What to Look for in the Coming Months

Challenges abound for card managers. Here’s how to manage them more efficiently.

The payments space is one arena in the financial services industry that is uniquely ripe for change and disruption. The growth of embedded finance, cross-border payments, blockchain technology, real-time transactions and more are all combining to create a landscape that would have been unrecognizable just 10 years ago.

With regulatory developments on the horizon and what seems to be a peak in global central bank rates, it’s easy to argue that the pace of change is set to continue. We see several key themes that bankers and other payments-related fintechs need to keep front of mind.

Simplification

As an increasingly digitized economy continues to bring new solutions and challenges, a key strategic imperative for bankers will be to simplify payments technology and make everything uniform and easy. That means stripping away all the complexities of interacting with payments networks and simplifying the way our platforms work.

Unifying the user interface for back-office employees and creating a set of real-time monitoring tools that work across different back-end platforms will be growing trends, as will standard API suites. Developments of this nature make technology markedly easier for financial institutions to use, and we hear our clientele increasingly asking for it.

Of course, banks are also keen to embrace new payment methods and technologies. Credit solutions, for instance, are especially interested in buy now, pay later (BNPL), which has been a hot topic and will likely continue to receive focus.

More broadly, organizations are constantly seeking ways to strike a balance between retaining their older customers and attracting a new generation of account holders and cardholders. For continued growth, it’s increasingly critical for banks to meet the expectations of Generation Z by offering more innovative ways to pay.

Fraud Solutions

In the payments space, fraud is one of the top five issues that banks and other financial-services players are always thinking about. And the more motivated and creative the fraudsters become, the more challenges there are to combat.

In the card space, the industry did a phenomenal job by shifting to the EMV standard, which really secured card-present transactions. But as fraud rates drop drastically in the physical world, the rise of card-not-present e-commerce has led fraudsters to get more advanced and sophisticated in the digital world.

The key now is to look at every digital transaction and decide if it looks odd or peculiar. If it does, you block that transaction, or give the customer the chance to. Financial institutions therefore need to be much more advanced in their ability to take in broader swaths of data and make the best decisions to protect cardholders and account holders. That’s not easy, as it implies that, you need deep expertise as well as access to data.

Using neural-network models for decisioning can be particularly effective, as artificial intelligence (AI) starts to play a major role in fraud prevention. Many firms are testing opportunities to use AI in their solutions. Fraud adversaries are already using it aggressively.

However, fraud prevention also necessitates flexibility, as a bank will often require a range of fraud-management capabilities and options, as well as the choice to either handle themselves or in cooperation with a third party. It all depends on the user’s sophistication.

Embedded Finance

For fintechs, most use cases in embedded finance rely on using a card. Customers want to embed the ability to open accounts, make transactions, and so forth. Debit and credit cards are pretty core to that.

For those that want to play in the embedded-finance space, it’s super critical to partner with a provider that can enable the underlying technology. If, however, they don’t want to play in that space, they still need technology that can help create the best experiences for their customers. Essentially, you should choose a technology partner that either enables embedded finance or empowers you to compete effectively with it.

Pressures to Innovate And Streamline

Typically, banks first think about switching to a new solution because they want to improve efficiency and reduce costs. They feel the price of their current product is too high or its design makes it really challenging for their back office. But there’s also a hunger for innovation and new development, and many continue to ask what key innovative solutions are on the horizon.

However, another motivation is the need to modernize, especially for debit business, which is usually tightly integrated with core banking. Core modernization is a major trend in the market—both to improve efficiency and access a more sophisticated set of features—and this is another area where simplification and unified access are of paramount importance.

If, for example, a third-party service provider runs multiple credit platforms, it has to split spend across them all to stay current. Should a client then want to offer BNPL on a platform, it may find it could only be possible on one of the others.

A Tightening Credit Cycle

Thanks to continually high interest rates, we may see a change in the credit cycle. And that could make credit losses a much bigger issue for card providers.

Together, increased losses and higher funding costs will see clients focus more than ever on how to become as efficient and effective as possible.

When you think about the credit cycle and where we are from a macroeconomic standpoint, it’s going to be really important for financial institutions to make sure they are in tight control and are monitoring their credit losses.

—Chris Como is head of cards and money movement at FIS.