Declining Card Volume: The Economics and Solution

Throughout history, many forms and methods of making payment supporting commerce have been invented beyond cash and coin. From the first checkbook to the creation of payment cards, the physical card has become the primary presentation instrument of choice since the 1950s—whether paying at the counter or online. Even before the industrial revolution, history is full of real-world examples across every industry of what happens when change and technological advancement meet the unprepared.

Anyone who has been part of the payment industry for any period of time has firsthand knowledge of what happens to organizations and their products when tectonic shifts occur in the payments ecosystem. As cash migrated to check and check migrated to card, the implications were undeniably profound. Time and time again, entire worldwide industries had to reinvent themselves and adjust to remain relevant. Some made it, while many did not.

While there’re many predictions and opinions on what the future holds for cards, one thing is for sure—major change is on the horizon. This will bring many challenges and opportunities alike, which require different thinking and approaches to everything card, according to Dan Oswald, CEO at Arroweye and a member of the International Card Manufacturers Association (ICMA).

Oswald also shares the economics of declining card volume and shows why and how the digital card manufacturing model is the primary formula to enable organizations to efficiently adapt to the realities of what’s to come.

What’s to become of the massive worldwide infrastructure? 

For the foreseeable future this infrastructure, that’s designed itself around the engineering, manufacturing, personalization and delivery of a physical presentation instrument for more than 60 years, will continue to operate much as it has for decades. Cards still will be presented for payment and merchants of all kinds will still process payments with a dip, swipe or a tap. However, that’s not because things aren’t changing. In fact, there’s a major shift occurring as mobile and other “cardless” payment methods are presented and accepted in more and more places around the world. Digital and mobile wallet payments made up nearly 30% of global point-of-sale (POS) payments in 2021, and it’s expected to increase to nearly 40% by 2025.

Even with this growth in adoption, a full 60% of payments will still be made with cards. This is, in part, due to consumer behavior at the POS and to a lesser extent POS readiness. As of July 2022, 89% of POS hardware was more than two years old, and more than half of the hardware was more than five years old.

As POS terminal upgrades continue their natural replacement cycle, the use of mobile wallets at the POS will continue to accelerate. As this occurs, the requirement for using a physical card as the primary presentation instrument for payment will precipitously decline. It’s more about habit and familiarity; not necessarily capability.

How can organizations prepare for tectonic shifts?

When tectonic shifts occur in the payment ecosystem, naturally, it’s the prepared who adapt. Speaking specifically to the adoption of digital and mobile payments and the maturation of the POS infrastructure, combined with consumer adoption, organizations that have already started adapting—or at the very least start to adapt now—have the best opportunity to thrive as this shift occurs.

The implications for card manufacturers, industry supply chain partners and ultimately card issuers that operate in the traditional “large run” mindset will find that the current economic model becomes unsustainable.

Adapting will require:

  • Significant ingenuity
  • Expansion into new partnerships
  • Materially substantial investments in new technology
  • Embracing a new way of thinking and operating your business

What major changes will bring challenges and opportunities?

The continued adoption of mobile and digital payments, and upgrades at the POS to enable these payment forms, are the major changes that will bring about challenges and opportunities, which require different thinking and approaches to everything card. These developments will drive incremental changes in the economics of how cards are produced, personalized and distributed.

Since the transformation to digital and mobile payments will potentially take many years to achieve total market coverage, the move may be gradual, not sudden. Gradual, but predictable. Physical cards will have already begun to move from the primary payment form factor for some, a companion payment form for many and ultimately a backup last resort form factor as consumer adoption continues to grow.

As this occurs, the ability to cost-effectively produce cards “on-demand” in an ongoing real-time fulfillment model will be essential. This is a seismic change for the entire industry. Manufacturers, issuers and third-party providers will need to adapt. Like many industries, the historical operating models will not win the day.

How will the digital card manufacturing model enable organizations to adapt to declining card volume?

Digital on-demand manufacturing, personalization and fulfillment is a model that embraces real-time card ordering and production. As a result, the cost structure and operational model doesn’t need to undergo radical change to accommodate adjustments in order of size, frequency or design. This operating model scales up and down the volume spectrum, with significant flexibility and with much less COGS variability than traditional manufacturing methods.

Card issuers can work with this model today to produce cards as needed, adjusting order volumes, card design and more—in real time—without worrying about run size, economic impacts, card obsolescence and waste or increasing transportation and vault storage costs.

What’s on the horizon for the card industry?

There is empirical data that points to a more rapid adoption of digital and mobile payments on the horizon. As cards move from being the primary payment form to alternative forms, traditional card volume will decline. Fortunately for the foreseeable future, there will always be customers who prefer a physical card.

However, betting against consumer behavior and preference is never a good idea. Given this, all players in the card ecosystem regardless of their role need to prepare for change and adapt in ways that embrace faster, more flexible card delivery capabilities.

If you’re interested in learning more, attend the presentation The Economics of Declining Card Volume at the ICMA EXPO on May 17 at 9:45 am. Find the full agenda at ICMAEXPO.com.

Want more insights on card trends?

For more than 30 years, ICMA has represented the interests of the card manufacturing industry—which includes manufacturers, personalizers, issuers and suppliers—as its leading global association.

Throughout the year, ICMA members have the opportunity to share insights and knowledge by giving presentations during ICMA webcasts and events. The association’s main event is its annual Card Manufacturing & Personalization EXPO. The 2023 EXPO will take place from May 15-18 in Orlando, Florida.

ICMA offers regular educational opportunities, including ACE-Manufacturing, ACE-Personalization and ACE-Advanced Technologies training and exams at the ICMA EXPO. ICMA also offers virtual ACE-Commercial training, which provides sales, marketing, customer service and other key personnel at ICMA member companies with the opportunity to learn the fundamentals of card manufacturing. In 2023, ACE-Commercial trainings will take place on June 14, September 6 and November 1.

Learn more about the benefits of ICMA membership.