahead of their time, as many point of sale terminals and ATMs are not equipped to handle mobile payments.

"Although we're very much poised to adapt to any new mobile technologies of the future, the reality is most retailers today run on plastic," says Charlotte Fuller, communications manager for American Express.

"We have to recognize that the world of today is pretty far away from the phone-swiping, custom-offers world of tomorrow," Fuller says. "We believe the winners in this game will successfully bridge that divide from the start."

PayPal is a less straightforward example. Its most recent initiatives seem built around plastic cards, but do not rely on them, and appear to subtly discourage cards' use by making users wait to receive the card component of each system.

For example, PayPal's point of sale payment system prominently offers a plastic card, but many don't use it — the card takes one to two weeks to arrive by mail, and PayPal allows point of sale payments immediately without one.

Its Here mobile payment acceptance system similarly seems built around an add-on card reader, but this too must be shipped after the user enrolls — and the Here system can be used without it right away. The Here app can scan cards with its camera, but it also works with PayPal electronic payments and even checks.

PayPal also lets users of its online payment system link their accounts to a prepaid MasterCard as another option for offline spending.

"We continue to focus on giving consumers more convenience, flexibility and choices when it comes to their money," says Don Kingsborough, PayPal's vice president of retail and prepaid products, in an emailed statement provided by a spokesperson.

"PayPal is committed to developing tools that consumers want for their purchases and we have heard from our customers that they still find value in a tangible card," he says.

Consumer choice is one factor, but the reality is many of these payment systems are not fully compatible with the systems consumers use every day to make payments.

"Bitcoin and Serve and Obopay and PayPal can support [online payments] easily, but without a card they really can't infiltrate the physical point of sale — that's the primary reason," says Aite Group senior analyst Madeline Aufseeser.

PayPal is working to address that issue. Its recently announced agreement with Discover Financial Services will allow consumers next year to make digital PayPal payments over Discover's network without a card.

"The secondary reason is brand extension," she says. "To get further utility out of the products they're offering. It extends the brand, it extends the image of the company, it extends the consumer's potential interest in other products."

The mainstream use of smartphones for point of sale transactions is inevitable, Aufseeser says, but even if most people don't want a plastic card, it may take a while to fully transition away.

"People still write checks today," she says. "How long has online bill pay been available? Close to 20 years. Paper checks have not disappeared … Plastic cards will be around for quite some time but eventually the amount issued will be reduced."