Card Players Need to Get Smarter with Technology
Posted by Taniya Shinghal, Consultant, Oracle Practice, Infosys
Can you imagine a world without credit or debit cards? Electronic payment has given way to a new era of finance services and products that has made purchasing easier for consumers. Today, new technologies such as mobile wallets and phone banking solutions have increased the reach of credit and debit cards, making these instruments indispensible for in-store and online shoppers. The total volume of non-cash transaction payments including cards is expected to be close to 400 billion transactions in the year 2014.
Let us take a look two leading network providers - Visa and MasterCard - to understand their dynamic business journey and how technology can improve their service offerings
Visa and MasterCard, two of the largest network providers, were until recently unshakably entrenched as leaders in the cards market owing to their monopoly of interchange fees - a charge paid by acquirer banks to issuer banks for transaction processing. However, the Durbin Amendment introduced significant regulatory changes such as:
- Standardizing the limit for interchange fees
- Including unaffiliated networks on cards of issuer banks
- Regulating the debit interchange fee and eliminating the US $6.7 billion source of non-interest revenue for large banks
These changes had a drastic impact on the existing duopoly by Visa and MasterCard and led to lower debit transaction volume, losses from non-interest income and higher processing charges. Visa adopted some innovative methods to mitigate their losses through:
- Pricing models - They instituted new pricing models that charged maximum interchange fees, introduced a fixed acquirer network fee (FANF) and offered discounts to merchants for higher transaction volume. These models ensured that retailers route as many transactions as possible over Visa's network.
- New revenue strategies - Visa adopted several strategies to generate revenue such as creating a personal identification number (PIN) authorized Visa debit (PAVD) network that charged a higher interchange fee. Some banks began revoking free-of-charge services. For instance, the Bank of America introduced a charge of US $3 for printing an account summary at its automated teller machines (ATMs). JP Morgan introduced a pricing change that levied a fee of US $5 for out-of-network ATM withdrawals.
Throughout this roller-coaster ride, Visa and MasterCard have continued to maintain their competitive edge by adapting strategy to meet the business needs. However, this is not enough; technology needs to support this change in strategy. These organizations need to move beyond existing legacy systems that compromise efficiency. Such systems have lengthy lifecycles and are unable to offer a complete customer view. As global enterprises, network providers need robust financial analytics and real-time business intelligence - a task that is virtually impossible for legacy systems.
To stay profitable, these network providers need to marry technology to strategy and adopt smarter solutions that can enable customized processing and cater to new markets. The cards market needs a technology solution that offers a flexible and centralized platform with:
- Ability to negotiate deals that profit merchants, customers and issuing banks
- Dynamic pricing options based on revenue generated
- Quick definitions for new products and services across lines of business
- Fast computation for discounts, billable quantities, pricing rates, etc.
- Easy integration with multiple systems across global and regional processes
With better analytics, network providers can improve revenue traceability, data management and business intelligence. By leveraging such technology solutions, financial services organizations can ensure increased revenue by cross-selling and up-selling existing and new products through more competitive pricing.
To know more, please visit us at Booth #1101, at Oracle OpenWorld 2015. Infosys is a Diamond sponsor at the event.