Yesterday I attended an implementation meeting for one of our OLS.Switch customers. The customer has selected OLS.Switch as their authorization host for prepaid issuance and is working through enterprise specific discussions with our team as we move closer to launch. During this session, the topic of issuing bank requirements at the extract/reporting level hit the table and we went back and forth on two fronts; 1) technical considerations and 2) business and compliance considerations. Without going into specific details, the customer did not understand the need to deliver several data elements to the issuing bank. After all, if the Third Party Processor (“TPP'”) is responsible for managing end-to-end processing, the bank should just sit back and let the processor decide how to manage the business right? WRONG.
Some thoughts:
- Gone are the days of easy processor sponsorship and loosely managed pooled accounting. Prepaid has evolved to resemble more traditional bank products complete with a whole new set of governing regulations. (related reading: Big Score for Prepaid... Or Not?)
- Associations and gateway processors may have different ways of handling the technical aspect of prepaid such as authorization/settlement processing and reporting, but they are still subject to member banks. Member banks are in turn subject to card associations and federal/state banking regulations. This creates a global requirement for member banks to be “in control” of the card program and processor at all times. As a TPP of the issuing bank, providing as many touch-points as possible will empower the bank to represent itself to the bodies it must answer to in an a complete and accurate manner. (believe me this is what you want)
- If you think about it, the prepaid TPP has the keys to the kingdom. It’s able to create money out of thin air in the form of a value load and authorize tons of transactions without any real money sitting in the bank. This would soon be caught and shut down but not without some serious losses. Associations and regulators don’t care how capable a processor is. If the bank does not have direct control the risk goes through the roof (perceived and real)
- The prepaid space battlefield is covered with fallen processors and sponsoring banks. Next to your common business challenges, the lack of understanding and/or appreciation of the sponsoring bank’s role in the ecosystem is a leading cause of death. It doesn’t matter how innovative your platform is. All it takes is one or a few things to happen to spook the people responsible for overseeing the card program and the uphill battle begins… as if running a business doesn’t already have enough hills to climb.
The good news is that immediately after our meeting we went out for Thai food and had a follow up conversation on the importance of supporting the sponsoring bank as it supports the processor business. I think we all agreed that if we can convey to the sponsoring bank partner that everything we do includes protecting the integrity of the program from a regulatory and compliance perspective, we’ll get less pushback when we request out-of-the-box program attributes.
On the way to the car the customer said… “well, if it were easy everyone would be doing it.”
I agreed.
