Have you ever lost or thought you lost your credit or debit card? You’re trying to remember where it was used last, searching through pockets and wallets, and, ultimately, panic sets in coupled with realizing you’ll need to cancel it and order a new one…
Card issuing — the process of replacing that lost card — has gotten a bad reputation throughout the years due to being notoriously difficult to build, but credit and debit cards have become a cornerstone of people’s spending habits. There are over 1.4 billion of them in the US alone and, surprisingly, there has been little to no innovation in this field for decades.
Banks design credit and debit cards they feel will resonate with a particular demographic or delight a certain type of customer. If that customers' credit score and history checks out, the card is theirs. They might earn rewards, cash back on purchases, or get access to an airport lounge — but that's largely the extent of card innovation. Regulatory complexities, lengthy procedures, and rigid payment infrastructure prevented non-financial brands from entering the card field and offering more innovative products.
Recently, embedded finance providers like Bond have built card-issuing platforms that make it easy for any brand or bank to launch card products in a matter of days as opposed to months, or even years. That has unlocked innovative card products that can now enable businesses to impress their customers, gain behavioral insights, and boost innovation.
So, how does embedded finance make the process of issuing cards so much faster and usher in a new wave of financial transformation? What do the new players in the space hope to build in the future and how will it affect the average consumer?
Regulatory complexities slow innovation
Brands that want to launch a card product must fulfill various regulatory, industry, and technical requirements. Brands need a bank identification number (BIN) sponsor and typically a bank with Visa, Mastercard, or other card association membership; BIN sponsors hold customer funds and are legally the card issuer. These sponsors enable brands to distribute the financial product, but own the customer experience and branding. There are also somewhat archaic requirements like how even the initial rate a credit card issuer offers in the US has to be in a specific font size — 16 point type!
Depending on their scope of services, pricing, and geographical coverage, brands may also be required to obtain other licenses such as e-money institution licenses which, in countries such as the UK, can take up to a year or more.
Brands must also ensure their products adequately protect sensitive data. According to IBM, the average total cost of a data breach in 2021 has increased to $4.24 million, the highest average in the past 17 years; additionally, nearly half of organizations suffer major reputational damage as a result of a data breach.
Payment and credit cards require deploying Know Your Customer (KYC) and fraudulent transaction monitoring solutions which periodically check cardholders against the list of Politically Exposed Person (PEP) and sanction lists. These both are important not only in the grand scheme of compliance items but also good habits to build to keep protections in place.
Rigid legacy technology is difficult to personalize
The technological infrastructure of banking poses another challenge for fintechs and brands that want to issue cards – most banks don’t invest in easy to use APIs. The lack of APIs prevents companies from integrating various systems which makes it hard for them to collect and analyze essential data points such as purchases, rewards, fees, repayments, and cash advances.
Banks also focus on a small number of use cases such as low interest rate cards, prepaid debit cards, and cashback rewards that can be maintained with the legacy tech stack. As a result, fintechs and brands that want to plug into the card-issuing infrastructure often find it hard to personalize and differentiate their end products. Unless you are a large and well-known brand, many banks are likely to turn you down or give you a deal with unfavorable economics.
Mainstream payments technology also makes it hard to create a single source of truth. Data is held across multiple databases and brands may pay additional fees to customize data collection and card products. Such inflexibility hinders the ability of fintechs and brands to react rapidly to ever-changing market demands.
The benefits of API-based card issuing
A myriad of roadblocks can prevent companies from building innovative card products in a fast and cost-efficient way. Enter developer-friendly APIs. These software intermediaries enable companies to integrate and embed various pieces of banking infrastructure into innovative card products, such as issuing payments, fraud detection, and identity verification.
Static debit and credit cards are a thing of the past as we welcome dynamic spending controls, virtual payment cards, Buy Now Pay Later financing, and other life changing financial products. API-based card-issuing has numerous benefits.
- Speed to market: Build and deploy cards fast and make it easier to entice customers and keep innovating.
- Brand differentiation: Build innovative card products to add more value to customers by offering rewards and rising above the competitive crowd.
- Reduced cost to launch: API-driven infrastructure enables brands to save money by integrating with a range of banking services and avoid creating everything from scratch.
- Access to customer behavior data: Embedded cards enable businesses to own end customer relationships and data in order to learn how customers find, use, and perceive the brand. With that data, brands can refine financial products to better serve the specific customer base needs.
- Access to spending data: Discover granular details into how customers spend money, making it possible to notice potential trends and align predictive analysis with marketing and sales strategies for maximum effect.
- Reduced money transfer fees: Delivering payments to company credit or debit cards, reducing costs significantly, and avoiding interchange fees.
- Increased innovation: APIs lead to financial innovation by creating the ability to offer virtual cards which have multiple use cases, including “disposable” virtual cards that allow drivers to pick up food from restaurants without having to pay out of pocket. Also, APIs make it easier to integrate payments with Internet of Things (IoT) tech so that objects can accept payments.
- Learning from a highly experienced partner: Companies that build embedded finance platforms have a wealth of experience in building card products, which allows users to avoid mistakes and learn the best practices.
- Access to pre-vetted banking and tech partners: Tap into partnerships that embedded finance platforms offer instead of trying to find the right partners solo.
API-driven card-issuing tech companies
From startups to enterprises, many companies use embedded, API-driven tech to offer innovative card products.
Qoins Qard: The Atlanta-based startup, Qoins, has successfully assisted over 10,000 customers to pay off $30M+ in excessive debt and teamed up with Bond to launch the Qoins Card. Customers can either pay off their debt with every swipe of their card using Roundups or set aside weekly deposits into a savings account.
Apple Card: Launched in 2019, Apple Card is a credit card developed by Apple and issued by Goldman Sachs. US-based users get 3% daily cash back when they shop at Apple and a select group of retailers, including Walgreens and Uber. Customers that use their iPhone or Apple Watch to pay with the Apple Card get 2% cash back, as well.
Cledara Virtual Card: The Software as a Service (Saas) subscriptions management platform offers virtual credit cards to help users manage SaaS subscriptions. Each SaaS company gets its own virtual credit card that can be turned off when a subscriber leaves the company or the service is no longer needed.
Find the all-in-one tech partner
Companies that want to offer card products can look for a bank, find a payment processor, and handle regulatory issues themselves which can take anywhere between twelve to twenty-four months. Additionally, they’ll also have to monitor evolving compliance requirements and manage fraud prevention, dispute management, and any other issues that may arise.
Another option is to work with a tech partner, such as Bond, that takes on and handles these operational topics. With the ability to fast-track card projects by connecting the client with banks through APIs and handling services such as KYC, fraud prevention, payment processing, Bond leaves more time for the brand to innovate and focus on their customers.
Finding the right tech partner is important. You want to ensure that you’re working with a team that has the right expertise for your product and use case. It’s also key to evaluate their tech stack to ensure the vendor’s platform environment is enterprise-grade. Working with a bank-agnostic, multi-partner platform is critical as you will want the flexibility to choose your partners, customize your product, and add value to customers beyond pure payment processing.
Ride the ever-changing wave of embedded finance
Card issuing is now as simple as integrating with a set of APIs. Gone are the days when card issuing was a tedious and lengthy process. API-based platforms enable companies to drastically reduce the time it takes to design, issue, and scale their card products. Such flexibility makes it easier for fintechs and brands to impress customers, discover behavioral insights, differentiate brands, and boost innovation. APIs have leveled the playing field in the card issuing sector and it’s up to entrepreneurs to use these changes to their advantage.