By David Ryckman, freelance finance writer and technology advocate
Credit cards have become indispensable tools for facilitating transactions and adapting to the shifting financial market. The rise of virtual cards, buy-now-pay-later (BNPL) options, and other groundbreaking innovations are transforming the way consumers approach personal finance.
Credit cards have become a staple in the lives of people from all walks of life. These financial instruments are crucial in everyday transactions, from the high street to the corporate world. Surprisingly, the current economic uncertainty has contributed to the growing reliance on credit cards.
The fundamentals of credit cards
At their core, credit cards have remained largely unchanged since the 1980s. These financial tools allow users to make payments or borrow funds, with physical cards available in various designs. Credit cards can be broadly categorised into 8 distinct types, each catering to specific consumer needs and preferences.
Rewards and cashback cards
Rewards credit cards offer points based on a percentage of spending, with some providing bonus points for specific categories like groceries, gas, or dining. Cashback credit cards, on the other hand, return a portion of the money spent to the client in the form of cashback or statement credits.
Travel and business cards
Frequent travellers can benefit from travel credit cards, which allow them to earn credits that can be redeemed for future travel purchases or transferred to an airline or hotel loyalty program. Business credit cards cater to the needs of entrepreneurs and small business owners, helping them separate personal and business expenses while offering rewards tailored to common business expenditures.
Student and secured cards
For individuals with limited or no credit history, student or “starter” cards provide an accessible entry point into the world of credit. Secured credit cards, which require a cash deposit to secure a small credit line, are the easiest type of credit card to obtain.
Co-branded and store cards
Co-branded credit cards are affiliated with specific brands, such as retailers, airlines, or hotels, allowing cardholders to earn rewards specific to those brands. Store credit cards, issued by retail outlets enable customers to make payments over time but often come with higher interest rates compared to regular credit cards.
The growing credit card market
The European credit card market is projected to expand from its current value of 2.47 trillion US Dollars to 2.82 trillion USD by 2029, representing an annual growth rate of over 13% in transaction volume. This robust growth persists despite the global economic challenges and uncertainties in the financial services industry.
David Oppenheim, Global Head of Ecosystem Partnerships at Paymentology, highlights the connection between credit cards and market conditions: “Evidently, credit cards are strongly linked to market conditions. In a post-covid world and with the fear of a recession, consumers are shifting back to credit card spending from debit cards,” as stated in the Future of Credit report.
Across Europe and the US, Iceland leads the pack in credit card penetration among European countries, with Norway close behind, boasting a 71% adoption rate among its adult population. The United States mirrors this trend, with 84% of American adults owning a credit card.
Contactless payments are rapidly gaining momentum, with over 95% of merchants in the US now accepting this convenient payment method. Canada is also embracing this trend, with approximately 75% of retailers accepting contactless card payments.
Wearable technology is emerging as the next frontier in contactless payments. As per Forbes, Tim Cook, CEO of Apple, emphasised the growing popularity of making credit card payments through devices like the Apple Watch and Fitbit in North America.
The future of credit cards
As we look ahead, the credit card industry is poised for continued growth and evolution. Forbes notes positive trends in credit card usage and payment behaviour, with lower balances, delinquencies, and charge-offs indicating responsible cardholder practices.
Personalisation is becoming increasingly important in attracting younger consumers. Jacqueline White, President of i2c, emphasises the significance of tailored marketing: “It comes down to marketing specifically to you as an individual, knowing your age, stage of life, financial goals.” Student cards and personalised offerings are effective strategies for engaging younger demographics.
One of the most advanced Australian comparison sites, Credit Card Compare, have recently released structured API product data for other fintech platforms, as per Australia Fintech
“As the credit card market gets more competitive, Credit Card Compare is pivoting to meet the changing needs of fintech companies,” explained Bill Ryan Natividad, Head of Operations. “Our API product provides essential data on credit card offerings, enabling our partners to develop innovative solutions that align with the future of consumer finance. By delivering comprehensive product data, we empower fintech firms to create personalised, data-driven offerings that resonate with today’s consumers and drive long-term success in an increasingly competitive credit card market.”
Buy-now-pay-later (BNPL) has emerged as one of the hottest trends in consumer finance, with a 50% increase in adoption over the past few months. The introduction of specialised debit cards by BNPL companies like Affirm further underscores the potential impact of this payment model on the credit card market.
Virtual credit cards and fraud prevention
Virtual credit cards offer enhanced security for businesses by concealing real credit card details, making it harder for fraudsters to compromise sensitive information. Companies like Mesh Payments are at the forefront of this development, potentially reshaping the future of credit card security.
Interest rates and consumer impact
One concerning trend is the rise in credit card APRs due to high interest rates, which may increase consumer carrying costs. While interest rates are expected to moderate in 2024 as inflation cools, it remains an important factor to consider.
