Business Model is the Key to Unlocking the Next-Generation Powered Payment Cards Opportunity

Next-generation powered payment cards have been in the market periphery for a number of years, largely remaining in a dormant phase as vendors continued to research, develop, and ultimately define and understand the potential customer base for some of the powered card form factors, including dynamic code verification (DCV) and biometric sensor cards and other interactive powered card variants. Next-generation powered payment card testing and evaluation has arguably arrived at the perfect time, aligned with a payment cards market that is slowing, enabling card vendors to use end-user pilots and testing to measure adoption appetites. Payment ecosystem players including, card, sensor, and payment networks and other component vendors including Gemalto, IDEMIA, MasterCard, MeReal Biometrics, KONA I, FPC, KSID, Elan Microelectronics, Juno Universal, IDEX, and Zwipe are hoping to eventually use them as a higher value proposition, creating a new revenue opportunity in a payment cards market where average selling prices (ASPs) continue to be challenged and revenue margins continue to be depleted, while presenting an innovative platform on which they can further differentiate themselves from low-cost competitors.

However, no matter which next-generation smart card form factor is under evaluation, the fact is that the single largest contributing inhibitor is price. Today, the biometric sensor card tops the list, commanding an ASP of more than US$20 per card (depending on the solution and whether it is ISO compliant), and DVC cards commanding an ASP in the US$10 to US$15 range. This is a significant issue as most payment card issuers currently swallow the cost of card issuance (typically in the US$1 to US$2 range depending on the interface of choice), and even a slight increase in ASP across a multi-million customer portfolio will have a significant cost impact.

Many possible business model approaches exist that are designed to help minimize next-generation powered payment card issuance costs, while maximizing return on investment (ROI). These approaches can be used as standalone models or in conjunction with one another. However, today’s approach is largely focused on recouping the card cost, largely via a subscription approach.

Typically, the subscription approach would target the affluent banking community, charging a small fee in exchange for the next-generation smart card. This approach may appeal to affluent client bases that are keen to take advantage of the latest security technology to safeguard their accounts. The issuer simply pushes the associated issuance cost directly onto the client. By charging a monthly fee it may also be possible to regain the cost of any associated ongoing service, which is the case with DCV cards. Essentially, this is an “as-a-service” approach between a bank/financial institution and a client.

The focus on recouping issuance costs by passing them onto the end user is one of the primary reasons why next-generation payment cards have had significant success with pilots and commercial launches in France, where banking associated fees including bank account subscription, online banking, administrative, card, and insurance fees are more common place.

Banks and financial institutions, including Société Generale, BNP Paribas, BBVA, and UniCredit Bulbank already have pilots or commercial launches of next-generation payment cards in place. Although other activity is notable in countries including Japan, Norway, Poland, and South Africa, France is the notable epicenter for next-generation powered payment card activity to date.