Banks Need To Consider Architecture When Offering Cardholders Transactional Controls

by Tim Sloane 0

Enabling cardholders to monitor and controltheir transactions has been discussed for at least a decade, buthas been addressed in only clumsy ways. Cardholders from 18 to 55want more levers to pull when managing their finances. The bulk ofthis audience is avid mobile users and are fully computer,internet, and social media literate. This generation expects thereto be “an App for that!” If IBM’s Watson can listen to Alex Trebekand play Jeopardy! with the best; then certainly financialinstitutions can make controlling payments easier; if notfun.

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

• “The service, powered by VisaNet, Visa’s global processingnetwork, 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 spendingin certain categories, and alerts them when their aggregatespending exceeds pre-set levels. Visa’s service will be offered toaccount holders by participating financial institutions, and willlet consumers manage spending on any Visa account, includingcredit, debit or prepaid.” http://corporate.visa.com/media-cent…/press1101.jsp

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

The adoption of NFC, mobile payments, and virtual cards is creatinga major shift in the payments market. This, in turn, is likely tosignificantly alter what controls will be needed and (as moregranular controls are needed) it is likely to impact how the ITinfrastructure of the financial institution should beorganized.

While the electronics payments infrastructure is a tad byzantine,it seems clear to me that the issuing processor is in a morecentral position to provide a broad range of card transactionmanagement and control features. The issuing processor receives thesame transactional information as the network, but also has adirect relationship with the bank (and therefore the consumer)relative to how each transaction should be processed. The processormanages the settlement process and thus is in a position to addressmerchant-funded discounts and other situational accountingneeds.

Consider just one example. The use of virtual cards is growingrapidly, and while the impact so far has been primarily in theprepaid market, ultimately virtual cards are likely to provecentral to a range of yet to be invented mobile solutions. So whatare the likely consequences?

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

Financial institutions will be challenged to consider how thesefuture complexities will impact today’s IT infrastructure, butdoing so will be critical to meeting the needs of the cardholderwithin a market acceptable time period. So issuing processorsshould become proactive in educating financial institutionsregarding how the processors platform will address these futurecapabilities, and also guide the financial institutions ITdepartment regarding the architectural decisions that are needed toprepare for this eventuality.