In this post, I want to share with you what I found while I was doing some research on credit card trends.
Tap to pay
As of March 2020, one in three card present transactions by Visa is tap to pay, up from one in four a year ago (1)
In 2019, excluding the US, 55% of Visa transactions were contactless (1)
In the US, there are 145 million contactless credit cards in circulation and Visa expects that the number will reach 300 at the end of 2020 (1)
17 out of the top 25 issuers are fully issuing tap to pay cards. 8 out of the top 10 merchants are accepting tap to pay. 60% of all in-store transactions in the U.S. are now taking place at terminals that are enabled for tap to pay. (1)
Globally, tap-to-pay has resulted in 20% life in card transactions. (2)
In the US, tap-to-pay cards led to plus 4 more transactions per month and $160 increase of spend per month (2)
“CEMEA now has the highest tap to pay penetration of any Visa region. 2 of our CEMEA countries, Russia and Georgia, are in the top 10 tap to pay countries in the world. Georgia is, in fact, number one, with an incredible 96% tap to pay penetration.” (2)
77% of active terminals in South America are contactless-enabled. Tap-to-pay penetration was doubled in one year. Chile and Costa Rica have a leading 50% contactless penetration
“For example, on transit for London services, we saw double the transactions and 70% higher growth in spend by tap to pay transport for London users versus those not using tap to pay. In New York City, Visa is partnering with Chase to promote tap to pay in and around subway stations that are contactless enabled. As a result, Visa has crossed 4 million taps within the MTA system and contactless payments will be accepted system-wide by the end of 2020.” (2)’
In Asia Pacific, tap to pay penetration increased from 29% in 2016 to 41% in 2019. Post activation, tap-to-pay card saw 3.8 times more transactions and 1.8 times more spend per card. Specifically, tap-to-pay cardholders made 3.9 times more transactions at fast food restaurants and 2.3 times more at supermarkets and grocery stores
On average, an American makes 12 cash transactions a month. 55% of all transactions under $10 were made in cash (2)
In daily segments such as gas or supermarkets, card penetration stood at 60% for the US (2)
Retail digital spending has grown at CAGR of 23% since 2016, yet it still only makes up 14% of global retail spending (2)
Cash and check penetration remains at 92% for Sub-Saharan Africa, excluding South Africa (2)
“The macro trends are incredible. It (Sub-Saharan Africa) has the fastest-growing population among major regions, double the global average and half of sub-Saharan Africa is under 18 years of age. It has 46 countries, and 6 of which are in the top 10 fastest-growing economies in the world. The market is still greenfield. Cards have only penetrated 3% of PCE, and 2/3 of the population does not have a bank account. Yet Africa is home to nearly half of all mobile money users. Sub-Saharan Africa is mobile first. People use their mobile phones daily to make and receive payments. This opens immense, immediate and long-term opportunities for Visa.” (2)
Rise of contactless payment reported by Visa and Mastercard
It is so much faster and easier to just tap your card or phone on a reader than to use the chip or swipe. The frictionlessness of this payment method has clearly wowed users enough that it is on a rise, especially in the US.
In the card-present environment, we continue to see meaningful momentum in tap to pay, what we consider to be the most friction-free way to pay in person. We have reached a point where 1 in every 3 card-present transactions that runs over our network is [tax] versus 1 in 4 a year ago this quarter. This past year, we’ve doubled the number of countries whose face-to-face transactions are at least 2/3 contactless.
Transit continues to be a key user case and an important way to habituate tapping behavior. In New York City, on the NPA, Visa crossed 2 million taps in November from the beginning of the pilot and 3 million in January. The FDA recently announced the tap-to-pay expansion to their entire system by the end of 2020, and we are currently pacing a 350,000 Visa taps a week on the MTA and nearly 1 in every 10 transactions in the New York Metro area is a tap-to-pay on a Visa card.
Source: Visa in its Q1 2020 Earnings Call Transcript, provided by Atom Finance
Echoing the sentiment was Mastercard in its Q4 2019 Earnings Call
..On to contactless, where as I said, we’re making real progress. This quarter, contactless made up over 30% of global card-present purchased (inaudible). Contactless provides a frictionless and fast payment experience, which is opening new categories of spend, including displacing cash on small-ticket purchases. The U.S. point for growth on this front and the New York City MTA is a good example of the potential for rapid adoption by consumers. In fact, they surpassed 5 million taps since the launch in May. And the MTA has planned to roll out contactless acceptance system-wide by the end of 2020.
I’m pretty certain that U.S. contactless will keep growing throughout 2020 quite attractively. Because if you look at the numbers of the number of bank partners that have committed to issue contactless cards for a [minute], let’s even forget Apple Pay and Samsung Pay that enable every card through their archive to be used. If you just look at the number of cards, we are talking about 70% of our total cards in the U.S. market will be reissued over this 12-month to 14-month period. My own personal cards are already contactless from Citi.
On the acceptance side, kind of all new terminals going on are embedded with contactless. So (inaudible) large retailers Target and 7-Eleven and CVS have announced that they will accept contactless payments. And in fact, over half of U.S. card-present transactions are now happening at contactless-enabled merchant locations. And when the MT rolls in on system-wide in New York City, and there are other transit systems beginning to do the same in their cities, I think you will get the impetus.
My country was mentioned repeatedly in the latest earnings call of Apple. In a positive light that makes me think that we are going to be, if we are not already, an important emerging market for the Cupertino-based company
Geographically, we established all-time revenue records in many major developed and emerging markets including, among others, the U.S., Canada, Mexico, Brazil, the UK, Germany, France, Italy, Spain, Poland, Thailand, Malaysia and Vietnam.
Phone revenue of $56 billion grew 8% year-over-year, as we saw a great customer response to the launch of our newest iPhones. We set all-time revenue records in several countries, including the U.S. Mexico, the UK, France, Spain, Poland, Thailand, Malaysia and Vietnam.
Productivity and Business Processes keeps leading the margin game for Microsoft
Microsoft has three main business lines:
Productivity & Business Processes that includes Office 365 Commercial and Consumer, LinkedIn and Dynamics
Intelligent Cloud that includes server products and cloud services led by Azure, and Enterprise service
More Personal Computing that includes Gaming, Search, Windows and Surface
Azure likely receives the most attention, yet it is Productivity & Business Processes (PBP) that consistently took the crown in the margin game at Microsoft. In the latest earnings report, Microsoft reported almost 44% margin for PBP
Even though there have been only 2 quarters so far in 2020, the segment has generated more revenue and operating income than the full year 2019
Contactless payments—or when a consumer taps to pay at checkout with a contactless card or mobile phone—continues to see strong adoption around the world. In 2019, excluding the United States (“U.S.”), tap to pay had surpassed 50 percent of face-to-face transactions that ran over the Visa network. This is up from less than 30 percent just two years ago. There are now more than 50 countries where tapping to pay represents at least a third of all domestic face-to-face transactions processed on our network, up from 35 countries at the end of last fiscal year.
The U.S. is starting to catch up to this global adoption rate. In 2019, U.S. financial institutions began issuing contactless cards to customers nationwide. There are now more than 100 million Visa contactless cards in the U.S., and we expect that number to grow to 300 million by the end of 2020
Contactless payments can also open up new payment experiences, such as transit. Transit continues to be an important use case for introducing consumers to the benefits of tapping to pay. In 2019, Visa helped launch contactless transit solutions in cities around the world, including Belarus, Edinburgh, Florence, Manchester, Miami, Milan, New York, Rio de Janeiro, Singapore, São Paulo and more—making it easier for people to get around while reducing operating costs for private and public transport operators.
In July, Apple CEO Tim Cook said the following in its earnings call
In the United States, in addition to a successful integration into Portland’s transit system in May, we’re beginning to rollout of New York City transit and will launch in Chicago later this year. In China, Apple Pay launched the payment card for Didi the world’s largest ride hailing provider.
As I’ve said before, transit integration is a major driver of a broader digital wallet adoption, and we’re going to keep up this push to help users leave their wallet at home in more and more instances.
While iPhone and Apple devices are wildly popular in the US, a recent study reported a low adoption rate of 9% of Apple Pay among Apple-device owners. It’ll be interesting to see how transit helps with the adoption of Apple Pay and, as a result, contactless payment in the US. In Omaha, to the best of my knowledge, there is no contactless payment at Walmart. Adoption at such a chain that attracts traffic like Walmart will definitely increase the use of tap-to-pay.
US seemed to have a bigger cash transaction on credit card than the rest of the world
While studying the reports from Visa and Mastercard, I noticed something quite interesting. The US seems to withdraw more cash from credit card each time than the rest of the world. The figures from Visa and Mastercard are pretty similar, signaling a true pattern. The following data is from Visa and Mastercard in the quarter ended Jun 30, 2019.
On Monday, Apple introduced its in-house credit card called Apple Card. Since it’s not available yet and the details are quite numerous, you can read more in these two articles on TechCrunch and The Verge or watch the presentation yourself here. I’ll just lay out my thoughts on the card below
I am convinced that Apple Card will attract a lot of sign-ups. After all, it’s Apple. The application process is reportedly straightforward and easy (we’ll see soon in the upcoming months). You can apply for the card from your Wallet app and the card will be shipped to you. If you use an iPhone 6 or later and are a fan of Apple, you will likely want to try your hands on the beautiful-looking titanium card for free, as long as you qualify for one. Plus, there are millions of installed iPhone 6 or later out there. So getting folks to sign up won’t be an issue. What about the usage for Apple Card? For consumers to use the Card, Apple has to give them a reason to, an incentive.
Security & Privacy
Security & Privacy is a big sell from Apple and it’s no different in this case. Apple Card comes without the stuff that makes credit card fraud possible from the physical card perspective. Plus, the way Apple sets it up makes credit card fraud significantly more difficult
Because of the way it is set up, every purchase with Apple Card requires biometric identification aside from purchases with the physical card. In the case of a non-Apple Pay transaction online — you must get your card number from the app and that is unlocked via Touch ID or Face ID, so biometrics are still in the path. And, for Apple Pay transactions, they are authenticated at the time of transaction. I personally think it would be cool to optionally require a confirmation from your phone to let a charge go through as well, but that is likely a v2 situation.
In other words, somebody needs to steal your card, your phone and either your thumb(s) or your face to make an unauthorized purchase.
Apple claimed that it wouldn’t know anything about consumer purchases using Apple Card. Plus, Goldman Sachs won’t sell data to marketers. If you care about privacy, it is attractive. Now that I work in the credit card industry, I can tell you that the level of privacy intrusion by banks is crazy. It is entirely possible to track the location of a cardholder to a store, know whether a purchase is made and if a purchase is not made, use the user data to run ads offline and online to motivate spending. If Apple and Goldman Sachs can do what they claim, this is an appealing feature, but I doubt it will be the dominant one.
According to Apple, you won’t be charged with late fees or penalty fees. You will just incur interest on your late payments. A nice feature, but from my perspective, it is not a hugely attractive one, especially if you are like me who isn’t late on credit card payments. After all, late payments will affect your credit score and consequently future APRs.
Pretty in line with the industry standard. Nothing special about this as far as I am concerned
Visibility into purchase details
Apple claimed that users could see more details on what a purchase was and where it happened from the Wallet app, instead of the user-unfriendly lines you see from your balance statement or mobile app. Once again, a nice feature that won’t be a dominant one.
Above is the cash back policy for Apple Card and Apple Pay. 3% on Apple-related purchases is nice, but it is not a daily event, given how expensive Apple items are. 1% cash back with the physical card is nothing special. It’s even less attractive than many credit cards out there on the market. The interesting one is Apple Pay
Because other credit cards offer two percent cash back or more on certain categories only, two percent cash back on every category by Apple Pay is more beneficial to users. According to Apple, Apple Pay will be available in 40+ countries at the end of this year. The number of merchants that accept Apple Pay is impressively high in some countries. Here is what Apple reported on the presentation
There are cases in which Apple Pay will not be competitive. For instance, if you have a card that gives back 4% cash back on dining, it sure is a better alternative than Apple Pay, even if Apple Pay is an available option. Or if you have a co-branded credit card such as a hotel or airline co-branded credit card, there is a switching cost as you want to increase your rewards points.
But using a physical credit card isn’t as convenient as a contactless option such as Apple Pay, nor is it as secure. So which payment option works in a situation depends on what situation that is and what kind of credit card user you are. If you care a lot about rewards and cash back, as well as have the time and mental fortitude to remember all the details, using multiple cards is the way to go. Nonetheless, if you are like me, a “one guy, one card” type, I would prefer something simple and easy to use/remember. Then I can see the appeal of Apple Pay. Contactless, fast, secure and decent cash back.
A push for Apple Pay
I believe that Apple Card is another push for Apple Pay to make it the “iPhone” equivalent of payment methods. Since Apple Pay is not ubiquitously available, the Card offers the connection between Apple Pay and merchants who don’t accept the service yet. If you use the Card, you’ll earn cash back that can be, in turn, used for Apple Pay. As explained above, Apple Pay can seem to be an attractive payment method to a certain type of users. According to Apple, they are on their track to meet the goal of 10 billion transactions on Apple Pay this year. If you are already satisfied with Apple Pay, I suspect that you will get more hooked when Apple Card is launched.
It makes sense to push for Apple Pay as I think Apple will earn more revenue from the service than the Card. After all, whatever revenue from the Card will have to be split with Goldman Sachs as well.
To recap, I think that this is a push for Apple Pay from Apple, an attempt to thread a delicate line between getting into the financial world and not suffering from the regulatory headaches that come with actually getting in there. Personally, I don’t think it is a “winner takes all” situation. I suspect that users will carry multiple options around and that each type of credit card user will display different levels of love towards Apple Pay and Card. I am excited about the future updates from Apple for the Card, regarding features and benefits. After all, this is just their first iteration.