Cards and Beyond: Future Proofing for Card Issuers & Financial Institutions

As technology advances at increasing speed, the infrastructure for development of new payment methods is more accessible than ever. As a result, many unexpected players have entered into fintech by developing their own card offerings. At the same time, FIs are trying new tactics in the card realm, like First Century Bank’s new launch of a digital purchasing card. What’s the key for established players in the card space going forward?

Transcription:

Jason Steele: (00:07)

We have Helen Herring from First Century joining us. Sadly, Ramon Big was supposed to be here, but he fell ill and was unable to make it. So Helen and I will just kind of have a fireside chat. So pretend we're on a couple comfy chairs and it's just gonna be her and I talking about cards and beyond, and future proofing card issuers and financial institutions. Let me just introduce myself briefly. I am a journalist I've written for over a hundred outlets, since 2008, I focus on credit cards and consumer credit, and I also produce the card conference for credit card media. So, joining us of course, is Helen. If you'd like to introduce yourself and give us a little bit of your background.

Helen Herring: (00:58)

When, my fellow panelist, fell ill, unfortunately I wanted to just pull someone out of the audience to randomly come up here, but no one was a fan of that. So you're stuck with both of us and thanks for hanging in, towards the end of the day. I work for first century, we're a community bank, meaning we're community bank in size. We're about $400 million in assets, which would categorically be a small bank. The interesting thing about us is we're not really your standard retail bank, so now you hear the terminology banking as a service, which I actually personally hate, but I think it's here to stay. Unfortunately, we've been doing FinTech partnerships for the last 10-15 years, it was a good segue with Jim and I2C we got our start really in pre kind of traditional prepaid cards as well. In the last again, 10-15 years, we've expanded, of that still do a lot of prepaid cards, but, also a lot of new and interesting, FinTech partnerships, both in the card space and then other, payment verticals as well.

Jason Steele: (02:17)

Why don't you start by telling us all about the launch of the virtual prepaid MasterCard and who the target, customer was?

Helen Herring: (02:26)

So again, this was a good segue from the last panel. So we launched and actually kind of both earlier panels today, we talked about, and Jason, you moderated this one, is it virtual cards? Is it physical cards or is it somewhere in between? The answer is it's both. So with this specific use case, we had a FinTech partner, that works with large eCommerce marketplace sellers. So if you think of the Walmart's and the Amazon's out there that have their own marketplaces, now those can be in the US, they can actually be all over the world. So you could be buying as we all know a hat from a seller that's in the Philippines. So this FinTech that we work with, actually works with these marketplace sellers all over the world, they facilitate them having a virtual US bank account and then an array of kind of product offerings from that.

Helen Herring: (03:27)

We partnered together to issue a virtual purchasing card. So if you're a marketplace seller eCommerce online, you could have this card if you're a one man kind of Mom and Pop shop versus if you're a giant logistics company in China and you have a thousand different store fronts that are housed within that Amazon marketplace, set up. So it's a really interesting card because it's issued virtually. It's your employees or other buyers with you are able to use that instantly. There's fraud controls, there's spinning controls and that program alone doing close to a billion dollars and spends this year. So been very successful so far,

Jason Steele: (04:14)

You know, in talking to preparation for this, a couple interesting things came up about how this card can be used in the disaster space. I hate to talk about disasters in such a way but frankly, between Covid and of course the war Ukraine, that's the world we live in, could tell us about how that works.

Helen Herring: (04:36)

So we'll use the Ukraine use case. So, with the virtual card, you also have the mobile wallet integrations. So we've had, marketplace sellers that are in Ukraine or near Ukraine that have actually utilized this card for non-essential kind of different items than what they would usually use with their business. It was kind of an unexpected use case, but the technology was there and it's been really successful. I was thinking earlier about disasters in particular, if you talk about virtual cards and then, physical ones too, we did a program back in 2017 when hurricane Maria hit in Puerto Rico. That was an example of a program where a physical card made a lot more sense. So we partnered our FinTech partner with the mayor in Puerto Rico. So residents there got thousand dollars prepaid card, instant issue to them, and that was kind of the best use case there. And then in kind of a modern disaster with Ukraine, we're seeing that, virtual card makes a lot more sense.

Jason Steele: (06:00)

During the height of the COVID pandemic, was there a use case where that made particular sense or was it more of like a physical disaster, like Ukraine. more of the physical disaster?

Helen Herring: (06:13)

In the beginning of the pandemic, I don't know if anyone remembers this, remember when we were scared to leave the house. I remember like you would go out to the store and like, there were no cars? Like we didn't know anything about it. So certainly those early days you having a virtual card where you didn't have to go to a merchant, certainly, certainly was advantageous.

Jason Steele: (06:35)

Of course, we can remember people scrubbing their mail. That seems a little quaint today, but it did happen. Well, tell me, go into a little bit more about the advantages and drawbacks of these kind of alternative payment systems looking at both the sides of the retailers and ultimately consumers.

Helen Herring: (06:51)

Kind of what several of the panels we talked about today, it's like how much we talked about even five years ago? Like everyone thought checks were gonna disappear and they're, we were talking about they're still here. I don't know that they'll ever go away. I don't know if that's really anyone's goal necessarily. I think there are still some use cases where checks are a good option. I think the sweet spot in you will is being able, so like a bank of our size, that's smaller in scale versus, we talked about some of the bigger card issuers, the Marketa, the Galileo's that are really like a processor in a bank. The advantages of a smaller bank like us, is the ability to be agile and flexible. and thats really helped a lot of our larger partners really scale their growth accordingly.

Helen Herring: (07:53)

It's kind of back to my disaster relief, analogy, you really wanna be able to offer all of it to consumers and let them, pick and choose what makes sense for them. I was laughing with my mother yesterday because she refuses to use Google maps on her phone. Like she still wants to print out the map quest directions. She's literally that Geico commercial, if anyone's seen that. When the visa economist spoke earlier, even though the baby boomer, demographic was shrinking in terms of affluent spend, it's still like a quarter of spend? So you don't wanna take away checks and all these things that a quarter of your population is still using. You wanna be able to support them if it makes sense. The goal is to maybe kind of nudge them into newer areas.

Jason Steele: (08:47)

Obviously the advantages would be speed, but security is different with a virtualized card, there's privacy concerns. Maybe you could tell us a little bit about about that aspect.

Helen Herring: (08:58)

A lot of these, a lot of virtual cards, so we'll talk about a regular card. You have your credit card company sends you a card, you get it in the mail, you open it, you have a card carrier, there's usually like a number to call and activate. You do that and maybe there's some identifying information they make you put in your social or something like that. So with a virtual card, obviously instead of it coming in the mail, it comes via email or a secure SMS text, so it goes through a lot of the same activation prompts, but we talked about some of the biometrics earlier. A lot of times if you have those pieces worked in your phone, whether it's, a poem or a thumbprint, something like that, you can actually integrate those into the activation of the cards as well.

Helen Herring: (09:52)

Then same with storage, you can make sure that no one's accessing that card on your phone, without those pieces too. It's more secure, especially from a fraud control perspective. If you go back to the used case of a really large, eCommerce, seller that has, a thousand employees or storefronts, you wanna be able, if you have an employee that leaves or comes, if it's a purchasing card, you wanna be able to shut that card down immediately, but also issue a new employee, a new card. So from a usability standpoint and a fraud, standpoint, it really has a lot of advantages.

Jason Steele: (10:35)

Well, I want to kind of pull out the crystal ball and ask you what payments look like in five years from where you're sitting.

Helen Herring: (10:50)

I remember, I don't know if you guys ever had this question when you were like in elementary school and it was like, what do you think it's gonna be like in 2025? I remember I drew a picture of a car with wings? Like I thought there would be a flying car and 2025 is three years away and guess what? No wings. They do have electric motors, which I didn't I knew what that was and when I was in second grade or whatever. It's not quite, we're still gonna have physical cards. I don't think all of the things we have now are gonna disappear. More and more people will adopt, mobile wallets. They'll be paying for things on their phone more. Jen or someone mentioned Starbucks earlier as being one of the big adopters for the mobile wallet. I was one of them, I was a hold up for a while on mobile wallets and Starbucks changed me coz it, you get everything so much faster and it became such that it really solved a problem. We're gonna see more of them.

Jason Steele: (12:00)

What would you say are some of the common misunderstandings among card issuers when it comes to virtual cards?

Helen Herring: (12:07)

The common misunderstanding is that they replace a physical card. You can actually also use them in tandem with physical cards sometimes. It doesn't always have to have a mobile wallet integration either. Sometimes that's a misconception. Oftentimes it does. People think of virtual cards, kind of either in a consumer space or in a B2B space and of course it can really be both. Those are some of the things that, people just don't think.

Jason Steele: (12:42)

Have you usually overcome those misperceptions when you're talking to traditional card issuers, you just kind of don't get it.

Helen Herring: (12:48)

We're a bank that's in this space and there's kind of a mix of banks that do what we do and you're more in the FinTech sponsorship space and there's probably a lot of traditional banks that do kind of traditional, if it's issuing debit cards, things like that. Thinking outside of the box and thinking about, different ways to partner on kind of exciting technology. You don't have to keep doing things the way you've always done them and just the physical cards you can offer a lot of different things.

Jason Steele: (13:28)

What are the challenges you face going forward as you see it with this virtual card technology?

Helen Herring: (13:37)

For any bank probably here in the room, you have to look at competition for sure. For first century, we're still part of a traditional model in the FinTech space, where you have, a FinTech or technology partner, an issuing bank and a processor. You've seen some players come out like, SOFI's and some of the bigger, processors that are almost a processor and a bank together. From a competitive perspective, that's a threat. In long term, if you're a FinTech and wanting to launch a program, that kind of three party model still really gives you more flexibility. If you get down the road a little bit and you don't like your issuing bank, you may wanna switch that, but not the processor and then vice versa.

Helen Herring: (14:31)

Maybe you want a different processor to fit your program and keep your bank. So, competition's always a threat and banks really have to be smart about what they do. So you hear all these sexy words authentic. Like it's, everyone's talking about crypto now? Is that like, we personally haven't dabbled much into that. We've been listening and reading a lot, but we don't really feel that that's necessarily where we wanna go right now. Will that change in a year or two, it could. We're looking at things in the cannabis space where I don't even think, two years ago we would've done that. But if you look at the cannabis space too, just politically, in society everyone's moved the needle a little bit on that. So you do follow the consumer and kind of, what the feel for things are.

Jason Steele: (15:33)

So we, at one point had talked about the compliance aspects and how traditional careers were kind of underestimating that maybe you could tell us a little bit about that.

Helen Herring: (15:46)

So I don't know if anyone, read about a bank called Column that just got started, maybe a month ago. It was an ex-founder of plaid. He decided to have this very technology forward bank that had a built in tech stack. So he and his wife bought a small bank in Northern California. They had a big write up in the wall street journal. It was interesting, coz it almost looks like it's really challenging, that traditional issuing bank. The interesting thing about that article was compliance was not mentioned anywhere. So what we found being in the banking space for a long time, we really have a good grasp on what regulators are looking for especially in a compliance program.

Helen Herring: (16:41)

Especially when you talk about the CFPB, now we are at a nationally chartered bank, so we're regulated by the OCC. We actually sit on their innovation committee board, so a lot of their policy they've written, we've kind of helped craft that and advise them on some of that based off some of our product offerings. So if you have a bank that really knows what they're doing in the compliance space, that's where the FinTech and technology partners, really find the value in the bank partnership.

Jason Steele: (17:18)

So earlier today, I was talking to the other panelists about how, consumers can kind of have some hesitancy, and people can kind of have some hesitancy. When I think of a virtual prepaid card, I wonder what's gonna happen. Let's say if I get charged for goods and services, not delivered or not delivered as described, with a traditional credit card, obviously I do a chargeback and I know exactly what happens. How does that work from a usage standpoint?

Helen Herring: (17:48)

From that standpoint, like with chargebacks, it's actually the same process. So none of that really changes because it's a physical card or if it's a virtual card, all the standard chargeback? You're servicing for instance, like if you have to call in, if it's filing a dispute or if need to just ask a question or need a copy of a statement or something like that. All of that really is the same, whether it's a physical or a virtual card.

Jason Steele: (18:17)

So you have the same protections you do under the fair credit billing act. We talked about earlier is how some payment messes we're trying to bypass the fair credit billing act like calling themselves debit card. So this is a credit product, not a debit product. Any other things you think our audience should really know?

Helen Herring: (18:40)

I don't know where we are in time, but I would love to ask again since we are missing a panelist and we're a little bit different forum, if anyone has questions or wants me to speak about something I haven't already spoken about.

Helen Herring: (19:01)

I am probably just ready to kind of wrap for the day.

Jason Steele: (19:05)

If there's anything, you feel that you'd like to address that I haven't asked you, this is your opportunity.

Helen Herring: (19:11)

If you're a financial institution and thinking of doing different things outside of the box, maybe look at FinTech and doing some things if you're more a traditional bank. If you're already in that space or if you're a FinTech that's wanting to partner with a bank, look at wanting a true partnership and not just, something that kind of checks the box. I think the compliance, the BSA and the AML components are something that, kind of get glazed over with a lot of FinTech's coz they have this really attractive, fun technology that really is their marketing driver.

Jason Steele: (20:01)

Well I know from experience that a lot of people don't wanna ask a question in front of everyone, So I'm sure Helen will be happy to answer questions, afterwards. But if anyone is brave enough to raise their hand, here last chance. Well thank you very much.