Inventory Overstocking Set to Plague Payment Card Market in 2024, Despite 2023 Issuance Recovery.

The payment card market has welcomed a return to Year-over-Year (YoY) growth now that 2023 has ended. Shipment volumes for smart and Europay, Mastercard, Visa (EMV) card shipments increased 4.7% to land at 3.29 billion units, up from the 3.14 billion seen in 2022, which saw a reduction driven by the chipset shortage plaguing a wide range of end markets through 2022. A larger crisis was largely circumvented in 2022 due to the concerted ecosystem efforts to communicate between banks, card suppliers, and Integrated Circuit (IC) vendors, and supplying confirmed demand to try to avoid excessive inventory buildup in the wake of a period of great concern for the market. Latin America saw particularly strong resilience to the trend in issuance decline, with a clear mandate on accelerating contactless adoption driven heavily by an increasing fintech presence.

Now a different challenge looms on the horizon, driven by a significant drive from card issuers to build up emergency levels of stock, both to ensure the ability to consistently issue cards in the event another shortage occurs and to lock-in current pricing to avoid Average Selling Price (ASP) increases further down the line. Many ecosystem vendors have reported that overstocking has now occurred across all regions, and efforts must now be made to manage consistent supply in the face of diminishing payment card demand.

Despite a combined effort from payment card vendors, both on the smart card and secure IC side, excessive inventory stocking has been undertaken globally through 2023, as banks and financial institutions safeguard their inventories against future market turbulence. This trend first became visible in late 2022 in Latin America, where a considerable buildup of inventory was noticed, and accelerated through 2023. Mexico, in 2Q 2023 particularly, saw a very large amount of delivery, with approximately 25% of this being modules. Many market competitors retained a good stock of inventory in 1H 2023, with a large amount of pressure from the wider ecosystem to decrease pricing levels for ICs.

The high levels of demand seen through 2023 were driven by a two-pronged approach from card issuers both to secure future card stock and to secure stock at current price levels, prior to expected increases. There was an irrefutable strong movement toward contactless due to COVID-19, which continued through 2023. This was only strengthened by the fact that obtaining a consistent supply of contact-only chips was challenging once foundries prioritized the manufacture of dual interface. With 2023 resulting in an increase in payment card shipment volumes after 3 years of market decreases, and an increase in the adoption of dual interface, ABI Research reports that contactless payment cards arrived at 83% of all cards issued in 2023. The current key countries that are seeking fast contactless migration are primarily located in Asia-Pacific. Japan is undergoing a migration toward dual interface, while India, a market that has been somewhat lackluster over the past few years, in 2023, saw very strong levels of growth, with a YoY increase of 25%. Indonesia also increased its procurement and stocking of contactless cards, though it is anticipated the majority of these will not begin to be issued until 2024.

Moving beyond 2024, payment card volumes will be strengthened by strong volumes in key growth countries, including Turkey, Nigeria, Brazil, and India. However, this will be somewhat compromised, through 2024, by the stocking phenomenon, which began in 4Q 2022 and continued into 2023. Key ecosystem players have reported that inventory stocking levels have reached as high as 30%, which has the potential to impact the payment card market at around 10% less demand for 1H 2024. While payment card issuance to customers will remain high, this will originate from the consumption of inventory accumulated over the last year.

Looking further into the forecast period, the neo and challenger bank market in regions such as Latin America will continue to support shipment growth in Mexico and Brazil, while India continues to grow in strength, reaching 232 million card shipments in 2028, despite a number of underwhelming years. Europe will also experience a level of growth until 2028, as typical replacement rates provide a consistent opportunity, with the United Kingdom recovering from its shipment decline in 2023 as a result of a 1-year issuance program coming to a close. North America will see peaks and troughs in its YoY volumes as the mass reissuance of payment cards is undertaken in the United States through 2025 and 2026, with volumes increasing from 667 million (2024) to 680 million (2025) and 692 million in 2026, before declining to 688 million in 2027.

The overstocking phenomenon has occurred and the consequences of it will play out most significantly over the next 6 months. Many ecosystem players have already reported a drying up of demand for payment card shipments toward the end of 2023. ABI Research, at this point, does anticipate this leading to a minor decline in payment card issuance for full year 2024, though inventories have been stocked to varying levels on a global scale, meaning that a return to normal demand levels may be delayed for more risk-averse banks.