Innovation of Credit Cards - Competition and Challenge to the Pay-in-Cash Companies - Literature review Example

Business Administration: Innovation of Credit Cards Name Institution Course Tutor Date Business Administration: Innovation of Credit Cards As opposed to the previous year when regulatory factors pressure was law, the current phase of the credit card industry features various instances of innovation. The new trend of disruptive innovation led by mobile, social and data technologies, amongst many others, forces business enterprises to restructure and innovate their activities and services. Credit card industry is one of the many fields where innovation is evident. It features the practice of improved electronic commerce and enhanced methods of payment, as well as borrowing, in more efficient and effective ways, are some of the features of credit card innovation. The innovation of the credit card industry has improved business administration as well as the quality of services to the society. This essay seeks to explore the innovation in credit card industry and how it has impacted the society as well as business administration. Credit card, just as the name suggests, is a financial product that lets you make purchases without cash payment; credit cards allow buying things on credit, especially when large unexpected or emergency purchases arise. In this perspective, a credit card can be described as a form of unsecured, short-term borrowing (Furletti 2002). The history of credit cards depicts many decades ago. According to Furletti (2002), Akers (2005) and Turner (2012) argue that the history of credit cards goes back to the mid-20th century. Woolsey & Gerson (n.d.) also support that the idea of credit cards though started in the 1800s during when consumers and merchants would exchange goods through the concept of credit coins and charge plates, developed in the 1900s as a result of oil companies and department of stories advancements with their proprietary cards. After that, John Biggins, then a banker in Brooklyn, US, introduced the first credit card in 1946. Upon familiarity of the people with the benefits of that basic card, the phase 1 of the evolution of credit cards begun. Plastic debuts started to with 20,000 Diner Club Holders in 1951, followed by plastic cards that allowed the users to make purchases on credit. This era of credit card industry is what Woolsey & Gerson (n.d.) describe as the closed-loop system. It features the Diners Club and America Express cards. Therefore, after decades later, the current industry features many innovated cards and services. The contemporary consumer environment characterises widespread use of cards. All of the global largest markets are flooded with credit cards. For instance, UK recently launched a new version of Barclaycard, the largest and first credit card company for over fifty years now. Similarly, the recent study shows that the United States of America (USA) has balances of more than $900 billion on their card (Christiansen 2011). Even when the banking industry experienced declining returns, the credit cards remain relatively stable in its market. In a report by Forbes, Clements (2016) the card industry continues to grow besides the stiff competition from many disruptive digital payment companies across the globe. It is notable that despite the rise and fall of credit card banks globally, the industry has proved to be always higher than the other commercial bank activities regarding returns. Besides the favourable macroeconomic environment such as law interest rates and enhanced quality of services, the ever increasing profitability of credit cards is also favoured by other innovative factors. While others predict the future disappearance of credit cards, as it has been with the cash payment method, the industry has introduced innovations such as key fob, dress and ring technologies that allow the experience of the new ways of making payments. Also, credit card companies have recently introduced swatch watch as another credit card enhanced payment innovation. The advancement in technology has enabled the credit card industry to, instead of declining in existence and popularity, gain wide market and reach the market in various ways possible. The application of these innovations of credit cards is evident in most countries, especially with the large credit card companies. MasterCard, for instance, recently introduced innovative credit card products that are replacing the credit cards with the key fob, dress and ring credit card services. According to Pasquarelli (2015), MasterCard is one of the credit card companies that have embraced and implemented the new era of innovation in the credit card industry. Similarly, Visa has also introduced the new version of their credit card services, the swatch watch. The company began its launches of the new products in Switzerland in 2015. Therefore, the credit card industry has picture various instances of improved technological innovations in their services. Besides, the introduction of smartphones and other supportive technological advancement has been the milestones of the development of credit cards. The Near Field Communication (NFC) enable phones have enabled the conversion of plastic credit card services into online credit cards (Tan et al. 2014; Akers et al. 2005). Through their phones, users can now access all the NFC mobile credit card services. Almost all the transactions forms that a consumer can possibly desire are available via their mobile credit cards. The impacts of then innovation in the credit card industry are evident in the consumer behaviour, competition and the quality of services, and the electronic commerce. Considering the services that the NFC mobile credit cards offer, the interactive and inter-organisational activities of electronic commerce has improved. Elliot & Loebecke (2000) suggest that the innovations and milestones that have enabled electronic transactions and trade services are the major factors that have advanced and improved ecommerce globally. Since the credit card companies, with their innovations, have introduced enhanced payment and credit services through online and mobile credit cards. Additionally, the credit card innovation has positively influenced the existence of other enterprises with which they partner to jointly provide financial and payment services. Pasquarelli (2015) argues that credit card companies such as the MasterCard and Visa have partnered with various organisations such as banks and motor makers to conveniently provide quality services to consumers in all areas they can access, such as cars and phones, amongst others. According to Commonwealth of Australia (2016), the innovation of the credit cards has improved the consumer outcomes as well as competition amongst business, which results in improved quality of services. Users can now make payments and borrow without necessarily having to visit their financial services providers. However, the innovation of credit cards has also consequent the users and the companies negatively. Burns & Stanley (2002) argues that the innovations in the credit card industry are posing challenges privacy and security issue of the users. To efficiently and effectively improve the experience of the new services in the credit card industry, the service providers are conveying customer details through devices such as phones and computers that are the major subject to online risks. Other fraudulent activities and cybercrime are also associated with the innovations. Therefore, it is imperative that, as the companies strive to improve the quality of their services, the credit card industry should also explore the security and privacy implications that are associated with the new technologies. Clements (2015) suggests the returns as one of the vulnerability areas in this industry. According to the author, the willingness of the credit card companies to accept the low returns to maximise the size of their markets is one the reasons the innovations are likely to consequent losses to them since even the large banks can lower their rates. Therefore, new models of gaining the market share without necessarily accepting the low returns should be employed to strengthen the competitiveness and value of the credit card innovations. In conclusion, the introduction of credit cards decades ago resulted in a still competition and challenge to the pay-in-cash companies. After decades of development, cash payment is ceasing to exist as the preferred option of payment. The credit card has evolved over the past year when it featured the plastic cards to the current time where it characterises mobile credit card amongst many other innovated services. Payment services are now made easy by the partnership between various technology industries and financial institutions. The consumer outcome and improved financial services in the economy, due to competition, are some of the resultant positive effects of this innovation. However, privacy and security issues are some of the main negative concerns in this industry. Reference List Aker, D, Golter, J, Lamm, B., & Solt, M, 2005. Overview of the recent developments in the credit card industry. FDIC Banking Review, Vol. 17, No. 3, 13-35. Burns, P. & Stanley, A, 2002. Fraud management in the credit card industry. Discussion Paper, Payment Card Centre. Christiansen, P, 2011. Four Important trends shaping the future of credit cards. First Data Corporation. Available from https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwiy6PHrhP7SAhUrK8AKHaVBA3UQFggbMAA&url=https%3A%2F%2Fwww.firstdata.com%2Fdownloads%2Fthought-leadership%2Fcc-trends-wp.pdf&usg=AFQjCNEdbkeUHLTlruwSIafdp-gwe5bnLg&sig2=RYKPgV6yjQIgTEWG1lQOKQ Commonwealth of Australia, 2016. Credit cards: improving consumer outcomes and enhancing competition. Australian Government. Available from https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwig1dKEhv7SAhWaOsAKHWNsCjIQFggnMAA&url=https%3A%2F%2Fwww.treasury.gov.au%2F~%2Fmedia%2FTreasury%2FConsultations%2520and%2520Reviews%2FConsultations%2F2016%2FCredit%2520card%2520reforms%2FKey%2520Documents%2FPDF%2FCredit_card_reforms_CP.ashx&usg=AFQjCNEz991i3NwdS40AOZgeN_kFzHN0Hg&sig2=mdxhRAJNcYY2dDiwMSuJtg Clements, N, 2016. Are credit cards more innovative than finetech start-ups? Forbes. Available from https://www.forbes.com/sites/nickclements/2016/06/30/are-credit-cards-more-innovative-than-fintech-startups/2/#3b27efd2745b Elliot, S. & Loebbecke, C, 2000. Interactive, inter-organisational innovations in electronic commerce. Information Technology & People, Vol. 13, No. 1, 46-66. Furletti, M, 2002. An overview and history of credit reporting. Discussion Paper, Payment Cards Center. Pasquarelli, A, 2015. Beyond plastic: credit card companies experiment with rings and watches as new ways to pay. AdvertisingAge. http://adage.com/article/cmo-strategy/plastic-credit-card-companies-experiment-payment-systems/301827/ Tan, GW, Ooi, KB, Chong, S.C., & Hew, TS, 2014. NFC mobile credit card: The next frontier of mobile payment? Telematics and Informatics, Vol. 31, 292-307. Turner, MA, 2012. Credit card rewards: context, history, and value. A White Paper on Credit Card Rewards. Woolsey, B. & Gerson, ES, n.d. The history of credit cards. Available from http://www.creditcards.com/credit-card-news/credit-cards-history-1264.php Read More