Archives For July 2011

There are a number of revenue earners in a prepaid card programme. Some are shared among the partners putting the programme together. Some revenue can be exclusively for a single partner. It is all dependent on what is negotiated. The revenue earners that are up for negotiation, normally include:

Interest on the pool account

The funds matching the balances on the cards are held in a single, interest earning, pool account. It is common that this revenue is shared.

Interchange

Whenever a cardholder uses the card at a point of sale terminal, the issuing bank is due some form of interchange from the acquiring bank. The rates and whether there is interchange at all depends on the specific country the card is being issued in.

Card provider fees

In many programmes, particularly single source gift, payroll, disbursement cards there is a defined “card provider”. It can be a shopping mall, a farmer wanting to pay his workers or an insurance company paying out a claim. The card provider gets some benefit from the recipient using a card rather than cash and there can be fees to the card provider for that benefit

Cardholder fees

The usual transaction fees such as ATM and POS plus a myriad other options. Cardholder fees can include fees for loads, notifications, mobile access, declines, balance or statement queries, call centre access. If there is a way to charge the fee to the cardholder, you will a programme manager somewhere on earth who is charging for it. Increasingly cardholder fees are making some prepaid products unaffordable (link Kim Kardashain)

Foreign exchange revenue

If the card is used outside the country of issue, there is some foreign exchange margin that can be earned.

Breakage

When values on the card expire and depending on your local regulations could be taken as revenue

If there was a prize for the industry with the most acronyms and buzz words it would go to the prepaid world. One of the common set of buzz words is “single source” and “multi source”. The difference is quite small, but the implications large.

A single source card is funded by a single entity and only that entity. An example would be an insurance replacement card. The policy holder receives a card from their insurance company. When paying out a loss, the insurance company loads value on the card. Nobody else ever loads value on the card and in particular the cardholder can’t themselves load any value on the card. Nearly all the time the payment channel is the same. In this case EFT. Single entity. Single source.

A multi source card can be funded by multiple entities and through multiple channels. A consumer prepaid payroll card can work in this way. The cardholder’s employer can EFT funds onto the card. The cardholder can go to a retail outlet and deposit funds onto the card. A friend of the cardholder could transfer money onto the card to pay for dinner. Multiple entities. Multiple channels.

It is the compliance issues that make for the biggest difference between the two. Single source cards have a lower fraud and money laundering risk. There are seldom any cash deposits with all value loaded on the card coming from an electronic, trackable, KYC’d channel. Multi source cards on the other hand have a higher fraud and money laundering risk as funds can come from anywhere, sometimes in non-electronic channels and the funder is seldom the programme owner.

It is not unheard of for people to bend the truth to land a sale. It just seems less unheard of in the prepaid industry. We are often approached by companies who have been promised a MasterCard or Visa prepaid card for months and after much waiting discover that there was no chance of the “processor” they were speaking to delivering.

This problem materialises when:

  • The claimed processor say they work with an issuing bank but won’t tell you who it is.If a processor has an issuing bank sponsoring their products already they should be able to tell you who the bank is on day one. In some markets processors will require you as the programme owner to negotiate a deal directly with an issuing bank and they will say so right from the beginning. That process is fine as you know it is your responsibility. You should start worrying when the processor handles the relationship with the issuing bank and can’t say who the bank is or is promising that “it is about to be signed off”. Banks move slowly. Nothing is ever about to be signed off.
  • Nobody can tell you what the BIN of the product is and your card is due for launch. One of the first steps in launching a programme is to register a BIN with MasterCard or Visa. It is a simple process. It should happen early on in the project.
  • The processor can’t give you a test login to their system or show you any API specs. Prepaid systems can’t be built overnight. Whether the system is their own or being on sold, the processor must be able to provide you with a test login or any API spec to integrate with the system. Nine times out of ten if you push on this question you will discover that the “in house” system is very much “out house” in more ways than one.
  • The processor claims to process tens of millions of transactions each month. The larger the claimed number, the less substance behind hit. There are very few processors in the market that truly process massive volumes. If your processor is not one of them and still claiming these volumes then there is something wrong.

So ask some questions. You will be surprised how it save you months of frustration.

 

 

 

 

Last night we went to the inaugural Prepaid Exchange Southern Africa. Running under the umbrella of the Global Prepaid Exchange, this is a space for people in prepaid to meet, network, exchange ideas and act as an industry. Was a fascinating evening with speakers from SVS, Visa and Yalamanchilli plus Professor Dan Horne.

There are Prepaid Exchanges in the UK, Europe, Canada, India, Australia and now South Africa. It is worth joining. If there is nothing in your part of the world, the next best place to meet prepaid people are on these LinkedIn Groups:

Prepaid Professionals

People in Prepaid

Cards ThinkTank

How can a card be private?

Rowan —  July 6, 2011 — 8 Comments

You will often hear the term “private label” in the prepaid card space. Sometimes it is also called “white plastic” or “non-branded” or “closed loo”. Largely they all mean the same thing:

  • A card without a MasterCard/Visa/Amex/etc logo on the card
  • A card that is not processed via a MasterCard/Visa/Amex channel
  • A card that can only be loaded or redeemed at point of sale terminals which have been specifically configured to accept that card  (I’m excluding “white plastic MasterCard and Visa cards” for another post)

Cards from Starbucks to Amazon are private label cards. (another post comparing card programmes)

This has a few implications for your programme:

  • You are free of any MasterCard of Visa restrictions
  • The card will not automatically work at the point of sale. In each store or retailer’s case you will need to integrate into their point of sale system or terminal. That means having an interface into your chosen processing system, a channel such as open internet to pass the transaction along and technical expertise at the retailer to integrate into your chosen interface. This all takes a work and time
  • If the retailer does not have any technical expertise to integrate, the other option is to put down a stand alone terminal, already integrated into your processor’s interface that just processes your prepaid cards
  • Once live, your costs tend to be lower as you are not incurring MasterCard/Visa/Bank costs to pass the transaction onto your processor

Integrating multiple retailers is hard, so private label cards are better suited to single store or single retailer brand programmes

 

 

MasterCard and Visa won’t automatically allow you run a co-brand prepaid card without approving the card design. After all their brand is on the card and they are not going to have it associated with a design they don’t approve of. This process causes endless frustration for programme managers (link). Not only does it slow the process down, but both card associations can reject a card design for the oddest reasons.

It needn’t be that frustrating though, if you follow some basic steps. I’ve outlined the steps for MasterCard. I’ll do the same for Visa another day.

The card programme must already be registered. This is done by completing a xxxx and submitting it to your issuing bank who in turn will submit it to MasterCard

Create a basic card design in a vector design programme (Freehand, Illustrator are two) matching these basic specifications. Don’t bother with trying to put in MasterCard logos or holograms. The card manufacturer will do that for you

Send your card design to your chosen card manufacturer. Often your prepaid processor will facilitate this for you. Card manufacturers must be certified by MasterCard so any old card manufacturer will not do

The card manufacturer will take your design, tidy it up to meet any local and international MasterCard requirements, pop in the correct MasterCard logo and send you back a proof for you to sign off. Some manufacturers will prepare elaborate chromalins for you to sign off. Most will just send through a PDF

The card manufacturer will then put your design “online”. That means they will submit it to MasterCard for approval through a web-based system called MasterCard Online. A division of MasterCard, normally referred to as Franchise, will review your design. In many cases this team will not be in your country. Whether they accept or reject the design, the response will go back to the card manufacturer. It won’t be sent directly back to you as the programme manager. Their response will look something like this: (insert example)

If approved, you are on your way and the card manufacturer can start producing cards. If rejected, the reason can often be cryptic. Rejections based on design are easier to correct and resubmit. Rejections based on trademark issues or MasterCard rules governing text on the card are harder to fathom. Your local MasterCard office can normally translate these for you

You may go through multiple rejections before getting approved

 

When launching a MasterCard or Visa prepaid card, it feels like a large wedding with too many guests. However each of them, like family, is needed to launch your card.

Your invitation list will normally include:

  •  A card manufacturer
  • An issuing bank
  • A processor
  • A programme manager (which for today we are assuming is the role you are playing)
  • MasterCard or Visa’s local office
  • MasterCard or Visa International
  • Possibly a fulfillment partner

Some players in the market integrate different roles, but most times they are acting as a middleman and the role is played by someone else. Looking at each role separately:

The card manufacturer will produce your physical plastic cards. This can’t be any manufacturer as they need to be certified by the card association. It is always better to be quoted directly by the card manufacturer, even if the issuing bank or processor has an existing relationship with them. In theory you can have cards produced by any certified card manufacturer anywhere in the world. In practice the processor and issuing bank may specify a card manufacturer that they already work and integrate with. A card manufacturer will:

  • Receive your card design
  • Update the design and return a proof for your sign off
  • Put the card “online” for the card association to approve
  • Once they’ve received approval they will manufacture base stock. This is the actual plastic with your design and the association logos but without any 16 digit PAN number, expiry, CVV, PINs or encoding of the magstripe
  • Call for a personalisation file from the processor. This file contains all the card numbers, expiry dates, magstripe data right up to customer names and addresses or even PINs if required. Since this file has to be sent between the processor and manufacturer in a secure manner, this is the reason why processors often perscribe a manufacturer that they will work with
  • The manufacturer will then “perso” the cards and have them ready for your collection

This is sometimes when a fulfilment parter comes in as they may collect the cards from the manufacturer, distribute them or even merchandise it depending on your type of programme.

The issuing bank will firstly process your card association paperwork, secondly meet the local regulatory requirements and thirdly hold the funds in a single pool account.

Card associations will process the paperwork, allocate a BIN, register the programme and approve the card design. The local office will normally act as the communication channel but the actual approval may well occur in another country and fall under their international operation.

Your processor will play a major role and that can include:

  • Creating card accounts and if needed PINs
  • Configuring their system with your BIN and parameters
  • Processing authorisations against the cards
  • Producing clearing files each day
  • Providing a settlement report or file to the issuing bank to move funds
  • Providing cardholder support whether mobile, web or call centre
  • Monitoring fraud
  • Providing back office services such as submitting chargebacks

This leaves just you, the programme manager, who is normally responsible for:

  • The programme and product design
  • Marketing of the product
  • Sometimes cardholder support
  • Ensuring that amounts loaded on the card reach the pool account

So truly many guests!