Because digital payments offer such powerful use cases, many speculate that they will inevitably replace physical cards. However, this perspective overlooks several key factors—not only are physical cards highly reliable at the point of sale, but they also offer personalization options that create a tangible connection between consumers and their payment method, something digital payments can’t replicate.

In a recent PaymentsJournal podcast, James Sufrin, Senior Vice President of North American Payment Services at IDEMIA Secure Transactions, and Christopher Miller, Lead Emerging Payments Analyst at Javelin Strategy & Research, discussed the continued prevalence of physical cards, how customized card offerings with advanced card designs, features and metal cards, can help brands drive loyalty, and the future of premium card products.

Digital wallets can be a gamechanger in e-commerce, allowing consumers to skip the hassle of reentering card details at checkout. However, their advantages are less pronounced in retail, dining, and entertainment settings.

“Physical cards are important, and we think that the market is demonstrating that they aren’t going away anytime soon,” Sufrin said. “Quite frankly, I just started to use my digital wallet in earnest last year and it’s still a mix for me. I still sometimes pay with my digital wallet and sometimes with my physical card, and honestly, I don’t know that I could even tell you why in certain instances.”

The “why” we favour certain methods of payment or even certain bank cards, can be complex and indeed we may not understand it. In a National Library of Medicine study1 into our subconcious ability to authenticate banknotes, it was found that accurate authentication of banknotes is possible within one second of viewing. Every moment of every day, we are all experiencing and acting on cues all around us, and the payment experience is not excluded from this phenomenon. The look, feel, weight, and sound of a payment card provides us with cues which we interpret emotionally, without knowing we are doing it. A certain payment method can make us feel safe, cool, or part of a particular group we have a positive association or aspiration to. Even for those who tend to favour the digital experience, the presence of that physical card in their wallet carries huge importance, whether they are aware of it or not.

The ongoing rise of Metal payment cards supports these findings, with banks and their customers increasingly opting for a payment card with a heavier and more distinctive metal composition and design.

This sentiment is reflected in recent Javelin research, which found that nearly all respondents had used a major credit card in the past 12 months. However, only about 20% of older users and roughly 85% of younger users have used a digital wallet in the same period. These numbers dropped substantially when respondents were asked if they had paid with a digital wallet in the past seven days.

This highlights a major flaw in the digital-versus-physical payments debate—the assumption that the two are mutually exclusive and that one will inevitably dominate.

“Cards are there, wallets are also there, and I think it’s important for us to understand that many people are both,” Miller said. “We like to divide the market into segments as if those are separate groups of people, but they are not. A digital wallet user can still want a physical card for no reason, for some reason, or for a specific reason. Those all remain possibilities even as digitization continues.”

Regardless of their payment method, consumers have become extremely accustomed to customization in their products, services, and experiences. With the rise of hyperpersonalization, they are also increasingly willing to pay a premium for tailored solutions that reflect their individual preferences.

“They may have a perfectly good, non-expired payment product in their wallet, but if they see something that piques their curiosity, maybe they’ll pay $2, $5, or $50, depending on what it is, because they find value in that,” Sufrin said. “It goes back to choice and optionality”.

Delivering this personalization is critical for financial institutions, especially given that the U.S. has more financial institutions than any other country in the world.

In the fierce competition to be a customer’s top-of-wallet wallet choice, customized offerings are a powerful tool for financial institutions to drive brand loyalty.

“Recently, we’re coming across a number of neobanks or fintechs who are really struggling,” Sufrin said. “This is also the case for some classical banks and credit unions, they’re struggling to maintain an active user base. Why? Because customers have choices, and when they have choices, they’re going to pick and choose based on a level of customization and a level of experience that that they find satisfying.”

“That brand loyalty becomes super important—certainly to the consumer—but I would argue it’s more important to the financial institutions that are serving that consumer base,” he said.

One effective way to build customer loyalty is by offering an experience that is unique. To develop this strong connection with consumers, many organizations are taking a more personalized approach from the very beginning.

For instance, many financial institutions are now notifying their customers at each stage of the process—from the moment their card is produced to when it is on the way to their mailbox. This level of communication is especially important for premium products, such as metal cards, where a luxury mindset should shape every aspect of the customer experience, including the packaging.

Take, for example, Apple, which sends out its metal card in packaging that reflects the company’s trademark sleekness. This attention to detail has made a lasting impact.

“The unboxing experience is such that people literally posted videos of themselves opening the package that they received with the card that was in it,” Miller said. “That’s more than just it being metal, there’s also how is it delivered to you, which reinforces the nature of your association with that particular product. At least that’s the theory, and there’s pretty good evidence that it does create some bonds or exclusivity there.”

It is telling that a tech giant, known for its digital wallet, also offers a physical card. Certainly, a physical card gives mobile wallet users the full spectrum of payment capabilities. For example, in certain situations—such as dining out—digital wallets still fall short of delivering the ideal payment experience.

However, Apple has invested into the design and packaging of its card, recognizing that many consumers view premium cards as both a status symbol and a reflection of their personality. Brands offering these kinds of experiences are becoming more desirable to consumers.

“It’s not even that they’re considering one financial institution versus the other in terms of the selection of whatever they’re buying,” Sufrin said. “It’s that experience that’s going to drive them to loyalty. I think that loyalty is so critical to the success of these companies, whether they’re banks or consumer electronics companies.”

The desire for customization and a premium experience may have been associated with affluent demographics in the past, but market segmentation has increasingly blurred over the past few years.

This shift has prompted financial institutions to take a closer look at their customer base, not only within the mid-market but also within the subprime segment.

“There’s a higher end of the subprime customer base that they want to serve with a more premium product or a metal product,” Sufrin said. “What we’re seeing is that the consumer themselves are saying, ‘Why not me? Why would it just be for the wealth management clientele or for a big bank or a credit union or a fintech?’ Those segmentation lines are clearly not as defined as perhaps they once were.”

The growing demand for personalized payment methods across all demographics means consumers will continue to expect more from their financial institution. This creates new opportunities for these organizations to better serve their customers.

“There’s still a sense in which consumers have to make a choice to acquire a particular product,” Miller said. “Lots of pieces, including physical media, influence their decision to acquire that particular product. Even if they don’t use the physical product in the moment of making the payment, it is still part of gaining their attention and their choice—their repeat love, if you will—in their ongoing payment experiences.”

While premium cards are often seen as a status symbol, they can also serve as a practical, everyday payment option. For example, a metal card is far more durable than conventional PVC cards. This combination of functionality and customization makes for a payment method that can resonate with consumers in a more tangible way.

Although digital payments should remain a key focus for every financial institution, physical payment cards aren’t going anywhere anytime soon and should still be top of mind for organizations.

“From my perspective, it’s convenience, its status, and it’s the experience,” Sufrin said. “It is evolving, and that customization, that optionality, that premiumization, is a big part of it. It’s really important that financial institutions figure out ways to differentiate in any small manner they can, so that they can not only capture that client, but retain them long-term.”

Learn more about how consumers prefer to pay via new research from IDEMIA Secure Transactions.

1 Banknote authenticity is signalled by rapid neural responses – PMC