How to Protect Your Card-Issuing Business Against Digital Disruptors
Payments and cards have moved to the center of most consumers' financial lives. The good news: Banks have long held a dominant position in payments and have important competitive advantages. The bad news? According to Bain, without aggressive action, banks may see their advantage rapidly lost to a new army of competitors.
By David Evans, Chief Content Officer at The Financial Brand
The report: Can U.S. Banks Protect Their Card-Issuing Business?
Source: Bain & Co.
Why we picked this report: Consumers, particularly younger demographics, regard payments as the core of their financial experience. Grappling with this mind shift is essential if banks are to successful defend primacy.
Executive Summary
U.S. banks have historically relied on credit and debit cards as anchors for customer relationships and gateways to profitable revenue streams. While card revenues are projected to reach $400 billion by 2028, alternative payment methods are gaining significant market share, especially among younger consumers. Digital wallets, buy-now-pay-later services, and peer-to-peer payment platforms are expanding faster than traditional card payments, threatening banks’ customer relationships and cross-selling opportunities.
To protect their card-issuing business, banks must enhance customer experiences, modernize technology infrastructure, integrate alternative payment options, leverage data analytics and artificial intelligence, break down organizational silos, and create personalized offerings that meet evolving consumer preferences while maintaining the security advantages that traditional banks currently hold over insurgent competitors.
Key Takeaways
- Alternative payment methods (digital wallets, BNPL, P2P) will continue to expand faster than traditional card payments in the US, with consumers increasingly valuing seamless digital experiences.
- There’s a significant demographic risk as 40% of banks’ card customers belong to millennial or Gen Z cohorts, who are the most avid users of alternative payment methods.
- Customer loyalty is directly linked to card primacy: Companies with credit card primacy have a nine-percentage-point-higher Net Promoter Score than those without.
- Banks lead insurgent competitors in fraud prevention and dispute resolution, providing a critical competitive advantage that should be leveraged and enhanced.
- Technology integration that allows customers to use preferred payment methods while maintaining the bank relationship is essential, as demonstrated by Nubank’s success in Brazil with Pix financing features.
Key Data Points
- By 2028, U.S. card revenues are expected to reach approximately $400 billion, 10% higher than in 2023.
- Buy-now-pay-later services score 48 on Net Promoter Score, digital wallets score 38, neobanks score 35, while incumbent cards score just 34.
- 67% of millennials and 65% of Gen Z made payments using digital wallets in 2024, compared to 56% of Gen X and 33% of baby boomers.
- Apple Pay’s user base of approximately 61 million subscribers in 2024 is projected to grow to over 82 million by 2030.
- More than 35% of Nubank’s active credit card customers in Brazil used their Pix financing feature (combining real-time payments with card-based installment plans) in 2023.
What we liked about this report: The report nails a key competitive challenge for banks as consumer behavior and preferences are undergoing dramatic change. Two charts (reproduced below) provide concise and useful reference for both the opportunities and risks in banks’ card businesses.
What we didn’t: The prescriptions offered by Bain are familiar and somewhat generic ("embrace AI").
Digital Disruption Threatens Traditional Card Revenue
U.S. banks have long relied on credit and debit cards as anchors for customer relationships and as gateways to profitable revenue streams. While card revenues are projected to reach $400 billion by 2028 (10% higher than in 2023), the competitive landscape is rapidly changing as alternative payment methods gain market share.
Unlike countries such as the Nordics, Singapore, Brazil, and China, where alternative payment adoption has been accelerated by government support, lower transaction costs, and superior user experiences, U.S. consumers have been slower to embrace these alternatives. However, digital wallets, buy-now-pay-later services, and peer-to-peer payment platforms like Zelle and Venmo are steadily expanding their footprint in the American market.
The stakes for traditional banks are particularly high given recent demographic trends. Approximately 40% of banks’ card customers belong to millennial or Generation Z cohorts — the same groups showing the strongest preference for alternative payment methods. In 2024, 67% of millennials and 65% of Gen Z consumers made payments using digital wallets, compared to just 33% of baby boomers.
These shifts are reflected in customer satisfaction metrics. According to NPS Prism survey data, insurgent payment options significantly outperform traditional banks in Net Promoter Scores: buy-now-pay-later services score 48, digital wallets score 38, neobanks score 35, while incumbent cards score just 34. This satisfaction gap indicates a significant threat to customer loyalty and cross-selling opportunities for traditional banks.
Dig deeper:
- Digital Wallets Increasingly Dominate Payments, But Cash Maintains A Stubborn Toehold
- Yes, You Can Compete with the Major Card Issuers. But It Takes Creativity and Focus.
- Can New ‘Credential’ Concepts from Mastercard and Visa Recapture Consumers’ Eroding Loyalty?
Building Payment Resilience for the Future
Despite these challenges, banks maintain crucial advantages in fraud prevention and dispute resolution — capabilities built on trusted infrastructure that remain essential for strong customer relationships. To leverage these strengths while adapting to changing consumer preferences, banking executives should implement a comprehensive strategy focused on five key areas:
1. Elevate the Customer Experience
Banks must focus on "moments of truth" in the customer journey — critical interactions such as adjusting limits, handling missed payments, and processing card applications. These moments significantly impact customer satisfaction and loyalty.
Banking executives should:
- Identify and map the most important customer touchpoints that drive satisfaction
- Tailor card propositions for individual customer segments (some prefer cash-back offers while others value travel rewards)
- Personalize loyalty program features based on deep understanding of target segment priorities
2. Integrate Alternative Payment Methods
Giving customers flexibility in payment options boosts engagement and helps retain primacy in the relationship. Forward-thinking banks are already implementing hybrid approaches:
- Take inspiration from Nubank in Brazil, which allows customers to initiate account-to-account transactions using Pix (Brazil’s real-time payment rail) while funding them with card-based installment plans
- Leverage Apple’s opening of the iPhone’s NFC chip to third-party developers to create bank-owned contactless payment solutions outside of Apple Pay
- Develop seamless transitions between payment types that maintain the bank’s position in the transaction flow
3. Leverage Data for Personalization and Risk Management
The availability of new data sources provides opportunities to enhance offerings and improve risk assessment:
- Move beyond traditional credit scoring by incorporating open finance data and alternative metrics such as rental payment records and smartphone app usage to build more predictive risk models
- Create commerce media networks within bank apps to promote relevant products directly to consumers
- Use customer transaction data to provide personalized financial insights and recommendations
4. Embrace AI Technology
Generative AI is transforming payments across the customer journey:
- Implement AI for fraud detection. Mastercard’s 2024 integration of generative AI has doubled detection rates for compromised cards and tripled the speed of identifying at-risk merchants
- Deploy AI for analyzing customer spending patterns and providing personalized recommendations
- Use AI to streamline account setup and service processes
5. Modernize Infrastructure and Organization
Structural changes to both technology and organizational design are necessary:
- Adopt a customer-centered approach that organizes around payment-related needs rather than specific products
- Build a flexible technology stack that reduces process complexity and manual work
- Create systems that can quickly adapt to new features and easily interface with external partners
By implementing these strategies, banking executives can protect their card-issuing business while embracing the digital transformation reshaping the payments landscape. Those who successfully adapt will benefit from continued growth, enhanced customer loyalty, and expanded cross-selling opportunities in an increasingly competitive market.
