Architecting Card Systems for a Digital-First World

Written by N Sathish, Dy Chief Product Officer @ FSS

Cards are the most frequent interactions that financial institutions have with their account holders. Each transaction presents an opportunity to create accountholder engagement and drive revenue. A combination of factors – fierce competition, regulatory interventions, rapidly evolving customers, and technology trends are, however, challenging card issuers.

Customer expectations have changed with the pervasiveness of smartphones and convenient, intuitive access to services through real-time payment apps.  Banks need to compete with the digital transaction expectations set by providers like Uber and Amazon, that offer integrated, holistic experiences for which the payment just happens. The digital shift requires banks to step-up efforts to be the customers’ card of choice, whether in physical or, as is increasingly the case, digital form.

Further with the growth of real-time payment rails and alternative payment mechanisms, the consumer payment mix is evolving. In 2020, according to the GSMA, Africa had 562 million registered mobile money accounts, an increase of 12% from the previous year. The region also had 161 million active accounts, an increase of 18% year-on-year, and making up over half of the 300 million global active accounts. In 2020, real-time payment transactions in India outpaced card adoption by a factor of 6X, according to the PWC. The growing adoption of alternate payment modes can potentially cannibalise card adoption and revenue.

New competitors are stepping into card payments and bringing disruptive business models with them. A leading payments bank in India, with  a base of 350M customers, for instance, offers instant virtual cards to its wallet users. Customers can get a card within minutes as opposed to waiting for a few days. The dynamics of competition have also shifted from ‘bank versus bank’  to ‘bank versus Big Tech.’ Tech firms are integrating payments as an enabler into consumer apps, leveraging their large customer base and deep pockets. Google is partnering with existing banks and credit unions in an attempt to be a platform for offering digital-first capabilities. For established financial institutions, this could mean being potentially relegated to the role of providing a stored-value account, with Google owning customer interactions the overall relationship.

Regulation and new global standards are pushing institutions to transform at an accelerated pace, with requirement for open banking being a good illustration. In markets where open banking payments infrastructure is more mature, such as the United Kingdom and Europe, transactions are rapidly shifting  to account-based alternative payment  options due to their lower cost, significantly impacting issuer revenues. In addition, interchange caps by regulators further compress margins.

Collectively the trends are reshaping the dynamics of the market. Banks can no longer just recalibrate the slide rule, they need to have an elemental rethink of how they can remain relevant. Given the rapidly changing marketplace, forward looking issuers are strongly motivated to invest in new age platforms to build a strong competitive foundation and grow market share.

Current issuance systems fall short along multiple dimensions. Over the years, established financial institutions have built card issuance stacks that are monolithic and inflexible. Designed to meet the needs of issuers in a pre-digital era, the card issuance platforms are not enabled to adapt to demands for digital-first card programs. Limited extensibility and customization capability constraints innovation and impedes time to market for new products and services. On average, depending on the complexity, new functionality may take between three and nine months to develop and deploy. In addition, many issuers have discrete systems sourced from multiple vendors for prepaid, credit and debit card issuance. Siloed systems further contribute to costs and lost revenue opportunities. Few issuers, as an example, can proactively offer an add on prepaid forex card to high-net-worth credit card customers with a history of frequent travel, as these are two discrete functions and systems within the bank.

There is significant value to be unlocked by issuers who take a strategic approach to modernizing their issuance architecture. Financial institutions will need to start from the inside-out and redesign core issuance systems around three interlinked design principles — digital-first, open ecosystems and data-driven.

Digital-First Card Programs

Digital-first, for issuers, entails looking across the entire card program lifecycle, from application and onboarding to cardholder engagement to provide best-in-class services experience. This includes replacing physical cards with a 16-digit card number that can be linked to an online wallet as well as layering on additional services such as consumer card controls and personal financial management to drive top of wallet recall. India’s leading private sector bank is working with FSS to issue instant, open-loop virtual cards to any customer that downloads their wallet app. The card is linked to a host of consumer benefits, enabling the issuer to build a strong base of loyal customers.

Ecosystem Ready

To become top of wallet and foster lasting cardholder relationships, companies must build in features and services that differentiate their cards and provide meaningful value to its cardholders. Issuers need to shift their focus from transactional services and prioritise VAS. A card management platform underpinned by open APIs provides issuers an opportunity to foster an extensive added value services ecosystem. A partnership with large players may be an opportunity to innovate quickly and provide experiences that cardholders are seeking. Issuers, for instance, can use APIs to embed card payment capabilities and provide adjacent services. For example, a travel related savings plan in conjunction with a travel aggregator or the ability to expose instant digital card issuance APIs to merchant-owned wallets.

Data-Driven 

Issuers can affect a shift from being product-led to becoming customer-centric by harnessing insights into cardholder transacting behaviour. Leveraging data, issuers can tailor products and services to customers’ needs and create entirely new experiences before, during and after a transaction. As an example, proactively alert customers to an upcoming credit card payment when the customer’s account is under-funded. Another example is the ability to issue instant cards at checkout, with pre-approved EMIs, basis cardholder transacting and banking history.

Effective program management, especially, in the context of prepaid store value  cards, is critical to managing the profitability of the overall card portfolio. A digital-first, data-driven approach equips program managers with strategic cardholder insights that can optimise  customer acquisition costs, reduce cost of servicing, improve return on marketing as well as maximize cardholder lifetime value

Better By Design

Issuers can transform by moving away from legacy technologies and embracing a componentized, micro-services, cloud-native architecture. Systems built on a service-oriented architecture, tend to have larger scoping, sharing of data and multiple process steps that must be orchestrated. This makes change more complex and time-consuming. In contrast, a micro-services architecture typically organizes services around  smaller business components. The services can be consumed from the cloud, enabling banks to run a more cost-efficient operating model whilst providing the agility that legacy models lack.

In Conclusion

Issuers are entering an era where technology excellence is at the heart of business growth. Rather than make incremental improvements, issuers need to actively shape the market by reengineering their card issuance infrastructure to be more agile and responsive to opportunities today and in the future. Progressive issuers will  gain considerable technological and operational benefits in terms of improved IT agility, better customer experience, and improved data insights.

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