How are payment players reacting?
Card issuers are responding to increased competition and innovation by creating modern, resilient platforms that allow them to quickly develop and bring to market the feature-rich options customers want.
1. Enhancing customer-facing products
Card issuers are enhancing the customer experience through new features such as better rewards and personalization and moving quickly to adapt as conditions change. For example, COVID-19 saw a rise in demand for cards to be issued virtually, a trend that is likely to continue. In response, JP Morgan has partnered with Marqeta to provide digital issuance to commercial cardholders, who can then spend immediately through mobile-wallet provisioned cards.
More dynamic rewards and benefits are another trends accelerated by the pandemic and set to continue. We’ve seen some issuers allow customers to adjust premium travel benefits to at-home benefits while others waived annual fees for consumers under duress. Issuers are also offering benefits that resonate with consumers’ passions, including support for small businesses and environmental sustainability. Multiple debit cards in the market now offer crypto rewards. This ability to differentiate will be critical to combat emerging payment alternatives threatening card transaction revenue.
2. Modernizing card platforms
The easy and intuitive experiences offered by leading online retailers and tech platforms have heightened customer expectations in financial services. Card issuers must modernize to keep up, by adopting microservice-based technical architectures, increased use of application programming interfaces (APIs), and cloud-based hosting of processing platforms.
Microservices architecture structures an application as a collection of services that are organized around business capabilities and are independently deployable. This increases flexibility, allowing upgrades at the component level, without disrupting entire systems. Microservices architecture also allows a choice of programming language that is best suited to that component’s function, enabling the speed to market that is crucial to maintaining an issuer’s competitive advantage.
APIs also enhance competitiveness, enabling the intersystem connectivity required to give customers the omnichannel experiences they demand. Different APIs suit different needs and card issuers will need to consider their size, services, and priorities when determining the best way forward.
Cloud-based hosting offers greater flexibility, efficiency, and cost savings compared with traditional processors, which are evolving to keep up with cloud-based solutions such as those from Marqeta. For example, Global Payments has recently announced its partnership with Amazon Web Services (AWS) to create an industry-leading, cloud-based issuer processing platform. Cloud-based processors offer scalability and enhanced security, with the potential to save costs that would have been spent on managing infrastructure.
3. Digital tools to enhance credit card fraud management
Fraud continues to be a focus for card issuers and processors. Payment card fraud losses totaled US$28.65b globally in 2019, with COVID-19 further fuelling significant growth in fraud activity.
One of the most common types of credit card fraud is synthetic fraud, which uses fake personally identifiable information (PII) to create new credit profiles. Fraudsters sometimes manage these profiles for up to five years, making identifying fraudulent accounts extremely difficult. Card companies are combatting the practice by increasingly efficient data mining techniques that can differentiate real customers from fake profiles. For example, Visa’s Advanced Identity Score uses artificial intelligence and machine learning capabilities to generate a risk score for new account applications. The premise is that real people leave data trails that can be found for years beyond PII, whereas synthetically invented customers do not exist prior to the creation of their credit profile. We expect these capabilities to continue to gain traction as tools against broader fraud across the industry.