The rise of mobile wallets, contactless payments, cryptocurrencies, and Central Bank Digital Currencies is rapidly displacing traditional physical cards. In this blog, we explore the forces behind this transformation and its profound impact on our financial landscape.
By 2025, the number of credit cards in the UK is projected to exceed 63.64 million, while the number of debit cards is forecast to exceed 108.6 million. For the average banking customer, plastic debit and credit cards remain indispensable due to their convenience, global acceptance, security, and emergency access to funds. Since their inception in the late 1950s, debit and credit cards have emerged as a dominant payment method across the UK and they are not showing any signs of slowing down in the immediate future. Recent innovations like ‘soft POS’ or ‘tap to pay’ are anticipated to widen the acceptance of cards.
While credit and debit cards remain widely used, the rapid evolution of digital payments suggests a gradual shift away from physical plastic. Mobile payments, digital wallets and contactless payment options have become integral to our daily lives. In the UK alone, digital wallets boast an 83% satisfaction rate and surpasses the global average of 80%. This demonstrates their strong appeal to consumers, emphasising the diminishing importance of physical cards and making ‘issued plastic’ increasingly irrelevant in everyday transactions.
So, will the usage of plastic cards decline with the rapid evolution of the digital payment landscape?
Let us explore the changing payment landscape by delving into these crucial areas:
1. Changing customer preferences across demographics
Consumer preferences are rapidly evolving towards digital payment technologies that prioritise security, convenience, and sustainability. Millennials and Gen Z spearhead this shift, readily adopting digital solutions and influencing merchant behaviour by prioritising businesses that offer their preferred methods. Even Gen X customers are demonstrating a growing comfort with digital technologies like mobile wallets.
The growing popularity of virtual spaces like the metaverse further underscores the importance of digital wallets for younger generations. These tech-fluent consumers demand frictionless experiences in all aspects of their lives, including payments. The ease with which digital payments fit into their connected lifestyles is a primary factor driving the decline of traditional plastic cards.
2. The transformative impact of alternate payment methods
Open Banking is fuelling the transformative impact of alternate payment methods (APMs) in the UK. APMs like account-to-account (A2A), variable recurring payments (VRP), and 'Request to Pay' offer greater speed, affordability, and convenience for consumers compared to payment cards. This consumer shift drives merchant adoption, as APMs deliver benefits like lower costs (A2A payments can be up to 80% cheaper for merchants) and faster settlement times. While technologies like cryptocurrencies and Central Bank Digital Currencies (CBDCs) are still developing, Open Banking’s groundwork could accelerate their integration. This further suggests that the dominance of traditional card payments may soon face significant disruption. The UK’s proactive stance on digital assets also suggests that the dominance of traditional card payments may soon face significant disruption.
3. Evolving regulations increase confidence in digital payments
Regulations in the UK focus on consumer protection and innovation, supporting the development of new payment methods and potentially leading to a decline in reliance on credit and debit cards. The Financial Services and Markets Act (FSMA) 2023, revised Payment Services Regulations (PSR), the APP fraud reimbursement mandate, and the FCA's Consumer Duty have reinforced consumer confidence in digital payments.
The Future of Payments Review further supports these efforts by recommending enhancements to areas like Open Banking dispute resolution, fraud crime reduction targets, and regulatory clarity for fintechs. These initiatives foster increased comfort with digital wallets and mobile payments, further contributing to a shift away from traditional card plastics.
4. Environmental imperative to move towards sustainable payment options
Plastic production in any form contributes to pollution and environmental degradation – debit and credit cards are no exception.
The production of plastic cards, from the extraction of raw materials like PVC to their energy-intensive manufacturing and eventual disposal in landfills, leaves a significant environmental footprint throughout their lifecycle. To illustrate the scale, approximately 160 million debit and credit cards are currently used by UK residents. Yet, a staggering 65 million unused plastic cards lie dormant, with most destined for landfills due to their limited recyclability.
While digital payments are largely embedded and reduce the need for physical cards, few banks offer the option to opt-out of a physical card, consequently fostering a less sustainable and eco-friendly payment landscape.
Will credit and debit cards completely disappear?
Despite the convenience of digital wallets and mobile payments, physical credit and debit cards will likely persist. Just as cash was never fully replaced, with many people still carrying it around as a failsafe, physical cards offer advantages for those lacking reliable tech access or who prefer the tangibility for security and spending control.
In emergencies or when technology fails, cards become a critical backup. Furthermore, physical cards hold unique significance for promoting financial inclusion, reaching populations who may not have the trust for digital payment solutions.
Conclusion
The future of debit and credit plastic cards is likely to face challenges. However, their decline will never be absolute. Debit and credit plastic cards will retain purpose, especially among user groups slower to adopt newer technologies and in locations where digital payment infrastructure may be less prevalent. Physical card plastics will likely persist alongside non-plastic card payment alternatives due to continued innovation in the card industry.
In the long term, this narrative may begin to change as the benefits of digital payments become too apparent to ignore, and the advancements in technological infrastructure will fuel the shift in customer preferences from plastics to pixels.
