Credit card companies are failing to reinvent themselves for today’s generation. These days, we’re seeing APMs (alternative payment methods), like PayPal, Apple Pay, and Cash App slowly take over the financial field. Financial tech companies know that there’s a lot of distrust against credit card companies, a trend that CNBC believes has its roots from the 2008 Wall Street crash, which has ingrained a distrust in banks that led to new policies that allowed fintech to flourish.
Moreover, most young folks today are avoiding credit cards. But it’s not because young people or individuals with poor track records aren’t interested in building good credit scores; it’s that the system makes it difficult to apply for credit cards in the first place.
The CARD Act of 2009, which made qualifying for credit cards, challenging for individuals new-to-credit. Earlier this month, CNBC identified the Petal Card as ranking at the top of its list for “best credit building credit cards”, making it extremely attractive to Gen-Z consumers. In my conversation with Petal Card, the company believes the reason why young people are avoiding credit cards is partly because of the Card Act:
“The problem appears to have to do with supply, rather than demand”, the company explained in a blog post. “In 2009, the CARD Act all but shut down the student credit card market, making it much harder for young people to qualify for an introductory credit card. A brief search on Credit Karma shows the top credit cards for people new-to-credit are relatively expensive—with multiple fees, high APRs, and little access to credit. Some “credit building” credit cards require a 100% cash security deposit, still charge 28%+ APRs, and offer no rewards!”
Credit scores create the financial equivalent of “guilty until proven innocent.” You’re high-risk and subprime until you prove to be creditworthy.
Today, the average credit score among consumers below the age of 35 is 665—well below the national average of 701, according to Experian. Adding to that, there are over 10 million adults under the age of 25 that have not yet even begun to start building their credit.
Unfortunately, millions more will enter this category every year as more Gen-Z become credit-eligible. And if the application for an introductory credit card does get approved, it’s usually subject to multiple fees, high annual percentage rates, and little access to credit, which defeats the purpose of traditional credit cards.
From Interest-Bearing Cards to APMs
This is why more and more people are making the switch to APMs instead. One APM that’s making quite the splash is cryptocurrency. This blockchain-based form of payment has been on a constant rise these past few years in part due to it being decentralized, effectively removing any ties from political and financial organizations.
Back in February, we highlighted one key driver of fintech’s future—financial independence—in other words, the financial revolution we are witnessing is due to people wanting to control their money. This is a demand that cryptocurrency is designed to meet. As individuals already know, money invested into cryptocurrency isn’t affected by traditional inflation rates, financial policies, or economic growth indicators—unlike traditional currencies.
However, most financial institutions continue to have apprehensions towards cryptocurrency. And rightfully so if we are talking about money laundering transactions, as some credit card issuers straight up prohibit cardholders from purchasing cryptocurrency. I remember, three-years ago, when I first invested into cryptocurrency, Chase Bank refused to honor any sort of transaction. Obviously, things have changed today with respect to JP Morgan Chase’s perspective since it launched its JPM Coin.
Regulators Have Finally Accepted the Reality
On the bright side, regulators and policy makers have been seeing the potential of cryptocurrency and are now on the move towards providing the public with the proper legislation and tools. This might give credit card providers the final nudge to get with the times and launch cryptocurrency into the mainstream.
In fact, more and more businesses are now adopting cryptocurrency and integrating blockchain technology in their industry operations. Popular tech companies like Microsoft, OKCupid, and T-Mobile have embraced crypto, and more than 13,000 stores all over the globe are now accepting crypto as a payment method.
Microsoft, for example, added Bitcoin support in early 2014 when BTC was trading at around $300. Today, customers can use BTC to pay for movies, games, and apps that are available on the Windows and Xbox stores.
Other online merchants including, but not limited to Overstock.com, Newegg, WholeFoods, AT&T, Wikipedia, and ExpressVPN also allow for cryptocurrency payments.
Indeed, even small businesses have seen the need to accommodate crypto users and subsequently included popular cryptocurrencies like Bitcoin and Ethereum in their payment options.
Given all this, crypto will soon dominate the APM field with current innovations revolutionizing crypto use. But is there a ‘crypto credit card’ on the horizon?
One outlet, Cryptopolitanreported on a Canadian based cryptocurrency payments firm that believes a credit card for cryptocurrency payments is the next step for the credit industry.
NetCents Technology, Inc., based in Canada, claims that it has successfully completed the integration of such a card back in March. The company’s user base is close to forty million. According to the company, the technology behind the card will be directly linked to the user’s wallet, enabling direct transfer of cryptocurrency payments in real-time.
But NetCents isn’t the first company to see this through. Last year, a German-based blockchain banking service, Bitwala, launched its crypto banking app which was accompanied by a payment card.
To bring the point back home, the idea is that utilization of these types of cards would not impact an individual’s credit score—however, seeing how regulators and major financial institutions are beginning to see the attractive nature of how digital money is changing the financial industry for the better, it’s only a matter of time before the gaze turns upon these types of cards.
