Why the credit card industry needs a tech upgrade

Credit cards are the de facto payment method for most Americans. Collectively, at the end of Q3 2020 we owned over 500 million credit cards. Yet despite our credit cards serving as a cornerstone of our daily spending habits, the payments technology behind the credit card hasn’t evolved since the 1970s, and the end user experience is largely the same. You apply, you get approved if your credit is good enough, and you wait around for your card to arrive. You earn rewards as you spend, on categories that often have nothing to do with your lifestyle. You might occasionally check your purchase history, but won’t ever learn much about your spending habits.

We’ve seen innovation start to trickle into the credit card space. A few large tech companies with significant resources have recently been able to launch credit cards with a modern, user-friendly experience. But the success of Apple Card has been an exception to the rule. Smaller players have big ideas to disrupt the credit card space, but have often lacked the right tools to get their ambitions off the ground. This leaves traditional card issuers to dominate, with little pressure to innovate.

Legacy platforms fall short.

Built on mainframe technology currently provided by only a few mega processors (the largest of which has an estimated 40% market share in the U.S.), today’s credit cards typically take years to launch and demand high upfront costs, yet offer limited options for personalization that differentiate the end product. Brands, fintechs, and challenger banks that want to launch a credit card today are often forced to slap their name on a one-size-fits-all product with a user experience that doesn’t serve their unique customer demographics and looks nothing like any of their current offerings.

Once a card program has launched, card issuers are often left to essentially operate in a black box, reliant on their mainframe provider’s fragmented and incomplete data and reporting. Given the high complexity of a credit card program –– one that involves many types of transactions and behaviors (e.g., purchases, cash advances, repayments, fees, interest charges, rewards) –– creating a single source of truth from legacy platforms is difficult. These vendors often charge card issuers additional fees to access data stored in multiple different systems and formats. Saddled with these restrictions, card issuers are finding it hard to meet their consumers expectations, who want their financial picture in real time at their fingertips, presented in a way that helps them make healthy financial decisions.

To experiment with and customize their credit card product, card issuers may have to pay high consulting fees and undergo months of additional development time. Reacting to changing consumer preferences quickly, a must in the highly competitive credit card space, is therefore an uphill battle. COVID-19 proved this. When consumers stopped eating out at restaurants and booking flights to reduce their health risk, the ability to earn rewards tied to food and travel spend dramatically reduced. Spend shifted to categories like grocery or exercise equipment, but because of rigid rewards structures and lack of flexible APIs, points and cash back couldn’t easily be adjusted.

Innovative credit products put the customer first.

Today, consumers desire to be in the driver’s seat when it comes to their rewards. However, building a flexible rewards program requires a modern card issuing platform that can adjust via APIs.

That may be why so few fintechs and challenger banks have embarked on bringing new, innovative credit cards to market. But with a need to diversify revenue and reach a larger audience of cardholders with distinct backgrounds and spending habits, these companies are very much in need of a platform that can deliver at a lower cost — with more speed and more control.

A modern credit platform puts control in the hands of financial innovators. With an API-first approach, any company can launch highly customized credit card products that reflect their brand and true needs of their user base, access deep insights across the user lifecycle in real time, and freely iterate and experiment at a rapid pace. Marqeta has attacked this problem in the prepaid and debit card space, and is now modernizing the consumer experience of the credit market that has been a largely untapped space.

The future of the credit card industry will not be written by people struggling in the dark with old world technology. Marqeta believes the next generation of credit cards will be built on modern technology by a new set of innovators. All they need are the right tools that can serve their imagination.