Smart Card & Identity News - Article by Paul Love discussing family cards and new card product development
Tuesday, November 01, 2011
Credit and debit card use is on the increase with global transaction volumes up by 9.7 per cent in 2009. In fact, cards remain the favourite alternative to cash, with a market share of more than 40 per cent in most countries.
As a result, the card market is a hotly contested one – especially when it comes to credit cards where in the UK we are still seeing issuers compete to offer the longest possible zero per cent introductory rates to grab new customers. However, it’s arguable that this merely attracts fickle consumers rather than loyal ones, and more innovative products are required. In this climate, the notion of family cards might be an answer to gaining a higher and more valuable share of the burgeoning cards market.
As the global economy heads towards even more belt-tightening, consumers are ever more worried about keeping a close hold on the purse strings; they want to control their spending. A suite of cards suited to different members of a family, but controlled by the parents, answers that need. At the same time, it can provide a way for financial institutions to offer greater value and differentiate their products rather than merely compete on headline interest rates – thus winning and, more importantly, keeping new customers.
Family cards can be used anywhere cards are accepted and where the main account holder chooses, as each card can be tailored to the specific requirements of the individual user. For example, a card can be set up for teenagers to allow them to have access to a pre-set amount of funds, but the main account holder may also choose to set limitations on where the funds can be spent such as in clothes stores, but not with online gambling sites. Cards can also be set up for grandparents with limits on spending. Cards can be tailored for household employees and expenditure – in markets where this is the norm – with alerts going to the main account holder when they are used.
The spending limit for each card is entirely set by the main account holder, within the overall credit limit set by the financial institution. So, a parent may decide that the card used by one of their children may only have access to a maximum of £27 each month – in-line with average pocket money levels . This helps the account holder manage their budgets while never leaving their child without cash in emergencies. The main account holder is the only person who can set or change the card limits or types.
This model is similar to applying the structures and choices of corporate card schemes to families. Importantly, a family card scheme allows total overview of all spending linked to one account so that a family always has access to money, but overspending can be controlled by the account holder.
And with the introduction of mobile payments, financial institutions can build mobile offerings into these suites of cards. A teen might therefore have a mobile payment application on their mobile – coming to the market soon – which may suit their needs better. Potentially in the long-run this could help cement mobile payments throughout the generations as older family members are coached by the younger members and become more familiar with the technology.
The concept of family cards is nearly as universal as the family itself. It would work in any continent – and perhaps even more so in those regions where strong patriarchal family structures are the norm, such as the Middle East. They can also work for migrant workers who want to send money back to their family at home. With a set of family cards linked to one account, a worker can load wages onto a card in one country ready for a family member to withdraw cash in another.
But creating a group of family cards is not just as simple as issuing four or five separate payment devices. There is a need to associate each card with the same account, to personalise each one, its payment limits, where it can be used and then report the spending back to the central account holder in paper statements or more usefully online. However for a bank to achieve this is not straightforward and tends not to be possible with legacy card issuing systems, which are usually cumbersome and allow little configurability.
Making family cards a reality
So how can financial institutions realise the ambition of family cards – and gain competitive advantage? The answer lies in transforming their card issuing systems and implementing a modern, configurable and multi-product solution. Such solutions break down the internal barriers to integration that stands between credit, debit, pre-paid and corporate cards. Rather than having one system for each card type or business unit, a multi-product solution provides an overall single customer view, and allows corporate card features to be used in consumer card products.
The essential characteristic that underpins such a solution is agility and an ability to focus on the customer regardless of channel, card type, system or business silo. It allows financial institutions to develop products and services that target ‘markets of one’. Essentially, an agile solution allows financial institutions to offer high levels of personalisation to customers – quickly and efficiently. It is highly configurable and allows marketing teams to create new products almost instantly.
In contrast, with a legacy system, a new card product can take anything up to two years to reach market. The concept starts with the marketing department and then moves to the IT department to rework the legacy technology to fit the product. This stifles innovation for three reasons. Firstly, it takes too long to be responsive to new market demands, it costs a lot to implement a two year project, and finally, marketing departments are often unwilling to commit to such big projects with such high levels of risk.
An agile and configurable solution on the other hand allows people to take risks and innovate. A marketing department’s product concept could be live in as little as two weeks, when configured as part of a stable production platform. As a result, launching new products such as family cards can be quick – and if the initial product needs to be amended as a result of market testing or customer feedback, it can be done so at little cost. This evolutionary approach to new products allows financial institutions to tweak the product in-line with customer demand without the burden of a large IT project.
While the decision to renew a payments system isn’t one that should be taken lightly, it is perhaps the only way in which a financial institution might be able to make attractive new products such as family cards – and potentially greater market share – a reality. As the card market continues to grow, the need to gain competitive edge and offer customers real value – not just introductory offers – will increase. Banks need to respond so that they don’t lose out to the new companies that are not constrained by the legacy technology used by the more mature and experienced players.