4 Trends Shaping the Credit Card Industry

Published October 3, 2022

The world’s changing at a breakneck pace and the way we interact with our credit card providers is no different. Data from NerdWallet shows card payments are skyrocketing and 80% of consumers today prefer card payments to cash. Companies will need to stay on top of trends and have the right technology and first party data strategy to launch new products and differentiate their businesses. Here are a few key areas we are seeing our clients start to focus on to keep pace with all the change.

1. Contactless and Virtual Payments

The US has lagged considerably in adopting contactless payment methods, defined as tap to go card chips or mobile wallets – but across the globe there’s been a noticeable trend in mainstream usage. Take Australia for instance, over 75% of face-to-face Visa transactions are contactless tap and go. In 2016, over 95% of Canadian credit cards were contactless and over 75% of retailers accepted contactless payment. Lastly, and maybe most telling in the APAC markets, China had over 900M people utilizing mobile payments by the end of 2021.

In 2018, just 0.18% of all point-of-sale transactions were contactless in the US — this was in large part due to the infrastructure needed to accept these payments and American banks overlooking the payment preference from consumers. But with recent changes to chip cards and terminals, expect this number to change. In the last few years, it has been reported that 70% of terminals in the United States now had the necessary hardware for contactless transactions while more than 95% of new point of sale terminals are now enabled for this kind of payment. Since 2019, all Chase Visa cards have been equipped for contactless payments and card issuers like American Express and Capital One have followed suit. Increasing pressure from fintech and tech companies like Apple and Google are also accelerating this preferred method of payment.

Virtual credit cards, a form of payment where a temporary credit card number or account number is issued and used to make purchases online or over the phone safely, are seeing an uptick in usage due to consumer convenience and large tech companies leading the charge. Paypal launched their new Venmo credit card to consumers in 2021 and its QR code feature allows users to activate the card immediately by simply scanning the code. In just a few minutes, a consumer can immediately start using the virtual credit card for both online and in-person purchases.

Card issuers aren’t only focused on individual consumer innovation. Small businesses are also benefiting from this technology with products like Stripe Issuing, which allows small businesses the opportunity to offer branded credit cards to their customers and launch commercial card programs within a few days. The technology creates an API that allows businesses to create their own virtual (issued through your phone) or physical (in hand) branded commercial credit cards at only 10 cents for virtual and $3 for a physical card, all enabled by QR code technology. Allowing a small business the ability to set up entire card programs in just a couple days at a fraction of the cost will help these customers differentiate their businesses in the marketplace and leverage their first party data to create better customer relationships through rewards and loyalty.

2. Card Masking Protecting Consumer Privacy and Data

Data privacy has been a hot topic for the last several years with states like California and Virginia implementing legislation around consumer privacy (Read our blog on Avoiding CCPA Fines – Keep Your 1st Party Data Safe) and others likely following suit in the coming years.

To keep up with consumer demands around privacy, card masking is a new feature that’s becoming more popular in the card space. This feature allows a consumer to use a randomized temporary virtual card to hide their consumer data from merchants and other third-party data brokers. Companies like privacy.com have been ahead of the curve in anonymizing card information for consumers looking for added security while shopping online.

These temporary cards also help mitigate a rise in ‘card not present’ fraud, which is 81% more likely to occur than point of sale fraud, an increase due to the surge in use of digital channels by consumers. In addition, the added security from this feature gives customers a layer of control and protection they wouldn’t have otherwise during a time when data breaches are becoming the norm.

3. Buy Now, Pay Later (BNPL)

‘Buy now pay later’ has been picking up steam thanks to companies like Affirm, AfterPay and Klarna. AfterPay saw US enrollees increase by 239% in 2020 and Klarna reportedly increased its consumer base by over 1M in just the first half of 2020. Growth in this area has largely been driven by individuals who can’t or don’t want to use credit cards, according to a 2020 study, which is the number one reason for using a BNPL service was to avoid interest on credit cards.

The BNPL model is encroaching on credit card market share as it allows consumers that would otherwise not qualify for credit or for risk averse consumers to access the products they want now and pay in increments. In response to this demand from consumers, several of the large card issuers are beginning to closely look at how this can fit in their ecosystem. As of last year, Capital One has been beta testing the product to assess how it might compete, while AMEX and Chase have started integrating BNPL features on credit card statements for select purchases.

As the economic climate shakes out these next couple of years, expect the BNPL model and its no interest model to be more broadly offered by merchants and credit card companies.

4. Using alternative data sets to assess customers

According to FInRegLab – almost 20% of US adults can’t be given a credit score for borrowing purposes based on traditional credit metrics that inform FICO scores like payment history, amounts owed, length of credit history, new credit, and credit mix. 96% of US households have a bank or a prepaid account and 91% of US adults have at least one utility in their name.

Consumer permissioned data, or data that consumers can grant potential lenders to look at, is being accepted as an alternative to traditional metrics. Records that could include their history of paying rent on time, utilities, cell phone bills and even things like your Netflix subscription payment can be part of a lender assessing your full financial health.

There are companies like Mission Lane who use alternative data sets to serve underbanked communities in the United States. As of 2022, there are 100M Americans with low or no credit that can include newly arrived immigrants with no credit history, college students with no credit history, or Americans that are rebounding from bankruptcy (Pugh, 2022). Using alternative data sets to assess credit worthiness allows Mission Lane to tap into this marketplace that has often been ignored by larger financial institutions because of cost/reputation or higher risk profile.

How To Keep Up With All This Change

It’s a period of rapid change and adoption for credit card companies, customers, and merchants alike. Navigating these changes and staying ahead of these four key areas require a close look at your first party data and blending the right emerging technologies to help launch competitive and relevant product offerings for your customers.

At Infinitive, we’re helping leading financial services providers innovate faster by moving into the cloud to leverage their first- and second-party data to create compelling offerings for their customers. Contact us to see how we can help you today.

Contact Our Expert

Don Cortez 

 Market Developer


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