Is the Future of Cards NO Cards?

What will credit cards look like and be capable of to thrive in a world of mobile wallets and an abundance of digital payment options? Are virtual cards the main product path forward or will consumers embrace a blend between contactless cards, real-time payments and devices? This session will make sense of the landscape and where it’s headed.

Transcription:

Jason Steele: (00:07)
Good afternoon. My name is Jason Steele. I'll be, moderating this panel on the future of cards. Is it no cards? I, if you not familiar with my background, I've been a journalist covering credit cards and consumer credit since 2008, for many outlets as a freelancer. I also produce a conference called CardCon for media that covers the credit card and consumer credit fields. And I'm really happy to have, with me today here. John Lazzati, who's a Managing Director of Consumer Cards for Goldman Sachs, a pretty recent entry into the consumer card field and an exciting one and a more, traditional though. Wasn't always that way. credit card company, we have a Alisa Ellis, global, I mean, I'm sorry, Vice President and Global Head of Innovation and Emerging Products for Discover Financial Services. And of course, you know, they are a payment network as well. So we have a different perspective there. And so a lot of us like my, well, some of us like myself have many credit cards and they, and they're a big stack in my wallet and they're quite, thick to carry around. And, and as we've seen in the last few years, we've had emerging types of electronic payment systems, and it really feels like we're in the middle of a journey, the journey from the day, not too long ago, when everyone carried, had to carry a plastic cart around to the day, sometime in the future when perhaps nobody does. So that's the kind of the first question I want to post my panel here, is where are we in this journey? what does it look like in about five years? And I don't know who wants to start first,

John Lazzati: (01:47)
I'll kick us off, so, you know, the answer is digital cards. Are they the future? I mean, it's the now, I think things will continue to evolve looking out, but, you know, we look at kind of where we are from a macro standpoint and, you know, we're in this instant gratification type of society and economy and people don't wanna wait for their payment products to get into the mail. And so really it's about how do you get that product into the customer's hands as quickly as possible, and so one of the things that, you know, we look to do is embed our products into the experiences where consumers are, we deliver digital cards within minutes after approval, so that you can start using it right away. You can add it to your mobile wallets and begin spending, so you can get to kind of those accelerators and rewards points that consumers are, really after. And, you know, recent study today said that there's about on average people spend about four hours on their phones in various apps, browsing, shopping, making payments, so embedding your digital products and digital cards, throughout that ecosystem is an imperative.

Alisa Ellis: (03:02)
No, I'll jump in here. I think you know, the card is never the point, right? So people don't go out there and say, I really wanna get a cool piece of plastic. What people wanna do is get access to their accounts or they want to access to their line of credit. and so I think rightfully what we're seeing is a shift, to that access and to the experience which of course is driving us in more digital directions and away from the discussion of kind of what's the form factor. So, absolutely agree with kind of where you were going, right. There's a huge variety of those embedded experiences where that makes sense, and you were asking, well, you still need your card, well it's I guess for me, there's always, the test of can I actually leave my wallet entirely at home? And so, for women in the room, right, I used to have the wallet that was this big and had all my cards in it. And you had your mobile phone that maybe had your one test card that you loaded into apple pay to see if it would work. And over time what's happened is my physical wallet has shrunk. So I can now carry a lighter purse. So that's very exciting. And my digital wallet has expanded, right. Really excited actually here in the state of Arizona soon, you'll be able to put your driver's license into that digital wallet as well. So not only your payment credentials, the more that utility will expand, the more we're gonna be able to use digital and only have that physical plastic instead of your sock drawer in your in your pocket or in your purse as backup.

Jason Steele: (04:46)
Well, five years ago, I'm in the, on this stage here at then card forum. And the big issue that people were debating was how are they gonna get the merchants on board with EMV chip cards? And of course we all know how that was solved with the liability shift. Is it gonna take something along that lines from the payment networks to get that last five or 10% of merchants? I mean, it's, it's gotta be much more than that currently onto these NFC payment systems, because, because right now you have to carry that backup because who's to say the gas station will take apple pay one year tank is empty.

Alisa Ellis: (05:24)
Sure. And I think it's, it's, it's taking us a little bit of time, well, here in the U.S Right, elsewhere in the world, that technology has been out for 20 to 30 years, but I think what's gonna accelerate that drive of the merchant to say, yes is not, it's not us in this room, it's the consumers. Right. And we've actually seen a huge rise in that shift in payment preferences from the consumer during the pandemic in particular, that whole idea of clean commerce, was really coming to the forefront primarily because nobody wanted to touch anything, much less a terminal, right? So a lot of that came from, I wanna go contactless, not because it's a cool new tech and somebody's telling me I wanna do it. It's because I want to get as few germs on me as possible. And once you habituate to that, that's gonna happen, but I'm not sure. It always has to be, you know, NFC, right. So contemplate can take many forms. We're gonna see more app based payments at the point of sale. So they're gonna be digital, not necessarily all kind of traditional contactless as we see them could be QR code based, right. We're seeing a variety of those payment triggers and they're gonna continue.

John Lazzati: (06:41)
Yeah. I would just add there's really three components in that shift to truly cardless, which is us meeting the banks, the merchant. And as Lisa said, the consumer, and ultimately we are gonna have to follow the lead of the consumer, but I think, you know, there's an interesting dynamic that's starting to play out and I happen to just see it over this past weekend of, you know, I think consumers are starting to leave their wallets at home potentially a little bit more when they're out and they just have their phone and they're going into stores. And I happen to witness this, this weekend of they went up to buy their merchandise. The merchant happened to not be able to take the contact list or tap to pay, and the individual just left and didn't make their purchase and I think, you know, as we begin to see more of that, again, following the consumer, I think that's, that'll look at us over the final hump there,

Jason Steele: (07:32)
You know is there a reason why, we were late in here in the United States to the EMV bandwagon and seems like we're a little bit late to some of the contactless. I mean, do you have any theories why the US payment system seems to lag sometimes behind Europe?

John Lazzati: (07:47)
I mean, I would say, you know, first on the, em, VPs, obviously we're essentially caught up. If you look at where we were in 15 to where we were in 19, you know, that's, but there, I think there's, you know, I think, I'm not sure that we'd like to be like the test ground as like the us consumer to test all that stuff out, and I think as we see it play out, you know, we consume that, what I would say is what we've seen internationally specifically in Europe and Asians and other countries is, you know, they do more into the payment terminal and there's more innovation there of, you know, directly integrating point sale financing into that payment terminal. You know, they have much more advanced, I'll call it near term payment technology. That's embedded that to Elise's point kind of takes the card out of the equation and makes many more mediums available for payment. I think we're beginning to, shift there. I think we'll see more of that innovation in evolution in the coming years.

Alisa Ellis: (08:44)
And I have maybe a more pragmatic answer of, you know, why EMV in the U.S, Kind of is so late, it was invented, the technology was invented to solve a different problem, right? So in Europe and other markets, their online connectivity just wasn't very great. Right? So the ch technology came to be to solve a very different problem in the us, frankly, just wasn't experiencing that. I think where the two are converging is around, well, it is just a better experience, right? It's faster, it's cleaner. It's definitely has more security, opportunities. So that's where we start to see that demand catch

Jason Steele: (09:23)
Up. And I've heard that explanation from card manufacturers that I think dates back maybe to the eighties or nineties, it was very old problem that was solving, you know, speaking of the new solutions though, we're all familiar with biometrics with our telephones. Maybe you've used other types of, biometric, authentication perhaps at the airport. What's the role for biometric authentication with a cardless future? Is it all enveloped in our phone or is there a future perhaps where the merchant has some sort of a biometric authentication embedded in their terminal?

Alisa Ellis: (09:58)
Well, we're definitely seeing both, right. So for those of you who are used to using your mobile devices to make payments, right, biometric is just natural, whether it's your fingerprint face ID, we're used to that, right. And we just don't think about that as biometric. It goes, back as many decades as, you know, pay by touch, which was I'm dating myself from a payment technology perspective, but we're seeing newer entrance, like, the Amazon solutions they're looking at Palm prints and Palm scans, looking at vein technologies is a different form of biometric, certainly where I see the need for that is to make sure in every situation that the rightful owner of the account is the one who's making a purchase. Right. That's what we're all after. and the easier we can make that assertion that authentication then yes, biometrics will definitely have a space.

John Lazzati: (10:56)
I think it'll be interesting to see where the technology goes, where the innovation is I think ultimately it's gonna go back to the consumer and what does the consumer want? What does the consumer demand? And we'll take the lead from the consumer and kind of innovate and iterate from, from there, but potentially that could play out again. I think it could be other mediums that we see that, get more traction, as well in the, in the payment space going forward.

Jason Steele: (11:24)
Yeah, almost counterintuitively. There, there appears to be a security issue with biometrics. As, as someone once pointed out to me, you could change your password, you can change your account number, but you can't really change your fingerprints. So if someone was to you know, maybe not like the movies where they have a, fake fingerprint, they hold up to the scanner but maybe someone wants to capture that data and, and use that to commit fraud essentially that data could once compromised, frankly, couldn't be changed. so do you have any thoughts on how that would play out security wise if biometrics ever, ever left that secure loop of your phone?

Alisa Ellis: (12:03)
Yeah, I think we've learned a lot about biometrics and what not to do with them and in particular store them in centralized locations. Right. So definitely pro biometric, but making sure that they're both distributed and then used in conjunction with other factors like device recognition and other things, I think in combination, you can overcome that security, potential flaw, I think in general with a lot of digital experiences, what we're seeing from a security perspective is really the vulnerability is the point of kind of linking the device to the person. Right. And so ability to really be able to tell that it's the rightful owner of the account, as I said, kind of the consumer and that whatever they're transacting with is one and the same. That's the key moment of truth for security.

John Lazzati: (12:57)
I think that's right. I mean, I don't have much to add to that cause I think that that answers spot on. I, I think the key is that the multifactor authentication it would have to be there, because as the technology evolves fraudsters evolve and we know that that risk will always be there.

Jason Steele: (13:12)
Sure. Well, beyond your phone and obviously your card, one of the emerging areas appears to be automobiles cars and trucks, your vehicle providing some kind of payment and there has been some movement among car manufacturers, if you've purchased or rented a new car, you might have noticed that. What do you think the, the role is with your vehicle, for the future? Or is it more like apple play Android pay with the vehicle is just an intermediary to your phone?

John Lazzati: (13:40)
Yep. So my opinion on this one is I think that there is gonna be innovation in a movement there in terms of incorporating the card into the car and what we're calling incar commerce, again, if we look over internationally European there, it's, it's much more advanced there in terms of I'll call it European technology and payment from the car and you don't actually have to get out. It's not just for gas and parking, but they do a lot more over there with like dining, et cetera, and if you look at what the auto manufacturers are doing around connected cards, cars, and moving to subscription based models and then how do you embed those payment products within there? And I think, you know, the in-car commerce, you have to almost define, you know, what it is around. You have, like the automatic in-car commerce, which is like, I do nothing.

John Lazzati: (14:34)
If you think about, you know, your the speed pass that you have in your car or the other moments, there's also like the mobile component of your in your car, on your phone and then there's the built in, into the in head unit infotainment again, where you can store your payment credentials that get tokenized and are used for, for those purchases. Interestingly enough, there was a report that came out, I think, two weeks ago or so, that said in 2023, that incar commerce will be, I think it's 285 billion in spend. And if you look at 2017, through 2021 has experienced 195% compounded annual growth rate. so consumers are telling us something, I think, you know, early days in terms of exactly how that plays out, but that's an area that we're certainly, excited about in looking to explore with our new partnership with journal motors.

Alisa Ellis: (15:30)
And I think I'm gonna be contrarian here. I definitely think consumers are gonna pay from their cars. So, I think the statistics that, John cited around the growth of that opportunity is absolutely there, but to me it's a little bit like early days when we had navigation systems or, especially the ones that were built in from the car manufacturers, right. Who remembers OnStar that was gonna be specifically, and you set it up and it worked in your car. And then eventually we got to the point where my phone does that has better directions. It updates software more frequently. So do I need directions in the car? Yes. Do I need commerce in the car? Yes, but I think we can accomplish a lot of that with a phone that's already there.

John Lazzati: (16:17)
I think, I think the one benefit that you can, like the phone is always gonna be there as a component. I think that, you know, consumers want things that are simple and easy and like not having to use your phone to pay or to like select the pump or to make a parking payment in doing it automatically from the car, with the payment embedded there. I think if that's a possibility, which it is in other places I think you'll see more consumers go there in terms of like, not just using the phone. I think it'll be very complimentary. And I think the two combined actually allow you to get a greater share of that consumer spend and wallet.

Alisa Ellis: (16:59)
We are seeing actually opportunities in terms of car driven, what we are actually calling machine initiated transactions. so something, for example, in fleet vehicles. So it's not actually a person inside a car making a decision to purchase something, but as the cars get more connected and a lot of their sensors are indicating whether they need a fuel purchase or they need a servicing stop, actually the car itself triggering that payment. So we, at discover have a partnership with a company called car IQ that for example, sends a signal of that machine identity and then initiates that, kind of human list, right. Machine initiated payment. So we think there is definitely opportunity there, but yes as John was saying, we'll have to see how all of that evolved.

Jason Steele: (17:53)
Yeah. I think the fleet opportunity seems to be the most attractive to me. Our family minivan Chrysler has a Uconnect system where it felt like it was advertising. It felt like they were trying to sell me things. And I really wasn't receptive to, you know, essentially seeing a commercial on the car screen, you know, hope, hopefully it'll evolve to something maybe a little bit more attractive to consumers you know, but speaking of consumer preferences, consumer behavior, I've read about other, you know, in other countries, wearables are becoming more popular. It becomes a little bit more science fiction, like where people are waving their sleeve over a terminal because there's an embedded chip maybe in their jacket. Haven't seen that in the United States, although I guess the smart watches are certainly, a thing. Do you think that's gonna catch on here? Or what do you think of this wearable trend?

Alisa Ellis: (18:43)
I think wearables absolutely have their space, but where you've seen them really take off is in the right context. And that context has been things like festivals, concerts, right. Where you really want to, write sporting events. So kind of in that context where having a wrist band or something like that makes more sense certainly. And I don't wanna offend any chip manufacturers in the room for those of you out there, right. We can embed chips into a lot of really cool things and have been for a long time. So who remembers like the NFC Olympic rings, right. They didn't take off because they don't really solve a problem so to me definitely wearables have a place, but it has to be in context. So where you're seeing that is if an athlete is out for a run, is the payment embedded in their shoe? Yes. If it helps them, be more efficient in their morning run and not be encumbered.

John Lazzati: (19:42)
Yeah. I think the, I have the same question as Lisa, which is like, what problem is that solving? I think there's certainly a convenience component there, and you see that today with, you know, the watch, but I'm not sure that there's as much of a strong pull of like a pain point from a consumer of like, of what you're getting to. unless you wanted to add something on top of it, where if it's wearables technology, you get something better than just using something else. but you know, I for 1:00 AM, am skeptical that reads the large growth there in the near term.

Jason Steele: (20:19)
Hmm. You know, when I write about credit cards, I I'm writing about two things I'm writing about, first of all, the financial product, the credit account which I, you know, kind of separate a little bit from the physical card via plastic or metal. And, you know, eventually it occurred to me that the credit card is unique. We don't have a card representing our checking account or savings account usually, or our home mortgage or auto loan or a personal loan. You know, how does, you know, there's been an effort in the past to kind of separate the, the payment device from the, from the financial product and I'm thinking of that, that failed currency, system that, that several retailers tried to implement. And, I think that consumers kind of got the fact that no longer are they protected by their credit card account, you know, charge back ability, things like that, that it was being directly debited. Do you think that, that there'll be more efforts to kind of bypass the credit card from a regulatory standpoint, from a merchant fee standpoint in these new cardless methods of payment? Or, do you think we're gonna still see it attached to a traditional credit card, financial instrument?

Alisa Ellis: (21:39)
I can start. I think there's always gonna be a tension right. Between, access to the underlying account. So in the case of in the case of debit, you can kind of bypass it in the case of credit, right? It's the bank's money. So you need access, you need to tap into that somehow, and that tension between the merchants drive down, trying to drive down the cost of payments, and, as you were mentioning kind of trying a variety of different things and different form factors to achieve that savings. I do think that giving access, and we just heard a great panel on by now pay later, right? You need to give access to that credit line and to that purchasing ability, whether that happens, with a piece of plastic and suit through some other means, I think, that'll continue to evolve. What we're also seeing in other places is kind of the separation we're used to, almost as you were mentioning, Jason, that the piece of plastic stands for more than just access to the credit line. It's your chargeback, right? it's your insurance, in some cases, it is it's your ability to return things, right? It's your ability to dispute the transactions. So, we can start to separate those things and say, in some transactions, we are probably gonna say, I want the low cost of processing and no recourse. I'm going to eat my hamburger. I'm not gonna return it. Right. I don't need that protection. I'm buying a rarely high end item, or I'm getting something shipped from a place I've never seen before. I want that ability. So almost, see somebody agrees with me, almost, kind of a Chinese menu of options of which ones take purchase protection, chargebacks, and other capabilities, versus those that just give you access to the account, or we're gonna see a lot more creativity in how those options get combined.

John Lazzati: (23:53)
I mean, I think we'll, we are always gonna continue to see people that are gonna try and disrupt a long established market. I think, you know, the, the points that you said, the points that you said on consumer protection, I think is hard to disrupt. Cause I don't know how else you deliver those embedded protections with other things. I also think, you know, as you look to dis intermediate or to try alternative solutions, you know, one of the biggest challenges there is gonna be, you know, you're trying to change consumer behavior. It's really hard to get consumers to like change what they're doing to use a different payment, vertical, or a different stream, which is, I think some of the downfall of the currency that you mentioned, and so, you know, I'm sure that we'll continue to see it, but you know, I think that the embedded protections that consumers are used to is really hard. and it provides tangible value. It's hard to walk away from that.

Jason Steele: (24:52)
Yeah. I mean, I could almost imagine a future where this new payment technology be, it NFC or something else is agnostic to the actual payment instrument. It could be your debit card. It could be your credit card. Maybe it's a, B NPL, offer. does that, does that sound plausible or do you think that these payment options are going to be kind of captured by the different regime via credit card, debit card or something else?

John Lazzati: (25:23)
I think you could see, you know, different options coming together. I think you see some of that already, or some attempts at that. I think in the prior panel, they mentioned about, you know, post purchase installments and prepurchase installments, and how does that pay into the B NPL and, you know, modest success or there success there. And, what's the underlying value. I go back to like, you know, Elis what you said earlier, which is, I don't know the problem that that would solve for consumers, unless again, there's an inherent value above and beyond what they're already getting today, but who knows, like think, listen, we match things together all the times and in great innovation come comes out of that, but again, you know, I don't know what that underlying consumer pain point is that we would go back to.

Alisa Ellis: (26:16)
Yeah. And I think we're seeing variety today, right? We're seeing app based payments account to account payments, using either faster payment rails or network rails push payments, like discover, deliver as an example. we're seeing, as I mentioned machine initiated definitely higher adoption of digital means. So it's interesting, right. If you've been in the space for a while, it's like every year is the year of the mobile wallet and here we are. Yeah. Everybody's chuckling because, and I just wrote down some stats, so it seems like we're finally getting there looked at some studies and by 20 25, 40 5% of consumers are saying, they're gonna be frequent users of mobile wallets up from 23% in 2020. So that's still less than half, three years from now. Right. So we're gonna be getting there. It's just gonna take us a really, really long time.

Jason Steele: (27:21)
Yeah. It doesn't sound like that initiative to say, you know, every merchant's got to accept this, or every consumer has to have it. That's not coming along. This is gonna happen at the pace of, in some cases, the slowest consumer,

Alisa Ellis: (27:35)
As, as usual, right. We still haven't gotten rid of checks, as I know, everybody knows. And so we're all gonna coexist for a while, but the complexity of what variety I think will be out there, is going to increase,

Jason Steele: (27:49)
But we're no longer using carbon paper and going like this so we know that. So.

Alisa Ellis: (27:54)
Got rid of the knuckle

Jason Steele: (27:55)
Yeah. So we have a couple minutes left. If anyone would like to ask the panel some questions, we'd be happy to, to hear them. Yes, sir. I think gentlemen, next to the camera there had a question or is he just yes. Oh the person with the microphone, I think is the back, if you want to just shout out or wait a minute wait a few seconds here, your choice, here it comes.

Audience Member 1: (28:24)
Thank you. I think I would just want to add to, you know, Alyssa's point and then call out the question, right? I know cash has not gone down. Check has not gone down. It has gone down. It has not eliminated, right. And a card is still is there, and app is coming up right. which is probably three to 6% of, adoption right now. So the question now is what more innovations should be happening in the card space, because for some, for a while, right. Both card and app will continue to happen so that consumers can continue take advantage of the card. Right? The same time they continue to toggle between card and app, that's the journey there for next five to seven years in ahead of us.

John Lazzati: (29:10)
I think the, how do you shift more to the card is gonna go back to what's the value prop that you're gonna give to the consumer and how easy do you make that interaction and, you know, how do you differentiate yourself on, on rewards? And, and frankly, I think, you know, if you look at distribution and what we embedded consumer finance of like really embedding those products where consumers already go today, I think that's how you're gonna get more of the shift. And I think seeing one, there's certainly more appetite on the merchant side to do that. And then two, you know, I think many financial institutions are investing in technology to be enable that where, you know, you externalize APIs to the merchants for them to consume and offer those products directly to their consumers. I think, you know, they don't necessarily wanna dis intermediate themselves from their customers, and so how do they enable kind of that same mechanism of payment to their Users within their ecosystem? That's where I see the shift really helping to accelerate. I should see it should say the acceleration of the shift, into more of again, card as a form factor, but more of like those financing opportunities that are not cash and check.

Jason Steele: (30:29)
Okay. Well, I actually, I think our time is up. So unfortunately we do not have time for an additional question, but I'm sure, our speakers would love to hear from you the next break. So thank you very much there. Thanks.