Within five years, companies in the card business will have to choose a new label for their trade, especially if they embrace current technology and trends.

"The account will be the key, not the plastic card, which will be just one way to access an account," says Brian Riley, senior research director and analyst with Needham, Mass.-based CEB TowerGroup. "We won’t call it a card business, it will be a customer payments business."

Riley outlined the reasons to support TowerGroup's view of an evolving payment card industry Feb. 27 in an online seminar.

"There will be layers of ways to have access into a mobile wallet, when the industry decides what that is," Riley says. "When a company like Google hasn't been able to get it quite right yet, that tells you how complicated it is."

Regardless of complexities, banks have to expand Near Field Communication, EMV chip-cards and mobile technologies and keep a close eye on the potential repercussions of industry partnerships, such as the contactless payment agreement between Visa and Samsung in which Visa's PayWave contactless technology will be included in the Samsung handsets, Riley adds.

"Much has been said about what Apple will ultimately do in regards to payments and NFC, but it is certainly not likely that Apple will be a direct partner with Visa now [in light of Samsung deal]," Riley says.

Ultimately, issuers should not fear new payments innovators because those companies will more likely bring additional transaction volume, particularly to issuers that keep pace with development, he says.

The added transaction volume can offset other trends. "Transaction size and revenue will fall as digital grows," Riley adds.

It will be more important to build and maintain effective loyalty programs and card-fraud controls, as well as to conform to new regulatory and network mandates, he says.

Vendors should focus on better analytics that will provide an edge in the market, Riley adds.

"Loyalty programs that provide account-level reconnaissance for risk, cross-selling and credit line management will be embraced much more than programs that simply reward points for purchases," he says.

Banks suffer attrition from poor rewards programs, or too many fees on various services, especially for ATM use, Riley says. Thus, it is important for issuers to improve risk management procedures, expand relationships with other banks and manage customer attrition, Riley says.

In the meantime, issuers cannot forget about determining fair rates when charging for various services, especially for credit card use.

"Pricing is an essential feature in the credit world," Riley says. "It must calibrate with the customer's ability and intent to repay."

As regulators shift from stressing fee disclosure to examining profit margins, it is more important than ever for banks to run efficient operations and get pricing under control, Riley says.

TowerGroup research shows many factors driving the card-issuing business, including growth in debit transactions.

"Growth on the debit side is larger than on the credit side, and that shifts the whole level of profitability," Riley says. "The banks make a lot more on credit cards with interest and interchange."

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