In 2006, the number of cards in circulation in the United States increased by double-digit percentages. But the overall amount of interest and fees collected did not grow; it takes more and more effort to chase the same desired business. Debit cards, much less profitable than credit cards for banks that issue them, are gaining in adherents. And regulatory scrutiny of bankruptcy, predatory lending, and minimum payments is increasing in many areas.
The financial-services industry is thus poised for another new wave of credit card innovation. We’ll see more cards oriented to particular niche markets; alliances among banking chains; and, probably, banks that market their transparency, reliable advice, and flexibility alongside their rewards.
5. The globalization of R&D. The outsourcing of R&D to the emerging markets of Asia is taking off, with a particular emphasis on software design and development. China and India will account for 77 percent of all newly established R&D sites between 2005 and 2008.
Some of the motive is labor arbitrage: to take advantage of the highly skilled talent available at significantly lower cost in economies like India and China. But the cost differential between professionals in advanced and developing countries is rapidly declining, and other motives for engineering services outsourcing (ESO) are growing more compelling. For example, engineering facilities in China can capitalize on being close to the factories where so many products are being made. Also, as markets grow in India and China, it helps innovative companies to have an R&D staff located in those countries, where they will be familiar with consumer preferences. Relatively few companies have reaped the potential gains from these sites so far, in part because they have not yet coordinated their R&D efforts into well-designed networks. But some farsighted companies are improving their global innovation footprints, and they will set the standards for the rest.
6. The rising use of software in manufactured goods. There is more embedded software in many children’s toys today than there was in the Apollo lunar module. The same is true for appliances, tools, and even consumer products like toothbrushes — let alone for automobiles. That’s why the German industrial giant Siemens employs more software engineers than Microsoft.
This use of software will increase in 2007 as two technologies for tracking location and movement become more commonplace in everyday life. Radio Frequency Identification (RFID), embedding miniature transponders in products and animals to send unique digital ID signals, has been around since the 1940s, and Global Positioning System (GPS) satellite-based navigation technology is equally well-established. But when combined with embedded information technology, they are leading to a world in which software is everywhere, keeping track of many more things.
Already, Monsanto is developing seeds equipped with RFID chips to be sown into the soil; they can help monitor and transmit information about weather and soil conditions. We will see self-authenticating passports, drivers’ licenses, and other forms of ID; new kinds of mobile payment (in Japan, more than 30 million cell phones are now equipped with chips capable of processing swipeless transactions); and laptops that automatically adjust themselves to new business applications as they cross international boundaries. The implications for privacy are already much discussed, but we have yet to see them tested by a legal case that creates a popular backlash; we don’t yet know whether public opinion will deem convenience or privacy more important.
7. Simplicity matters. We do know, however, that the complexities of embedded software have unleashed a growing countermovement toward simplicity. Often both underused and unappreciated by many customers, hyper-engineered feature sets also account for the majority of bugs, quality issues, and user-adoption tribulations. Hence the much-noted success of the Apple iPod, the Motorola Razr, and other simple but elegant devices. More will follow, as ease of use and feature simplicity become key technology selling points. For example, Apple’s iPhone introduction this year may lead to a major shake-up in consumer electronics as other companies, emulating the same approach, enter the market with intuitive technologies.