Will cards disappear before cash?

Many have tried to replace card in the last 20 years of Internet commerce. They've failed. Good luck trying to succeed in this mission in the next 20. While on this subject, it doesn't matter that merchants were told to cough up the cost of PCI DSS. If V/MC had done something on their own instead, they still would've passed on the cost to merchants. End of the day, for a payment card, V/MC is the supplier and merchant is the customer and, as they say, a good business makes its customer pay for its last cup of coffee.

It's not about a card. It's about "push" vs "pull". Card networks are already experimenting with both models to hedge the risk of disruption.

Pull is based on a customer providing all the payment to the merchant. Push is based on a customer instructing the issuer (bank) which merchant to pay.

With push, sensitive data stays with the entity that created that data in the first place; and the risk shifts from passing sensitive data to just customer verification (which is neede with Pull too).

Instant payments in Europe is a good example of Push. As it's direct a/c-to-a/c transaction, it disintermediates the card networks. That's one of the reason why Mastercard bought Vocalink (I hope that the Mondex scenario is not repeated again).

One also needs to look at Cash and Cards as Tokens that change with time as well as push and pull payment model.

The physical form of cash has changed over time and will continue to change.

The Card has also changed in form over the last 50 years in terms of technology.

The card schemes will also continue to evolve as consumers require payments to be both pull and push to manage the different usecases.  

I forsee that in many usecases cash may be dematerialised as well as cards in some scenarios.  The question is will the payment rails be a managed scheme or a scheme modeled more like a cash model (commodity value model).

One thing we can predict is there will only be change if it reduces payment costs to individuals and organisations or it is reguated now in very large markets.

Okay let's assume you know a BIN/IIN, know that you need a MOD10/Luhn Check Digit and can safely generate a complete and valid PAN (not very difficult - there are helpful tools on the internet to help generate/guess such things).

Getting a hole in one?  A valid PAN, with valid CVV and Valid MM YY Expiry Date - probably less than 0.001% chance - and if you are trying to validate combinations with any velocity any Issuer worth it's salt should be able to work out someone is attempting to guess Card credentials (consecutive failed attempts).

Why are Cards always seen as the bad guy?  Work with what you have - don't chase Unicorns.

In response to the last comment, if issuers mandated the use of CVV and expiry date and checked the information given you are right that it would be more difficult to guess card details but the reality is that they don’t and a card number alone is enough. This is, at least in part, due to the PCI DSS mandating that the CVV must not be stored so for websites that store card details they must send transactions without the CVV.

As to why Cards are always the bad guy? PCI-DSS and massive fines have been mentioned. Add to that the cost of doing business with the card schemes. Visa currently has a market cap of nearly a quarter of a Trillion dollars. That is a huge investment to get a return on every year.

There has to be a better way. If we always continue to work with what we have there would be no such thing as progress.

Not quite the accurate picture - in order to perform a subsiquent unauthenticated transaction a prior authenticated transaction must have been performed (the first time you registered your card on Amazon - for example). For others (like Apple) they ask you to reconfirm the CVV from time to time. Issuers do not just accept eCommerce transactions without authentication of the most basic kind...

Progress comes from solving problems, not inventing new things just for the sake of it and without understanding the dynamics of the incumbent situation. In any case, so many companies across so many industries have claimed that card payments are costly but have uniformly failed in their attempts to come up with a cheaper alternative for the mainstream market e.g. Dwolla, Carrier Billing, MCX / CurrentC, SoftCard / ISIS, etc. Given this backdrop, I tend to believe that card-replacement products are more a sign of delusion, not innovation / progress.

Like other companies, Visa is measured on Return on Equity, which is based on equity. At $30.783B, Visa's equity is only 15% of its quarter-trillion market cap. AFAIK, there's no metric called Return on Market Cap against which Visa is expected to deliver returns.

In my opinion the reason why all the mobile wallet/payment systems have failed is precisely because they have endeavoured to layer them on top of the existing card scheme's rails rather than creating something that's new, better and more pervasive than that which has gone before.

I would go further and say that all of the current payment systems used by banks today are inefficient, expensive, slow and/or exclusive.

That is very much a blog topic in it's own right however

Two words (in Europe): PSD2 PISP.

Oh, no, not true at all. Dwolla, Carrier Billing and SoftCard all began by setting up independent payment rails separate from ACH / card rails. As I highlighted in https://www.finextra.com/blogs/fullblog.aspx?blogid=7438, carrier billing players began life on MNO rails and levied 30-40% transaction fees on merchants. With that kind of fees compared to 1-3% MDR of card networks, it was not surprising that they failed to gain traction. Only then did they hitch themselves to card rails as a last ditch effort to survive, realizing that they could never match card networks's 1-3% MDR.

You missed the point. PSD2 is about obligatory opening of the existing rails to third parties. On attractive terms. Europe-wide.

Again - as per the previous discussion - the change won't happen overnight. But it will happen.

After you'd been fishing in a desert with your bare hands, your circumstances change dramatically when you are transported to the abundant seashore with the captain of a fishing boat handing you in a fishing rod (and a license to fish).

Pages 48-49: https://www.slideshare.net/ericschmidt/how-google-works-final-1#50

@AlexanderPeschkoff: JFYI, my comment about Dwolla et al was in response to @ChrisBrown's comment, not your comment about PSD2. 

Sorry for the confusion, @Ketharaman. You know that I always like our heated debates :)

@AlexanderPeschkoff + 1. LOL:)

At the risk of sparking off another heated debate, Finextra reported yesterday that tech specs for PSD2 may get postponed to 2019. When I read that, I wondered how many fintechs would be around till then for PSD2 to really matter much!