Although card payments have been around for 80 years, little has changed within the industry to keep up with ever-changing customer demands for digital payments and the explosive growth of innovation within the fintech industry.
Many financial institutions that rely heavily on their legacy systems to offer their financial services are finding it more difficult to remain competitive amid the rapid changes within the card payments industry. Here to offer insights into these challenges is Vishal Pasari, Vice President and Global Head of Products & Partnerships for Euronet, and Mercator Advisory Group’s Sarah Grotta, Director of Debit and Alternative Products Advisory Service.
Significant Challenges Within the Card Payments Industry
With the advent of credit cards in the early 1930s — beginning with the air travel card, to the Diners Club, and then the Bank of America card in the 1950s — innovations within the credit card industry have remained stagnant.
Banking institutions as well as providers have also been lax in their evolution, leaving their legacy systems ill-equipped for any type of rapid innovation. Although their platforms were solid, they were no match for the agile financial solutions developed by fintech companies. This was especially true during the fintech boom in 2010.
Pasari expounded on this issue with the following analogy:
“It’s kind of tricky. I mean, you can’t just take an armored truck, slap on some spoilers and some race tires, and put on a track. On top of this, the card space is one of the most heavily regulated industries in the world, and this further challenges the ability of institutions to extend beyond the status quo, right? Whatever little bandwidth comes available is sucked up by the need to stay compliant. So this combination of legacy and regulatory headwinds is, in my opinion, the largest challenge in the cards world today.”
Another issue Pasari touched upon is that almost two billion people remain unbanked or underbanked. This population is not limited to those living in the emerging economies but extends to those living in the United States.
Although Pasari pointed out that this poses a significant challenge, he maintained that it also poses a significant opportunity for the potential adoption of card payments.
Grotta also commented on another challenge besetting financial institutions that are still using legacy solutions: the lack of data on their customers. Data that reveal an understanding of customer needs as well as how the institution is managing fraud are nonexistent.
Key Trends to Look for Within the Card Payments Industry
Pasari mentioned three significant emerging trends within the card payments industry: the ability to issue and accept tokenized wallet-based cards on mobile phones, embedded payment capabilities, and the expansion of the card user base worldwide.
- Issuing and Accepting Tokenized Wallet-Based Cards
Pasari mentioned the significant shift in customer expectations in just the last 20 years. Where in the 1990s it was the norm for consumers to receive a letter indicating they will be receiving their credit card within 10 business days upon approval, this situation is now unthinkable. With all products and services being delivered instantly with a single swipe on the phone, the device has become a sort of “magic wand” for the customer. The expectation is that the phone has become a “digital card” for the customer. Therefore, having the ability to issue and accept tokenized wallet-based cards by phone is a must-have in today’s digital age.
Grotta believes the instant-issuing capabilities serve both customers and financial institutions positively:
“I’ve always been a big fan of this capability because I think it serves customers so well, you know, both from a new issuance perspective, but sometimes I think even more importantly, from a service perspective, so that the consumer as well as the financial institution isn’t seeing any sort of interruption in that transaction activity. I think another thing I would point out is moving those activities toward digital also has [provided] not only a better experience for customers, but also achieves a lot of efficiencies for the financial institution as well. And I think you know, as for financial institutions who are looking at that, you really can’t forget to include the efficiencies that are going to be driven by that … type of an upgrade to your card issuance solutions.”
- Embedded Payment Capabilities
Pasari shed light on another trend to watch for: embedded payments. He explained this as having the payment process “interwoven” within the user journey, which eliminates a separate step that customers will need to navigate during the payment process. Embedded payments remove all friction within the checkout process. The strengths of this capability are that it not only drives higher card transactions but it also lowers the ever-growing problem of cart abandonment.
- Expansion of the Card User Base
When it comes to underbanked and unbanked consumers, several countries are encouraging them to use prepaid cards or debit cards instead of using a bank. This, Pasari said, will boost the adoption of cards over the next few years.
Mastercard, in collaboration with The Partnership for Central America, has launched a financial inclusion program in Guatemala, El Salvador, and Honduras. According to Pasari, 60% of adults in these countries do not have a bank account. Of those who do, only one in four has a debit or credit card. To remedy this problem, Mastercard plans to invest $100 million in this initiative. It will be partnering with banks to help them offer financial services to the unbanked and underbanked.
How REN Solutions Enhances the Customer Experience
Pasari explained that REN Solutions’ key differentiation comes from the fact that it is a modern solution that has been built from the ground up. In other words, there was no preexisting legacy heritage or infrastructure. This type of solution facilitates the urgent need to address the many challenges previously mentioned. It is well-equipped to help institutions to not only innovate, but to also expedite the launch of card payment solutions.
Not only is REN Solutions the perfect choice for new banks and fintechs, but it is also a great fit for institutions that face the formidable challenge of migrating off their current legacy platform. REN Solutions is built in a way that allows customers to evolve their legacy systems at their own pace. This eliminates the need for a “rip and replace approach,” which exposes the institution to a lot of risk. Customers have the option of choosing specific parts of their payment stack to modernize, and the solution offers maximum flexibility with minimum risk as institutions navigate their way toward modernization.
REN is one of the few modern payment ecosystems that covers the complete end-to-end card payments solutions life cycle. The builders of this system have firsthand knowledge and experience in helping their clients overcome their challenges and take advantage of key trends to help ramp up their business.
REN is just one of many card payments solutions that the fintech industry continues to develop to move away from the processes of most traditional banking institutions and adopt more modern platforms, further driving innovation.
