The First Credit Card
In 1958, Bank of America and Visa launched BankAmericard in Fresno, California, which became the first successful credit card and revolutionized unsecured lending. More than six decades later, with billions of credit cards issued, today’s credit cards still resemble their ancestors, with forms and features designed for payment transactions in the physical rather than digital world. [
While this is a testament to the durability and value of credit cards, the world has changed many times since their introduction. Today’s credit cards must prioritize the “digital-first” experience, as discussed further in this article.
Macro Trends Impacting Credit Cards
Not counting the technological developments and changing consumer preferences of the past few decades, the past few years have pushed cardholders and issuers to go digital at an unprecedented pace. First, pandemics and their associated blockades have severely limited face-to-face payments and increased digital or cardless payments (CNP). During the first days of the pandemic, CNP payments, primarily for e-commerce, grew by more than 20% year-over-year. [2]
Next, when face-to-face transactions resumed, cardholders increasingly preferred contactless transactions when using cards and mobile wallets. MasterCard reports a 40% increase in contactless transactions in 2020 (these trends, while moderating after the pandemic, are all moving in one direction). [3] This has also led to an increase in demand for tokenized cards. and Visa recently reported issuing over 4 billion tokens, more than all of its physical cards in circulation! [4]
At the same time, cardholders are now demanding that card issuers provide the same level of personalization as consumer-facing technology companies such as Uber, Amazon, Google and Facebook. A recent Ernst & Young survey reported that 81% of Generation Z customers believe that more personalized service would help deepen their relationship with the issuer. [5]
Finally, increased digitization has also led to an increase in credit card fraud, and cardholders are looking for better ways to protect their cards. Each of these trends, individually and in combination, will only deepen their impact on issuers in the coming years.
In this four-part series, we will discuss in detail the impact of the increasing shift to digital on U.S. credit card issuers.
We will cover.
What customers mean when they think of a “digital-first” card experience
Why the card experience must be integrated into the customer’s digital life, not just exist as plastic
How and why customers are asking issuers to deliver customized experiences
How issuers should respond and react quickly to the myriad of market changes
Let’s dive in and discuss more about the digital first card experience.
Immediacy: Instant Issuance and Tokenization
Today’s customers want instant delivery of almost everything – groceries, cabs and e-commerce purchases, for example – and this extends to getting a credit card once they are approved for it. In the Deloitte 2021 Consumer Payments Survey, 44% of consumers surveyed strongly indicated that instant issuance would improve their payment experience. [6] It is also important to ensure that the digital first-time experience is available where consumers want to make transactions. In the same survey, 55% valued the ability to push cards to their favorite card wallet apps and e-commerce merchants. Therefore, issuers need to be proactive in ensuring they are using the right technology to enable these capabilities for their customers.
The Power: Fine-Grained Credit Card Control
It’s no surprise that cardholders like to control their cards. While the ability to turn cards on and off, block international transactions, and prevent ATM and point-of-sale (POS) usage is the leverage of today, issuers looking to be recognized as visionaries in the digital-first experience must achieve greater granularity – granular control over their cardholders. Cardholders will soon expect to set individual transaction limits and aggregate limits, allow and block certain merchant categories and issuers, provide location- and time-based controls, and more.
Trust: A security feature for 2022
With fraud on the rise, cardholders are also concerned about security. Surprisingly, today’s cards are protected by a four-digit personal identification number (PIN), which is much simpler than the security of most consumer email or Netflix accounts. It gets worse. When cardholders transact online, security complexity is reduced to a three-digit card verification value (CVV) – which is actually printed on the card! Cardholders agree that this is bad, with 77% of cardholders citing security as one of their most important considerations when choosing a future payment method. [8]
Card issuers must consider deploying technologies that enable cardholders to conduct online transactions more securely. First, issuers should consider using dynamic CVVs and PINs to ensure customer security, even if their CVVs or PINs are compromised. Evolving CVVs and PINs ensure that even in the event of a data breach, bad actors cannot use these credentials. Next, issuers should deploy technology that makes it easier for customers to create single-use virtual cards, thereby minimizing the risk of online transactions. Finally, issuers must enable tokenization for cardholders to ensure that the cards they store at merchants are secure.
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Transparency: Rich Transaction Visibility
Cardholders also increasingly value visibility into their transactions and transparency into what they spend and what they are charged. up to 30% of disputes between U.S. credit cardholders and issuers from August 2019 to August 2022 are statement-related. Issuers can fundamentally eliminate these disputes with rich descriptive statements. [9] Issuers benefit in a number of ways when they abandon stale statements that use merchant names in transactions and move to rich statements that provide more recognizable brand names. In addition to merchant visibility, this increases the transparency of their transaction statements and creates a clear link between the fees and the transactions from which the fees are derived.
Conclusion
While the shift to a digital-first credit card experience is putting pressure on issuers’ legacy and legacy product lines, the future is being written now and issuers have an excellent opportunity to meet cardholder needs in terms of control, immediacy, trust, and transparency. Next-generation processors such as Zeta offer card issuers a compelling technology stack to meet the needs of cardholders.
In the next part of this series, we will examine how issuers can leverage the embedded banking revolution to increase their product distribution.
