Mercator Perspectives

Banks Need To Consider Architecture When Offering Cardholders Transactional Controls

Enabling cardholders to monitor and control their transactions has been discussed for at least a decade, but has been addressed in only clumsy ways. Cardholders from 18 to 55 want more levers to pull when managing their finances. The bulk of this audience is avid mobile users and are fully computer, internet, and social media literate. This generation expects there to be "an App for that!" If IBM's Watson can listen to Alex Trebek and play Jeopardy! with the best; then certainly financial institutions can make controlling payments easier; if not fun.

Now Visa has introduced a service enabling banks to give cardholders some semblance of control:

• "The service, powered by VisaNet, Visa's global processing network, provides Visa account holders with a mobile SMS text, email, and online spend management tool that allows them to set a "purchase threshold" for various accounts, monitor their spending in certain categories, and alerts them when their aggregate spending exceeds pre-set levels. Visa's service will be offered to account holders by participating financial institutions, and will let consumers manage spending on any Visa account, including credit, debit or prepaid."

This solution provides Visa-issuing institutions the opportunity to deliver immediate benefits to cardholders. These institutions should likely carefully consider this offering as a mechanism to understand what the cardholder wants and how the cardholder will use these services. During this evaluation process, the issuer needs to also review how new technologies will impact the ability to provide control over card payments.

The adoption of NFC, mobile payments, and virtual cards is creating a major shift in the payments market. This, in turn, is likely to significantly alter what controls will be needed and (as more granular controls are needed) it is likely to impact how the IT infrastructure of the financial institution should be organized.

While the electronics payments infrastructure is a tad byzantine, it seems clear to me that the issuing processor is in a more central position to provide a broad range of card transaction management and control features. The issuing processor receives the same transactional information as the network, but also has a direct relationship with the bank (and therefore the consumer) relative to how each transaction should be processed. The processor manages the settlement process and thus is in a position to address merchant-funded discounts and other situational accounting needs.

Consider just one example. The use of virtual cards is growing rapidly, and while the impact so far has been primarily in the prepaid market, ultimately virtual cards are likely to prove central to a range of yet to be invented mobile solutions. So what are the likely consequences?

Card production is tightly coupled to the issuing processor. Virtual cards are even more tightly coupled to the issuing processor since enabling instant issue requires a tightly coupled implementation of fraud management around activation and card controls (such as velocity limits for the individual card and the entire card portfolio). Or consider a scenario where the virtual card in a mobile wallet is controlled (e.g. transaction limits; discounts, required credentials; etc.) based on the location of the mobile phone. This requires that an authorization request be coordinated with both the terminal location and the mobile phone location, and that this guides the authorization amount. If the transaction location is the right place at the right time, it might also trigger a real-time discount that then must be reflected in the settlement process.

Financial institutions will be challenged to consider how these future complexities will impact today's IT infrastructure, but doing so will be critical to meeting the needs of the cardholder within a market acceptable time period. So issuing processors should become proactive in educating financial institutions regarding how the processors platform will address these future capabilities, and also guide the financial institutions IT department regarding the architectural decisions that are needed to prepare for this eventuality.

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