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Are payment cards under threat?

Consumers do not only compare how easy it is to make payments when buying goods with traditional providers, but also with other such as Amazon, PayPal and Google. As a result, they have expect payments to be easy, convenient, flexible, secure – in some cases they even want to be rewarded for making transactions. Customers will not stay loyal to their card providers if the service no longer meets their needs or expectations.

As a result, we are entering an age where payment industry providers either have to be the source of transformation or face disruption from competitors challenging their market share. To avoid the latter, card providers should continue to innovate, creating new capabilities and features to bring greater security, added-value services, collaboration and convenience for their clients.

The future credit card

The shift in the payments landscape over the past few years has brought a substantial evolution in the role of payment cards. This transformation has not only impacted the types of cards that companies are launching – for example, Gemalto has developed fingerprint recognition credit cards – but has also affected card providers’ strategies and aspirations.

But how long will we keep physical cards in our wallet? Will the move to cashless lead us to ultimately become wallet-less?

Payment networks like Visa, MasterCard, Discover and American Express have built a massive infrastructure, also known as ‘payment rails’, for processing transactions globally. As purchasing trends shift online, credit and debit cards are increasingly being used more for their ‘rails’ than for the traditional plastic card we use in-stores. Thus, the battleground for card providers is how to remain the default payment option across every channel, keeping them in the top spot in a spender’s digital wallet.

Apart from the obvious revenue advantages associated with being a preferred payment choice, such as interchange fees and interest charges, card providers with ‘top of the wallet’ status also have access to a rich pool of information. By harnessing data, card companies can provide an innovative and hyper-personalised customer experience to differentiate themselves or create a new stream of revenue, as seen with companies such as Google purchasing Mastercard credit card data to track users’ spending.

Evolving competitor landscape

With the incursion of the concept of ‘digital cards’, card issuers and their corresponding business model are under threat, no matter what position they hold in the rank.

Card providers have access to increasing amounts of payment and account information, and more assertive competitors are moving quickly to commercialise the opportunities. Online players, like PayPal and Square, are already poised to take a bigger industry lead over traditional credit card issuers thanks to their established online presence.

And, as their dominance grows, we are likely to see other digital players enter the payments space. Amazon, for example, is well known for having a business plan for every industry – and it is likely payments will not be any different. Having just launched a small loans service to SMEs, it is not hard to extend the logic to where Amazon is your bank and runs your entire network by Amazon “rails”. And the same could easily be said for Apple.

We may also see social media players get involved, coupling their user data with account information to provide quick credit checks or banking services.

So, what does this mean for traditional card providers?

Firstly, it is clear that marketing strategy can no longer be centred around a piece of plastic. Marketers must challenge themselves to think about how they can propagate brand loyalty and acquire customers in this changing market. At the moment, a vast amount of customer acquisition is achieved by cross-selling to other customers with partnerships. For example, the British Airways / American Express credit card enables consumers to collect Avios points on their day-to-day transactions.

And how do they compete on the digital landscape? Many providers are racing to position themselves as the customer’s ‘digital front door’ to take advantage of additional account information. Card providers need to act fast to stay relevant.

In the short to mid-term, credit card providers must focus on trust. Currently, thanks to consumer banking regulations, clients have the peace of mind that if a card gets stolen, they are protected. For the time being, Apple Pay and other providers are not offering the same assurances to customers yet. However, when mobile payments start offering the same guarantees, what can card providers do to stop people switching?

In the long term, card players must ensure that they do not find themselves consigned to the role of the faceless underwriter. Card providers need to think about their role in the entire financial services ecosystem and create new, innovative services that respond to customers’ needs. Many forward-looking players are looking to launch offerings such as 360-degree views and financial management advice services.

By combining machine intelligence with data, other providers are already exploring how technology can create new customer and colleague experiences that are simple, fast, transparent and engaging. For example, American Express’ personal travel assistant app, Mezi, uses AI to help cardholders pay for vacations and business trips based on their preferences. Similarly, Bank of America’s virtual AI assistant Erica is helping clients with effective money management.

Only by creating these value-added services that respond to specific consumer needs can card providers avoid complete industry disruption and stay relevant.

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Comments: (3)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 01 February, 2019, 18:01Be the first to give this comment the thumbs up 0 likes

Blog posts like this have been written for almost a decade and still payment cards still rule cashless payments.

As WSJ says in a recent article, "Despite a bewildering proliferation of digital payments over the past 10 years, the old payment champions Visa & MasterCard continue to be the new payment champions because most "new ways to pay for things still lead back to Visa and Mastercard". The share of credit & debit cards in US retail payments is rising, from 53% in 2012 to 62% in 2017 to 70% in 2022, whereas the share of digital payments bypassing card rails has remained flat at 14%."

Srinivas Chintakrinda
Srinivas Chintakrinda - Wells Fargo - Minneapolis 01 February, 2019, 20:021 like 1 like

Appears to be less convincing logic to know the cards industry will be disrupted because of other Innovations.  The statistics always suggest continued/increased use of Cards.  The another fundamental reason for cards industry sustainablity, for example Credit Cards, is a credit service rather an instant debit in other cases.  It could be, perhaps, digital cards may reduce the physical usage, but the Cards industry will happily survive !

Vernon Crabtree
Vernon Crabtree - My comments are my own - Utrecht 05 February, 2019, 12:06Be the first to give this comment the thumbs up 0 likes

The account holder will always need to be authenticated. And we will always want to be able to share our card with the kids (even though the PIN is supposed to be "personal").

Furthermore, the merchant needs to "look" trustworthy - the cards terminal helps in this process.

Unless replacing these elements provides significant benefit over the existing rails, cards are not going anywhere soon.

Abhijit Deb

Abhijit Deb

Head of Banking & Financial Services, UK & Ireland

Cognizant

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This post is from a series of posts in the group:

Banking Strategy, Digital and Transformation

Latest thinking in respect to Banking Strategy, Digital and Transformation. Harnessing our collective wisdom to make banking better. Ambrish Parmar


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