Payment has taken on many forms over the millennia, but it’s only been in the past seventy years that it’s changed at a lightning-fast pace. In 1950, the Diners Club Card paved the way for a payment revolution by creating the world’s first credit card. That step forward kicked off the beginnings of a cashless society, with several forms of payment taking its place. The most notable of those today are credit and debit cards, card-not-present online payments and mobile payments. While the United States once led the way in payments technology, I believe it’s now lagging far behind.
Let’s look at how people are currently utilizing new technology in the payments sector. In the United States, approximately 70-77% of adults have either a credit or debit card. Only about 16% of Americans use mobile payment services, such as Apple Pay or Google Pay. On the other hand, 80% of the population in China uses mobile payments. This is an incredibly rapid adoption, considering that the first iteration of modern mobile payments only came into existence between five and six years ago.
Europeans remain reliant on credit and debit cards, much like the United States. However, they acted quicker in adopting EMV technology — the chip embedded in our credit cards. Compared to the magnetic strip on cards, the chip actually secures your information, rather than leaving it exposed in the merchant’s system. In fact, the EMV chip has dropped fraud rates among card-present transactions by over 75%. This has not completely eliminated Europe’s issues of payment fraud, as card-not-present fraud has increased by 300% in some industries, in part as a result of the new relative ease of stealing cards online, but the EMV chip was nonetheless a step in the right direction.
So why is the United States such a laggard when it comes to adopting these new, more secure payment methods? Ultimately, it boils down to three factors: technological history, business attitudes and culture of security (all of which are closely intertwined).
Let’s start with the simplest of the three: technological history. When modern-day payment systems were first developed, the United States was at the forefront of innovation and adoption. Debit and credit cards picked up significant momentum in the second half of the twentieth century. While shopping and paying online are now a global standard, it took time to filter into society. At the center were the thousands of e-commerce websites and companies that developed in the United States, particularly in Silicon Valley, in the late 90s and early 2000s.
In the United States, all cards operate on the same point-of-sale systems to streamline the process for merchants. These outdated systems have left debit and credit cards as the historic standard, which is difficult to break out of. Point-of-sale systems have made China a fascinating case study. Historically, China has been slow to embrace new technologies, particularly in the consumer sector. Until about 10 years ago, the majority of transactions were made with cash; credit and debit cards were relatively rare in China’s payment ecosystem. When payment alternatives started to develop, it was roughly around the same time smartphones began to flood the market. The conversation in China was “How can we integrate payments into new technology?” while in the United States the attitude was, “How can we integrate new technology into the existing payment infrastructure?”
This brings us to our second point, which is business attitudes toward new technologies. Payments need to be reliable both online and in the checkout line for retailers to thrive. If new technologies such as mobile payments are inefficient, this can frustrate consumers and leave them with a negative shopping experience, driving them elsewhere. When the chip was first introduced, it took significantly longer than swiping your card. As a result, consumers and, subsequently, retailers were slow to embrace EMV because of the poor shopping experience. At the end of the day, businesses, regulators and other groups have repeatedly chosen profits over security, which brings us to the third pillar: security culture.
In the United States, high-profile data breaches at Target, Yahoo and Facebook have underscored the need for better security, but U.S. security still lags behind Europe significantly. In general, European countries have some of the strongest attitudes toward data and consumer privacy. The Pirate Party, which works to ensure consumer protections online, holds seats in the legislature of Sweden, Germany and other European countries. You would be hard-pressed to find a major presidential candidate who has made data security a top priority in the United States. Some companies will exploit user data for profit unless there are strict regulations in place that deter such behavior. In 2018, the European Union passed the General Data Protection Regulation (GDPR): stringent data regulations that give consumers more power over their data while also enforcing strict penalties on companies that fail to comply. In the United States, however, data regulation is comparatively nonexistent.
The big question is “How can the United States change its ways?” The core driver of this movement will likely be consumers. When payments are not secure, consumers bear the brunt of the damage. People are just being left with a feeling of being violated. If consumers demand an evolution of payment security, there will be a reaction from businesses. With the fintech industry booming, we are actually seeing viable solutions emerge. Businesses and, to some degree, consumers, now bear the responsibility to take advantage of these solutions. The United States is simply falling behind when it comes to payment technology, despite the fact that embracing security and efficiency is beneficial to everyone. While there are also risks to mobile payments and future iterations, such as biometric payments, a fresh, forward-thinking mindset is what will ultimately bring us to the best available payment solution.