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Card versus Super-App: which one wins?

Digital wallets are expanding their functionality and credit cards are going to have to evolve to compete. Tommy Sveum looks at the implications for card infrastructure inside issuing banks.

Tommy Sveum / November 03, 2021

As digitisation gathers pace, mobile devices with digital wallets linked directly to bank accounts are challenging cards as the world’s favourite way to pay. According to WorldPay, digital wallets and account-to-account payments – solutions that can bypass card rails entirely – are predicted to account for around 48% of all electronic transactions by 2026.

Furthermore, as growth in credit card usage slows, The Financial Times reports[1] the profitability of credit cards dropped between 20 and 30% last year alone, with banks having to invest more in incentives to encourage consumer usage.

As we argue in our new white paper, however, it’s not all bad news for card providers. Research from PCM[2] predicts cards – in both physical and virtual forms – will continue to dominate payments for the next five years, with just over half of all non-cash transactions continuing via cards through 2026. At the same time, growth in card transaction volumes and value will continue as people switch from cash to electronic payments around the world, while our own research in the UK and Nordics[3] shows that, at present, consumers prefer paying with cards compared to digital wallets.

Despite these positive signs, now is the time for credit card issuers to supercharge their card offerings to compete with digital wallets. Digital wallet providers enjoy the advantage that they can add new functions to their product almost instantaneously through over-the-air updates to apps. Furthermore, digital wallets usually have user-friendly management options available to consumers via apps.

In “Reinventing credit cards for the digital economy”, we argue that card issuers urgently need to modernise their offering, including more flexible product design and more capable card management solutions to respond to the threat posed by digital wallets. Examples include accounts that offer a Buy-Now-Pay-Later (BNPL) option alongside a credit card, or a savings product alongside other insurance and lending options.

Card management: the core challenge

If greater functionality and better customer interfaces are the answer, then today’s card management systems, and specifically their credit and lending engines, are part of the problem. Existing card management systems can be expensive to operate, requiring extensive in-house development upgrades and constant management to maintain compliance with standards set by card networks and other systems.

While it’s possible to build a new credit ledger system in-house, this can be time-consuming and expensive, requiring the hire of experts in building scalable, flexible solutions that put the customer journey and experience at the heart of their design. All too often, in-house systems also struggle to interface with external systems given a lack of open API interfaces, with poor customer experience the result.

At TietoEVRY, we believe developing a partnership with an outsourced provider of modern, future-proof credit ledger systems is the most cost-efficient and effective way for credit card issuers to meet the threat of digital wallets. Customers now expect the capacity to alter credit limits, access statements and change services immediately via online service portals delivered via an app. To meet this expectation, issuers need to upgrade their card management systems, delivering future-proof, flexible systems that can cope with rapid changes to product design and management both in the physical world and online.

A new wave of Software as a Service (SaaS)-based credit ledgers is emerging. These systems enable banks to offer attractive, personalised and flexible credit propositions. Based on an API structure which allows banks to view and edit cards products and account information, these ledgers can be updated instantly and do not depend on batch processing. This means customers can see changes right away and new product features can be used immediately without waiting for updates or new cards to be issued. From a bank perspective, repayment terms and dates, fees, minimum payments and other parameters can be edited in real time, with changes applied instantly.

To find out more about how modernising your credit ledger systems will power up your card offering for consumers, download our new white paper here.

 

 

 

[1] See The Financial Times: https://www.ft.com/content/fe591579-2202-45f1-8c83-a7e7dd1200c4

[2] The Digital and Card Payment Yearbooks: www.paymentyearbooks.com

[3] https://www.tietoevry.com/en/newsroom/all-news-and-releases/press-releases/2021/03/time-for-biometric-security-on-contactless-cards-new-research-from-tietoevry-reveals-uk-consumers-contactless-concerns/

Tommy Sveum
Product Manager, Card & Account Product Management

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Tommy Sveum

Product Manager, Card & Account Product Management

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