01 July 2014
Fifty years of plastic. Who is the winner?
In 1961, Diners Club introduced the first plastic credit card. This signalled a revolution in the world of payments. In the United States, credit cards were – and have remained – an enormous success. Although initially hesitant, Europe eventually embraced the card as well. The introduction of the debit card meant serious competition for the credit card.
Lower processing costs and less risk have always been the main drivers for innovation in payments. Giro collection forms, authorisations and standing orders were the first secure and efficient alternatives to cash payments. Point of- sale payments also changed, first in the sixties, with credit cards, and later with the introduction of the debit card.
Credit card glamour
In 1961, the first plastic credit card was introduced in the market. Initially, it was mostly something for the rich and famous – a glamour product out of reach for most people. This changed in the seventies, when ‘ordinary people’ also began carrying credit cards, if only for use during holidays. However, the number of credit card transactions in Europe remained limited.
What’s more, now that debit cards offer an increasing range of options – such as paying online, which was the major advantage of a credit card – they have also become a means of payment for more exclusive purchases. Andy Makkinje, Executive Adviser to the Board of Equens, says: “Credit cards are used very differently in Europe and the United States. In America, credit cards are an important means of borrowing money. This is not the case in Europe, although credit card usage does differ between European countries. For instance, in Italy credit cards are used more than in the Netherlands and Germany.”
Makkinje thinks that credit cards in Europe won’t achieve the popularity of the debit cards. “Now that European legislation stipulates that banks may charge only 0.3% for a credit card payment, instead of the previous 1%, the product is becoming less attractive for banks in Europe. The expectation is that they will increasingly focus on further developing debit cards. There is still a market for credit card payments, especially for people who travel a lot. But in general, credit card usage is decreasing.”
The down-to-earth debit card
The debit card has less of a history. It was introduced after the credit card, the first pilot programme being initiated by the Bank of Delaware in the United States in 1966. At that time, we were already familiar with plastic cards, so that was nothing new. However, consumers initially did not embrace debit cards, especially where point of sale payments were concerned.
In the Netherlands, it was not until one of the largest supermarket chains and a fuel company began offering debit card payments at their points of sale that consumers truly adopted them. So the advent of debit cards was not exactly a revolution.
In the meantime, however, a silent revolution was taking place behind the scenes, because as soon as consumers started paying by debit card en masse, things started happening fast.
According to Andy Makkinje, debit cards are the future: “Credit cards were always something of a niche product in the payments market. In Europe, the debit card has very much taken the lead. Europeans are practical people: they want to know exactly how much money they have on their account at all times. We are not used to managing credit accounts. I don’t see the debit card disappearing in the next few decennia – instead, I think there will be many more new possibilities.”
Makkinje states that contactless payments are becoming increasingly popular, and integration with mobile telephones is just around the corner. “Also, functionality for refunding money, called Refund+, has recently been introduced in the Netherlands.” Refund+ is the possibility for customers to get their money back, when they made the transaction with their debit card. The refund isn’t in cash, but the money will be transferred directly to the bank account. Makkinje: “In 2020, I think the use of credit cards will keep declining, whereas the use of debit cards will increase. In Europe, the debit card is the winner.”