The pandemic has changed the way people conduct financial transactions. Contactless payment options and wearable payments have started taking over as customers want to avoid contracting COVID-19. 75% of Gen Z customers already use digital payment apps for transacting money. More than half of them use digital wallets at least once a month. And this seems to be a deep-rooted change. Even after the pandemic ends, the digital-native Gen Z customers look set to compel businesses to use digital products to provide them the engaging experience they demand.
However, this isn’t the end of the road for credit cards.
What’s required is a close watch on the trends dominating the industry and adapting to them. And here’s a look at some trends that may become a mainstay in the years to come.
5 Trends That Credit Card Industry Must Know
- New payment modes
As the buying power of Gen Z increases, new payment modes are emerging too. Options such as buy-now-pay-later (BNPL) and contactless payments are becoming popular. Companies like Apple and Amazon have also come up with options such as wearable payments and biometric payments that have simplified the payment process for customers. So, what can credit card issuers learn from this trend? Let’s take Amazon One’s example. Amazon One is used at specific Amazon Go stores. Customers can tie the information of their credit cards and mobile number to their palms. So, instead of carrying multiple cards, customers can screen their palms over a sensor and pay for the products they buy. Mastercard, for instance, is working towards providing customers with an option to switch card purchases into installment plans. Although these technologies are still at a nascent stage, credit card issuers must take cognizance of contactless technology and find ways to provide more flexibility in credit options.
- Improved reward systems
Innovation in reward systems is one of the key ways in which card issuers can survive in this hyper-competitive landscape. Traditionally, customers used credit cards to collect special reward points. It was widely used to redeem travel and hospitality-linked rewards. Customers could redeem their travel points to purchase things of the same value. However, since the pandemic, credit card issuers are reassessing ways to improve their reward system and enhance customer experience. Some methods that card issuers have adopted include – customizing the loyalty rewards based on customer’s behavior and shopping preferences, introducing gamification-based rewards to deepen customer engagement, and even allowing redeeming loyalty points in cryptocurrency.
- Private label credit card management
Many merchants provide their customers private label credit cards to build customer loyalty and distinct brand identity. These cards are exclusively created for specific merchants in partnership with banks and commercial finance companies. These cards carry the logo of the merchant and not that of Mastercard or Visa. Private label credit cards offer special discounts and loyalty rewards to their customers. They bring repeat business for the merchants as they make shopping more convenient and frictionless for customers. While private label cards work well for merchants, small banks often suffer due to reduced margins in credit offerings. Also, it might not be profitable for them if they have to share revenue with the processor. That’s why banks must use private label credit card management solutions to gain ROI quickly and build dynamic product offerings based on market demands.
- Popularity of new types of cards
The increasing competition from fintech companies has compelled card issuers to think of new strategies to acquire new customers and retain them. The traditional credit card issuing process of evaluating the applicant’s credit history or FICO score may not work quite as well now. New card issuers such as Tomo card help young customers stay out of debt and build their credit score with no annual fee or security deposit. Such cards will enable customers, especially the new ones with no credit history or upfront security benefits, to avail a card and purchase things. Traditional card issuers need to come up with such alternatives to target new segments of customers. Take Deserve Edu Mastercard for Students, for instance. Backed by Mastercard and financial companies like Credit Suisse and Goldman Sachs, this card is exclusively developed for international students who do not have a social security number and need a card.
- Virtual credit cards
Companies like Apple are issuing virtual credit cards to allow customers to transact virtually without using a physical credit card. These cards are linked to the smartphone of the consumers. They are not just secure as they can be used only through the use of technologies such as Face ID or touch, but they also promise no hidden fees and offer more benefits to Apple customers. Virtual credit cards have seen an uptick in numbers during the pandemic due to their contactless payment feature. Customers have to just scan a QR code, and the payment is completed immediately. Credit card issuers must recognize the growing trend of virtual credit cards and find ways to offer a secure and differentiated way of shopping.
Payment options such as digital wallets and contactless payment will see an uptick in adoption due to the simplicity and frictionless usage. According to research, digital wallets will cross $10 trillion in 2025. It’s a sign that card issuers need to be more innovative and try to retain their customers with attractive rewards and offers. Apart from that, credit card issuers also need to replace their legacy systems with modernized systems that can enable them to launch new offerings quickly. The current systems and processes are such that issuers take almost a year to launch a new card. Considering the pace at which customer needs evolve, and competitors launch new offerings, issuers will have to accelerate the launch process.
Of course, there will be concerns about security and customer experience. That’s why issuers must partner with a credit card processing expert to develop a solution that manages every aspect of the credit card processing program efficiently.