While banks have generally been the center of concerns over the disruptive potential of alternative finance, the credit card industry is also facing a huge amount of pressure from innovative and disruptive technology. Here’s a look at four trends that are threatening the status quo in the credit business.
Data is king
Credit card companies have collected data on their customers for years, but with new apps and online AltFi services popping up constantly, data collection and data interpretation will likely play a huge role in separating the winners from the losers in coming years. In an intensely competitive environment, efficiency becomes even more important, and customer data is the key to providing customized products and services. The more detailed the data collection can be, the less money and opportunity slips through the cracks. One of the ways certain online lenders have been able to offer customers lower interest rates on loans is by incorporating alternative data, such as college degrees, rather than just FICO scores into their algorithms.
Internet of Things
Let’s face it: the Internet is no longer about sitting down at a computer. Connected devices and wearables are taking over the world, including the field of finance. Swiping physical credit cards could soon be a thing of the past, as well as the security risk of lost or stolen cards. This trend also ties into the data collection trend because the connected world can provide critical information about when and where customers spend money and can even facilitate or completely automate financial transactions. In addition, the Internet of Things allows for location-based promotions. Imagine receiving a text notification involving an airline miles promotion as soon as you walk in the airport. This example is just one of the countless ways the Internet of Things has and will change the financial world.
Digital payment options
The mobile payment industry is a $1 trillion industry and could soon make up two-thirds of all purchases. Apple Pay is perhaps the most visible new digital payment option, but Google, Verizon, Amazon, Facebook and other surprising players have also stepped into the digital payment game in recent years. In addition to digital payment platforms, cryptocurrencies like Bitcoin offer another payment option, as well as a potential investment alternative to volatile and politically-vulnerable sovereign currencies. Once again, these innovations are not about matching the traditional credit card payment experience, they are about discovering a completely better way to pay.
Finally, identity theft has become one of the biggest global financial threats, making cybersecurity a top priority in finance. U.S. credit card companies finally adopted “chip and PIN” technology that goes a long way in the prevention of card skimming, but innovations such as MasterCard’s biometric payment card make fraud nearly impossible. In fact, researchers at Red Hat also recently declared Apple Pay “more secure than your cards.”
The finance industry has been swept up by an unprecedented wave of innovation in recent years, and it’s still too early to predict where the AltFi revolution will eventually take over the credit card business. However, one thing seems certain in this new financial environment: no matter what, the customers will come out on top.
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