- Regulatory scrutiny and product innovation will broaden consumer payment choice, intensifying competition among providers.
- To preserve their standing among consumers and merchants, incumbents must face down threats to core revenue drivers and monetize new ones. Leveraging media will be a key strategy to win over customers.
- Do you work in the Payments & Commerce industry? Get business insights on the latest tech innovations, market trends, and your competitors with data-driven research.
Credit card processing industry overview
Whenever consumers tap or swipe their credit card, payment data is sent through a complex web of stakeholders—including card networks, issuers, and gateways—that help complete the transaction. Credit card processors are responsible for carefully and securely transmitting this data.
There are two types of credit card processors:
- Front-end processors: They make sure customers’ funds are sufficient for a transaction by routing transactions from merchants to the cardholder’s bank to gain authorization.
- Back-end processors: They accept settlements from front-end processors and move the money to the merchants’ issuing bank.
Credit card market stats: size & growth
Credit cards are a US payments ecosystem staple, and although their prominence fell at the start of the pandemic, tides turned by late 2021—JPMorgan Chase posted 19.8% growth across the two years ending in Q3 2021, while Wells Fargo’s credit card point-of-sale volume rose 29.9% over the same period.
Although debit stole favor from credit as consumers looked to limit financial risk early in the pandemic, borrowing is on the rise again. Gains should continue in 2022, leading issuers and fintechs to fine-tune incentives and launch new products.
As debit, credit, and prepaid cards go head-to-head-to-head, in-store credit spending growth will stabilize. This will pull credit’s share of in-store retail transaction value to over a third (36.3%). Consumers’ lasting embrace of ecommerce will push online credit card usage past $500 billion for the first time. However, this payment method’s share of digital retail transactions and card transactions will decrease slightly, partly due to consumers’ rising preference for debit.
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Credit card industry trends
Looking ahead, a rise in nonessential spending will lead to a heated competitive landscape among issuers, necessitating a trend toward greater cardholder rewards.
With pandemic restrictions easing, customers are resuming more recreational purchases—especially in travel and entertainment (T&E), which is critical for credit card volume. Amex’s T&E billed business was up 124% annually in Q3 2021, though it remained below pre-pandemic levels.
However, despite increased spending, credit card behavior is changing. Customers have been paying down debt at record levels—balances were $123 billion lower in Q3 2021 versus the end of 2019, per the New York Fed. But as pandemic relief efforts end, consumer behavior is inching closer to pre-pandemic trends, which might shift issuers’ strategies around fees and consumer engagement.
Given the uptick in credit usage, issuers will be pressured into making their products more compelling. Over a quarter of US consumers applied for a new credit card in the 12 months prior to October 2021—up from 15.7% in October 2020 and on par with pre-pandemic levels, per New York Fed data. Issuers will leverage this trend to grow spending and attract customers in the coming year, and they’ll focus on two areas: expanding perks and adding new cards.
Issuers’ greater agility around rewards offerings—a determining factor in card choice—will boost their cards’ appeal and drive repeat usage. After pivoting rewards options to meet pandemic-driven spending changes, issuers returned to travel perks, added new lifestyle benefits, and moved toward ecommerce in 2021—trends that will continue this year.
But benefits beyond simple rewards will dominate card program innovation. Providers will broaden their focus and sharpen benefits in new areas, including payment flexibility, exclusive member experiences, and access to financial management tools.
2020’s unprecedented wave of new cards delivering feature-based value propositions will continue. Some cards, like Citi Custom Cash, will tailor rewards programs to consumers’ top spending categories. Others will offer top-dollar perks for lower-than-usual fees. This will intensify competition and could trigger another rewards rat race. It may also make it harder for all but the largest players to make a profit off cards that provide true value to consumers.
Issuers will also debut cards and services geared toward users new to credit. Fifty-three million US adults lack traditional credit scores, and more have subprime scores that exclude them from the ecosystem. Though this group comes with risk, issuers—many of which joined a credit access initiative in 2021—may extend their push to reach these customers. They’ll use secured cards, like U.S. Bank’s new suite, or other credit-building tools, like Wells Fargo Reflect, to turn risky borrowers into reliable clients. They may also imitate Amex’s deal with Nova Credit by forging partnerships to capture invisible but likely creditworthy segments, such as immigrants.
Major card processing companies
TSYS, or Total System Services, is one of the biggest payment processors in the US credit card issuer market. It provides services to over 3.5 million small- and medium-sized business (SMB) merchant locations and more than 1,300 financial institutions (FIs) across more than 100 countries. In 2019, the processing company was acquired by Global Payments for $21.5 billion, and the two companies expect at least $300 million of annual run-rate cost synergies.
Fiserv provides FIs with services including payments and risk and compliance in over 100 countries. In 2019, Fiserv acquired First Data for $22 billion, and the combined entity expects $500 million in revenue synergies over a five-year period.
Elavon is the fourth-largest merchant acquirer in Europe—and it’s the seventh-largest in the US. The payment solution provider is a subsidiary of US Bancorp and offers features like processing online and in-store payments. In 2019, Elavon acquired payments gateway Sage Pay to help grow its market share in the UK and Ireland.
This is just a sampling of some of the top card processing companies around the world. Insider Intelligence has compiled a more robust list of the top credit card processing companies in 2022.