What's it cost to get a credit card in your pocket?
By Marcia Frellick
What does it cost to get a single credit card into a willing consumer's pocket? Not much, industry experts say, and most of the cost comes once the card's already made.
Before a credit card gets to a consumer, it winds through multiple processes with complex machinery under tight security. Multicolored inks and holograms are added to sheets of plastic, then cut into individual cards. Shipments are transported to a processor, personal information is encoded and embossed, and a packet is stuffed and mailed.
All that costs a little more than a dollar a card, industry experts say. That's for a high-volume basic card without a smart chip. That also doesn't include the cost for advertising and marketing. Those expenses are substantial in the real world, of course, but for the purposes of this article, we are focusing on the costs of making and sending the card itself.
"People don't realize how inexpensive plastic cards really are," said Albert Vrancart, credit card industry adviser and founder of the International Card Manufacturers Association (ICMA). "You look at the amount of work and effort that goes in it -- it's unbelievable. They are like miniature Renoirs."
Inside the numbers
Industry insiders estimated the breakdown of primary costs for one card as follows:
Prices are dropping
That number is falling, experts say.
"Costs of a base card have come down over the past several years because of over-capacity in the industry," said Eric Blank, president of Pathfinder Group in Boston, credit card industry consultants.
Bank consolidations and fewer people qualifying for credit cards have contributed to the price drop, Blank said, adding that a few years ago, a base card (before personalization) would have cost 25 cents and now it is about 17 cents, according to expert estimates.
But he also said a move toward cards with contactless chips will likely cause a dramatic increase in the cost of making credit cards in the near future.
"If a card has a chip -- rule of thumb, add a dollar, minimum," Blank said. "It could add as much as $1 to $3 with a chip, depending on how much memory is in the card."
The U.S. has largely bypassed the contact chip card that has been so popular in Europe and Canada. These are smart cards -- usually referred to as "chip-and-PIN (personal identification number)" cards because the credit cards have computer chips and cardholders, rather than signing for purchases, punch four-digit PIN numbers into terminals.
Instead, the United States is moving toward a contactless chip card, one with RFID (radio-frequency identification), which is buried inside the card. Numbers of these cards were up 25 percent in the United States in 2009, according to ICMA. Cardholders wave the card near the reader and account information is transmitted for purchasing.
Merrill Martin, chief operating officer of card manufacturer VCT in South Plainfield, N.J., says the price of cards with or without a chip has come down in recent years. The cost of materials has gone down, while efficiency and competition has gone up, he said.
Card makers compete mostly in delivery time and how the printing is engineered, he said.
"We all have a hologram. We all have a magnetic stripe. But the printing variations are where the job can make a difference," Martin said.
Many of the costs of getting a credit card to a consumer are tied to regulations. Materials used in making a credit card have to meet quality standards established by the International Organization for Standardization (ISO), a group of international representatives that sets global commercial and industrial standards. The standards are the reason credit cards are made out of PVC and the reason they're all about the same size, so they can be used worldwide.
And the bulk of the cost of an individual credit card is tied up in postage. First-class postage has gone up an average of penny a year for the past 10 years and a 2-cent increase is proposed for January.
Innovations keep costs in check
Dynamic Card Solutions, a company based in Englewood, Colo., that offers financial institutions innovations in issuing credit and debit cards, says its technology may eventually cut out the postage cost and wait time for credit cards.
The company is a leading developer of flat-panel cards -- the cardholder's name and numbers are flat instead of embossed, but they function like other financial cards. Since most cards are swiped or are used for Internet purchases these days, the need for embossed cards is dwindling.
DCS produces the flat cards as part of its "instant issuance" technology. Cards are approved, produced and personalized in bank branches while the customer waits. The benefit is eliminating postage costs and sending an eager consumer out the door with a ready-to-use, personalized card and one-on-one instructions on how to use it.
Ron Zanotti, vice president of sales and marketing for DCS, says another big advantage of the technology is that a customer's favorite photo or image can be instantly uploaded onto the card at the bank branch as easily as a stock image can be put on a card at a processing center.
DCS' current instant-issuance business is overwhelmingly debit cards, but Zanotti says he is seeing more interest from his clients in adding flat-panel credit cards that could be issued on the spot. Four DCS credit union customers are currently offering instant issued unembossed credit cards.
"A lot of our flat-panel instant issuers are looking at adding credit, so as we get more and more instant-issue systems out there ...we'll see more credit cards issued flat-panel as well," Zanotti says.
But there is added risk in instant issued credit cards, notes ICMA's Vrancart. He says a few banks have toyed with the idea because the convenience for the customer is undeniable, but most are finding the cost savings are not worth the security risk.
"All of a sudden, you have live cards in a branch where you never had them before. We're authenticating people to get that card, and you're leaving it up to the branch to do that. For some it works. I believe there are banks that still do it, but it's not going to save them money," he said.See related: Instant-issue debit cards go flat
Published: August 26, 2010
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