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Why Did Credit Cards Fail to Adapt to the Modern Needs?

To date, the dominant payment method for online as well as offline purchases has been payment cards (credit cards, debit cards, prepaid cards, etc.). The problem is that payment cards were developed in the 1950’s before the existence of personal computers and the internet. They were originally designed for offline transactions where the customer approved a transaction by manually signing a receipt.

Payment cards were not designed to deal with our modern, fast-paced, global economy. Their popularity is mostly due to a lack of acceptable alternatives for electronic payments. Payment card usage perpetuates an anachronistic system which suffers heavily from infrastructural inefficiencies.

The structure of the payment cards ecosystem is very complex and consists of many participants: Credit Card Associations (Visa, MasterCard, AmEx), Issuing Banks, Acquiring Banks, Processors and Payment Gateways to name a few. The market is oligopolistic and the incumbent players each control their networks, dictating the rules and the costs. This centralistic structure leads to inefficiencies. Similar to many other centralized systems, the intermediaries in the payment ecosystem use their power to increase the spread between the value they extract and the value they add.

The merchants that depend on card acceptance for their existence have to comply with an endless list of rules dictated by the owners of these networks. Moreover, they are also subject to a complex fee structure that ranges from 3%-15% of their gross receipts, (depending on the settings) and to add insult to injury, they are also exposed to the risks associated with fraudulent activity and chargebacks.

The introduction of Bitcoin as an electronic cash system in 2009 was the first step towards a modern online payment solution. Bitcoin was originally designed to address trust issues and to optimize security; but at the expense of scalability, speed, and cost. As a result, Bitcoin in its current construct is unable to offer flexible processing solutions for most of the current online billing methodologies. None of the cryptocurrencies that were introduced over the past few years has provided a comprehensive payment solution that allows crypto holders to utilize their cryptocurrencies as a means of payment.

Cryptocurrencies are far too underdeveloped to compete at scale with payment cards, they suffer from poor acceptance by merchants mostly due to their complexity of usage and they do not support transactions that are more sophisticated than a simple ‘push’ transaction. There is a real need for a payment infrastructure that is built to serve merchants, not exploit them. A system that is built from the ground up for the digital era and that is as scalable, flexible and accessible as payment cards, absent their inherent flaws and disadvantages. Blockchain technology offers a great opportunity to create such a system for the benefit of merchants and consumers alike.

PumaPay Protocol is an attempt to design such an infrastructure. Join our group on Telegram.



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