Chapter 7-The Canadian Banking System and Virtual Credit Cards

                Recently, I read an article in the Financial Post, discussing the introduction of virtual credit cards. Visa, the world’s largest credit card company, announced that they are going to be launching a “digital wallet” that is expected to be broadly accepted. Mike Bradley, head of products for Visa Canada, was not able to provide the public with a specific date for the launch of this new product, but said it would be sometime in the fall of 2011. The way this new digital card works, is that users will save their banking information so that when the time comes and the user wants to make an online purchase, all they have to do is enter their email address and password. This is convenient to users because they will never again have to enter any billing or shipping information when shopping online.

                The textbook Working with Economics discusses the different categories in which individual demand for money can be divided into. 'Transactions' is one of these categories, and it concludes that the amount of money held for transaction purposes depends on the level of income of an individual. This means that people are often limited to how much they can spend on a day-to-day basis. However, the textbook also mentions the function of a credit card. Credit cards lend out money to people, allowing them to spend and pay it back afterwards. This factor allows people to spend out of their level of income.

                The textbook mentions that a credit card requires authorization in order for to be used. This means that it must be determined that the person’s credit limit has not been overextended, and also that they are capable of paying back loans. Since the Bank of Canada is constantly battling people who put themselves in debt, I think that Visa is going to have to really think about the consequences of giving people easy access to loaned money. Since this new digital wallet will make it easier for people to make online purchases, people will spend more and possibly even get into a lot of debt by simply paying the minimum charge on their visa bills. Although spending is good for our economy, spending money that doesn’t exist in people’s wallets isn’t.

Link: http://www.financialpost.com/news/Visa+moves+virtual+credit+cards/4768237/story.html

               

Digital Wallet Questions

How long do you think it’s going to take to get to all virtual cards? How many years?

I think it is going to take about 20-30 years to get to all virtual cards.

Why?

The reason I think this is because us younger people are willing to put aside wallets, cards and cash,
while the baby boomer generation still wants to use those forms of payment. This article also mentions
how the amount of cash people carry on average has been falling continuously in the past 3 years.
Therefore we can expect to see the average amount of cash people carrying around drop even more,
and maybe even disappear completely.

Who will not be on board with this new virtual wallet?

I think that the baby boomers will not be on board with this new virtual wallet. Baby boomers have
grown used to physical wallets with cards and cash, and I don’t think they would feel comfortable having
to throw that all away. As well, I think they would be very skeptical to how safe this new virtual wallet
will really be.

What companies are going to be affected negatively by this? Name 3.

Three industries that are going to be affected negatively by this are; leather industry (who make the
wallets), the mailing industry (people won’t have to mail cheques, etc.), and the retail industry (make
wallets).

Who is going to make money from this? Name 3.

Three industries that are going to make money from this are; the electronic industry, the mobile/cell phone
Industry, and the banking industry.