The digital card is coming, although ubiquity will be a marathon — not a sprint.
IDEMIA Senior Vice President of Strategy Mehdi Elhaoussine and Mastercard Executive Vice President of Merchants and Acceptance Kush Saxena told Karen Webster tangible cards — the plastic and metal rectangles that have been around for decades — have some staying power.
They’ll be around for a while.
But, said the panelists, digital cards will gain ground amid the inexorable demand for touchless transactions, deeply rooted in the connected economy.
The greenfield opportunity to move interest into actual use is there, as PYMNTS estimates that 104 million consumers already have digital cards registered in mobile wallets. But the percentage of consumers who do not have digital cards but would be very interested in having them to use at the point of sale (POS) is only 5%.
Read more: Digital Card Usage: A Path Forward
As Saxena noted: “The physical card has been one of the most successful consumer products ever, but it’s a product that’s been around for 40, 50 years.”
And through the decades, the plastic card has become a payment method that consumers have come to associate with a range of shopping experiences and value propositions, he said.
But as awareness is growing about digital options, the preferences are shifting a bit.
As Saxena detailed, the pandemic has given a tailwind to contactless payments, to the ability to make transactions at various points of the shopping journey, especially on site. We’re no longer tethered to the physical terminal, to the kiosk.
As an example, he said that the restaurant ordering experience has been forever altered. Pre-pandemic, he told Webster, “there was literally no choice” but to hand waitstaff a plastic card or wait till someone brought a terminal to the table. That’s changed with the emergence of QR codes and other convenient digital payment options.
“Acceptance and enablement for digital cards was a different conversation pre-pandemic and has changed post pandemic,” he said.
PYMNTS research shows that 30% of consumers said they prefer to access their cards via their digital wallets, compared to 39% who prefer using plastic.
As many as 13.6 million consumers are “very” or “extremely” interested in having at least one digital card; 27.5 million people have some interest.
Drill down a bit and this number increases to 33% among bridge millennials and 37% among Generation Z.
Moving the needle will take some time and effort on the part of the banks and merchants in incentivizing consumers to use their digital options at the POS more actively.
Education and Security Concerns
As Elhaoussine said, the physical card is “basically the only tangible link between the issuer and the cardholder.” Very often, the issuers’ brand may “fade” into the background — the physical card is a form of “real estate” for the brand, tied to a well-recognized logo. The waters are muddied a bit because FinTechs and other firms are moving beyond digital cards to issue physical ones.
Additionally, “payments are addictive,” according to Elhaoussine, so cash and plastic remain sticky. We’re used to paying with those vehicles, and changing habits won’t take place overnight. Convenience may be an eventual driver of adoption; security concerns can slow that adoption. The PYMNTS study found that more than 75% of consumers that are not using their digital cards claim that security concerns are the primary reason.
But, said Saxena and Elhaoussine, the moment one adds a digital card to, say, an iPhone, the card is encrypted, and sensitive payment data are tokenized. There’s the additional security tied to the hardware itself, where users must leverage biometrics to even access the cards themselves.
At least some (continued) education will be key, said the panelists. There are lingering concerns about security that are unfounded and are acting as barriers to adoption. As Saxena noted, the security features built into digital cards are even more robust than the lines of defense tied to EMV chip cards (which are themselves robust).
Beyond education, “you need more issuance,” said Saxena. Mastercard has been working with firms to launch what he termed “powerful digital cards in the ecosystem,” such as Walgreen’s Scarlet Card and Apple Pay with Mastercard. Saxena said that roughly three-quarters of consumers have stated that they’re more open to trying new payment methods than they were a year ago, which indicates some open-mindedness.
Highlighting the Value Propositions
In nudging the consumer to bring the digital card to the top of wallet and top of mind, issuers are going to have to reinforce the value propositions of the digital cards. Loyalty and rewards programs can cement that use, and so might offering buy now, pay later (BNPL) options at the point of checkout Those options are aided by intuitive visuals and instant adjudication as one uses their mobile device to get the cards as they are provisioned, and to pay with them instantly.
“The moment you start looking at a transaction holistically, then you can see competitive edge for the digital version of the card,” said Elhaoussine.
Along the way, the payment itself moves from being done solely at a terminal to being an integrated part of the consumer journey.
We’re headed, then, toward the age of the super app, where a collection of experiences can be woven together inside an ecosystem in a continuum that blends online commerce and physical commerce. The digital card is the offering that underpins it all and can be used in any setting.
The U.S. has lagged but is catching up to Asia and other parts of the world, Saxena said.
As he noted to Webster: “As we think about the migration to digital cards, we have to recognize that … it’s going to take time, and that’s natural.”
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More