Outsourcing can offer benefits to banks whose card business and brand are not strategic priorities, and achieving the lowest cost per unit in the highly developed credit card space can make the economics of outsourcing sound.
However, for many banks, cards offer a much broader, sophisticated and strategic opportunity than just another commodity product. For banks and financial institutions where a robust, healthy brand and card business is high on the strategic agenda, directly owning and managing the relationship with card customers through in-house processing presents a set of compelling business, financial and strategic advantages:
Banks that outsource card processing must wait in line with all the other processor customers for new products to be rolled out and rarely have access to new products on an exclusive basis. Banks with in-house card processing systems manage their own product roadmaps and are better placed to gain coveted first-to-market positions with innovative, customized and high-value products. In the case of the lucrative high-return card segments such as corporate, loyalty and gift, the first-to-market position is an important competitive and financial advantage.
Moreover, because in-house card processing gives banks the flexibility to tailor products to consumer demographics they are able to offer more relevant, attractive and useful card products. As a result banks achieve greater brand relevance, value and loyalty across all segments — from consumers or small business, to mid-sized merchants and large global corporate customers.
Banks with in-house processing and advanced fraud detection systems are much better placed to mitigate brand and business risk around privacy and security issues. Being in direct control of all the customer information gives these companies fast visibility into potential and actual threats, and the capability to respond rapidly to intrusion and potential data damage. Managing risk, compliance and governance directly as opposed to depending on another organization’s security and operational effectiveness is a key factor in many financial institutions’ decision to bring card processing back in house.
Additionally, considering many banks have one processor managing prepaid, another handling corporate cards and another perhaps supporting a division as a result of a merger, the potential for data and intrusion risk exposure can be multiple-fold. This issue also brings to light the opportunity for significant cost savings through consolidating and bringing processing under a single, integrated and global in-house system.
An in-house processing strategy presents a powerful means for banks to protect and enhance their merchant relationships through high value and “sticky” services that add to the overall relationship. For example, using integrated in-house processing systems, banks can make card services available through the same set of merchant screens, interface and single sign-on. For mid-tier merchants, this can involve completely handling all their merchant banking; paying them for their credit card transactions every day; and helping them manage their exception and dispute processing. Banks that are providing all treasury cash management functions for large, corporate customers can offer to deliver, through the same interface and portals, merchant programs. Merchant attraction, growth and retention are key, not only to a successful card program, but for a successful top and bottom line.
While an in-house card processing strategy clearly presents a set of indisputable strategic and global business advantages, there is risk. Banks need to work with their solution providers to establish a deployment strategy group to ensure critical elements of the businesses resources, strategy and IP are addressed, leveraged and protected. Such a group should include key stakeholders, such as line of business, technology, operational and governance leaders.
The top five critical system and functionality requirements of a successful, robust, rich and in-house card processing strategy include: global functionality; scalable issuing and acquiring capabilities; proven security and proactive fraud detection tools; an open and multi-national platform; and highly integrated and secure transaction processing. Banks that take these factors into account when bringing their card processing in house are the ones who will be arming themselves for success.
A brand is a strategic weapon; therefore, a card and the brand on that card are strategic weapons. Customer loyalty and retention are imperatives in the banking and financial services market — an integrated, consolidated in-house card processing strategy presents itself as powerful and compelling business consideration.
Lynn Holland is vice president product management at ACI Worldwide.
Copyright © April 2011 BankNews Media