Having a smartphone equipped for mobile payments with multiple payment options could weaken the impact of card brands, according to a new report from Morningstar Inc.
“The ability to store an indefinite number of payment options on one device would enable spending volumes to move from one payment brand to another more efficiently, essentially lowering the stickiness of payment volumes and eroding cardholder loyalty to a given brand,” Michael Kon, CPA at Morningstar, writes in a Sept. 9 investor report.
As competition intensifies in the mobile-payments arena, card issuers likely will have to offer richer rewards to get consumers to choose their payment option over others.
“If it's easy to change payment brands, cardholders will choose the card that pays them the most, which would force issuers to offer more rewards and put pressure on the networks to support them,” Kon says.
While card networks and issuers probably would be able to have their brands loaded on the electronic wallet, cardholders would be exposed to the brand of the electronic wallet and phone, which could dilute the brand of the issuers and networks in the payment space, he contends.
“In this case, we think issuers would reconsider the payments they make to Visa and MasterCard for the right to use their brand on their cards,” Kon writes.
Card brands have long competed for customer loyalty, employing a variety of marketing tactics to connect to consumers, including doing major promotions for passion-invoking events, such as Visa Inc’s efforts with the Olympics and the FIFA World Cup and MasterCard Worldwide’s support of the 2011 Rugby World Cup, which starts Sept. 10 in New Zealand.
While Visa has the dominant market share in credit and debit cards in the U.S., the card brands continue jockeying to be the exclusive brand on new card programs.
Capital One Financial Corp. recently decided to offer only MasterCard-branded cards to new Cash cardholders (
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