CPI Card Group, the company synonymous with physical payment cards, dropped a subtle bombshell in their recent earnings call. While most analysts focused on the expected card volume fluctuations and the company's projected rebound in the second half of 2024, a closer look reveals a much more profound shift happening beneath the surface. CPI Card Group isn't just weathering the storm of inventory rebalancing; they are strategically positioning themselves for a future where digital transactions reign supreme.

The key lies in their seemingly innocuous "push provisioning" initiative. This technology, allowing customers to instantly add their card credentials to digital wallets, isn't just a value-added service. It's a calculated bet on the future of payments and a potential game-changer for CPI Card Group.

Think about it: CPI has spent years meticulously building a vast network of integrations with bank platforms and processors, connecting them to thousands of financial institutions across the US. This infrastructure, initially designed to facilitate their Card@Once instant issuance solution, has become a powerful springboard for a digital transformation.

John Lowe, CPI's CEO, alluded to this in the Q1 2024 earnings call, highlighting the company's "agnostic" approach to core and processor integrations, a unique advantage in the push provisioning space. This means CPI can seamlessly offer their digital solutions to a wider range of financial institutions, particularly the small to medium-sized banks who form the backbone of their customer base.

Now, let's talk numbers. Lowe compared push provisioning to their Card@Once instant issuance business, which currently boasts installations in over 15,000 branches and serves over 2,200 financial institutions. It took CPI nearly a decade to achieve this level of penetration with Card@Once, but the potential for push provisioning could be even greater. Why? Because the addressable market for digital wallets is expanding exponentially.

Visa, a major payment network and key CPI partner, reported that tap-to-pay usage in the US surged to 45% in 2023, a clear indicator of consumers' growing preference for digital transactions. This trend is likely to accelerate, pushing financial institutions to offer more seamless digital experiences for their customers.

Here's where CPI's strategy becomes truly potent. Every time a customer "pushes" their card credentials to a digital wallet through CPI's technology, CPI earns a transaction processing fee, similar to the revenue model for Card@Once. As digital wallet adoption grows, so does CPI's earning potential.

Imagine a scenario where CPI successfully penetrates even half of their current Card@Once customer base with push provisioning. With over 2,200 financial institutions currently using Card@Once, reaching 1,100 institutions with this new digital offering seems plausible.

Further, if even a fraction of those institutions see a 25% adoption rate for push provisioning among their customers, the potential transaction volume for CPI is staggering. This translates to a recurring revenue stream that could dwarf their current earnings from physical card sales.

Projected Growth of Push Provisioning

The following chart illustrates a hypothetical scenario of push provisioning adoption among CPI's customer base, assuming a 50% penetration rate of their current Card@Once customers and a 25% adoption rate among those institutions' customers.

This isn't just about incremental growth; it's about disrupting their own business model. CPI is essentially hedging their bets, recognizing that the future of payments may not be in plastic cards but in the digital credentials that power them.

While the transition will likely be gradual, the signal is clear. CPI Card Group, the company known for putting physical cards in your wallet, is now quietly building the infrastructure to put digital credentials in your phone. And if they play their cards right, this could be the dawn of a whole new era for the company.

"Fun Fact: The average American carries 3.8 payment cards in their wallet. That's a lot of plastic! But with the rise of digital wallets, will we even need physical cards in the future?"