Understanding Your Products, Clients, Markets, and Risk Factors Key to Unlocking the Metal Payment Card Opportunity

The use of metal as a card construction material within the payment cards market has had a place in the market for just over 20 years. During that time, metal card issuance had been largely targeted toward Tier One, high-end, and High Net Worth (HNW) banking clients within the United States, significantly limiting issuance numbers, with little to no use outside of the United States.

Today, the banking landscape continues to change and evolve, driven by traditional banks looking to differentiate and continue competing against their traditional incumbent banks, alongside the rise of neo/challenger banks, which has brought a new dimension to the banking landscape. Neo and challenger banks are challenging the status quo by combining a largely digital first approach, underpinned by a vast array of loyalty perks, paired with a physical card. In turn, the rise of Neo/Challenger banks has created a resurgent interest and subsequent increased issuance of metal variant payment card bodies.

Metal is now being used by banks, financial institutions, neo/challenger banks, and technology Original Equipment Manufacturers (OEMs) and service providers alike. Differentiation, tailored services, and personalization are all key aspects pushing the metal cards opportunity in a new direction, with a broad range of issuer types, including traditional banks (e.g., HSBC, Chase, American Express, and Wells Fargo), fintech companies (e.g., N26, Revolut, and Curve), and technology OEMs and service providers (e.g., Amazon and Apple).

Despite all the positivity related to the metal payment cards market, there remains a host of risk factors which need careful consideration, particularly as it relates to product development as metal card manufacturers look to further flesh out their respective product portfolios.

Metal is, and continues to be, considered a premium product. The target has steadily moved from an HNW opportunity toward the mass-affluent, and with that shift has come an expansion of more cost-viable product types. The shift toward mass-affluent has opened up new untapped opportunities and increased the total addressable market (TAM), in turn resulting in increased supplier competition. This could be considered a risk factor that translates into significant Average Selling Price (ASP) erosion and will drive a shift of the metal card value from one of premium product toward one that is more standard and de facto in nature.

Furthermore, and partially driven by the COVID-19 pandemic, there could be a portfolio range shift, as issuers look toward lower-cost metal cards as a direct reaction to economic pressures/downturn. This will likely impact the mass-affluent segment, but continued reductions in ASPs will result in metal losing its premium tag.

The use of Polyvinyl Chloride (PVC) certification in tandem with a waiver for a metal card variant is a process that can prove cumbersome and confusing for customers. Limiting what customers are allowed or recommended to do with a metal card could ultimately limit uptake.

Questions continue to be raised around the continued viability of neo/challenger banks. Today, they are largely used as secondary accounts and recent press suggests that active or continued active usage could be as low as 15% to 20%. A continuation of less active neo/challenger bank users could result in lower levels of investment. If neo/challenger banks lose momentum, it will clearly and directly impact the demand for metal cards within their respective premium service offerings.

Understand Your Products: There is a multitude of different metal card composites and compositions, ranging from full metal card bodies to a variety of solutions that use a combination of metal and PVC. The broad variety of metal card types can, on face value, look extremely similar, but each type has its own pros and cons related to look, feel, weight, sound, and finish. In addition, contactless performance can greatly vary, with performance and reliability rates needing to be clearly outlined, particularly in a post-COVID-19 world where touchless experiences are becoming ever more common, and in a payments future whereby contactless transaction types will, at some point, become the de facto transaction type. Product pros and cons need to be clearly outlined and a transparent approach will help issuers fully understand the strengths and limitations of different metal card form factors, which will ultimately help issuers better map metal card types to customer segments.

Understand Your Clients: Clear trends can be observed when looking at metal card issuers. The United States is currently dominated by the traditional banks and financial institutions, whereas European demand is being primarily driven by the fintech companies, all of which are adopting different metal card types. Defining target markets will ultimately define a card vendor’s metal card product portfolio. Typically, fintech companies are largely looking for a full end-to-end solution, encompassing issuance, personalization, packaging, delivery, etc. Broad product capabilities are required to access the fintech market or strategic partnerships need forging in order to unlock capabilities that cannot be offered in-house in order to meet the demands and requirements of the fintech market. Additionally, traditional banks tend to target by segment, whereas fintech companies adopt an approach that is more “capture all” in nature (i.e., they offer their services and metal product solutions to all, rather than linking service offering to an individual’s worth or status). However, this is driven by the fact that banks already have a large and diverse customer base, so they are in a much better position to create targeted solution approaches, based on customer segments. Most traditional issuers start looking toward the HNW segment before expanding services and offering solutions toward the mass affluent.

Understand Your Markets: Different dynamics and driving forces in different regions will help define metal card product portfolios. Considerations need to be made related to these dynamics in order to push the correct product type to the correct financial institution type/region. The U.S. market is very different from the other regions and is one that well understands metal and the various construction types available. The same cannot be said for the other regions and a significant level of education is required outside of the United States to help issuers better understand metal and the broad variety of metal card types. The success of metal card constructions in the United States might not be mirrored in other regions, which may behave differently. In addition, the United States understands the pitfalls as it relates to Automated Teller Machine (ATM) entry, stiffness, scratches, etc., and what a metal card is and is not designed to do. For this reason, a level of management education is required to clearly outline how metal cards should be managed and treated in order to set expectations.

Aim for the Middle Ground: Providing a full metal experience as it relates to look and feel and the continued move to contactless is driving banks and financial institutions to look toward the middle ground as it relates to metal card products, with a focus now being placed on metal and PVC combination construction types. As the popularity of metal cards combining PVC and metal continues to increase, distinguishing the different product types will become even more difficult. Market positioning considerations should be made as to which types of metal/PVC construction types, whether core, edge, veneer, or hybrid, are most suitable for which issuer segments, splitting out product portfolios, not only by status or net worth, but also by issuer end goal, related to strategies pertaining to new client acquisition versus the targeting of existing issuer customer bases.

For further qualitative and quantitative analysis related to the metal payment cards opportunity, please visit ABI Research’s recently published Metal Payment Cards Opportunity Application Analysis (PT-2518) and Market Forecasts (MD-MPC-101).