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Will physical credit cards go the way of CDs?

Brady Porche

What’s plastic, stores data and is virtually obsolete in the smartphone era?

If you said the compact disc, you’re living in the 2000s. A more relevant answer is the physical credit card, which is in danger of extinction amid a flurry of mobile payment options.

The concept of the “credit card” is not going away – consumers and businesses depend on cards to manage their finances and banks, and issuers use them to generate profit. Plastic and metal manifestations of credit cards, however, could someday grow scarce as more consumers pay with virtual cards stored in their mobile wallets.

One is reminded of the download-driven demise of CDs, which started right around the time audiences began to grow weary of the Backstreet Boys, NSYNC and Limp Bizkit. Thanks to MP3s and streaming, the CD now roams alongside other audio dinosaurs such as 8-tracks, vinyl LPs and cassettes. Many audiophiles still regard CDs as the gold standard for sound quality, but they were always expensive, bulky and too easy to scratch.

The digital revolution was a boon to consumers. In the late ’80s and ’90s, music lovers would typically plunk down around $20 for a single LP on CD. It was not an ideal situation if the artist had one standout track and a bunch of filler (not uncommon in the days when MTV still aired music videos). Nowadays you can buy single tracks online for 99 cents apiece at Apple’s iTunes store or access just about any artist’s entire catalog for a $10 monthly fee on Spotify, Tidal and other subscription streaming services.

Of course, it all happened at the great expense of the record industry and artists. U.S. CD sales reached a peak of $943 million in 2000, but fell to $123 million by 2015, according to the Recording Industry Association of America.

The credit card industry won’t crater if physical cards go away – in fact, issuers may save a little on production costs and pass it on to customers. Meanwhile, consumers are already starting to benefit from incentives in the form of mobile-only rewards offered by the likes of Samsung, Starbucks and Chase.

But the mobile payments revolution will likely be more of a slow burn than a wildfire. Consulting firm Accenture reported in 2016 that the adoption of mobile payments was flat between 2015 and 2016, while credit card use grew 3 percent. Accenture researchers opined that mobile wallets stalled because they offer a fix for something that wasn’t broken in the first place. For many consumers, swiping or dipping a card at the point of sale is still more convenient than tapping a phone against a card machine and hoping it works.

Amazon recently took a big stride toward clearing the convenience hurdle with its new brick-and-mortar Amazon Go store. The 1,800-square-foot shop in Seattle completely eschews checkout lines, charging customers’ Amazon accounts as they leave. Amazon is currently beta-testing the store with its employees, but the retailer said it will be open to the public early in 2017.

Mobile payment providers have their work cut out for them. All consumers can’t shop at a single store in the Pacific Northwest. But this moment in the history of payments may be akin to music consumption before iPods were introduced in 2001. CDs still reigned because MP3s were typically slow to load, had poor audio quality and couldn’t really be taken anywhere.

As it turned out, only a few product innovations – two of the biggest coming from mobile payments trailblazer Apple – were needed to change the game.

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  • Great article Brady. I’m a sucker for good business analogies tied to the music business. There are lots of lessons to learn from it. We are seeing cards go by the way side for a good portion of our customers, but we find ways to help them save. It’s going to be interesting to see what happens, but I think your predictions are good.