It is perceived wisdom that digital payment companies that put out physical cards are doing so as an acknowledgement that payment behavior is slow to change and that consumers need to walk before they can run with newer payment paradigms.
While there may be an element of truth to this as the general public is often slow to trust new forms of payment, recent card payment history deflates this hypothesis when it comes to actual adoption. Both
However, there have been two recent announcements signifying that history may be repeating itself. First,
A card reissuance trough
With the initial wave of EMV issuance over for the majority of payment cards in the U.S., the issuing side of the card payments industry has the unusual luxury of a period of calm before the next wave of card issuance occurs. According to card manufacturers, the mass issuance of chip cards has pushed prices down for card stock due to economies of scale and manufacturing innovations. With the life expectancy of EMV cards expected to be five years, two years more than magnetic stripe cards, and with a desire to keep the presses running, it’s a buyer’s market for issuers wanting to explore new technologies.
“A dual interface card in 2017 is about as expensive or less expensive that the first wave of contact cards in the U.S.,” said Troy Bernard, Head of Product & Marketing at CPI Card Group. “For what I paid as an issuer for contact in 2014 or 2015, I could get the same thing today with dual interface.”
A good time for science projects
The current card stock supply / demand scenario may well explain card issuance experimentation by the likes of Square and Venmo. They are choosing to put cards out simply because, for now, it it relatively affordable to do so. With little downside, these companies can observe and learn whether a physical card makes a material difference for them.
“For these brands to do these sort of alternatives to their primary focus, the cost isn't prohibitive anymore for this to be their singular strategy. They can do this as well, to learn what works, what resonates and then scale it if it makes sense,” says Cherian Abraham, Digital Payments & Commerce Executive at Experian Plc.
For Venmo and Square, these forays outside of their digital domains may result in little in terms of transaction volume, but may have less measurable value in expanding their legitimacy and recognition more broadly. As a consumer unfamiliar with digital wallets, it may be hard to trust a company like Square if it exists primarily in the digital ether. However, put out a plastic card with a Visa logo into the hand of a naysayer and it is a lot harder to dispute the company’s validity.
"Amazoning" Issuers
If there is just one takeaway from the recent Amazon acquisition of Whole Foods, it is that whatever assumptions you may have had about the perceived firewall between digital and physical business were wrong - there is no firewall. This applies to ALL physical business, retail banks included.
From a consumer standpoint, both Venmo and Square have historically been transactional. However, adding a payment card to the mix for payments and the extraction of funds encourages usage of these networks as stored value accounts. Venmo in particular, with a loyal and active user base of millennials, may find an appreciative audience for a physical card that effectively turns Venmo into a de facto bank. For traditional FIs, this incursion onto their turf may be some cause for concern since this time round it may not be as a stepping stone to mobile payments, but a more direct competitive threat to core checking and savings.
Top of App vs. Top of Wallet
For traditional issuers, the reason for a renewed card exploration can also be attributed to low prices, but this isn’t all that’s driving a return to the familiar territory of cards over digital wallets. Contributing factors to this new wave of plastic exploration may include anemic adoption rates of mobile payment initiatives such as Apple and Android Pay coupled with the requisite additional 10-15 basis points for being associated with these schemes. However, there is another factor that is harder to quantify, but that industry experts agree is a real fear for issuers, the loss of control of brand and tried and tested "top-of-wallet" mechanisms in a third party digital wallet experience.
Randy Vanderhoof, Executive Director of the Secure Technology Alliance, articulates issuer concerns. “I’ve spoken to a bunch of issuers who have had first hand experience with this kind of concern with Android Pay or Apple Pay," he said. "Effectively, a strategy that has worked for years for you goes away and you’re at the whim of the wallet owner in terms of how your card is displayed. The wallet becomes the brand rather than the payment.”
This to some extent explains the recent "Pays" brought to market by issuing banks as a means of maintaining brand presence within a sea of mobile app icons. Reversion to plastic is a step further into the safe and familiar world of card brand marketing.
A step backwards or a parallel path?
For third party digital wallets, this plastic blip on the otherwise upwards trajectory is probably little to be concerned about in the longer term. The halo effect from Apple and Android Pay presence was bound to be short lived as more and more issuers came aboard and neither consumer behavior nor physical payment infrastructure change overnight. Reaching digital payment nirvana will happen in due time, but until then cards have solid place in the consumer experience both for traditional issuers and newcomers such as Square and Venmo.
“The lightbulb is starting to go on again that this piece of plastic in your wallet can be pretty cool," Bernard says. “It’s a billboard, it’s an extension of your brand, you can still differentiate yourself with this plastic. There’s definitely something there.”
