Sathish, Deputy Chief Product Officer, FSS, is an agile techno-functional product expert with over 20 years of experience in the fintech space and has successfully launched globally recognised products. A natural leader who has worked with Banks and Technology partners across the globe on a wide array of banking products in various leadership roles strategizing the way forward for the organisation along with taking care of revenue and P&L responsibilities. His two decades of experience covers a diverse customer base across US, EMEA, APAC & SAARC. In a conversation with Digital First Magazine, Satish talks about benefits of virtual card, how can banks protect and secure sensitive consumer data from breaches, trends driving the prepaid cards market and much more.
Elaborate on what is a virtual card and how is it beneficial for users and banks?
Customer preferences for touch-free, secure, and seamless ways to pay digitally is driving the digitalisation of core processes – KYC and on-boarding, account opening. With virtual issuance financial institutions can also instantly provision cards onto a customer’s device to enable secure access to funds to pay online, in-app, or in- store.
Virtual cards, like their physical counterparts, have a 16-digit number that is automatically generated and assigned to a customer’s account. Using virtual debit cards, cardholders can perform a range of transactions – send money, recharge their mobile, pay bills, shop online, conduct card-less ATM withdrawals, and perform contactless transactions in-store. The cards can be expanded to support multiple use cases like buy now and pay later at checkout, payments to gig workers or instant card to employees to meet a specific expense.
Virtual cards can be designated for one-time use. The card is valid for a specific period ranging from 24 hours to 48 hours and the rules governing usage can be adjusted in real time. The card incorporates a comprehensive set of security controls, such as configurable authorization controls, spend limits and block merchant categories.
At the back-end issuers need to have a modern card issuance system that enables third parties consume virtual issuance APIs for embedding payments into the customers’ transactional journey. The system should be flexible to launch contextually relevant products for multiple segments, support single or multi-use virtual cards, single and multi-currency cards.
How can banks protect and secure sensitive consumer data from breaches?
With e-commerce becoming mainstay, fraud is 81 percent more likely to occur today in “card-not-present” transactions, according to the 2018 Identity Fraud Study by Javelin Research. Banks likewise are gearing their strategies and shift from a compliance-centric to an active fraud prevention mindset – positioning risk and fraud management as a critical services differentiator.
Current counter-fraud measures primarily limit the velocity and the volume of transactions at a per customer level and are inadequate against evolving intensification of fraud attacks. Detection strategies that bring together cross-product and cross-channel data, and apply intelligent machine learning models, can help in proactive detection of fraud signals. Many banks are investing in new technologies such as tokenization and risk-based authentication systems to safeguard customers from card not present fraud. Tokenization masks customer card with a random number, rendering the card details useless if merchant or bank systems are hacked. Risk-based authentication enables banks to verify legitimate customers by analysing their transactional and behavioural profile leveraging a range of variables such as transaction amount device, merchant, location and, shipping address. For instance, if a customer transacts at a specific location in Mumbai and initiates another transaction at another location 20 kms away within a short span, the transaction would be immediately flagged.
Programmable spend controls enabling customer to control where, when and how cards can be used equips cardholders with innovative security controls. Consumers can set transaction limits for dollar amount limits, merchant categories, transaction types and geographic locations across channels — ATM, in-store, mobile and online. This protects consumers from potential fraud resulting from phishing attacks, lost or stolen cards. For instance, if card information at a bank is breached, fraudsters will not be able to use the card for unauthorized online purchases or withdrawals as transactions would be declined.
Dynamic CVV as a security measure is also gaining ground. Dynamic CVV minimises risk and prevents fraudulent transactions by replacing the static CVV with a digital CVV code. This invalidates cloning or data theft in online transactions and in stores. The system does not require any additional effort on the part of the cardholder: no change of payment behaviour is completely transparent to the merchant. Several implementation models have come into play. Cards can be embedded with a mini screen that displays the CVV, which automatically refreshes at a predefined frequency. However, the cost of card production USD 15 -USD 18 as compared to USD 3 EMV chip card is a deterrent. Alternately customers can access a mobile app and check the card number, CVV and expiration date when making purchases. The functionality is based on cloud technology and advanced cryptographic algorithms to ensure the inviolability of the code generated for the end user. According to forecasts, 70% of new cards created this year will be of this type. Several countries including France, China and Mexico have begun adopting the technology.
What are the Top 3 trends driving the prepaid cards market in India?
Prepaid cards in India are still at the early phase of the lifecycle growth and will continue to evolve. A large segment of youth, surge in internet and smartphone users as well as the booming e-commerce industry, is resulting in prepaid becoming a platform for innovation. According to industry reports, the India prepaid cards market size is expected to grow at an estimated CAGR of 40.5% between 2021 and 2026 and would reach USD 340 billion by 2026.
Prepaid’s ability to provide funds is real-time is being used to drive product innovation that enrich the digital banking experience of users. Three trends that would propel the market forward include:
Ability to Link Cards to Everyday Spends — E.g., National Common Mobility Card – According to the National Sample Survey, transit represents an approximate 20% of urban as well as rural monthly household consumption in India. The National Common Mobility Card enabling customers to use a single card for any transit mode can embed card usage into everyday spends. Given the inherent recurrent nature of the expense, prepaid card issuers are also assured of sustained usage and higher transactional activity by cardholders.
Tapping into MSMEs and Unbanked Segments – The Indian economy is home to 63.3M Micro and Small, Medium Enterprises which provides employment to 15% of India’s population. Prepaid cards are a cost-efficient way to pay supplier as well as blue-collar workers, who are largely under-banked. The area has a lot of room for growth as small business owners increasingly need digital solutions, given the disruption caused by COVID-19. Prepaid support business processes such as employee benefit payments and reimbursements. Banks can also complement core offering with features that improve financial standing of customers including financial advice, overdraft warnings, and discounts at local stores.
General purpose prepaid cards also provide a gateway to financial services to India’s underbanked and unbanked segments. With rapid growth in agency banking, the availability of a wide service network for retailing and topping up cards can drive usage.
Growth in eCommerce Segment – With many customers shopping online, many service providers are launching ecommerce prepaid cards. Further issuers have an opportunity to tap into current Buy Now Pay Later market. Current Pay Later products at checkout whilst convenient do not guarantee customer stickiness. Issuers can embed prepaid card products along the path to purchase allowing consumers to select the payment option ahead of a purchase, at the point of sale, and after a sale.