Product innovation is key to growth in the card business, but the ability to grow without sacrificing security, speed and reliability is critical. Banks that can provide these things, along with convenience for consumers and increased sales opportunities for merchants, will achieve success.
Elizabeth L. Buse, EVP, Product Development and Management, Visa USA (Foster City, Calif.)
Ruvan Cohen, SVP, Global Solutions, MasterCard Advisors (Purchase, N.Y.)
George Guzman, Senior Industry Consultant, Cards & Payments Practice, CSC (El Segundo, Calif.)
Ariana-Michele Moore, Senior Analyst, Celent Communications (Boston)
Q: What type of industry players are best positioned for success in the cards business? What are the infrastructure and processing capabilities necessary to succeed?
Elizabeth L. Buse, Visa USA: The bottom line is that all players in this business have tremendous opportunity to benefit from the high-growth nature of the payments industry. While market share numbers are often a hot topic, the $19 trillion in consumer and commercial cash and checks expenditures is the more important metric to consider. Smart companies will position themselves to benefit from the undeniable migration toward electronic payments. From a payment infrastructure and processing capability perspective, companies will need a payment infrastructure based on open standards that allows them to conform to the needs of customers and empowers financial institutions to create and offer value-added payment products and services.
Ruvan Cohen, MasterCard Advisors: Whether banks or merchants, the players best positioned to succeed are those that have the ability and infrastructure to delve deeply into their products and services and see how they can add value for their customers. Through the use of data analysis, for example, they can understand the value of a product and cross-sell products accordingly. Companies can capture spending habits and purchasing preferences when their customers use a payment card. Financial institutions can then work with their merchant customers to use the information to offer other, more customized products to the consumer.
George Guzman, Computer Sciences Corp.: Whether they are banks, issuers or acquirers, successful players in the cards business must be positioned for speed, flexibility and control. Speed is needed to bring innovative products, such as prepaid and stored value cards, quickly to market. Flexibility is essential to customize products with features like transaction-based pricing and enhanced loyalty capabilities. Control is necessary to improve operational efficiency and reduce unit costs as volumes grow. Players likely will implement new technology to bring their card processing in-house for improved speed, flexibility and control.
Ariana-Michele Moore, Celent: This is interesting given today's consolidation trend - monoline issuers entering banking, merchants rumored to be starting their own banks, banks buying banks and moving processing in-house. Although consolidation can offer advantages in today's market, it will create silos within businesses and add to an already complex and inefficient environment. From business strategy to databases to overall IT framework, companies will face challenges in reaching operational efficiencies and maintaining a business flow favorable to their customers. Companies that embrace complex strategies with simplified infrastructure will leave others in the dust.
Q: Which new product types hold the most promise for banks?
Buse, Visa USA: The most successful products and innovations will be those that create a balanced value proposition, which satisfy the needs of all stakeholders in the payment chain: consumers, merchants and member financial institutions. A new payment device or some other big shiny object may be exciting, but it will only drive value if consumers enjoy maximum convenience and security, merchants see added sales or throughput and banks either increase their revenue streams or enhance their relationships with cardholders.
Guzman, CSC: Prepaid and stored value cards are the next growth engine for card-based payments. These products touch many facets of the market, ranging from gift cards to payroll cards, electronic benefits and travel. Prepaid cards reduce consumers' cash requirements. For merchants, prepaid cards offer lower handling costs than cash and access to new customers. For issuers and acquirers, prepaid cards are a source of new fee income and offer access to new customers, especially the millions who have no traditional depository banking relationships.
Moore, Celent: Stored-value cards and contactless payments are targeted at traditionally cash-based markets. However, the market for closed-loop, private-label cards is huge and relatively established. Consumers can purchase closed-loop cards at their exact purchasing value. Banks offering network (or branded) cards usually charge a price higher than the card's purchasing value and must convince consumers that this additional cost is worth it. Contactless payments are an extension of banks' already established business: credit. They offer banks the opportunity to capture additional wallet share and new interchange revenue from markets they have not yet entered. Contactless payments hold the greatest promise.
Q: How can banks grow their card businesses without jeopardizing security, speed and reliability? What are the legal and regulatory considerations and how can banks manage related risks?
Guzman, CSC: By running card systems in-house, banks retain more control over data that they can use for marketing and fraud detection. Since 2002, issuers have faced mounting federal and state legislation, especially in privacy, data protection and telemarketing. And with changes due to Basel II, OFAC and Sarbanes-Oxley, the issues are even more complex. Greater control of data improves banks' ability to respond to these changes, especially as their business grows. A customer-centric view is critical to mitigating card-related risks. In-house card processing simplifies access to data needed for analysis of customers, associated relationships and behaviors.
Moore, Celent: Two things are vital to grow and yet keep fraud numbers low. First, banks need to monitor their accounts for suspicious activity and have a system in place to cross-check suspicious transactions with cardholders. Second, banks need to leverage the most expansive network in the U.S.: consumers. Educating consumers on the latest threats, encouraging them to monitor their accounts and establishing ways for them to cost-effectively interact with their banks can be very effective in dealing with most types of fraud. In addition, carefully constructed messages can convey that a bank cares and is looking out for its cardholders.
Q: What emerging technologies have the potential to transform the payments business?
Buse, Visa USA: Too often I hear people talk about "what's cool" rather than ask what will tap new opportunities and drive value. When people ask, "How can we make the payment experience faster and better for consumers?" they must also ensure this new technology will benefit both merchants and issuers. When you get that balance right, that's when you see broad consumer adoption and wide merchant acceptance.
Cohen, MasterCard Advisors: Contactless payment technology has the potential to significantly alter payment environments in which speed is essential, such as gas stations, drug stores and movie theatres.
Guzman, CSC: Most high-volume card systems today only support batch processing. Real-time card processing systems will help transform the payments business to real time, especially as plastic purchases of low-value items and use of debit cards surge. Real-time capabilities will play a significant role in the payments space as more and more consumers opt for the greater convenience, security and reliability associated with plastic card products for all types of purchases.
Moore, Celent: Any technology that offers the promise of increased efficiency and competitive advantage will be highly sought after, given the strain on payment revenues. However, in terms of transforming the way payments are made or handled, one particular technology comes to mind: smart cards. These chip-based cards will be the biggest thing to happen to the cards industry in many decades. They are already transforming payments overseas and will eventually have a big impact on the U.S.