Did you know that according to McKinsey research global payment card transactions are projected to reach $82 trillion by 2026? It’s a staggering number that reflects the growing trend towards electronic payments and the increasing adoption of digital financial services. Payment cards, such as credit and debit cards, are becoming an essential part of this ecosystem, providing a convenient and secure way for consumers to make transactions.
In this article, we explore the importance of payment cards for digital banks and e-wallets and how they can provide a competitive advantage in the market.
The key points we explore in this article:
- what capabilities today’s payment cards have
- the importance of issuing payment cards for digital banks and e-wallets
- how your payment business can benefit of issuing payment cards
- the competitive advantage of issuing payment cards for digital banking and e-wallets
Payment cards industry overview
The payment cards industry is a complex ecosystem that includes various types of cards, such as credit cards, debit cards, prepaid cards, and gift cards, and involves multiple players, such as financial companies, payment networks, merchants, and consumers.
The payment cards industry has been growing rapidly over the years, driven by the increasing adoption of electronic payments, the growth of e-commerce, and the rise of mobile and contactless payments.
- Visa, Mastercard, American Express and Discover are the four major card networks globally.
- According to a Forbes Advisor survey, debit cards and credit cards are the primary payment method used, with 54% of consumers using a physical or virtual debit card and 36% of consumers using a physical or virtual credit card.
How do consumers typically pay for purchases?
Source: Forbes Advisor
What capabilities do modern payment cards possess?
Today’s payment cards, such as credit cards and debit cards, have a wide range of capabilities that make them convenient and secure for making purchases both in-person and online. Here are some of the key capabilities:
Contactless payments
Many payment cards now support contactless payments, which allow users to simply tap their card on a compatible reader to complete a transaction without having to insert the card or enter a PIN.
EMV chip technology
Payment cards now come equipped with an EMV chip, which adds an extra layer of security to prevent fraud. When making a purchase, the chip generates a unique code that cannot be replicated, making it harder for thieves to use stolen card information.
Mobile payments
Some payment cards can be linked to mobile payment apps like Apple Pay or Google Pay, allowing users to make purchases with their phones.
Online shopping
Payment cards can be used to make purchases online, often with added security measures like two-factor authentication or a virtual card number.
Rewards programs
Many payment cards offer rewards programs that provide cash back, points, or other incentives for using the card for purchases.
Overall, payment cards are becoming increasingly sophisticated and versatile, making it easier and safer than ever to make purchases in a variety of contexts.
What is card issuing?
Card issuing refers to the process of creating and distributing payment cards, such as credit cards, debit cards, and prepaid cards. The issuer of the card is usually a payment company, such as a bank or credit union, or a non-bank financial business, such as a payment network or a fintech company.
The card issuing process involves several steps, including verifying the identity and creditworthiness of the cardholder, assigning a credit limit, and setting the terms and conditions of the card. The issuer is responsible for managing the card account, processing transactions, and providing customer support.
Card issuers earn revenue from various sources, such as interest charges, fees for transactions, annual fees, and interchange fees charged to merchants when the card is used for payment. They also manage the risks associated with card issuance, such as fraud and credit losses. Read this article to find more information about how card issuing works.
The major players in the payment cards industry include:
- Issuers: financial institutions and non-bank financial institutions that issue payment cards to consumers and businesses.
- Payment networks: companies that operate the infrastructure that enables payment transactions to take place between issuers and acquirers, such as Visa, Mastercard, American Express, Discover, and UnionPay.
- Acquirers: financial businesses that work with merchants to enable them to accept payment cards as a form of payment.
- Merchants: businesses that accept payment cards as a form of payment for goods and services.
- Consumers: individuals who use payment cards to make purchases and payments.
How does online payment flow work?
Source: Stripe.com
The payment cards industry is subject to various regulations, such as data protection laws, consumer protection laws, and anti-money laundering laws, which aim to ensure the security and integrity of the payment system and protect the rights of consumers.
The competitive advantage of issuing payment cards for digital banking and e-wallet products
In recent years, digital banking and e-wallets have become increasingly popular due to their convenience and accessibility. One of the key features of these digital financial services is the ability to issue payment cards, such as credit and debit cards, to customers.
These cards have become an integral part of the digital financial ecosystem, providing numerous benefits to customers and financial businesses.
Payment cards can be a crucial differentiator for digital banks and e-wallets
Card issuing can provide a significant competitive advantage for digital banks and e-wallets by differentiating them from other providers in the market. Payment cards allow customers to make purchases in a variety of contexts, including online and in-person, making them a convenient and versatile tool for managing finances.
Digital cards can help banks and e-wallets expand the customer base
They can also help digital banks and e-wallets expand their customer base by providing a way to reach customers who prefer the convenience and security of payment cards over other forms of payment. By issuing payment cards, digital banks and e-wallets can tap into a larger pool of potential customers and better meet the needs of existing customers.
Payment cards can help digital banks and e-wallets increase revenue
Finally, credit cards can help digital banks and e-wallets increase revenue by generating interchange fees on each transaction made with a payment card issued through their program. This can provide a reliable source of revenue that can help support the growth and expansion of the digital bank or e-wallet.
Additionally, issuing payment cards can encourage increased usage of the platform, leading to increased revenue from other services and features offered by the provider.
What are the benefits of issuing payment cards for digital banks and e-wallets?
Issuing payment cards can be extremely beneficial for digital banks and e-wallet products. This functionality provides the following benefits for payment companies:
Increased loyalty
Issuing payment cards can be an effective way for businesses to increase customer loyalty. This function takes users convenience to the next level by providing a fast and efficient way for customers to make purchases both online and in-store. With payment cards, customers can eliminate the need for physical cash or visits to ATMs, making transactions smoother and more streamlined, which boost user satisfaction.
Expanded customer base
By issuing payment cards, digital banks and e-wallets can expand their customer base and increase their market share. Payment cards are an attractive option for customers seeking a one-stop-shop for their financial needs, and financial companies can offer incentives such as cashback and rewards to encourage customers to use their cards.
For instance, neobanks such as Monzo and Revolut have leveraged their payment card offerings to enhance their transaction banking offerings. Consequently, they have been successful in converting trial users into dedicated and active customers.
Increased revenue
Payment cards can also generate revenue through fees charged to merchants for transactions and fees charged to customers for using the cards. By increasing revenue, digital banks and e-wallets can invest in their business and continue to grow and innovate. For example, the UK-based digital bank offers a range of payment cards, including a premium metal card that comes with exclusive perks and rewards. Revolut earns revenue by charging annual fees, transaction fees, and foreign exchange fees on its payment cards.
Increase security
Security is another benefit of payment cards, as they are equipped with EMV chips and require a PIN or signature to complete transactions. Financial companies can also offer fraud protection services to alert customers to any suspicious activity on their accounts. This provides customers with peace of mind when making transactions with their payment cards. Juniper Research anticipates that by 2023, 92% of all contactless payment transactions by volume will be tokenized.
Transaction volume
As the world becomes increasingly digital, payment cards are becoming an essential tool for managing finances. By leveraging the benefits of payment cards, digital banks and e-wallets can enhance their offerings and attract new customers, while providing existing customers with a convenient, secure, and rewarding way to manage their finances.
Additionally, payment cards can provide customers with incentives, such as cashback or rewards, which can help to attract new customers. By expanding their customer base, digital banks and e-wallets can increase their market share and grow their business.
Examples of digital banks and e-wallets that have successfully implemented payment card programs
Digital banks and e-wallets have been successful in implementing payment card programs, which have helped them to differentiate themselves in the market, expand their customer base, and increase revenue.
Revolut
Revolut is a digital bank that offers a range of financial services, including a mobile app, a prepaid debit card, and a range of currency exchange services. The company has over 10 million users worldwide and has issued more than 15 million payment cards since it was founded in 2015.
TransferWise
TransferWise is an e-wallet and international money transfer service that also offers a prepaid Mastercard. The card is linked to the user’s TransferWise account, which allows them to easily make purchases and withdraw cash from ATMs around the world.
PayPal
PayPal is an e-wallet service that also offers a range of payment card options. These include a prepaid Mastercard and a credit card that can be used both online and offline. PayPal’s payment cards are linked to the user’s PayPal account, which makes them easy to use and manage.
Square Cash
Square Cash is an e-wallet service that allows users to easily send and receive money using their mobile device. The service also offers a virtual Visa debit card that can be used to make purchases online and in-store.
These are just a few examples of digital banks and e-wallets that have successfully implemented payment card programs. Each of these companies has leveraged the power of payment cards to enhance their user experience, increase their customer base, and remain competitive in the ever-evolving world of digital finance.
Watch our demo video to explore how to issue virtual & physical cards instantly by using SDK.finance FinTech Platform:
Wrapping up
By cooperating with fintech providers that offer rich API integrations and comprehensive payment capabilities, companies can improve the financial workflow and increase their chance for success through a data-driven approach.
Therefore, the payment cards industry plays a crucial role in facilitating electronic payments and driving economic growth and development, and is expected to continue to grow and evolve in the coming years with the emergence of new technologies and payment methods.
