Card declined: Is legacy card infrastructure the achilles heel of retail banks?
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In the digital age, banking apps and card spending are inextricably linked. Initially, mobile banking apps provided a secure, real-time way to track spending and manage finances, sparking card adoption. This seamless experience encouraged customers to transition from cash to cards for their daily expenditures.
As a result, customers engage with their banking app an average of 25-30 times per month. The more they check balances and review transactions, the more confidence they gain in using their card, ultimately:
- Driving revenue through interchange fees
- Opening doors for cross-selling other financial products
- Increasing brand engagement and deepening the customer relationship
This symbiotic relationship between cards and banking apps created a virtuous cycle that banks seemingly sleepwalked into, that just so happened to generate massive rewards. But as a result, the stakes are higher than ever for banks to stay ahead of the curve.
User experience: The secret sauce to card and customer loyalty
To keep customers hooked, banks must continuously innovate their app features, particularly around card management. Instant transaction notifications, card freeze options, and spending categorization aren’t just nice-to-haves—they build trust and make the app a central part of a customer’s financial life. These features drive higher card usage and foster deeper loyalty to the bank itself. In this competitive environment, the next wave of innovation is crucial for maintaining customer engagement.
For instance, Chime, a popular US neobank (15m users, $5bn valuation), offers real-time transaction alerts and a user-friendly app that allows customers to manage their cards effortlessly. Revolut (45m users, $45bn valuation) enhances its card experience with features like instant spending notifications, budgeting tools, and analytics that categorize expenses, helping users manage their finances more effectively. Yet, staying ahead means going beyond the basics to meet evolving customer expectations.
But here’s the kicker: customers now expect more than just the basics. They want advanced features like virtual cards, merchant name simplifications with logos, and transaction locations. These innovations elevate the user experience, creating a daily reliance on the bank’s app, which translates directly into increased card spend and higher customer retention. Fintechs are setting a high bar with these advancements.
How fintechs beat banks at their own game
Traditional banks missed a critical opportunity when they failed to realize the power of seamless card experiences within their apps. Fintechs and neobanks, on the other hand, jumped on this opportunity, offering superior digital experiences that combine sleek design, intuitive interfaces, and next-gen card features. The success of fintechs highlights a pressing need for traditional banks to rethink their strategies.
Monzo (9m users, $5bn valuation), a neobank based in the UK, offers features such as virtual cards, transaction insights with merchant logos, and spending statistics that provide a modern, user-friendly card experience. Similarly, Curve (4m users) allows users to consolidate multiple cards into one and provides real-time transaction details and spending analytics through its app. This rapid innovation by fintechs underscores the growing gap between them and traditional banks.
These fintechs have rapidly grown, delivering exactly what consumers want: a modern, user-friendly card experience. Their success underscores an undeniable truth—banks that don't innovate are not just risking irrelevance, but they're losing significant chunks of card spend revenue to these nimble competitors. For banks, adapting swiftly is no longer an option but a necessity.
The cost of ignoring app and card experience innovations
According to Statista, the total revenue in the mobile banking market will likely reach $437.80 billion this year. In addition, in-app purchase revenue is predicted to climb to $203 billion. The total revenue is expected to see an annual growth rate of 7%, meaning the market will likely grow to $565 billion by 2026.
Banks that fail to evolve their app experiences are playing a dangerous game. Customers are increasingly gravitating toward banks that offer cutting-edge digital services, and as a result, traditional banks risk seeing their card usage—and the corresponding interchange fees—plummet.
A poor card experience limits opportunities to cross-sell other financial products, leaving revenue on the table. Effective card and spending management can serve as a gateway to various financial products such as lending options for credit cards and overdrafts, savings accounts with round-up features, and investment opportunities. Moreover, the rise of instalment lending—where payments can be split or aggregated—demonstrates the growing demand for flexible financial solutions.
Many companies are now leveraging card spending data to enhance their marketing strategies, including JP Morgan, American Express, Klarna, Zilch, and Revolut, among others. These companies recognize that card spending data can provide valuable insights for targeting and personalization.
Embracing innovation can turn these challenges into opportunities for growth. Banks that invest in ongoing app innovation are in a prime position to capture greater market share, strengthen customer engagement, and ultimately, boost revenue. The path to success involves a strategic focus on cutting-edge technology and customer-centric solutions.
How banks can win back the competitive edge
If traditional banks want to stop the bleeding and reclaim their competitive edge, they need to double down on what their customers truly value in a card experience. This means investing in the latest technology to offer seamless, secure transactions, personalized insights, and lightning-fast customer service—all through the app. Data analytics should be leveraged to understand customer behaviour and continuously refine the app experience to meet individual needs. Innovation and data-driven strategies are key to regaining customer trust and loyalty.
Conclusion: Modernize or be left behind
The link between a bank’s app experience and its card revenue is undeniable. In a world where digital convenience reigns supreme, banks can no longer afford to overlook the importance of card and app innovation. Those that prioritize enhancing their card features and digital offerings will not only survive but thrive, ensuring customer loyalty, increased card spend, and sustained revenue growth. The future is clear for those who are ready to lead the charge in digital transformation.