Yesterday I pulled into a badly needed Exxon service station in the city of Santa Monica, where two observations struck me.
First, $4.45 is an egregious price to pay for a gallon of regular grade gasoline. You loyal Zaarly followers reading this from Rock Springs, Wyoming, enjoy your national low of $3.49. Oil futures be damned!
Second, the woman at the adjacent service pump conducted her entire payment transaction without cash, debit, or credit. There was no shiny plastic to dip into a card reader. No Abe or Alexander or Andrew to part with. The woman simply waved a tiny inch-long device across a scanner and moments later started pumping. No fuss, no muss, no bother.
What Exxon refers to as its “contactless” payment system (aka Speedpass) has been around for a while, I’d just never seen it in action until yesterday. The transaction itself didn’t introduce me to any revolutionary tech advancement or even inspire me to sign up for Speedpass, instead it served simply to reinforce the undeniable and irreversible direction in which our consumer payment world is headed. I suppose it comes down to three simple words: Smaller. Faster. Easier
But how did we get here? My grandfather drove across this country from the Great Lakes to the Pacific Ocean in a Model-T Ford way back in the 1920s and I’m fairly confident he filled his tank using good old U.S. greenbacks. The reality was there simply weren’t any payment alternatives to cash, be it for gasoline, groceries, or gumballs. So before examining the current state of consumer payment options and the innovative future ahead, lets roll back the clock…way back.
The evolution of our modern day payment options are rooted some 4,000 years ago. Historians suspect the first use of money took the form of receipts, representing documented ownership of grain storage in Ancient Egypt. Receipts gave way to the rise of coinage in the form of valuable metals (e.g. copper, silver, gold), before those clever Chinese introduced paper money, or banknotes, around 600 A.D.
Fast forward through the next 1,400 years of payment evolution and jump right to 1949 and a fateful business dinner in midtown Manhattan between Frank McNamara and Ralph Schneider. Having forgotten his wallet and cash, McNamara saw an opportunity in providing a payment alternative to cash and set about developing the first modern day credit card. A year later the Diners Club Card was born.
In 1950, Diners Club issued its first card, made of cardboard, for use in 27 restaurants in New York City. A year later, nearly 20,000 Americans carried it in their wallet.
However, until 1958, no one had been able to create a successful revolving credit instrument that could facilitate merchant transactions on a meaningful scale. All that changed when Bank of America launched the BankAmericard and American Express issued the “Don’t Leave Home Without It” card. Nearly a decade later the ancestor of MasterCard was born when a group of California banks established Master Charge to compete with BankAmericard.
By the mid 1970s, with international credit card use gaining momentum, the tag “America” was dropped from the original BankAmericard card and VISA was born. Two years later, in 1979, Master Charge followed suit and changed its name to MasterCard.
U.S. adoption of this new payment method would help define our national consumer culture identify and forever change the American consumer marketplace. Just how much has the U.S. public come to embrace and rely on that 3.3” by 2.1” rectangular piece of plastic for all its ease, speed, and instant-gratification power?
The three main pillars that enable our credit payment addiction reported the following figures on total card circulation in the U.S. (through year-end 2010, unless otherwise noted):
- American Express credit: 48.9 million (Source: AmericanExpress.com)
- MasterCard credit: 171 million (Source: MasterCard)
- MasterCard debit: 123 million (Source: MasterCard)
- Visa credit: 269 million, as of Sept. 30, 2010 (Source: Visa)
- Visa debit: 397 million, as of Sept. 30, 2010 (Source: Visa)
That’s one and a half credit cards for each man, woman, and child living in America (slightly higher – 1.7 – for debit cards)! More representative of wide spread card adoption since introduction in the 1950s are the following stats from the U.S. Census Bureau:
- Individual U.S. credit cardholders (1950) – >50,000
- Individual U.S. credit cardholders (2000) – 159,000,000
- Individual U.S. credit cardholders (2006) – 173,000,000 (+9%)
- Individual U.S. credit cardholders (2010) – 181,000,000 (+5%)
We’ve gone from zero to 60% of the American population possessing a credit card in sixty years. Now that’s product adoption!
But let’s face it, we’ve grown to enjoy the path of least resistance. We tend to adopt that which makes our lives faster, easier, less cumbersome, and less stressful. The credit card is instantaneous, simple to use, virtually weightless, and the ultimate tool for deferment of poor-decision-making guilt! Is there really any surprise behind its global growth after sixty years? Human nature says no.
Similar to the advent and adoption of the 20th century credit card, we now find ourselves witnessing the next stage in the payment evolutionary process. Receipts led to coins, coins to paper notes, and paper to credit cards. Now, enabled by revolutionary advances such as smartphone and wireless technology, the credit card will soon abdicate its throne in favor of the next payment innovation iteration.
This time however the change won’t stem from one innovative product. The innovation won’t be a tweak to the coin or banknote or credit card. Instead the future of payment will be driven by changes not to the individual players but rather the playing field itself.
Sorry cash, sorry credit. The future is about to change. Move over George and make way. Smaller, faster and easier means one thing… MOBILE.