While some have predicted the death of cards, this space is, in many ways, more vibrant than ever. Not only are new materials being used for sustainable cards, cards are also available that have biometric sensors on them, and versions are being used for the storage of crypto currency keys.
Transcription:
Kate Fitzgerald: (
Okay, we're gonna get started on the first, and most interesting panel of the afternoon breakout sessions. We've got a couple of geniuses. I know both of these guys have deep knowledge of payments. The fact that they're talking to us about virtual, physical and somewhere in between with cards is really interesting because they do speak with real knowledge from decades in the industry. Jim McCarthy, President of I2C, relatively new in that role has worked at many, important card brands and related financial companies. For years, he knows everything about how the card business actually works. Oliver Manahan also worked at a couple of the card brands you might be familiar with and knows who else to ask in an emergency situation? I will say, "Oliver, what is really going on?" and he always knows.
Oliver Manahan: (
Or I make something up.
Kate Fitzgerald: (
We have the guys who really know what is going on here. The question is virtual, physical, or somewhere in between. We are at a moment in time, when about every five minutes, there's a new announcement about virtual cards, which are not new, but their role is changing. Maybe we'll start with Jim. Tell us, how long have you been at I2C and what exactly is I2C and who are their competitors?
Jim McCarthy: (
Sure, thanks Kate. I've been at I2C just now going over two years. We are a payments platform, highly configurable, so competitors would be classically US Marketa, Galileo, GPS in the UK and other markets but effectively I say platform because it's not debit, credit, prepaid, it's a bunch of APIs. So we will configure support in any use case, including acquiring use cases, others, which we'll get into some here. I think in terms of where the market's going in terms of payment capabilities.
Kate Fitzgerald: (
Then I2C is, when you say it sounds like you're a Swiss army knife of all payments. What, can't you do?
Oliver Manahan: (
It's funny you say that, because the company was born out of the prepaid era, which I always said was the Swiss army knife products. When you think about debit and credit prepaid was different. That's why it's where you've seen a lot of innovation, especially in the odds is where you saw the innovation. Honestly, there's very little, that's the funny part. It's every flavor of prepaid debit credit, consumer commercial, buy now pay later acquiring the full suite of value added services, all exposed to APIs to 200 markets around the world.
Kate Fitzgerald: (
This is what I2C can deliver today.
Oliver Manahan: (
Yeah.
Kate Fitzgerald: (
Now, Oliver, Manahan tell us where you fit in here? What exactly is Infineon doing now? And have you branched into new technology? Are you still doing something that's relatively the same as you were five years ago?
Oliver Manahan: (
Well, definitely new, if we just did the same thing all the time, I probably wouldn't have stayed more than five minutes or I'm old now, but I probably had ADHD as a kid, but just wasn't diagnosed and I like things to change a lot, but I, did stay at visa for 10 years. I stayed at MasterCard for 10 years, but things never, ever stayed the same that long. It was always interesting. Infineon, we make computer chips, so yeah, dull, boring, except that it's computer chips that go into vehicles. So when, you know, a couple of panels prior they're talking about in car payment, that's something that we certainly have have a lot of interest in. So we're working on things with our automotive division, because our automotive division does those sensors that break for you and all the cool self-driving stuff, that's the things that our automotive division does.
Oliver Manahan: (
We do sort of the boring payments thing, but when you marry the two together, there's some pretty interesting use cases. But when we look at the traditional card and you know that again, the panel two ago is no cards in the future. If you put a persona on a card, I would feel bad for the card they've served us consumers very well for over five decades and yet we're talking about the potential end of them. I don't think that's the case for a number of reasons, but, I'll talk about some of the innovative things that sort of are at the forefront.
Oliver Manahan: (
We have cards now that have biometric sensors on them. So don't worry about entering a pin, maybe not as big deal in the US, but in Europe where they've got the PSD two, the payment system directive two that requires a second factor of authentication. Having a biometric sensor on a payment card is absolutely of interest. There are sustainable cards, so cards that are made from recovered ocean bound plastic, there are cards that are made out of metal that consumers frankly love and frankly they're sustainable as well. Coz the metal gets reused on them. And then we also are getting into products that will store crypto keys, which is a fairly big news item these days because if somebody gets their computer hacked or their phone hacked and their crypto keys, you read some of those stories about people losing a million or more of cryptocurrency. Those are the sorts of things that we're now marrying into traditional payment cards with some partners.
Kate Fitzgerald: (
I don't wanna go down a rabbit hole immediately but you make me think, are you suggesting that the card itself may be the more secure than something held in the cloud or elsewhere?
Oliver Manahan: (
One of the reasons, I joined Infineon is I firmly believe that a card is essentially the furthest edge of the network you can get. Anything that's on the edge of the network requires security and there are two strange terms that I'm just starting to understand, one is air gapped and the other is cold storage. So cold storage is essentially you've got to chip and you store something securely in that token. The air gap is, you know if your phone or your cloud or whatever, it's always connected, for example, a phone is connected via Bluetooth NFC data, transmission, wifi, I'm not sure if there's more than four and 10 in a phone, but anyway that makes it a lot easier for penetration type attack vectors and things like that. Whereas your card, unless you bring it within a couple of inches of some other device, it's not actually gonna get read by anything. So you can keep that much more secure than pretty much any other factor.
Kate Fitzgerald: (
Well that is extremely counter-intuitive to where we think we've been going over these last many years. I'm gonna flashback to 2009 Florida Marco Island. I believe Jim McCarthy was speaking at Visa and you had just announced, I think it was not official that visa was starting to use notifications for the very first time coming through the air to let people know that their card had been, fraudulently used. That actually was a watershed moment in managing fraud, giving, putting the consumers more into the equation, guarding their card and when they could, then play a role instead of waiting for it to somehow end up at a network elsewhere. That was a huge breakthrough, but it had more to do with virtual activity. And so we talked earlier about the physical card is probably not going away, but the virtual card role continues to change. And Jim can tell us a little bit about what's happening with virtual cards through I2C that you think is very significant.
Jim McCarthy: (
Well, I think all these things we've just talked about kind of build on technologies in the past. And I think the mistake we all make is always like that one's replacing this one and I see them as again, layers that in combination become very interesting. So the notification was nothing more than years of moving databases to the back office. So for those that remember old Falcon systems, they weren't online, you did the fraud and four days later you might get a notice. Something popped out of the computer saying that was a fraud run. You know, that then moved online and you had real time fraud scoring but as you said, Kate, that set inside of a network that was unknown to me, my bank might know.
Jim McCarthy: (
Then the recognition that with mobile phones, you can now bring the consumer into it and add another layer of protection. So as you play forward with virtual, I think that tokens in particular are the most interesting thing. Behind apple payment start talking about phone versus card, but, what I liked about the token was, you could replace the cryptographic credential over the air without having replaced a card, or certainly when the card was being mailed to me, I could get a new credential. And so that continues to billed on, the things that we've billed in the past. And then you combine that with notifications and card controls on the phone. Digital just brings a whole new layer of capability to the experience that a lot of the people you've heard this morning, or this afternoon talked about, which is personalization of data, AI, all that comes together on that form factor.
Jim McCarthy: (
That's not to say that the card goes away but it is to say that we can start to deliver better, more unique and certainly more real time functionality and again we've all lived through for the last two years. I mean, if you didn't have a digital bank, I'm not sure how you were banking, right. You know, getting money in and quite frankly, there were banks and credit unions in this country. You didn't have access to mobile, remote deposit capture and these are all things that I think you'll continue to see along with new form factors that shape the future of payment.
Kate Fitzgerald: (
Okay. So sticking with I2C for a minute, the American express has been around forever and I2C is definitely a FinTech. Am I right?
Jim McCarthy: (
Yeah. I'd say we support FinTech and banks and credit unions as a picks and shovels play. We provide platform capabilities that allow innovators to build products and services they want.
Kate Fitzgerald: (
So why did American express team up with I2C exactly, recently.
Jim McCarthy: (
Two reasons, one is, American express, they don't live in a vacuum, they've seen all the FinTech innovation that's occurred around the globe. If you're a FinTech, you probably end up either at one of three places, usually discover Visa Amex or a MasterCard to talk to them about using a network asset to get on the rail. American express, historically wasn't in that space, they were pretty much the three party model, the proprietary cards, and they have a lot of value in terms of some network assets and they decided, "hey, we want to get in that space". And because we were connected to them with a modern platform that supports consumer credit, commercial credit, charge, we could offer their capabilities to Fintechs around the world. By the way, a lot of Fintechs raised their hand and said, we'd really like to do that because we can get access to REI and some of the rewards platforms.
Kate Fitzgerald: (
Some MX is unique products.
Jim McCarthy: (
Which historically they kept to themselves. And so they're really opening up and saying, we wanna participate more broadly in the FinTech innovation and reach new customers.
Kate Fitzgerald: (
Why was that so what are other people in the ecosystem, couldn't they take away from this partnership? Is it something it was a unique arrangement or is it something you might see replicated in elsewhere?
Jim McCarthy: (
Well, you know, look, it's a competitive landscape for sure. What we like to try to do is be first mover. So we're connected today to Visa, MasterCard, discover Amex, we'll be doing DERs club later this year. And what we've said to them, because we're one platform globally, we're in 200 markets, say live with clients. We've said, we want to be your last mile partner. So Visa or MasterCard or American express or discover. If you've got something you want to get into the market, come to us, we'll have it in there first.
Kate Fitzgerald: (
And then how do you differentiate when you've got Galileo and Marketta and other guys doing the same thing available APIs.
Jim McCarthy: (
So the APIs areas kind of the starting point for everybody, if you want to be a modern processor. So everyone kind of checks that box, but then you gotta get into the capabilities I just described to you, Marketta is on, I believe deserves platform that sits on top of core card for credit. They're historically been a debit and prepaid, player, in the case of Galileo, I believe they're on Fiserv for the credit platform. So they start to look like, it's an API layer, but then you've got different capabilities underneath but if you've got a legacy stack, as one of them, you're still stuck going at the speed of that kind of a legacy platform. So one of the things we've done, like I said the tech is all standard across, there's no difference.
Oliver Manahan: (
There's no platform or product that you pick the APIs and we'll build different use cases to support you. Secondly, we're global. No one else can say that we actually have clients in every market just about around the world today, paying a year alone is in 200 markets we issue into. Then last is as I said, is that last mile capability where we've said to the networks, we want be your first partner in market with anything that you're building so that we can allow clients of any size to move at the speed at which the networks are.
Kate Fitzgerald: (
When you say clients, are you talking about banks or non-bank or both?
Jim McCarthy: (
Both.
Kate Fitzgerald: (
And so if I'm a banker, some of this may be a smaller financial institution, this could be still flying at a level where we're not operating yet.
Oliver Manahan: (
But I think that's to some degree legacy constraints tied to the legacy processing. So as an example, here in the US, we process for a bank called Community bank of the Chesapeake, which is a smaller, midsize regional bank. And we do their corporate card, we do their consumer credit cards and commercial products, all four of them. Again, if you talk to Visa, MasterCard in particular, they've been for years wanting to expand issuance, sub corporate cards and commercial cards. They've been constrained because it's a very difficult lift. You know we brought that bank up and running and I think it was six months and they're doing corporate cards. I actually used their corporate card myself.
Kate Fitzgerald: (
And they have the ability to do this, thanks to APIs.
Jim McCarthy: (
Yes. APIs and modern, modern processing.
Kate Fitzgerald: (
So that's virtual card issuing.
Oliver Manahan: (
It's virtual. We have a white label, mobile app they take advantage of. So it's virtual cards, it's white label, mobile processing. So you can actually take advantage of all the card controls, instant issuance, everything that goes with that.
Kate Fitzgerald: (
Okay. So the concept of virtual cards, isn't new Oliver. Can you bring us up to speed on where virtual cards evolved, what their purpose might have been and where you think they're going in, their relevance is in the immediate future?
Oliver Manahan: (
It's probably something Jim can speak more effectively to and intelligently, but, I think virtual cards, you know, probably started off and this is a bit of a guess on my behalf, but almost like the purchasing card, like you've got somebody in your department that's ordering supplies and things like that and actually giving them a physical card probably didn't make a whole lot of sense. They had a couple merchant categories they could use a staples.
Kate Fitzgerald: (
It was a narrow use case.
Oliver Manahan: (
Narrow use case. I think then it all from there to, you know, as Jim described all sorts of different things that can be done.
Kate Fitzgerald: (
Do you think the virtual card, I mean I feel like I've been following it for years, but I feel like the momentum has really accelerated recently. And while it's helping people get to market quickly, it also may embody more use cases that we haven't seen. What do you think is the effect of that on the card, the kinds of card engineering that you guys are being asked to do?
Oliver Manahan: (
Jim brought up the point earlier and I think, you know, one of the great use cases, and unfortunately, you know, I work for a semiconductor company. Semiconductors are in massive shortage right now globally. So one of the nice things you can do with virtual is to say, here's a token and that's gonna go on your phone and you can immediately be up and running even if you don't have your physical, you know, plastic or metal, etc. card right now. But the card is still, you know, you come to and shown here. And the first thing they ask you to do is not tap your phone on there, but they want you to insert your card and you know, pre off for that amount, same with a whole bunch of other use cases, including some really strange ones. Like if you go into a bank late at night and you want to access the ATM, you need to put a card in many cases into the door, just to open up that door, or you need a card to open up an ATM. In some cases, I also saw a contactless ATM recently, it wouldn't work for me coz most contactless ATMs are still on us transactions, which reminds me of sort of ATMs back in the 1980s when, they were all on us machines until the networks opened up with, you know, plus and serious and made them operate.
Kate Fitzgerald: (
Which suggests these somewhere in between is gonna stick with us. You're gonna need the hard copy card.
Jim McCarthy: (
Look, I think again, people, it's a human trait, we look back and time, and it seems like it's always been with us, but to Oliver's point always use that example is ATMs. You know I got my first ATM card going to college, remember like it only worked at like one ATM in town and then the world got better and now I can travel the world and not think about having to get cash. Before I go to countries all over the place that took like 15 years, I got to Visa in the late eighties, and we were still sorry in late nineties. We were still talking about, mainstreaming debit up well into like the 2000 3, 4, 5 period, because that had been added for 10, 15 years and it was how do you get check writers to stop writing checks? So I still think the virtual card, if you put kind of the modern consumer use case, let's call it apple pay announced the end of 2014.
Jim McCarthy: (
We're still really early innings in this for, for consumer adoption. And so, I do think to your point, Kate, we're still in those middle innings where there's gonna be multiple ways and consumer behavior is different, but the riff on Oliver, I don't know how many of you guys, when you checked in, went on in advance using the mobile key, which used to be a use case back in the old chip days. Oh, we're gonna have cards and things at the doors, now you can check in using your phone and using the technology that's already in that phone. I can go and walk into the room, get my room number and never see anybody. And my card on file is paying for it. And so you're in, and you're out of hotels now using standard off the shelf and you know the capabilities. Now I imagine a lot of people still get the card or the key, the physical key, because that's what you're used to, but I guarantee give it time and people just be going to the phone and not be stopping at the front desk.
Kate Fitzgerald: (
Well, actually Google last week at their IOS they don't call it that, but they did do something that catches them up with IOS.
Jim McCarthy: (
Yeah. They're tokenizing again. So again, and by the way, if you go, I think it was the same week. It was either last week or the week before, the NACHA conference, the clearing house announced tokens for real time payments. So, the concept of a virtual credential that is bound to a device, or to me that I can use to unlock services or authorize services. It's going to go across all facets of payments because it's important to, to identify, the user of those services and authorize them appropriately and tokens become the way to protect the underlying payment credential.
Kate Fitzgerald: (
Okay. Well, speaking of which, it seems to me that, several years ago we were talking about streamlining and getting rid of friction. It was so exciting. And now with Europe, introducing the two factor authorization that's required on every eCommerce. So now what stream going backwards or it feels like I wanted to just be able to, you know, I thought I dreamed I won something and it automatically, my car knew that I was buying it when I was on my way somewhere. Coz your car knows where you're going before you get there. But now not anymore, I have to stop authorize, enter passwords. I have to enter the thing on my phone. I mean, this isn't moving, we're moving, but are we moving backwards? And how does that tie in with what you just described with the tokenization across all platforms?
Jim McCarthy: (
Yeah, Oliver should jump in here as well. There's always been a difference between, authorization and authentication. And I do think where the puck is skating, where you're gonna see a lot of innovation is the identity account takeover is the big problem. You know, if you're too easy on the kind of getting through the front door, the frictionless really is a problem. I'll give you the example, cause I lived through it, when we launched an apple pay, the big fraud run wasn't where you'd think it was gonna be, you would've thought like high end goods and services. It was in Walgreens and because all of the issuers wanted to have a really easy onboarding experience for their customer like they're excited and hey, you know, if you have the phone and we think it's you, because you've got the CVV too, you know, the three digit code we're gonna let you in.
Jim McCarthy: (
Well, the fraudster figured out like that and they went to Walgreens and they bought, gift cards off the J hook and loaded them up and it small dollar amounts. And so it flew through every fraud screen, everyone that was green lighted, we had all this fraud and was like, because we made it too easy on the front end to get into the service. Right, so as I come back to it, it's like always layers of things. You can't, you know, fraud will find the lowest weakest point's point, but air gaping, like they will find that point and they will exploit it. So, there is a combination of things. In that case tokens are only as good as the ability for me to bind it to the right person and so when we talk about like cars as an example, great use case, and I love it.
Jim McCarthy: (
We have a client called Car IQ who is big in this space, they're doing all the fleets. They're gonna start to put payment credentials in and what they have is called no year machine technology because they can do a bunch of stuff, telematic stuff off the car to identify the car. But that still doesn't mean I'm the right driver. So you know, the valet or you give the keys to your kid, you need a way to bind the person and what rights they have to the payment credential, so that they can't go off and spend just coz they're in your car or have your phone or iPad.
Kate Fitzgerald: (
Well, it seems like now in many cases, I think discover mentioned they have a deal with car IQ. I don't know if you're part of that same thing.
Oliver Manahan: (
We've discussed. We've had discussions with car.
Kate Fitzgerald: (
Tremendous amount of overlap and it would make sense from, you know, just like if we could all get on the same platform, but at the same time, competition is driving fragmentation and new Google is finally coming along with tokenization, but they have bigger challenges because they're not closed like apple and nobody wants apple to be closed. Where do you see, some of these solutions or I should say, do you see solutions coming together with some of the new technology that that's emerging? What's the most exciting thing you think might solve some of the problems.
Oliver Manahan: (
Yeah.
Jim McCarthy: (
So I think there are two ways to think about it. One that'll always be competition, right. You know, but I do think, and Oliver against you way in here, cause he's lived this and BCO, like you got the networks have to be smart about where they compete and where they cooperate. Even tokens, when we launched the token standard that was alongside MasterCard in American express and discovers come in and since then China union pay and others have all come in because you need a standard for a network to grow effectively. If you compete on the wrong things, like I got a better authentication or identification system, but it only works in this narrow canyon. It's never gonna get adoption because merchants don't wanna have to comply to it. It becomes very difficult in a, in a global, kind of homogeneous fashion. So standards are a big part of anything to work.
Oliver Manahan: (
Yeah, exactly where I was gonna go. Sometimes we compete on the wrong things and when we do that we inject friction, that doesn't necessarily need to be there. So whether it's, you know, ISO 85, 83 on how a message needs to be transmitted, even though everybody's kind of got their own version of 85, 83 or the EMV co specs without those, I don't think we ever would've gotten to a chip migration. And like, as an example, Google slash Android they've now started a secure element consortium to try to get some standard on that because that's exactly what apple was able to do very easily, coz they own their own ecosystem when you get to an Android phone and it's got a number of different stakeholders, then you need all of those players around a table and they're all competitors, but it's like, let's not compete on making this a better thing. Let's compete on who's got the better products and services after we've defined the baseline.
Kate Fitzgerald: (
Is the US limited because of our basic competitive stance versus India where they have a little more home, you know, universal and regulation guiding some of that.
Jim McCarthy: (
I don't know because, I'll just use somebody you brought up earlier. If you believe regulators, get it right then your example about PSD 2, you know, adding more friction, I'm not sure a lot of consumers are happy about it'll get sorted, but you know, regulation's a double edge sword because you rely of people oftentimes that don't understand how things work and they say you're gonna make it work a certain way and the industry will comply, but it doesn't always end well. There's plenty of examples of unintended consequences along the way.
Oliver Manahan: (
It's like building a train track and firing a train down the line doesn't mean it's going in the right direction. So you can do some good things with regulation, but you better make sure you've got knowledgeable people guiding that boat or train or whatever else.
Jim McCarthy: (
And by the way, competition doesn't always get it right. It may take time and it may be ugly. I'll give you the example where we all got it wrong. I'll speak for the networks, the MasterCard, where Albert and I both lived for a while. You know, you build 40 plus years of building, again a homogenous experience for cards at the physical point of sale, and then what do we do come, 2000, 2001, we start building our own wallets, Visa checkout, master pass that compete independently with their kind of hard wired use cases. Then finally the light bulb went off and said, wait a second. We should be cooperating on secure remote commerce and using standards. Tokens is a way to drive a better payment experience for consumers because the consumer's making the decision about where they're gonna bank and what card they want upstream from the point of sale.
Kate Fitzgerald: (
You come back to the consumer. Do you still believe the consumer's driving the bus?
Oliver Manahan: (
Well, I think they're the ultimate arbiter. Only because, you know, if consumers want something bad enough, you know, merchants will follow and the market will get behind the consumer and the consumer was voting. They were voting with PayPal and Venmo and a bunch of other alternatives.
Kate Fitzgerald: (
Well, we're almost out of time. It's amazing to have both these guys here, that was fascinating journey through where we've been and where we might be going. Does anybody have any questions be quickly before we prepare for the next session? I really appreciate it. You guys, thank you.