Virtual Debit Cards are a Win-Win for Banks and Customers

Kelly Payne, Chief Marketing Officer at MOCA

(Reprinted with permission from BAI. Original article published on February 14, 2022 and can be viewed here.)

In 2020, debit-card spending outpaced credit-card spending for the first time in 16 years. How can financial institutions keep that momentum going?

For more than a decade, credit-card spending dominated the payments industry – until the pandemic affected every level of the economy.

According to a Pulse Network study, debit-card spending in 2020 reached a record $3.66 trillion in 2020, and it outpaced credit-card spending for the first time in 16 years. While there is no way to know if this will continue, there are a few ways banks and credit unions can ride this wave and keep the momentum going for their debit-card programs.

Not only has debit-card spending increased over the past year, but the ways people are using their debit cards has also shifted. The Pulse Network study also noted that card-not-present usage rose significantly – in 2020, transactions increased 26% and dollar volume climbed 21% compared to a year earlier.

Online spending accounts for the largest chunk of card-not-present spending. Data from the U.S. Department of Commerce  shows that online spending in 2020 was up an impressive 32% year over year.

Banks and credit unions that want to boost virtual-card usage may want to highlight all the benefits included in their programs. Many financial institutions consider virtual cards as a “nice-to-have” option rather than as an integral part of their debit-card lineup. Centering the virtual-card program as something that provides value for customers is an important way to take advantage of the rise in debit spending.

Virtual cards also offer unique benefits that demonstrate the power and capabilities of a digital medium. For instance, banks and credit unions can issue virtual cards instantly and at little to no cost, without the need to print cards and mail them to customers.

They also arrive activated, so not only will banks and credit unions not have to wait seven to 10 days to begin realizing interchange, they can also avoid the possibility that the cards don’t get activated and therefore don’t get used. Since financial institutions can create virtual cards with essentially zero overhead, they can allow customers to issue numerous and diverse purpose-driven cards, such as a unique card for each merchant or bill they pay online.

Virtual cards include fraud controls that protect customers while they shop online. The Federal Trade Commission reported there were over 390,000 reports of credit card fraud in 2020 and JP Morgan research shows that 86 % of consumers in 2020 were the victim of some sort of credit or debit card fraud, identity theft or data breach.

With more online shopping, there’s also more card fraud online. Virtual cards allow cardholders to take control of their security with controls that allow them to easily turn cards on and off as needed, and they can even issue single-use card numbers to help protect their online transactions.

The advantages of virtual cards benefit both customers and banks or credit unions. Issuing virtual cards creates opportunities for banks and credit unions to increase engagement with their debit card programs, which in turn helps drive interchange revenue. The ability of financial institutions to issue virtual cards instantly and easily eliminate the need for physical cards, reducing costs while giving cardholders instant access to their cards.

Nobody can predict the future, but the shift from credit to debit may impact the direction for 2022 and beyond. Banks and credit unions can maintain the growth in debit-card spending by offering attractive debit-card programs, and virtual debit cards are on the leading edge.