In: Economics
Question 1: Within the credit card industry, how do technological trends relate to determinants of supply, and utility maximization.
In other words, how do technological trends relate with determinants of supply, and how do technological trends relate to utility maximization within the credit card industry. Please explain using specific examples.
Use information from the following entities: Visa, Discover, American Express, and Mastercard.
The technological trend over time acts as an important determinant that could impact the supply of a product in an industry. Advancement in technology in an industry will reduce the cost of production(which shift the supply curve to a new level) as well as include the benefit of convenience than in the past. Technological trend brings new opportunities for businesses and even create a new market for business. Let us take the case of the credit market industry. earlier if we required excess money for the purpose of buying a good or service we have to go to financial institutions( assume that you do not have any friends to fund you) to borrow money which is a time consuming as well as require a lot of procedures. But once credit cards were introduced it became a revolutionary stand in the world which allows for instant borrowing of money and to use it immediately. Over the past years, the credit card industry has witnessed technological advancements that dumped the classic magnetic striped plastic cards to chip placed cards.
The major players in the credit card industry are Visa, Mastercard, American Express, etc are not actually processing the payments. They are just providing a platform for the credit card system to run on. There are processors on the back end who actually engages in the processing of payments. Thus it should be noted that the former category is just intermediaries who facilitate the process of borrowing with the help of the technology. This can be successful only if the idea of instant credit facility with the use of advanced technology is known and acceptable to the needful customers and the shopkeepers, business entities, etc. It is mandatory for these credit card facility providers to have a strong relationship with the merchants who accept the credit cars and with banks. The number of credit cards has increased and it began capturing new economies due to advancements in credit card security. Adoption of chips and EMV technology for securing the credit card holders, and their better customer service through monitoring the customer's credit by online mobile banking apps are some of the technological advancements that practiced by credit card industry to increase its supply and maximize its role among the prospective customers. Thereby these credit card facilitators try to maximize the utility from the technological advancements that took place in the credit card industry.
But recent technological changes in the field of the credit industry and other dynamics have changed the payment industry as a whole. These new technological advancements change consumer behavior as well as pose a big challenge to the credit card industry. For example, recently Apple (a tech giant) and Goldman Sachs (a big bank) have planned to join together to have a credit card linked to Apple's digital wallet(cited from Wall Street Journal). Thus recent changes are going to be a tough game for the traditional facilitators like Mastercard, Visa, etc. Now the role of physical use of the credit card is losing its relevance. Thus technological trends associated with the credit card industry have a crucial impact on its physical credit card supply because of the availability of more advanced smartphone-enabled credit accessing facilities. I personally believe that these players in the credit card industry have to take the right decisions to exist in the market by joining hands with the giant techs like Apple to provide the payment network. Now it is not required to have a physical credit card instead use the payment applications to facilitate the credit requirements which is fully digitalized.
But the credit card facilitators, as well as the.financial institutions, may lose their hold in future due to these technological advancements. It is because the giant techs may find ways to avoid the above key players entirely from this credit market. for example in China, the Alipay and Wechat mobile wallets have developed a model avoiding these key players of the card network(cited). The recent reports show that Artifical Intelligence is working hard to make credit cards safer and more user-friendly. Thus the Big techs are aiming at maximizing its utility in its fuller sense by avoiding the other key players.