Juniper Research Report Warns Legacy FIs: The Credit Card Game is Changing Fast
By W.B. King
By 2027, the number of credit cards issued by digital card issuance platforms will exceed 321 million globally, which is a significant increase from 120 million 2023. This is among findings in a recent white paper from Juniper Research, Updating Credit Cards for the 21st Century.
“This growth of almost 170% reflects the use of new advanced digital capabilities, such as digital loyalty schemes and instant issuance, as card issuers aim to combat competition, including buy now, pay later (BNPL),” the report found.
Another important data point expected in 2027: Credit cards will account for over $9.7 trillion in spend globally, which represents a call to action for “card issuers to drive revenue growth by choosing the optimal credit card strategy.”
Legacy financial institutions (FIs), the report noted, should keep a close eye on digital card issuance platforms forecasted to be critical in delivering credit offerings in “mobile wallet-dominated markets.”
The report, which collected data from eight key regions and 60 counties, noted: “In emerging markets, the ability to instantly issue digital cards will be a key factor in users choosing credit cards over other payment methods. Card issuance platform vendors must ensure localization to enable cards to be quickly pushed to the wallets popular in each market.”
2027 is also the year Juniper Research estimates the monetary value of rewards for users from credit cards use will reach $103 billion globally. “Card issuers should focus on app-based loyalty to maximize the appeal of these rewards; partnering with well-connected digital loyalty program providers to maximize their appeal. If issuers fail to do this, they will lose out to better-connected vendors in a highly competitive credit cards market.”
Banks and credit unions, the report noted, should also investigate the rising use of virtual cards, which exist only in digital form and are utilized for digital/online payments, and in some cases, over-the-phone and in-store payments. These “cards” contain details such as the 16-digit number, expiry date and CVV.
“Unlike physical cards, there are several options, such as having a disposable, one-time card, whose unchangeable numbers are automatically randomized and generated for a designated transaction,” the report continued. “These cards are linked to either debit or credit accounts, but account information is never shared with merchants. The underlying technology of virtual cards was first introduced to the payments market almost two decades ago, with the intention of countering payment fraud, and today, virtual cards are used for both personal and corporate accounts.”
While businesses like virtual cards for security features and the simplification of payment reconciliation, the report stated there are other benefits, including the ability to lock card payments to a specific amount, time limits and a maximum credit limit for each payment.
“Virtual cards eliminate the possibility of overpayments, critical for compromised transactions. Although these cards are not entirely risk free, the damage’s financial scope will be limited with no further repercussions (i.e., account and/or identity data will not be stolen),” the report offered. “Another significant benefit of virtual cards is enhancement of user control over payments. Furthermore, virtual cards translate into digitization of payment cards that can be deployed into mobile wallets and/or exist within online bank accounts.”
Since virtual cards are not tied to physical payment cards, users are free to delete the card without impacting their account information, which makes the solution a perfect fit for digital wallets.
“Issuers such as American Express, Capital One, and Visa all have virtual card solutions for personal and business use. Unlike various other card types and technologies, virtual cards do not involve manufacturing costs and they are often presented free by the issuer,” the report stated. “Furthermore, in the U.S., personal virtual cardholders have the same protections as with traditional credit cards under the Fair Credit Billing Act, limiting potential liability for fraudulent purchases to USD $50 with most issuers also having zero-liability policies.”
Over the last few years, the FI space has added yet another acronym to its lexicon: credit card-as-a-service (CCaaS). These credit card-issuing platforms are also referred to as a white label service, which, the report noted, “handles the end-to-end issuance process on organizations’ behalf which entail streamlining partnerships, integrations, compliance, and client management aspects of card issuance as a single solution set.”
Since these companies can enable payment and lending offers/products to be integrated into offerings of non-financial companies, the report warned this may create a “large impact” in the market.
“By digital provisioning, issuers are enabled to embed their cards into apps, while cardholders can activate their cards and reset/change their PINs leveraging tokenization, and stay compliant with rules and regulations mandated by industry security standards,” the report continued. “For fintechs and digital-only banks, card provisioning is an important performance indicator, as digitally native players can capitalize on end-to-end digital sales of simple lending/credit products better than legacy players and are able to offer layers of new products (free or with fees).”
Having the ability to modernize existing offerings, legacy FIs, the report maintained, may benefit from card issuance platforms. Another advantage: the ability to “compete with digital rivals more effectively by tapping into their customer base by increasing brand visibility and accelerating the roll-out of new credit card-related products, offers and/or schemes at scale, while improving the overall customer onboarding and experience.”