In moving to the next generation of credit ledgers, banks will effectively reinvent credit cards as a viable competitor to multi-function wallets.
On the face of it, things don’t look great for credit card providers. The number of debit cards is growing twice as fast as credit[1], while WorldPay predict[2] that digital wallets linked directly to accounts and BNPL solutions will account for 48% of all non-cash transactions by 2026. If that’s not bad enough, The Financial Times recently reported[3] that the profitability of credit cards dropped by around 25% last year alone as banks invested more in incentives to encourage consumer usage.
That said, as we show in our new white paper, it’s not all doom and gloom for credit card providers. Demand is still growing, fuelled in part by the continued move away from cash, and by newly-affluent consumers looking for the convenience and international capabilities that credit cards offer. Furthermore, the growth in virtual card issuance has revitalised the credit segment for online use.
Despite these positive signs, there’s no doubt that credit card providers urgently need to modernise their offering, including more flexible product design, instant updates of card functionality and more capable card account management solutions. In brief, cards need to adopt some of those features – such as multiple functionality and over-the-air updates – which fans of digital wallets enjoy.
Our white paper, “Reinventing credit cards for the digital economy”, argues that today’s card management systems, and specifically their credit and lending engines, do not make the introduction of flexible, dynamic, multi-function products easy. The card management platforms currently in use are expensive to operate and can require extensive in-house patching and upgrades to maintain compliance with standards set by card networks and regulators.
Historically, credit card ledgers have been used to calculate fees, manage transaction flows, calculate interest and undertake other basic functions. Our view is that banks must power up these ledger systems and enable a new generation of card products featuring multi-function, flexible cards that can be issued and managed in both physical and virtual environments. Examples include adding or editing loyalty points functions to credit cards in real time, or – for corporate cards – offering the same wide-ranging functionalities offered to consumers. This is particularly important given reports in Europe[4] that corporate customers are unhappy with the narrow range of functions available on corporate cards.
Banks could also use these newly-capable platforms to add other functions, including loan financing, insurance, BNPL, reward programs and campaign management as well as subscription payments alongside the main credit function.
Our white paper makes the case that the most efficient means of achieving this system-wide upgrade for credit products is to switch to a Software-as-a-Service (SaaS)-based credit ledger solution. In this way, banks can reduce the costs associated with in-house software upgrades and compliance, while also improving the interoperability of their card systems with other account functions and delivering more dynamic and capable products to market.
In moving to the next generation of credit ledgers, banks will effectively reinvent credit cards as a viable competitor to multi-function wallets. Such new credit ledger systems could be a game-changer, enabling banks to take advantage of their strong customer relationships to rethink how cards are used and managed for decades to come.
To download a copy of our new white paper, “Reinventing credit cards for the digital economy”, click here.
[1] The Digital and Card Payment Yearbooks: www.paymentyearbooks.com
[2] WorldPay/FIS: “The Global Payments Report 2021”: https://worldpay.globalpaymentsreport.com/en/
[3] See The Financial Times: https://www.ft.com/content/fe591579-2202-45f1-8c83-a7e7dd1200c4
[4] See a recent Norwegian survey of corporate cardholders: ): http://www.epsi-norway.org/wp-content/uploads/2021/09/Bankbransjen-2021-et-sammendrag.pdf?x34714).