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  • Frank Tian

Old Bank/Card Model Still On Fire

The Economist recently published a piece to highlight the resilience of credit cards in developed economies.


In the US, the credit card balance dropped as much as 16% during the pandemic*, but has made a comeback.


It is amazing for the old plastic to remain relevant today, when you realize it was invented long before the Internet.


However, you should not be surprised if you have noticed the hard work of card networks, card-issuing banks, and merchant acquirers during the pandemic.


Other reasons for credit card’s comeback:


📍Vast network and balanced pricing established over time.


📍Resilience of the bank/card model in the high interest rate era.


📍Incumbents have adopted new technology faster than upstarts could acquire customers.


Nevertheless, the Economist highlighted 3 opportunities to challenge/improve the current model.


📌 Differential Pricing


Canada has allowed merchants to surcharge credit card transactions in Oct 2022. However, from the Australian and American experience, the impact to credit card usage would be small.


📌 Regulation


In the US, CFPB recently targeted credit card fees. However, regulation might have unintended consequences. For example, the cap on large banks’ debit card fees enacted in 2011 under the Durbin Amendment ended up driving consumers to credit cards.


📌 New Payment Scheme


Fast payment infrastructure could increase the adoption of account-to-account payments. Chase has been testing its pay-by-bank solution, in case a large chunk of payment moves off the card rail.


As the world spins into the post-pandemic era, the battle around credit cards/payments continues.


* Based on financial reports from the top 4 US banks.


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