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Instant (issuance) gratification

Oct 24, 2016 / Payments

Diapers. Pizzas. Ugly sweaters with reindeer on them, just in time for the winter holidays. Today’s consumers expect to order just about any item online in seconds and have it delivered to their house within hours. Yet if all of this marketplace bounty is paid for via debit card, then why not have the card itself dispatched just as fast? Or faster?

When it comes to this favored payment vehicle, fewer consumers are willing to wait eight to 10 days for a new debit card to arrive in the mail. Enter instant issuance: a system where banks create debit cards for new or existing customers in a branch within seconds. In the past few years, instant issuance has evolved from a leading-edge service embraced by tech-savvy banks to a must-have offering, bankers and industry on-lookers say.

“As consumer preferences evolve, it’s important for banks and retailers to adapt to meet their needs,” says Dean Rowley, head of consumer payments at TD Bank. The Cherry Hill, N.J.-based bank (with assets of $280 billion) was one of the first to digitally print, encode and issue debit cards to customers in its branches. That was seven years ago, when the technology was “state-of-the-art,” Rowley notes. Since then, “instant issuance has become a customer expectation.”

Much like remote deposit capture—another high-tech banking service now considered table stakes—“instant issue really started with community banks and credit unions as a service differentiator,” says Sarah Grotta, director for the debit advisory service for Boston-based Mercator Advisory Group. That may come as surprise, given that small banks are often seen as technology laggards rather than leaders.

Nowadays, most big financial institutions have also entered fast-issue mode. And Grotta says this uptick in “instant issue installs has a lot to do with replacement of compromised or perceived compromised debit cards.” Dating at least to the $252 million Target data debacle of 2013, online and offline breaches targeting point-of-sale systems, credit and debit database heists, and plain old-fashioned card theft have created panic for consumers–and exploded expenses for banks, which bear the cost of issuing new cards.  

However, through instant issuance, banks can save much of overhead cost, including printing and mailing, Grotta explains. (The in-branch printers tend to be smaller and cheaper.) Meanwhile, banks give customers the satisfaction of putting a new debit card in their hands immediately, and thereby run a much lower risk of losing wallet status to another card. To that end, Grotta is seeing banks begin to integrate on-the-spot credit card decisions into their instant-issue programs, so that they might hand out credit cards from the branch as well.

“Customers expect quick service, and instant issuance allows the bank to provide the customer with a debit card that works as soon as they open their account,” echoes Greg Houlette, senior vice president for Happy State Bank and Trust Co. of Happy, Texas. “They don’t have to wait for a card to arrive in the mail several days later.” Virtually all of the 82,000 active debit cards issued by the $2.4 billion-asset bank have been created on the fly at any one of its 35 Texas branches. “Our customers love the convenience,” Houlette adds.

But instant issuance is not without its obstacles, experts say.

With so many tech-focused initiatives vying for resources in banks’ ever-shrinking budgets, the immediacy of instant debit cards sometimes gets postponed, says Julie Conroy, research director for Aite Group LLC of Boston, Mass. While the cost for in-branch printers and software is steadily decreasing, the recent need to incorporate chips into any card adds time, cost and complexity to the process, she notes.

Much of this service growth also stems from the need to replace cards quickly after a security breach arises. Additionally, industry insiders point up the importance of managing risk in instant issuance programs themselves. Rowley says that TD Bank uses “a unique key infrastructure with enhanced digital encryption that supports instance issuance security,” and maintains no more risk exists from a card issued in the branch than one mailed to a customer’s home.

He points out that “instantly issued cards could be considered safer because the customer is handed the card in the store; therefore it is not mailed” and thus can’t be stolen en route. A card issued on the spot gives customers greater peace of mind and limits interruption in its use, he says.

Conroy concurs that when a bank hands a consumer a newly minted debit card, verifying identity in the branch is vital for the bank’s security.

“Branches have long had the need for strong identity verification, since they conduct transactions like cash withdrawals on a daily basis,” Conroy says. “The processes and procedures are very similar to those in place for other sensitive account transactions in the branch, such as wire transfers.” And Grotta points out that debit networks offer instant issuance guidelines that outline the physical security of the in-branch printers—and protect data in transit from branch systems to card management systems,

Experts say banks experience multiple payoffs when they rush that plastic into the hands of eager customers. These include higher activation and usage of the bank’s debit card; greater customer loyalty; less costly issuance; and potentially greater opportunities to tie this service to other business-building opportunities.

For example, Grotta says some banks offer customers incentives to use a brand-spanking-new card right away, such as “a free cup of coffee at a nearby shop if you use your new debit card.” And other banks use instant issuance as a jumping-off point to gauge customers’ interest in the bank’s mobile payment service. “Banks certainly want to make sure their card is top of the mobile wallet too,” he adds.

Houlette and Rowley both say their future plans for instant issuance will likely incorporate mobile payment.

Rowley spies the future this way: “I personally believe that the trend of convenience-focused banking could eventually lead us in the direction of card-less banking through enhanced digital capabilities. It’s possible that in the future people will get a digital representation of a card via a digital wallet, like Apple Pay, or some other provisioned version instead of being handed a physical card.”

In other words: When the plastic disappears, instant issuance might not even require the issuance part as we know it.

Karen Epper Hoffman has been writing about banking and technology issues for nearly a quarter of a century.