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Ganesh Guruvayur

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Ganesh Guruvayur - Intellect Design Arena

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Putting the best 'card' forward - Payment Hub for Mobile Wallets??

20 July 2015  |  3659 views  |  8

In the electronic payments world, the complex maze of payment product processors in banks, each dedicated to a payment type, led to the evolution of an envelope layer that would sit behind all payment origination channels and ahead of the core payments platform. This intermediate sliver application was responsible for efficient orchestration of payment traffic on the strength of the business knowledge it carried. In the sphere of card payments, digital substitution is fast engulfing known market infrastructures and rapidly replacing analog equivalents. Debit and credit cards in the humble card holder are fast being replaced as app icons on a customer’s phone wallet with merchant and mobile banking apps quickly morphing to embrace ecommerce. Cards continue to jostle for transaction acquisition as they did when they were physical. Every buy transaction conducted using a smart phone leads to a decision point as to which virtual card is most appropriate given an unwieldy array of cards sitting pretty in mobile wallets. Customers subliminally want to be saved of the task of making such a choice and a difficult one at that.

Could this be the time to conjure up something that could be the equivalent of a payment hub in a bank but one that sits guard to a card vault on a customer’s phone, deciding the right card for the occasion?

Delegating the thinking process

The customer could possibly have a variety of mobile banking apps on her phone depending on how many banks she banks with or have issued her credit cards not to forget the charge cards issued by retailers. With each of these entities, hard at work to transform a regular mobile app into a commerce enabled mobile wallet, it is not difficult to picture a customer being unsure if a card she chose for a purchase is indeed the best. This thought process is getting convoluted by the sheer number of variables increasingly getting involved for instance

-      Using the which card carries the lowest APR, gives maximum credit period, highest cash back

-      Exhausting the value of the gift / loyalty / reward cards present in the wallet first before a debit or credit card is utilized

-      Recognizing that a card has an annual fee that has to be earned back through accumulation of cash points that exceeds the fee

-      Deciding if a card can singularly fund the purchase and if not, pool card balances from other cards

-      Avoiding overdraft fees caused by a personal line of credit linked debit card

-      In case the purchase also entails getting some cash out, avoiding the unmindful use of a credit card that would carry a punishing cash advance interest

-      Drawing from a credit card that is starting a new billing cycle against another that is nearing the end and in doing do extending the repayment period

Comparative card analysis on a 'just in time' basis is wanting to leave the domain of human mind. Ready to take up this delegation is the idea of a best card decisioning (BCD) app that would own a complex multi dimensional role involving wallet orchestration. Card neutrality would be central to this concept. The charter would be determining the smartest, point in time selection of cards delivering supreme monetary benefits.

Outlining the contours

Loosely speaking, the BCD service bus app would ring fence the mobile wallet(s) present on a phone, wrap around them, handshake with the contactless EMV enabled card reader at a merchant terminal, self checkout counter or online. The job would entail storing the terms of use for each card, upkeep of reward plans, real time fetching of card balances, cobbling up an optimal mix of cards that could be used for a transaction, extending the payment session (without muddying the client experience) to sequentially charge the cards identified in a lineup, reversing out the charges in a card syndication transaction when one of the cards fails. Its efficacy would ride on its ability to subject the card reference data to native decisioning rules in order to resolve card (s) from a card grid, that would participate in the money movement and facilitate a ‘card not present’ payment.

The frictionless negotiation of the card terminal messages through to the chosen set of cards would make this app a mandatory feature on the precious phone real estate in the future. New cards / mobile purses on-boarded on to the phone window would automatically register with this service bus app. Card issuers would scramble to keep card benefit profiles current, for the BCD app to take cognizance of, in order for their card to compete effectively in the race to be chosen.

The trend to substitute basic human functions would engender emergence of such card selection tools that seek to retain the pleasure of wireless value exchange by bringing home the perks.

Are the app artists listening?

TagsMobile & onlinePayments

Comments: (13)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 21 July, 2015, 10:33

Walla.by and CashBack.in are two apps in USA and India respectively that I'm aware of that deliver fairly similar functionality.

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A Finextra member
A Finextra member | 21 July, 2015, 11:59

Ganesh, nice post and important functionality for sure. I would not call it a payments hub as what you're outlining is something new and different to the hubs we set out to build 10 years ago. As I've just shared in my post today, the app market in India is likely to reach $35 million - a lot of incredibly smart people working in a rapidly growing space and I hope, paying careful attention to your post. As Ketharman shares, some are getting there but to me this still seems a vast untapped market.

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Ganesh Guruvayur
Ganesh Guruvayur - Intellect Design Arena - New Jersey | 21 July, 2015, 18:39

Thanks Charmaine, Ketharaman. Valid obervations..

I was struggling with a name apt for the wizard but found characteristics common with the chores of a payment hub.  

Ketharaman, This sandwitch app is also envisioned to take on wallet sequestering by becoming a gateway to all cards and e wallets and additionally harmonize app interplays. Not all apps need to convert into mobile wallets. This would require support of card federation function such that a regular merchant app ill equipped for payment origination can send a pay request to a wallet through the gateway, a role not necessarily  provisioned by a TSM. Besides being rewards aware, it could be architected to be cognizant of APRs, annual fees and other levies, thereby owning a larger responsibility from the standpoint of upholding customer's financial interest.

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 22 July, 2015, 10:01

@GaneshG:

I won't claim to understand all the technical details contained in your comment but let me recount my interactions with the founder of one of these companies a couple of years ago, assuming it's related to what you've said:

I pointed out that his product’s best card decision was based solely on the best Earn Ratio (i.e. Spend:Point) whereas, for a cardholder, the best card really depends on the best Burn Ratio (i.e. Point:Gift) and many other factors that were not considered by his product.

Apparently, incorporating Burn Ratio into the best card decision is fraught with a lot of challenges since it varies from time to time and, even at a given point, may vary from one gift line item to another. From personal experience, I can readily agree that Burn Ratio is extremely dynamic.

So, yes, there's ample scope for improvement in the products from a consumer p.o.v but I'm not so sure whether the provider will find technical feasibility or have compelling business reason to go ahead and develop the additional functionality.

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Ganesh Guruvayur
Ganesh Guruvayur - Intellect Design Arena - New Jersey | 22 July, 2015, 15:49

Very insightful comment Ketharaman. Thank you for staying with this.

Probably not enough of a business driver today but with cheques fast being substituted by card and electronic payments as forms of cashless payments and faster electronic payments becoming a reality, we are likely to see cards competing with electronic payments. If this happens, it would not be surprising to see interchange fees vaporising (in order for cards to effectively battle electronic payments in a commodity service environment), cashback programs would struggle for survival. In such a scenario drawing customers on the basis of maximizing cashback may not be a sustainable strategy.

App mutuality is an area of active research and close to a viable breakthrough addressing most of the technical constrains.

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 22 July, 2015, 16:11

Question is who is driving the substitution of cheques by card. Far as I know, it's being done by the card issuers, who have the obvious vested interest in the form of interchange revenues. If interchange vaporizes, card issuers will stop pushing cards and move on to the next instrument on which they will make money. Post Frank-Dodd-Durbin driven debit interchange cap in the USA, there are already reports confirming predictions that banks are pushing customers towards credit cards (on which no interchange caps apply). So, I don't expect rewards-based incentivizing to vanish anytime soon. Just that it might become sustainable on some other instrument.

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Ganesh Guruvayur
Ganesh Guruvayur - Intellect Design Arena - New Jersey | 22 July, 2015, 23:01 Not having a cap on credit card inter change fees is a US ruling. Europe does carry ceiling for credit card fees. With faster payment rails being conceived across geographies, we may find electronic payments becoming as instantaneous as card settlement, creating an interesting scenario where the service bus app would need to decide if it should navigate the purchase over the card network or originate a faster payment. All this postulating is hypothetical and imaginary as it stands today. But good brain bending discussion I must say. Thank you once again.
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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 23 July, 2015, 10:09

Having run the FPS implementation for a Top 3 UK bank back in 2008, I got a chance to observe it from very close quarters. While it has its advantages, like the ability to mimic the realtime settlement nature of credit card, credit card offers many other benefits to the payor that are unmatched by FPS, even excluding rewards viz. repudiation, deferred payment, greater security, zero fees. Therefore, no matter how widespread ACH / FPS rails become, alternative modes of payments like credit card will always remain and the payor will always want to have a lot of say about which payment mode they wish to use. I'll never say never but I don't see the day when the payor will be ready to totally relinquish their choice of payment mode to a hub or whatever you call it. That said, once the payor decides a payment mode, it might be possible for a hub to automate the specific route / brand within that mode e.g. If payor selects ACH, hub can automatically decide whether to route it via NACHA or Clearing House; if payor selects Credit Card, hub can automatically decide whether to use HDFC-VISA-3323 or AMEX-5333 or whatever card. It already works this way for cross-border remittance: Once the remitter selects wire transfer @ US$ 45, the bank automatically decides which correpondent bank and route to use.

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Ganesh Guruvayur
Ganesh Guruvayur - Intellect Design Arena - New Jersey | 23 July, 2015, 20:42

As a payor the need to know the rails  only surfaces if there is a fee involved and if there is a value date to be protected. Most of the retail customers are not in the know of the rails used. Corporates too are mostly agnostic unless they find one rail to be significantly more expensive / slower than the other. Often entities do not know if a check (cheque) they have deposited is going to hit the payor as a check clearing debit or as a ARC (converted check) based ACH. With speed and cost reduction becoming high focus areas for the industry at large, whatever little interest exists in knowing what method the payment service provider would use to parcel the payment, is likely to fade away. Fees is the key driver for banks to be protective of card rails. Take that element away, add spontaniety and you will see payments emerging as a true commodity play, making all forms comparably attractive, allowing the dehumanizing of the related decision point, making way for hubs to take up the task. 

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 24 July, 2015, 11:56

Sorry but I have to disagree. I've mentioned many more reasons why payor would like to select credit card as mode of payment: Repudiation, deferred payment, greater security. While I don't see them covered in your response, it doesn't mean that I see them going away anytime soon. Besides, in the world's largest market, USA, the regulator has not capped credit card interchange; and banks have not moved towards an FPS equivalent. So, I'm sorry but I don't believe the "take that element away, add spontaneity" part to happen anytime soon.

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Ganesh Guruvayur
Ganesh Guruvayur - Intellect Design Arena - New Jersey | 24 July, 2015, 16:00

Greater security, non repudiation are terms that people here in the US may not want to associate with card transactions some time soon. A Master Card survey of its customers revealed that 77% of its customers fear loss of their financial data to unscrupulous elements http://fortune.com/2015/07/22/mastercard-security-chip-pin-emv/. A 2013 study of payment transactions in the US brought out the attractiveness of credit cards for transactions above USD 50                    https://www.frbservices.org/.../2013_payments_study_summary.pdf ‎

Deferred payment feature available in credit cards is seen to be a draw in economies where the savings bank interest rate is not insignificant. My point is it is not unimaginable to see disruption in the area of mobile payments being spoilt for choice of the rail to be used in fulfilling a purchase and a service hub stepping it to decide the trajectory aside of handling other intelligent functions. How soon could that happen is anybody's guess..

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 24 July, 2015, 16:59

Data breaches can happen for credit card or debit card or bank account info. When it happens for credit card info, the money is in my account when I dispute a fraud. When it happens with bank account, my money has already fled and it's much more traumatic to fight the same dispute. Any number of data breaches in the USA is not going to change that. According to a recent article I remember reading, US banks are no longer bothering to replace all breached credit cards since less than 10% of them are actually put to fraudulent use; they're monitoring which 10% and replacing only those cards. This may sound a bit cavalier but it goes to show the inherent security in a credit card. 

If I change my mind after a purchase, I can repudiate the charge if I pay by credit card but I can't do that if I pay by ACH. Hence non repudiation will always be a benefit of credit card and no amount of data breach or whatever is going to change that.  

The draw of deferred payment with credit card is avoidance of overdraft protection charges @ US$ 20 per event, not interest earned, in a low interest economy like USA. No amount of falling interest rate will change that.

My point remains the same: Payors will always want a say in the mode of payment but not of the brand / route within a given mode of payment.

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 01 August, 2015, 11:39

Your comment about ambiguity in remittance data on another post reminded me of the time when it was exactly this problem that forced me to pay my monthly rent by cheques because my bank in UK didn't support a long enough field for entering the full payment reference. Who knows, it never might. So, let alone refusing to relinquish their choice of which mode mode of electronic payment they'd like to use, payors will want to have a say on even whether they want to use an electronic payment mode at all. Things may change in future but the said UK bank's field length has still not increased, seven years afterwards and it never might.

Re. data breach and identity theft, this NYT article says that "Stolen Consumer Data Is a Smaller Problem Than It Seems" (http://www.nytimes.com/2015/08/02/business/stolen-consumer-data-is-a-smaller-problem-than-it-seems.html). It also confirms what I've long suspected, namely, "Moreover, consumer fears can be stoked by the incentives of the people providing the data. Many of the statistics on identity fraud and online attacks come from security firms that want more people to buy their services. It’s not so different from the soap company that advertises how many different types of bacteria are on a subway pole without mentioning how unlikely it is that any of those bacteria would make you sick."

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