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A Look Ahead to U.S. Retail Banking in 2016

Top retail banking executives, at institutions both large and small, are expressing a mix of optimism and uncertainty as they look ahead to 2016.

Self-Service Revolution

Customers are migrating to electronic channels, making payroll reduction a necessity, but they still desire the same, or an improved, level of service.

Keeping Family Cards in the Family
Flexible card management software enables customers to provide funds to their teenagers while still keeping a tight watch over spending and security. by JIM SCHLEGEL
Sep 30, 2010  |  0 Comments

In search of new revenue streams and competitive differentiation, retail banks are challenged to explore new customer channels and products while keeping an eye on cost and regulatory constraints. One strategy is to focus on vertical expansion of current product portfolios rather than horizontal forays into new technologies; family cards are a prime example of this type of vertical product innovation.

Today’s consumer-driven teens wield $200 billion in spending power, according to market research company EPM Communications. And this consumption is on the rise, as a Piper Jaffray Spring 2010 survey found that teen spending is up 31% from spring 2009 levels. By offering family card products, banks can tap into this burgeoning market and help parents gain a comprehensive view of – and control over – their children’s spending.

With family cards, individual family members – including extended family networks such as grandparents, household employees or daycare providers – receive their own credit or debit card with spending limits set in advance by the primary account holder, such as the parents. All transaction activity is then consolidated by card number into one statement.

For the primary account holder, family cards offer a means to more efficiently manage and track their children’s spending as well as family expenses as a whole; conveniently manage weekly allowances; easily transfer money when needed; and even grant control over where purchases are made. For the individual card holder, family cards offer convenience as well as security against theft or loss, when compared with carrying cash. Family cards also introduce the young card holder to the banking relationship while teaching the responsibilities of credit and budgeting.

In the past, banks and card processors did not have the means to easily create family card-style products as the card issuing platforms were structured in a way that equated the card holder with the account holder, with no way to break that relationship. Today’s more flexible card management software applications, however, allow banks to establish fairly complex relationships between card holders and their accounts. Modern card and account management systems enable dynamic relationships between the three main card account entities: the physical card, the consumer (or card user) and the account holder with the financial relationship with the bank.

Business Rules

The authorization controls on family cards enable account holders to essentially set up business rules for each of the individual cards such as security profiles and different spending limits, including limits within specified time periods, e.g., by day, week or month. Each activity contains a specific set of transaction data including occurrence date, transaction amount and the card that is making the authorization request. Activity can be restricted when it does not comply with the authorization policy associated with the particular card.

For example, the system can alert the primary account holder when the card assigned to his 13-year old son is used to purchase something over the specified $100 spending limit or at an unauthorized location such as a liquor store. The transaction can then be denied. Customized authorization and spending controls such as this can be implemented quickly through special software scripting capabilities.

Security issues also play into the card management of family cards. For instance, if one family member loses his card, a bank can block the specific card rather than freeze the entire account. Instead of having to re-issue all the cards as the account was compromised, the account can be tracked under special processing by a fraud analyst to identify suspicious activity associated with the lost card in particular.

Detection software compares the characteristic of each transaction with recorded patterns of behavior for each cardholder and can then assess the risk of each transaction using a variety of parameters and accumulated statistics, which the system maintains and recalculates in real time.

Modern card management software solutions that allow for the complex relationships of products such as family cards need to be based on the core principles of openness, flexibility and efficiency. A common core of technology is used within these products to ease integration, set up and management. At the heart of each of these products is a strong, flexible, message-based design. This highly modular approach means that the system can be upgraded, modified and supported in discrete areas without impacting other parts of the solution.

These solutions also allow organizations to improve customer service levels by providing a comprehensive view of account activity and cardholder status in real time from one application. The solution provides flexible integration points to other applications and data within an organization to support the 24/7 access to money, services and information required by today’s consumers.

As we look to the future, the exploding prepaid market cannot be ignored and we anticipate the intersection of family cards and prepaid cards to accelerate. According to the Mercator Advisory Group’s prepaid market forecast for 2010-2013, the total dollar amount loaded onto prepaid cards will reach $672 billion by 2013, which is more than double what was loaded in 2009.

Currently there are two kinds of prepaid cards – open loop and closed loop. Open loop cards are essentially prepaid Visa, MasterCard, Discover or American Express cards and can be used wherever these networks are honored. Closed loop prepaid cards are sold by merchants and can only be used at their locations. Family cards already closely resemble open loop prepaid products such as prepaid debit cards that are marketed as “teen cards.” These products enable children to possess some spending power without the responsibility of being tied to a checking account.

With the Mercator Advisory Group predicting that the open loop market will exceed the size of the closed loop market in 2012 by more than 60 billion, the prepaid open loop market is seen as the future of prepaid. With their flexibility and payment options, prepaid open loop products will likely serve as an innovation engine in driving adoption of banking relationships that otherwise would not be available to consumers with traditional debit and credit card products – such as the increasingly influential, but typically unbanked teenagers.

Mr. Schlegel is a senior product manager for retail payments products at Elkhorn, Neb.-based ACI Worldwide Inc. He can be reached at james.schlegel@aciworldwide.com.


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