Point 1: Physical cards are between a rock and a hard place online
Credit cards are squeezed by alternative payments such as bank transfers and Buy Now Pay Later (BNPL) on the one hand and by digital wallets on the other. Digital wallet penetration appears to have plateaued though.
Point 2: In-store, digital wallets replace mainly cash so far
Cash has been a clear loser among the Point-Of-Sales payment methods. For the payment cards, we observe a more complex dynamic in play. On the surface, payment cards seem to maintain their penetration pretty well. And digital wallets (especially the most popular ones like Apple Pay and Google Wallet) rely mainly on payment cards. Thus effective penetration of payment cards is much higher. On the other hand, payment cards are slowly increasing their dependence on digital wallets.
Point 3: Digital wallets foster competition among the payment methods
The physical wallet has been a stronghold of payment cards for the past several decades. Cash was the only alternative method competing for the space in the wallet. It was an easy fight to win for the cards.
Unlike physical wallets, digital wallets are a very competitive domain. With digital wallets, consumers have a variety of payment options to choose from. Payment cards are still a popular choice within the digital wallet space. But few capable alternatives are gaining traction among consumers. A2A payments are a popular choice online and would be a direct competitor of debit cards. And Buy Now Pay Later (BNPL) services compete directly with credit cards. And don’t forget cryptocurrency, which is also accessible through an increasing number of digital wallets.
Point 4: It is getting competitive not only within payment methods but within infrastructure as well
Digital wallets rely mainly on payment card infrastructure still. But some cracks in the card infrastructure dominance can already be seen. Several popular digital wallets offer A2A (account-to-account payments) as an alternative to card payments. Competition should accelerate as new payment infrastructures such as the FedNow Service gain traction.
