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July 27, 2021 2:03 am
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Pandemic necessitates contactless product innovation to enrich digital banking experience: K. Srinivasan, FSS

Prepaid cards in India are still at the early phase of the lifecycle growth and will continue to evolve. A large segment of youth, the surge in internet and smartphone users as well as the booming e-commerce industry, is resulting in prepaid becoming a platform for innovation, said a senior executive from FSS.

According to industry reports, the India prepaid cards market size is expected to grow at an estimated CAGR of 40.5% between 2021 and 2026 and would reach $340 billion by 2026.

In an exclusive interview with Tech Observer, K. Srinivasan, Global Chief Revenue Officer, FSS said: “Prepaid’s ability to provide funds in real-time is being used to drive product innovation that enriches the digital banking experience of users.”

During the pandemic, the contactless payment system has grown significantly, in that light, how do you look at the virtual card and how banks and users can benefit from it?

Customer preferences for touch-free, secure, and seamless ways to pay digitally is driving the digitalisation of core processes such as KYC, onboarding and account opening. With virtual issuance, financial institutions can also instantly provision cards onto a customer’s device to enable secure access to funds to pay online, in-app, or in-store.

Virtual cards, like their physical counterparts, have a 16-digit number that is automatically generated and assigned to a customer’s account. With virtual debit cards, cardholders can perform a range of transactions – send money, recharge their mobile, pay bills, shop online, conduct card-less ATM withdrawals, and perform contactless transactions in-store. The cards can be expanded to support multiple use cases like buy now and pay later at checkout, payments to gig workers or instant card to employees to meet a specific expense.

Virtual cards can be designated for one-time use. The card is valid for a specific period ranging from 24 hours to 48 hours, and the rules governing usage can be adjusted in real-time. The card incorporates a comprehensive set of security controls, such as configurable authorisation controls, spend limits and block merchant categories.

At the back-end, issuers need to have a modern card issuance system that enables third parties to consume virtual issuance APIs for embedding payments into the customers’ transactional journey. The system should be flexible to launch contextually relevant products for multiple segments, support single or multi-use virtual cards, single and multi-currency cards.

One thing that virtual card does that it adds an additional layer of security. In your views, how can banks protect and secure sensitive consumer data from breaches?

With e-commerce becoming a mainstay, fraud is 81 per cent more likely to occur today in “card-not-present” transactions, according to the 2018 Identity Fraud Study by Javelin Research. Likewise, banks are gearing their strategies and shifting from a compliance-centric to an active fraud prevention mindset — positioning risk and fraud management as a critical services differentiator.

Current counter-fraud measures primarily limit the velocity and the volume of transactions at a per-customer level and are inadequate against evolving intensification of fraud attacks. Detection strategies that bring together cross-product and cross-channel data and apply intelligent machine learning models that can help in the proactive detection of fraud signals. Many banks are investing in new technologies such as tokenisation and risk-based authentication systems to safeguard customers from the card, not present fraud.

Tokenisation masks customer card with a random number, rendering the card details useless if merchant or bank systems are hacked. Risk-based authentication enables banks to verify legitimate customers by analysing their transactional and behavioural profile leveraging a range of variables such as transaction amount device, merchant, location and, shipping address. For instance, if a customer transacts at a specific location in Mumbai and initiates another transaction at another location 20 km away within a short span, the transaction would be immediately flagged.

Programmable spend controls enabling the customer to control where, when and how cards can be used equips cardholders with innovative security controls. Consumers can set transaction limits for dollar amount limits, merchant categories, transaction types and geographic locations across channels — ATM, in-store, mobile and online.

This protects consumers from potential fraud resulting from phishing attacks, lost or stolen cards. For instance, if card information at a bank is breached, fraudsters will not be able to use the card for unauthorised online purchases or withdrawals as transactions would be declined.

Dynamic CVV as a security measure is also gaining ground. Dynamic CVV minimises risk and prevents fraudulent transactions by replacing the static CVV with a digital CVV code. This invalidates cloning or data theft in online transactions and in stores. The system does not require any additional effort on the part of the cardholder: no change of payment behaviour is completely transparent to the merchant. Several implementation models have come into play. Cards can be embedded with a mini-screen that displays the CVV, which automatically refreshes at a predefined frequency.

What are the key deterrents when it comes to the modernisation of card experience for users?

The cost of card production $15 -$18 as compared to a $3 EMV chip card is a deterrent. Alternately customers can access a mobile app and check the card number, CVV and expiration date when making purchases. The functionality is based on cloud technology and advanced cryptographic algorithms to ensure the inviolability of the code generated for the end-user. According to forecasts, 70% of new cards created this year will be of this type. Several countries, including France, China and Mexico, have begun adopting the technology.

What is the top 3 trends driving the prepaid cards market in India?

Prepaid cards in India are still at the early phase of the lifecycle growth and will continue to evolve. A large segment of youth, the surge in internet and smartphone users as well as the booming e-commerce industry, is resulting in prepaid becoming a platform for innovation. According to industry reports, the India prepaid cards market size is expected to grow at an estimated CAGR of 40.5% between 2021 and 2026 and would reach $340 billion by 2026.

Prepaid’s ability to provide funds in real-time is being used to drive product innovation that enriches the digital banking experience of users. Three trends that would propel the market forward include:

Ability to Link Cards to Everyday Spends: National Common Mobility Card — According to the National Sample Survey, transit represents an approximate 20% of urban as well as rural monthly household consumption in India. The National Common Mobility Card enabling customers to use a single card for any transit mode, can embed card usage into everyday spends. Given the inherent recurrent nature of the expense, prepaid card issuers are also assured of sustained usage and higher transactional activity by cardholders.

Tapping into MSMEs and Unbanked Segments: The Indian economy is home to 63.3 million Micro and Small, Medium Enterprises, which provides employment to 15% of India’s population. Prepaid cards are a cost-efficient way to pay supplier as well as blue-collar workers, who are largely under-banked. The area has a lot of room for growth as small business owners increasingly need digital solutions, given the disruption caused by COVID-19.

Prepaid support business processes such as employee benefit payments and reimbursements. Banks can also complement core offering with features that improve the financial standing of customers, including financial advice, overdraft warnings, and discounts at local stores.

General-purpose prepaid cards also provide a gateway to financial services to India’s underbanked and unbanked segments. With the rapid growth in agency banking, the availability of a wide service network for retailing and topping up cards can drive usage.

Growth in eCommerce Segment: With many customers shopping online, many service providers are launching e-commerce prepaid cards. Further issuers have an opportunity to tap into the current Buy Now Pay Later market. Current Pay Later products at the checkout, whilst convenient, do not guarantee customer stickiness. Issuers can embed prepaid card products along the path to purchase, allowing consumers to select the payment option ahead of a purchase, at the point of sale, and after a sale.

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