Industry Analysis: Credit Cards

The credit card issuance and processing industry is a key part of our daily lives, we swipe, insert or tap our credit cards when making purchases with little consideration for the process behind it. Over the past few years, increasing security features has changed the way consumers interact with the point of sale system when completing purchases. Once the consumer has completed the purchase with their credit card, the payment process behind the scenes has remained the same for years. But the industry is on the verge of dramatic change as a result of the growing innovations in technology.

The industry is made up of two parts: card issuers such as banks and merchant payment processers such as Visa and MasterCard. Together they make up the “transaction cycle.” The two major companies that offer services that cover the entire “transaction cycle” are American Express and Discover. The industry has matured in the developed world but is growing in emerging countries. In both the developed and emerging countries, cardholders are pushed to make payments with their credit cards as new benefits are constantly being made available. Roadblocks for companies include the skepticism of credit card payments in emerging countries that have traditionally relied on cash based transactions.

Personal credit card issuance has more than doubled globally from 2000 to 2012. In Canada, there are three main industry players: Visa (40.7% of transactions by dollar), MasterCard (21%) and American Express (5.6%). Interac payments make up 32.7% transactions by dollar amount. All of the “Big Five” Canadian banks issue Visa and MasterCard credit cards while only Bank of Nova Scotia offers the American Express credit card. In Canada, American Express is considered a “Schedule 2” bank as opposed to Visa or MasterCard.

The advancement of cloud computing and mobile technology has allowed companies such as Square and PayPal to disrupt the traditional processes within the industry. They are seen as the premier companies promoting mobile commerce. On the merchant side, Square is using cloud computing to develop payment processing services and mobile technology to develop a point of sale system. On the consumer side, Square is developing an “e-wallet” that allows consumers to pay merchants without the use of credit cards. PayPal has developed similar technology to Square with “PayPal Here.” The product developments of PayPal and Square have resulted in innovations from traditional players including MasterCard and Visa, which can only push the industry further forward. The result of this will be a revolutionary change in the way consumers and merchants conduct business.

I developed an interest for the industry while in my prior role at American Express where I gained some exposure to various functions within the company. I was exposed to the growing influence of external parties (regulators) while also becoming aware of new competitors from recent innovations. The industry holds many career opportunities and interest for me because of my prior exposure to the various functions in finance, marketing, product management and brand management.

Sources:
Put it on my card. N.d. Chart. Euromonitor Passport Web. 11 Sep 2013.
Sands, Kendrick. “PayPal Global m-Commerce Share.” Euromonitor Passport. (2013): n. page. Web. 11 Sep. 2013.
Card and Mobile Payments. N.d. Chart. The Nilson ReportWeb. 11 Sep 2013.