The rise of digital bank cards

What is a digital bank card?

A “digital card” is a complete copy of a physical bank card stored on the phone. That’s why digital cards show the same card details as a customer’s physical bank card.

A digital debit card allows customers to make purchases using their phone instead of their physical card, making the transaction as simple as touching their phone to the payment terminal. The digital card can also be utilised for online and in-app purchases.

How can the digital bank card replace the traditional bank card?

With the rise of online-only banks, sometimes referred to as challenger banks, digital banks or virtual banks, digital bank cards have also grown in popularity.

Whilst many still like to visit a high street bank branch, the number of branches steadily decreases. As a result of the pandemic and customers not being able to visit branches for a significant period of time, financial institutions were forced to diversify their services and make accessing bank accounts, savings accounts and general information easier for their customers.

This window of opportunity also gave other banks – a digital challenger bank for example – the chance to provide a service that was accessible and speedy for their customers.

These mobile-only banks tend to add new features regularly due to the assistance of clever software, allowing online banking to become easy and convenient as possible – customers can access their personal accounts, complete everyday transactions, transfer money and get customer support all through a user-friendly and slick app.

Physical cards are now likely to be part of a slow phase-out process as society becomes more accustomed to paying for everything through a device, such as a phone or a smartwatch especially as younger generations enter the financial market and are keen to have something at their fingertips they can access in just a few minutes.

Benefits of Digital Bank Card

A digital bank card has many benefits, making it appealing to customers. If you’re a fintech looking to offer a new service to your user base, then a digital card might be your next venture. Here are four reasons why going digital is the way to go:

Accessibility and Convenience 

Bank accounts can now exist on phones, meaning customers can access their information whenever necessary. It’s estimated that 90% of adults own a smartphone, meaning there’s a huge opportunity for banking apps to take them wherever they go.

It also means that should an event like the pandemic happen again, customers will be safe in the knowledge that they can still access their information whenever they want. In addition, it removes the need for travelling to a physical branch or ATM, as they can receive instant spending notifications.

App-based banking is also key for facilitating international payments, including direct debits and standing orders.

Higher Rates and Lower Fees

Due to the reduced need for overheads such as running and maintaining physical branches, many challenger banks have passed these savings onto the customers – typically in the form of lower fees and a higher interest rate.

These are especially appealing to customers as it means reasonable monthly fees (or even fee-free), potentially lower transaction fees and an attractive exchange rate, and the ability to earn interest at a higher rate than other banks.

Challenger banks also typically have access to lower rates for customers to withdraw money.

Better for the Environment

Digital banking removes the need to visit a physical bank. Instead, customers can access their current account from the comfort of their own homes or work, saving gas and reducing carbon emissions.

Additionally, removing the process of manufacturing physical cards is a great way of being environmentally friendly and sustainable. Digital bank cards are just as successful as their physical counterpart, so it’s no longer necessarily a physical card that is required.

Digital Banking can be more secure

Digital banks are typically at the forefront of security technology, and, in many cases, they are leading the way for traditional banks to follow. Digital banks’ hi-tech security methods can be identified in the sign-up process, where fingerprint scanning, voice recognition and facial recognition are used to authenticate customer identities before approval.

How to set up a business that does digital bank cards? 

The first thing to do when considering setting up a digital bank solution is to speak to the partners that would be helping you to build it. This could mean speaking to developers, compliance and KYC experts, tech teams and issuer processors, card manufacturers and designers, etc. It is vital that you have a team you can trust, as they will be able to bring your vision to life.

At this stage, founders get a better understanding of the practicalities behind creating a fintech business and will have the information needed to create a plan for raising funding.

To get an idea of the types of businesses you might need to speak to, read our card issuing ecosystem explained article.

In the meantime, here are three practical steps you need to consider when setting up your digital banking card business:

Step 1 – Identify your customer

Who needs it? What demographic are you trying to target and why? First, you’ll need to get under the skin of this particular customer and find out some of the problems they are facing. Then, how can you help to address their issues and provide a solution?

Step 2 – Define your user case

What makes this certain customer tick? It might be a good idea to host a focus group with this target market and hear exactly what they want and why. That way, you are in the best position to think of how to help them and remove any guesswork.

Step 3 – Setting up the platform

This step includes developing a robust business model that will last throughout the life of your fintech company. Your business plan will need to outline all the relevant strategic information and decisions that will help clarify your digital bank’s look.

How does this business make money?

There are specific ways for digital banks to make their money, which are all relatively straightforward. There is a broad range of financial benefits for digital banks, but below are four of the main ways that fintechs can make a profit using digital bank cards.

Raising funds.

One of the easiest ways for digital banks to make money is to raise funds from investors. As a result, venture capital firms are keen to invest in digital banks as they increase in popularity and notice a surge in demand.

Some of the best digital banks, which have now become household names, have generated much of their profits from funding rounds. These include Starling Bank, Monzo, Revolut, Chime and Wise, to name a few.

Interchange fees.

Customers today expect that they can open bank accounts with an app-based bank that doesn’t have any hidden fees. With that, most of the standard banking features, including transactions, transfers and cards, will be free.

But there is a fee hidden from the customer’s eyes – the interchange fee. Visa and Mastercard charge sellers whenever a customer buys something from them with the card, with a proportion of that going to the digital bank. It might be a tiny amount, but it certainly adds up as each customer uses their digital debit card.

Premium accounts.

Offering a premium account with advanced features such as low-interest overseas spending, foreign currency transactions, and better savings goals can turn a free user into one happy to pay a monthly fee.

If customers have two or three tiers to choose from, it increases the chances of getting more money from your entire user base.

SME business banking.

SMEs are notably underserved, and most are used to being taken advantage of by big banks. However, entrepreneurs love to bank digitally, as it saves them valuable time they can spend on other vital parts of their business. Offering a free account and then charging for some services is one option, whilst another would be to straight up charge for a business bank account.

Some other ways for digital banks to make their money are by offering a credit card, having loans and mortgage features, charging overdraft fees, and even providing a marketplace.

5 successful factors to building a digital bank card provider

Partner with FinTech companies

Collaboration within the fintech industry is extremely common. As most companies are all serving the same purpose, it’s easy to build a partnership with other entities to enhance the customer experience and overall business success.

Partnering has the potential to bring in additional funds, experienced talent and a wealth of knowledge that can prove advantageous to any business – especially a fintech that is looking to operate with digital bank cards.

Adopt a fully customer-centric approach

Customers are key, much like any business, but for the financial services industry, it’s got a heightened amount of prominence. As outlined above in how a digital bank can make its money, customers are present in every scenario, so don’t forget about them.

This could mean having great customer support, delivering real-time spending notifications, creating spending limits, taking extra care with personal details and much more. Placing the customer at the centre of your fintech business is crucial for being a success.

A modern, flexible, and scalable IT architecture

Being innovative is essential for a fintech. The core foundations of the business are built on IT infrastructure, so understanding that and being able to adapt it when needed is vital.

It’s crucial to factor in any regulation changes, consumer trends or financial events requiring flexibility so it doesn’t shock when something happens. The ability to scale is also extremely important.

Create an ecosystem of partnerships

One core partnership is great, but it doesn’t mean it has to end there. Not every business can assist with every financial element, so it’s wise to build an ecosystem of partnerships and contacts to help grow and scale in the future.

It doesn’t hurt to ensure that there is a person or business to turn to should something go awry.

Get creative with marketing

Much like any other business, marketing is crucial. Due to the nature of a fintech business, it means getting a little more creative to ensure that the product is presented as fun and a “must-have” for the customer.

The best digital banks have honed these elements and have executed them perfectly, growing their global presence and brand identity.

Conclusion

Digital bank cards have created a very new and exciting way for transactions to happen all over the world. Gone are the days when customers had to carry their debit or credit cards with them. Now they are available on mobile wallets or are app based.

The key benefits strongly outweigh those of a traditional bank card, meaning it won’t be long before many customers use their phones to pay for goods and services.