The pandemic has changed the way we use cards forever. Decades worth of behavioral change have happened in a few months and contactless payments and digital wallets are here to stay.
Juniper Research predicts that total spend through digital wallets will exceed $10 trillion in 2025, up from $5.5 trillion in 2020 — a huge jump driven by how quickly consumers changed how they pay for goods during the pandemic. Similarly, the contactless payment trend will continue. In fact, Global Payments found that 74% of consumers said they’ll continue to use contactless payments post-pandemic.
While how people use cards has changed, many aspects of the credit card industry haven’t changed substantially in decades. The business overall is saddled with legacy technologies and processes and can take issuers a year or more to launch a new card.
More than three-quarters (77%) of credit card volume is coming from the top ten credit card issuers in the U.S., according to the June 2020 Nilson Report. For consumers, it’s been the same for decades, with few changes in the credit approval process or how they can redeem and use rewards.
We are starting to see the signs of dramatic change, however. Below are five of the most significant developments.
1. New Credit Options
Card issuers such as JPMorgan Chase are offering new credit options for consumers without a credit score, offering credit based on bank balances and payment history. With a large portion of the population unbanked, or underbanked, evolving forms of credit will help to expand the population of who can access credit.
2. Rise of Buy Now, Pay Later
The meteoric rise of buy now, pay later services (BNPL) is also leading to an increase in more flexible credit options from traditional card companies. Visa is now offering its customers an interest-free payment installment plan to compete with BNPL companies such as Klarna, Affirm and Afterpay (being acquired by Square).
Giving customers more flexibility at the point of sale is appealing to both merchants and consumers, driving more sales and enabling people to pay off both large and small purchases over time, without interest.
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3. New Types of Rewards Emerge
Consumers are benefiting from the competition among card providers to offer more dynamic and flexible rewards for card members. Issuers now have better insight into usage patterns and customer behavior, allowing them to customize rewards programs and experiment with new offers quickly, seeing what resonates. Offering a larger variety of personalized perks is one way for card companies to set themselves apart from the competition
Payback on Steroids:
From cryptocurrencies to daily cash, consumers now have many options for their card perks.
One innovation is the Apple Card, the iPhone-based card integrated into the Apple Pay digital wallet. It is unique in addition to having zero fees it allows users to get cash back rewards daily, and use them immediately from within the app.
Many financial institutions are adding gamification-based rewards to help encourage customers to learn about personal finance and save more money — ultimately leading to more brand loyalty.
In addition, crypto rewards are taking off in popularity. Similar to how consumers to earn cash back or airline miles, crypto credit cards reward them with Bitcoin or other cryptocurrencies and allow them to redeem the earnings for cryptocurrency.
4. Using Tokens to Reduce Fraud
Tokenization capabilities have increased with new technology enabling financial institutions to issue cards to users via their mobile devices so they’re not stuck waiting around for a new card to arrive in the mail, or to simply avoid using a physical card.
In addition to improved customer experience, this helps to reduce fraud as well. According to Visa transaction data, tokens can reduce fraud by 26% on average compared to traditional online card transactions where consumers enter your primary account number (PAN) online.
5. Creative Segmentation
Another new trend for credit cards is the ability to truly customize their products to a specific segment of the population. Daylight is a digital banking company catering to the LGBTQ+ community, offering cash back rewards for spending at queer bars and LGBTQ+ allied businesses.
There are other cards that target specific groups, such as students or immigrants, with their features and rewards. Credit cards are also becoming a personal statement piece, with Square’s Cash App offering a glow in the dark card and Luxury Card is issuing a Titanium Mastercard, promoting its heft and highlighting its low annual fee. As more people turn to digital payments, having a unique physical card is one way for people to set themselves apart.
From the first department store charge cards to Apple Pay and Google Wallet, credit cards are slowly evolving to meet people’s needs for a convenient, portable and secure form of payment. With the advent of modern card issuing and processing technologies, we are starting to see real innovation to keep pace with the rest of the financial landscape. More customized and flexible offerings will help set credit card companies apart from the competition, and consumers will benefit from more choice and better experiences.