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TRANSFORMING THE CARD PROCESSING

A card handling capability is something that depicts the role of card processing from other payment sector participants. The importance of card processing is validated by the statistics - according to European Union statistics, the number of cards in the euro area increased in 2020 by 6.5% to 609.3 million. With a total euro area population of 343 million, this represented around 1.8 payment cards per euro area inhabitant.

 

The payments sector is being disrupted at a rapid pace. The emergence of new technologies improving customer experience is leading to an upsurge in usage, especially during the COVID-19 pandemic.

Traditional straightforward card processing systems are adopting new technologies to respond to customer demand and secure convenient payment services. There are a number of technologies that card payment ecosystem participants acquire to solidify their value propositions. All these technologies serve to solve the challenges that the card processing ecosystem faces and act in the following directions.


1. Introducing customer-oriented products

 As consumers are getting to grips with the new realities forced by the COVID-19, the main objective of payment companies is to improve customer loyalty and increase their average return per user.

The impact of COVID-19 highlights the necessity for contactless, seamless, and secure payments. Contactless payments rocketed during the pandemic, enabling users to avoid risks of touching surfaces and preventing the overall spread of the virus. An example, Mastercard witnessed a surge of 40% in contactless payments within the first quarter of 2020.

NFC technology enables “tap and pay” payment cards without a physical touch of the POS device. Consumers are required to bring their card or phone close to the terminal and the card information will be transmitted via NFC technology. 

QR codes are a step toward facilitating the use of contactless payments together with NFC technologies. QR payments benefit both acquirers and merchants: QR codes enable cheaper payments without the need to deploy a POS terminal as a payment acceptance tool. The QR payments use a decal or through a terminal, and the Card Members use their smartphone to scan the QR Code. in China, where QR code payments have been popular since 2010 and account for one-third of all payments today, this figure amounts to USD $1.65 trillion in QR code sales.

Credit card rewards programs are the key point in customers acquiring. Rewards stimulate consumers to use multiple cards, choosing the variety of rewards offered by each card.

Reward and loyalty programs are one of the turning points in achieving an outstanding customer experience. For the previous year, given the effect of COVID consumers’ ability to earn rewards had been placed on hold.

As a way out of this situation, most forward-looking credit card companies were obliged to show flexibility and navigate consumer expectations from their reward card into alternative reward spheres so that consumers can take advantage.

For example, most companies successfully compensate unused travel rewards by replacing them with rewards on everyday essentials such as groceries, takeout, delivery, and gas. The flexibility of using, redeeming, and controlling the rewards is one of the main reasons why cardholders choose credit card companies. 



2. Disrupting the card payments technology platform 

The payment services disruption accents the need for modernizing and expanding the card platform capabilities. Innovative technologies help to build resilient platforms to bring on the market competitive products and adapt to the fast-changing fintech market. 

Building modern features focus primarily on the orchestrated payment capability delivery.  The increased use of application programming interfaces (APIs) brings scalable and rapid payments 

API (Application Programming Interface) -  is a set of protocols that define the interactions between multiple software intermediaries in one touchpoint and connect different applications to communicate and exchange the data in real-time. 

APIs facilitate integration which allows different software to change the interaction of different business tools according to their business’s specific needs. APIs enable banks and processors to incorporate functions from other parties rather than build it themselves.

By allowing content to be embedded from any site or application more easily they enable more fluid information delivery and an integrated user experience.

API leverages the financial and digital ecosystem by providing collaboration between Financial Institutions and Fintechs and making connections between Financial Institutions and corporates. 

With API banking, Financial services providers have more flexibility to provide the best features and services to streamline their services, thereby creating a surge of competition and innovation in fintech products.

APIs are particularly useful in streamlining cross-border e-commerce payments that involve dealing with the challenges of transferring the funds hassle-free and seamlessly.

APIs enable banks and processors to incorporate functions from other parties rather than build it themselves.

Microservice architecture is about splitting up the multi-function software into microservices that fit together and are independently deployable. This provides opportunities for wider business capabilities, as microservices, based on business demand can be deployed to add business services without the need to change the entire system. The autonomous character provides speed and flexibility and operational efficiency to the platform and enables the rollout of new services. 

Internet of Things (The IoT) increases in connectivity, device penetration, and embedded payments make the payments card industry susceptible to disruption at large. 

Combined with blockchain, embedded IoT systems could one day function as decentralized credit-card processing platforms. This combination has already eroded the value of plastic cards by enabling the use of a consumer’s digital ID as a key for payments execution.


3. Security and Fraud Management

Fraud management and security are one of the main concerns of card processing participants. 

Efficient fraud combating is one of the main conditions of frictionless payment processing. 

As Nilson Report states, gross fraud losses of issuers, merchants, and acquirers of both card transactions from merchants and from ATMs reached $28.65 billion, up 2.9% from $27.85 billion in 2018. 

With the evolvement of disrupting payment technologies the fraud management tools also need to be upgraded to prevent inventive fraud methods. 

AI (Artificial Intelligence) and Machine Learning (ML) 

Voice-activated transactions, biometric and smart assistant payment verification are AI measures to eliminate the risk of fraud authentication. 

Machine learning is a subset of AI, whereas AI implies a wider concept of creating intelligent machines to simulate human thinking and behavior. 

Machine learning is based on the creation of algorithms that are designed and applied based on processing large datasets, namely the previous fraud cases with variables. 

The algorithms enable machines to detect fraud cases such as spam, scams finding out these hidden correlations between user behavior and the likelihood of fraudulent actions. 

The effectiveness can be proved by the facts: Visa used AI/machine learning models to examine over 500 transaction attributes in real-time on fraud, averting $25 billion of malicious actions in 2019.

Tokenization is the process of replacing sensitive data with other data known as a “token”. The process is highly essential since it safeguards the customer's information and prevents theft from the card. 

Tokenization allows you to perform safe payments. The method does not transfer the buyer's bank card number to the seller. Instead, a token is assigned to the card - a randomly generated value that will be used to complete transactions. 

Therefore, the customer confirms his identity by adding a card to the mobile application and security tokens are stored in the client’s mobile device, the process, in turn, improves transaction security for both the seller and the client. Tokens safely pass through the network without the need to expose the card details such as card numbers. 

Tokenization is the perfect tool for passing, routing, and switching the data between different devices, enabling secure and diverse transactions. 

The payment ecosystem undergoes drastic transformation nowadays. Innumerous innovations and ever-evolving technologies challenge the card processing sector on efficiency and endurability. The incorporation of new technologies is a logical path for the card payments market to foster development and business growth. 


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