The Metal Payment Cards Market Demonstrates Continued Resilience, Despite COVID-19, Supply Chain, and Chip Shortage Impacts

Prior to the rise of neo/challenger banks, metal payment card products were largely reserved, and issuance restricted to the High Net Worth (HNW) client segment. However, innovation and product development on mid- and lower-tiered metal card products, combined with the rise of neo/challenger banks have firmly opened up the new product segment, most notably in the mass-affluent category.

At the same time, new challenging paradigms have hit the market, most notably, COVID-19, the subsequent chipset shortage, continued supply chain volatility, and, more recently, micro-economic issues that are driving up inflation and raising questions related to whether the metal payment cards market can weather the storm and how ecosystem players can best strategize to help mitigate any potential market impact.

The metal payment cards market was not immune to the COVID-19 crisis, nor is it immune to the chipset shortage or the ongoing issues related to inflation. Despite COVID-19, the metal payment cards market continued on a growth trajectory. After COVID-19 and with many travel restrictions lifted, an overall uptick in metal card business was noted across the entire industry. Many of the value-added offerings from fintechs and neo/challenger banks are pinned to international travel perks, so the opening of international borders was a welcomed positive for the metal payment cards industry.

In terms of potential impact, it is a similar story as it relates to the chipset shortage, which despite significant market challenges in the manufacturing and sourcing of payment cards, is expected to continue on an onward growth trajectory. One of the primary reasons for the lack of impact felt is the fact that the metal payment cards market remains an extremely small part of the overall payment cards market. When compared to the overall payment cards market, metal payment card shipments accounted for a mere 0.9% of all payment card shipments in 2021, forecast to account for 1.2% of shipments in 2022. The fact that the market, from an issuance perspective, is coming from a smaller volume starting point means that the metal card form factor will not be as exposed to the current and ongoing chipset shortage, which is continuing to place significant pressure on card manufacturing capabilities and payment card sourcing.

Although neither COVID-19 nor the chipset shortage has yet impacted the metal cards market in a negative way, the fact remains that it would, at the very least, have slowed market developments. As issuers faced the crisis and related challenges, issuer budgets shifted toward continued operations to ride out the COVID-19 storm, and issuer strategies continue to shift away from new project and card program launches, toward the sourcing of cards in reaction to the chip shortage.

Although the impacts are clear, during times of uncertainly, opportunities do arise and this is indeed true for the metal payment cards market, whereby the chipset shortage may play to the metal cards’ benefit. A series of Average Selling Price (ASP) increases related to the chip, materials, and manufacturing processes resulted in many smart card manufacturers looking closely at their payment card product portfolios and, given the supply constraints paired with higher ASPs, many smart card manufactures are having to choose which projects to supply, either in their entirety or partially. In this instance, the allocation of payment cards will be pushed toward card form factors that command a higher margin, a category in which the metal card form factor falls fully. This is not a strategic recommendation to use the chip shortage to push or force further adoption of metal cards to guarantee payment card supply, but rather an acknowledgment that metal card orders should be prioritized, driven by the low-volume nature of the market, which means that prioritizing metal payment card supply will not adversely or significantly impact other large-scale traditional payment card volume commitments.

In the wake of the chipset shortage, manufacturers should prioritize the delivery of metal payment cards. Given the lower volumes, usually in the ten-thousand or hundred-thousand range, the impact on a vendor’s ability to supply other projects will be extremely minimal. The minimal impact, paired with higher ASPs and margins, will help offset any revenue unrealized due to supply issues on the traditional side of the payment cards market. Vendors should realize that the value of the metal card is not in the volumes, but in the associated revenue. Therefore, suppliers need to be mindful of ASP reduction strategies in order to gain market share, which could result in lower price points, a level of commoditization, and, ultimately, a loss of consumer appetite and appeal.

The metal payment card is a physical product that helps bring new levels of differentiation to issuer card portfolios. Other card form factors, most notably the biometric and Dynamic Card Verification Value Card (DCVV) payment card also fall into the differentiation category. However, issuers are not looking to replace metal card customers with biometric or DCVV payment cards, instead looking toward other “security-related” physical solutions to help carve out other more tech-savvy and security-conscious personas. For this reason, metal, biometric, and DCVV cards should not be considered competitive solutions to one another.

The metal payment card market is more than the delivery of a physical metal card. It’s about the creation and delivery of a full metal experience that encompasses sensory experiences alongside other experiences, from unpacking to the lifecycle management of the banking customer, realized via premium services, customer services, and perks.

Sustainability remains a hot topic and an area on which all issuers are placing emphasis. Although not necessarily considered an eco-friendly solution from a definitional perspective, when compared to card solutions manufactured from Rigid Polyvinyl Chloride (RPVC) or Polylactic Acid (PLA), efforts need to be taken with metal card products that use recycled materials, as well as combining that with broader eco services and solutions that encompass end-of-life recycling processes.

Different metal payment card construction types have different uses and target audiences. For price-sensitive issuers, pitching entry-level polymer/metal core/polymer solutions can be used as a proof point, using existing equipment and infrastructure, and targeting migration to higher-end metal card construction types once the value of metal can be better quantified.

For issuers, metal cards are considered a more immediate differentiation solution, with fewer complexities and barriers to market entrance than other differentiated card form factors, including biometric and DCVV payment cards. Although these solutions are not necessarily competing, the ease of which to issue should be a clear and vocal message when marketing metal payment card solutions.