Prepaid Enterprise

It’s more than just technology

I’ve had some interesting conversations with a very innovative mobile technology company over the last few months. The group has built a pretty cool mobile payments platform which enables prepaid card issuers to essentially “bolt” on SMS based mobile banking services via a robust API. Almost all services made available through a traditional browser based online banking system such as balance inquiry, transaction history, deposit history and card-to-card transfers are accessible through a customizable set of SMS commands. The company’s strategy is simple – board as many new issuers to drive transaction volumes then enable inter-issuer transfers to dominate the money remittance space. WAIT! Say that again please. “Enable inter-issuer transfers”, says the savvy business owner.

This scenario represents the mindset of many new entrepreneurs in the prepaid space. The thought process is typically, “if we can technically do it, why not?” Based on the company’s strategy, it’s clear that at some point their platform will access APIs for dozens of issuers with the ability to sling value loads and unloads across multiple issuers like there’s no tomorrow. In theory it seems like a super deal. However, this represents a fast way for a prepaid related initiative like this to die in the start-up phase. It won’t matter how well you’re funded or how progressive the venture is.

Here are some reasons why:

• There is a difference between what each issuing bank, issuing processor and association will support. Banks and processors are governed by associations and federal guidelines in addition to internal policies. In some cases, the bank or processor may choose to not support initiatives fully endorsed by associations or the Feds as part of their respective business strategies.
• Card programs are highly compartmentalized. The issuing bank and association will approve a new program launch based on a set number of attributes. Everything ranging from program type (e.g. payroll, gift, general purpose) funding guidelines, authorization guidelines and KYC rules come in to play here. Launching a program with a set of attributes then doing something else will earn you a call from someone in the food chain. And it won’t be a warm and fuzzy call.
• Performing transactions on the issuer’s authorization host is only part of the puzzle. It’s all accounting entries followed by a physical movement of funds based on pre-established processes. For everything to work properly it’s ultra-critical to work within these processes. To transfer value from one issuer’s platform to another without considering the regulatory and business implications is suicide.

I can’t just be negative here. Here are some ways to bring a vision like this to reality:

• First and foremost – understand the mindset of the institutions governing payment systems.
• Learn where the existing “rails” are and ride them when possible. Why recreate something if it already exists? If it’s not core to the business, piggy-back on someone that has already blazed the path. Your competitive advantage could be based on how you assemble existing infrastructure to meet a market need.
• Stop and look around frequently. Engage your issuing bank at all levels so you’re never considered a renegade or make costly mistakes.

Prepaid cards are starting look more and more like traditional demand deposit accounts in terms of how they are regulated. This means new players must understand the entire ecosystem to make it to first base. It’s more than just technology.

Card-to-Card Transfer opportunity is not as good as it seems (part 2)

In part 1 of this post I discussed some of the interesting points raised by Red Gillen of Celent concerning  the card-to-card transfer opportunity many program managers pursue. In this post, I'll share the attributes of a program I  personally worked on, with an emphasis on strategies expected to address and/or eliminate many of the social, infrastructure and regulatory challenges faced.

For starters, here is the actual program description submitted to MasterCard for approval (MasterCard issued approval on 05-08-06):

Program Overview

The Allende Coahuila Prepaid MasterCard is a two card set Program designed to provide former residents of Allende Mexico now living in the U.S. a means to transfer money from the U.S. to family and friends in Mexico. The primary card will be a MasterCard branded debit card with the secondary card being a Cirrus/Maestro card for ATM cash access only. Card sets will be mailed directly to verified consumers by a certified MasterCard vendor. As a personal spend card, the primary card in the U.S. can be loaded via Payroll Direct Deposit and any approved retail or RPPS payment center.

Target Audience

The Allende Coahuila Prepaid MasterCard Program will target specifically residents of Allende Mexico and their families living in the U.S. who currently transfer money on a regular basis to family members.

Marketing Methods

Unlike traditional marketing methods associated prepaid card programs, the Allende Coahuila Prepaid MasterCard will take a reversed approach in that we will enlist the secondary card recipient in Mexico to influence the sale of the primary card to a U.S. Resident family member. We have formed a relationship with the city of Allende Coahuila, Mexico to assist with the promotion and marketing coordination designed to identify the consumer currently receiving money transfers.

The City of Allende will initiate various promotional activities designed to generate a response from residents who are currently receive money transfers from family or friends living in the US. In the promotional message the consumer will be instructed to visit the City Hall where city staff members will educate the consumers on the benefits of receiving money transfers via a card based program versus Western Union or Money Gram. We will then encourage the Mexican resident to contact their family member in the U.S. to promote the card and provide MSP contact information for follow up sales.

Marketing tools Include:

• Radio Spots
• Flyer Distribution
• Posters
• News Paper Ads

Sales, Enrollment and Distribution Process

1. Allende resident responds to a promotional radio, newspaper or flyer.
2. The resident is instructed to visit the City Hall to learn more about the program.
3. City staff members educate the resident on the benefits of the debit card program on location and are encouraged to contact their family member in the U.S. on the spot.
4. If the family member is contacted at that moment they are introduced to the Allende Prepaid MasterCard program and are instructed to contact MSP to order their card.
5. The call is fielded by an authorized MSP TPP contracted by (issuing bank name omitted) to receive phone applications. All calls are recorded for security and regulatory purposes.
6. All necessary information to verify the cardholder in accordance with the U.S. Patriot “Know Your Customer” regulation is collected for processing.
7. Upon successful verification and OFAC screen the cardholder information is processed and sent to a certified MasterCard vendor for card fulfillment.
8. One personalized MasterCard debit card and one non-personalized Maestro/Cirrus card is mailed directly to the cardholder with a U.S. address.
9. Once the card is received by the cardholder they are instructed via an instructional insert to call the IVRU to register and activate the card, and select their PIN.
10. The secondary card is then mailed to the Mexican resident by the primary cardholder for cash access only.

 

In part 3 of this post, I'll line up the challenges and results. Stay tuned...

 

Technorati Tags: prepaid debit,program management,money transfer,prepaid mastercard,mastercard

Card-to-Card Transfer opportunity is not as good as it seems (part 1)

This week I had a chance to catch up with some reading and picked up the 2008 Fall issue of PayBefore (so I'm a little behind). The article written by Red Gillen of Celent titled 'Remittances May Be Tempting, but Card-Card Not the Way to Go" was insightful and accurate. As a partner/operator of a small TPP in my previous life, we developed and launched what we felt was the answer to many of the barriers described in the article. Some worked some didn't.

Red writes:

To some in the payments industry, a card-to-card model appears to be laden with promise due to its theoretical simplicity: Issue a network branded prepaid card to a cardholder in the sender country, send a secondary card to a cardholder to the receiving country (or have the secondary  card sent by the primary cardholder), have the primary cardholder transfer funds via the card program's internal processing and have the secondary cardholder access funds via ATM withdrawals or POS. use.

Complimenting this apparent simplicity is the potential for multiple revenue streams: card activation fees, ATM withdrawal fees and interchange fees. If one makes sure that card-card-transfer fees are just a little more competitive than Western Union's fees, It's jackpot time, right? WRONG.

The key phrase being 'theoretical simplicity'. Everything covered in this article is dead on. Issues ranging from social, regulatory and infrastructure hurdles leave many program managers wondering how a sure fire opportunity fails even with significant investment of time and resources.

 

In part 2 of this post, I'll go through the program I worked on called the Allende Coahila Prepaid MasterCard. It was a pretty slick partnership between a Northern Mexican town and our issuing bank designed to support card-to-card-transfers in a isolated community. Many of the program attributes were implemented to address the list of issues covered in Red's article.

Stay tuned...

 

Technorati Tags: prepaid debit,card management,program management,prepaid mastercard,prepaid visa

Customer Centric Strategy

We've been working closely with an OLS customer (aka: The Birds) on developing a prepaid issuing platform for what I consider to be one of the most innovative yet simple card based solutions in the B2B space. What amazes me about this group is how they are, from top to bottom, customer centric in all that they do. The Birds are so obsessed with refining all aspects of product and support delivery it inspires me.

In the world of residual transaction revenue, it takes a real professional to withstand the temptation of veering off the path of quality for the sake of transaction fees. A customer centric strategy is for The Birds... and anyone resolutely focused on customer satisfaction.

 

 

 

 

 

 

 

Technorati Tags: prepaid strategy,prepaid debit,prepaid card management,prepaid card issuing,customer service

Debit On The Rise

According to businessweek.com

 

"Debit purchases are expected to climb 13% in 2008, to $1.2 trillion, according to The Nilson Report, an industry newsletter—compared with a 3% rise, to $1.9 trillion, for credit-card transactions. At Visa (V), the No. 1 card company, debit spending could surpass credit this year."

"There's also a land grab for the so-called underbanked, the roughly 80 million people who don't have a bank or credit-card account. Dallas' Comerica Bank (CMA) won the right this year to issue debit cards to the estimated 4 million Social Security recipients who don't have bank accounts. The government deposits the money onto a prepaid card. (Comerica doesn't charge overdraft fees on them.) Visa and MasterCard offer prepaid debit cards that companies use to pay employees."

 

Technorati Tags: prepaid debit,prepaid cards,debit card,unbanked,underbanked.

The delegation has arrived

It's easy for us to take the mature payment systems (business and infrastructure) in the US for granted. A few days ago we met with executives from a Nigeria based company I will refer to as "The Delegation." A savvy IT group on a mission to affect positive change in their homeland by establishing reliable and open payment systems/networks. After the meeting, I realized the term "emerging markets" in my mind, is cold and distant compared to what really goes on in the trenches in places like Nigeria. Some interesting things I learned about the environment The Delegation is trying to change:

• When establishing a merchant account for a business, there is no acquiring and issuing processor ("TPP") as we know it. A turn key merchant account is impossible. A merchant must select an acquiring bank and establish either direct connections to authorizing banks or one of two "switches" at a high price.
• When was the last time you had to consider the cost of diesel to process transactions? Infrastructure requires power. Power relies on an unreliable power grid. The Delegation is considering all these areas in their plans. We're talking about some serious strategic and tactical plans.
• Mobile phones/devices will be the driving force behind merchant acceptance of card payments.
  • A study backed by the UK mobile phone giant Vodafone, said African countries with greater mobile use had seen a higher rate of economic growth.
  • More than 85% of small businesses run by black people, surveyed in South Africa, rely solely on mobile phones for telecommunications.
  • 62% of businesses in South Africa, and 59% in Egypt, said mobile use was linked to an increase in profits - despite higher call costs.
  • 97% of people surveyed in Tanzania said they could access a mobile phone, while just 28% could access a land line phone.

It's an exciting time and I look forward to doing great things with The Delegation.

Card issuing API blues

One of our new OLS.Host customers called today to fill me on some challenges he is having with his current processor's API services (one of the reasons they decided to bring the issuing platform in-house.) Over the past several months, the processor has been planning a server stack change to support card management applications hosted by the customer. There was a tremendous amount of correspondence and notices being sent out as the conversion date drew near. When they converted over yesterday nothing worked! All applications including cardholder enrollment, card management and a few internal applications could not function for several hours. Eventually the processor requested that all applications be pointed back to the previous API implementation.

So what went wrong and how could they have prevented this from happening? I'm not a technical expert so I'd like to turn this subject over to Andy and Dave to post about.

 

Peace.

Reaching the unbanked and underbanked market with prepaid products

How many times have you sat in a meeting with a potential program manager client or ISO listening to them rant and rave about how they have the next "killer app" and distribution model. Yes, you guessed it! Selling cards at a flea market to the unbanked Hispanic consumer! A million prepaid cards in 6 months guaranteed! For those of us who have been in the business for a good number of years, we tend to get irritated with propositions like this but forget our similar beginnings. We start learning about prepaid products and line the features and benefits up with the challenges of this consumer segment. We then realize that in almost every case, it is a win-win deal - the consumer enters the banking world and everyone in the supply chain profits by saving the "poor" people.

This is where things usually start to fall apart from a marketing perspective. We become overwhelmed with the number of unbanked times the number of deposits times the number  POS purchases times the number of ATM withdrawals and end up seeing nothing but number signs. The drunken state of "build it and they will come" sets in and before you know it, everything about your strategy is off. Being a previous owner of two program management companies (one successful and the other failed) , It's interesting to compare the two experiences. So how do you reach the unbanked and underbanked markets? Here are a few of my thoughts:

1. Be poor in spirit - If you know what it is like to be without a bank account call on those memories. If you've never been poor, hire someone that has been. A little extreme? I think not. In order for you to convey your message in a way that earns the trust of a struggling individual, you must know what it is like. Sincerity and authenticity are paramount when approaching this segment.
2.  KISS (Keep it simple salesguy) - I've seen card programs with every "value added" service you can think of. If this is part of your product strategy, make sure the offerings are relevant and don't over shadow the basic benefits associated with your card. Security, elimination of check cashing fees, purchasing power etc. These benefits, standalone, are powerful when conveyed in a meaningful way.
3. He is the one - This market segment is anti-institution and pro informal social groups. If you make one consumer's life easier you have the power to influence many. DO NOT NEGLECT CARDHOLER SUPPORT. LIVE CARDHOLDER SUPPORT. Make it your company's mission to develop a "personal" feel with each interaction. Be relentless about this.
4. Catch 'em on the upswing - In today's economy, there are millions of consumer just coming out of bad times. Be there for them when they are ready to enter mainstream banking again. Reach out through partnerships with credit counseling services, non-profits and financial literacy programs. In fact, create a financial literacy program.