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The End of Credit Cards?

Feb 20th, 2009 | By | Category: Technology

Marc Andreessen, inventor of the web browser, was interviewed on PBS yesterday.  He spoke about Obama’s innovative use of social networking to raise money, and predicted that insolvent banks would be replaced with new, online banks like, a PayPal and eBay company.  Bill Me Later lets users pay without using a credit card.  Each transaction is evaluated in real-time to determine the buyers ability to pay, avoiding losses by merchants and financial institutions.  It is currently in use by more than a thousand online stores including and Zappos.  The transaction takes place “in the cloud.”

Marc Andreessen spoke about how technology would help existing institutions evolve to be more responsive and more effective.  Online newspapers with immediate updates vs. newspapers, and a new kind of online financial services that would erode expensive credit card companies by supplying more reliable transactions with fewer losses.  The new banks would not need as much real estate or paper so costs could be lower.

Shoppers know that they pay the same price whether they pay by cash or credit card.  Few shoppers understand that the merchant pays as much as 5% of the transaction to the bank to process the credit card.  That cost is passed on the to customer.  New forms of electronic banking could squeeze out the cost of credit for shoppers who have the money in their account.  A new bank can verify that the funds are available for immediate transfer, BEFORE approving the purchse.  No credit is extended, it’s more like using your ATM card everywhere.  Transaction costs can be much lower, and risk is much lower.  This adds up to savings for the customer.  What do you think?  Please post a comment.

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