Payment Card Issuance
In the fast-paced realm of modern finance, the dynamics of payment card issuance are undergoing a transformative evolution, this landscape is marked by advancements in biometrics, mobile commerce, eco-friendly card initiatives, and an overarching emphasis on digital security.
When a customer reports the loss or theft of a bank card, the expectation is no longer a prolonged waiting period for a replacement. Instead, the contemporary world of payment card issuance revolves around the concepts of speed, simplicity, and adaptability, offering new cards in various forms – physical, digital, or virtual – almost instantly. This shift reflects the broader trend of an accelerating pace of modern life, driven largely by the digitization of processes and services.
The traditional narrative of waiting weeks for a film to arrive in a local town has been replaced by the immediacy of streaming a movie with a click. Similarly, the way we access financial products and services has transformed in our always-connected world. Nowhere is this change more evident than in the domain of payments, where billions globally have adopted debit and credit cards as the default mode of payment, often stored in digital wallets on smartphones. This shift has given rise to the concept of the ‘mobile branch,’ providing 24/7 services that cater to users’ needs and preferences.
Amidst this backdrop, the focal point of financial institutions and their technological partners has shifted towards meeting the demand for instant card issuance. Major innovations in IT systems managing card life cycles and transactions have made ‘instant issuance’ a reality, catering to the contemporary consumer’s desire for frictionless and rapid experiences.
Let’s delve into the factors propelling the demand for enhanced card issuance:
The Surge in Online Commerce
E-commerce has become an integral part of the lives of billions of shoppers. This cultural shift has made consumers comfortable with ‘card not present’ payments. According to Morgan Stanley, global e-commerce sales accounted for 15 percent of total retail sales in 2019, surging to 22 percent by 2022. Forecasts indicate further growth, potentially reaching $5.4 trillion by 2026.
The ubiquity of online habits is particularly pronounced in some countries, with nearly nine out of ten Americans engaging in various forms of digital payments, including online shopping and peer-to-peer transfers, as per McKinsey’s 2022 Digital Payments Consumer Survey.
The Move to Cashless Transactions
Contactless ‘tap to pay’ cards, introduced in the 2000s, witnessed a gradual acceptance that accelerated significantly during the COVID-19 pandemic. Consumers, driven by both convenience and hygiene considerations, shifted en masse to contactless payments. Juniper Research reports a staggering $4.6 trillion in contactless payment transactions in 2022, with expectations to reach $10 trillion by 2027.
This surge extends to in-store mobile point-of-sale (POS) systems, with a notable rise in the last five years. The advent of softPOS, enabling retailers to use a smartphone for card payments, further propels this trend.
Diverse Card Features
While it once took decades for cards to offer the simplicity of tap-to-pay functionality, recent years have seen a proliferation of innovations. Modern issuers now routinely introduce features that enhance the utility of cards. Voice technology, for instance, is being trialed in voice payment cards designed for sight-impaired customers. These cards articulate transaction steps to a Bluetooth-enabled mobile app, offering a seamless and accessible experience.
Another breakthrough is the introduction of biometrically-enhanced cards, featuring a fingerprint sensor for added security. This additional layer of authentication facilitates high-value payments with a frictionless user experience.
Sustainability is also making its mark on card features. Some card manufacturers now offer alternatives to traditional plastic, such as Polylactic acid (PLA) cards made from renewable bio-sourced resources like corn. Others contribute to environmental efforts with cards made from recycled plastics, such as the Ocean Plastic card, crafted from 70 percent plastic cleared from coastal areas.
Regulations and Security Concerns
The surge in card usage, particularly in card-not-present transactions, has unfortunately corresponded with a rise in fraud. According to the Federal Trade Commission, US consumers reported losses exceeding $5.8 billion to fraud in 2021, marking a substantial increase of over 70 percent from the previous year.
Banks are now tasked with managing the risks associated with card issuance, emphasizing secure credential sharing, safe storage within mobile wallets or apps, and strict adherence to regulatory frameworks like the EU’s PSD2. This directive enables users to authenticate their identity using biometric features on smartphones, contributing to enhanced security and privacy.
The Imperative for Banks: Modernizing Card Issuance
The insights above underscore the seismic shifts in card usage and the evolving nature of cards themselves. In this new normal, archaic and cumbersome legacy card issuance programs are deemed inadequate. Banks must pivot towards making instant issuance – of both physical and virtual cards – the new standard in customer service. Institutions embracing this shift stand to gain increased cardholders, elevated card transactions, and a reduction in fraud.
In summary, banks are urged to offer four key services:
- Legacy Physical Card Issuance: Despite the popularity of virtual cards, there remains a preference for physical cards. Banks should not overlook the innovations in the physical space, ensuring swift issuance of fully-featured physical cards while also facilitating their seamless digitization within mobile wallets.
- Instant In-Branch Physical Card Issuance: On-the-spot card issuance has become the norm, offering a competitive advantage, particularly for banks with a robust branch presence. Notably, the activation rate for instantly issued cards stands at an impressive 82 percent, compared to 50 percent for conventionally issued cards.
- Instant Digitization of Existing Physical Cards: Recognizing the trend towards mobile payments, banks should enable customers to digitize their existing physical cards effortlessly. Research indicates that cards issued to digital wallets see nearly 100 percent activation, with 70 percent being used within five days.
- Instant Digital-First Creation of Virtual Cards: Mobile banking represents the epitome of convenience in card issuance. Customers seeking a new card can complete the application process within the app, receiving their virtual card in real-time. These virtual cards extend beyond traditional payments, supporting features such as spending trackers and alerts.
The Orchestration Challenge in Card Issuance
While the call for instant issuance of physical, digital, and virtual cards echoes through the industry, the execution of a modern card issuance program is far from simple. It requires a substantial orchestration effort behind the scenes, connecting new platforms to existing infrastructure. This orchestration extends to internal banking components, including card management systems, account management/core banking systems, payment switches, clearing and settlement processes, and custom development modules.
So, what is essential for a bank’s successful development of a robust and effective issuance platform? The four key requirements are:
- Simple Workable APIs: A user-friendly interface is crucial for seamless interactions between different components of the card issuance system.
- Easy Connectivity to Payment Networks: Ensuring smooth connections to payment networks is essential for the functionality and interoperability of the card issuance platform.
- The Ability to Orchestrate the Card Management Stack: Coordinating various aspects of card management, including tokenization, HCE (Host Card Emulation), and card personalization, is critical for a well-functioning system.
- The Ability to Meet PCI DSS Compliance Across the Infrastructure: Adherence to PCI DSS (Payment Card Industry Data Security Standard) is paramount for safeguarding sensitive information, and the entire infrastructure must align with these security standards.
Third-Party Assistance for Banks
Recognizing the resource-intensive nature of developing modernized card issuance programs, several third-party specialists offer support. Companies like Thales, with their card-issuing platform D1, can tailor programs to match a bank’s preferred use cases. The D1 SDK integrates all card-issuing resources, encompassing tokenization, HCE, card personalization, and additional resources such as SCA (Strong Customer Authentication) and banking core systems like CMS (Card Management System).
This comprehensive integration not only supports real-time card issuance, activation, transaction management, account management, and fraud management but also ensures compliance with PCI DSS for all data flows, display, storage, and lifecycle management.
Charting the Course Forward
The landscape of shopping and payments in the 2020s bears little resemblance to that of just two decades ago. E-commerce has become a dominant force rivaling physical retail, and cash is gradually fading from the economic landscape. In this changing scenario, the bank card emerges as a central element in people’s lives, positioning card issuance as a priority for financial institutions.
Fortunately, contemporary financial institutions have an array of options to make the card issuance process flexible, frictionless, and fast. As the trajectory of finance continues to evolve, adapting to these changes becomes imperative for banks striving to stay at the forefront of the dynamic and ever-evolving landscape of contemporary payment card issuance.