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How Will The Growing Mobile Payments Industry Affect Credit Card Companies?

April 16, 2015

credit cards

The mobile payments industry is growing at an extremely speedy rate, with an ever increasing number of transactions occurring on a yearly basis. The year 2013 saw a figure of approximately $235.4 billion spent via mobile payments and this figure is expected to more than triple in 4 years, with an estimated $717 billion expected in 2017.

The drive in people using mobile payments is not surprising since it flows right alongside the growth seen in the number of smartphone users, as well as an increased number of sales merchants accepting mobile payments. The introduction of mobile wallets and an increased focus by companies to promote easy access to their loyalty programmes and vouchers can also help account for the increase seen.

It should, therefore, come as no surprise to learn that Visa and MasterCard have recently seen fit to ramp up their efforts and capitalise on this growing trend. The two giants currently account for the majority of credit and debit card spending in the marketplace (over 80%), so are already way ahead of their competition, however, their recent efforts could result in an even bigger boost in their revenues.

Growth in transaction fees means increased revenue for credit card companies

About 30% of revenue for Visa and MasterCard currently comes from the transaction fees they charge their merchants each time a customer uses their credit card to complete a transaction. Last year saw the number of Visa’s transactions increase by 10% and for MasterCard, 13%.

Earnings for credit card companies will grow should they continue to see an increase in the total number of mobile payment transactions; likewise revenue will also grow if people continue to favour electronic payments over cash.

The main challenge to the growth of mobile payments will always be security, i.e. the risk of identity theft or fraud, as well as a number of other security issues. So, in order to allay people’s fears, MasterCard and Visa have introduced their “tokenization” technology.

Tokenization involves a series of unique, random numbers that replace all the user’s sensitive data during the completion of a transaction. Visa and MasterCard will most definitely be hoping that this technology will help to encourage the adoption of mobile payment technology.

Over recent months an increasing number of tech giants have announced either their intention to get in on the mobile wallets market, or have actually launched a systems such as Apple with Apple Pay and Samsung which is soon to launch Samsung Pay. As more tech giants get involved, we’re surely going to see increased levels of market competition and therefore an increasing number of new payment technologies being offered.

This will put a lot of increased pressure on credit card companies to reduce their transaction fee charges since they will all be fighting to partner up with these tech giants and join in on the best (and therefore likely to be most popular) mobile ventures.

Increased market competition tends to be a very good thing for (for consumers and vendors) since it often leads to reduced fees. However, whether or not Visa and MasterCard will welcome what most would call ‘progress’ in the mobile payments market is another thing entirely! We shall have to wait and see…