GonzoBanker’s Payments Mail Bag

I’ve been inundated, GonzoBankers, INUNDATED with questions from our Fair Readers about what’s really happening in the payments world. Maybe it’s because I have an understanding face, or maybe it’s because I’ve carelessly allowed my name to become associated with payments expertise. Whatever the reason is, the payments-related phone calls and letters won’t stop. With a dearth of standards and 120 hungry vendors for each good idea, the payments world is a freaking mess right now. I get why the questions are mounting, so like any good banker, I’ll use the industry’s disarray as an excuse to write an article.

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Subject: EMV Cards  

Dear Bob,

Should I reissue cards with the new Europay, MasterCard and Visa (EMV) anti-fraud chips in them? My risk and compliance guys are all over me about this – and trust me, these are not guys you want all over you. 

Signed,
Scared Chipless

Dear Chipless,

I’d love to give you the green light, but my conscience and Kansan sensibilities won’t allow that – yet. First, we have to wait for Judge Leon’s ruling. If the Judge keeps the current one-brand template in place and your processor can support it, then you should start the reissue program. But be careful. It would be a massive mistake to just assume your processor can support EMV. The real benefits of EMV (true protection for your customers) will only come once the POS terminals are changed and able to support EMV. That’ll easily take three to five years. So, if you’ve done your homework on your processor and the Judge keeps the one-brand template in place, test the EMV waters. But don’t expect it to be the Holy Grail of Fraud Prevention anytime soon.
-Bob

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Subject: Fraud Breach Management

Yo Bob,

Our budget-conscious CFO wouldn’t let me reissue cards that were flagged as Compromised during the Target breach. While it’s probably too late to reissue for the Target breach, I’d love your guidance on how to handle card reissues for the inevitable “next time” a big breach happens.

Yours,
Off Target 

Yo Off Target!

First of all, we need to start reacting to these breaches differently, more proactively. I think you should reissue flagged cards immediately and with extreme prejudice. That means get it done within days of a compromised card getting flagged. If you wait until fraud actually occurs, your bank is going to get blamed and lose customers. Right or wrong, it’s gonna happen. Secondly, you can turn reissuing into a monster marketing opportunity. You are likely going to make about $100 to $125 per year in interchange from each issued card. Sending out new cards as a goodwill gesture to the tune of $2 to $3 each is the cheapest and most leveraged marketing you could ever do. It just doesn’t make sense to be tight-fisted here.
-Bob

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Subject: Instant Issue Cards

Wassup Bob?!

What’s your take on instant issuing cards in the branch? Some tell me it’s more expensive than using a third party; others tell me it’s way cheaper. What’s the truth, and should I jump into instant issue?

Clearly,
I’ve Got Issues

Issues,

This is an easy one: Sign up for instant issue today. When we ran a deep crunch on the numbers, Instant Issue is cheaper on a per-card basis due to the ever rising postage costs associated with postal service mail delivery. But that’s not even the reason you should run to instant issue. The three most compelling reasons for Instant Issue are these:

• Activation Increase: Card activation rates are often 10% higher after Instant Issue is implemented. That means that for every 1,000 deposit accounts you have, Instant Issue can bring close to $10,000 per year in higher interchange revenue.
• From a customer service standpoint, when you are dealing with one of these very large fraud issues, instant issue can be a great customer benefit as you invite compromised cardholders into the branches to reissue a card the next day. Your Trust level with customers goes through the roof.
• The big banks can issue/reissue a card within two business days. The lead times for our mid-size clients that are not doing Instant Issue is more like five to seven business days. Giving a new card to a customer who has been compromised the next day via Instant Issue levels the playing field.

-Bob

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Subject: Prepaid Cards

Coach Bobby,

I’m the COO of a bank with 100,000 traditional cards, and last week we rolled out prepaid cards in the branches. What’s the problem, you might ask? We sold five prepaid cards last week. Not 5,000. Five. And three of those were purchased by employees. I’m not even joking. What the hell are we doing wrong?

Best,
Screwed the Pooch

Dear Screwed,

Some of my more cynical associates might say your first problem was that you tried to roll out prepaid cards. I, being a progressive payments guy, am not in that camp. No Sir. I believe Prepaid has a lot of potential when done right.

Most prepaid cards are so laden with fees that almost no one can understand the benefit. If prepaid usage follows the standard card usage trends, banks are likely going to make $100 of interchange per card per year. Why pick on this product to fee them the equivalent of another $35 to $50 a year in product fees, load fees, etc.? What consumers need is an easy to use, low fee card that they can easily fund from their other accounts. We worry so much about replacing dwindling non-sufficient funds and overdraft protection income that we try to make every new product fill the gap in one fell swoop. Look at prepaid cards as a way to drive loyalty and make life easier for your customers (and not as the Lone Savior of Fee Income), and your prepaid acceptance and usage will skyrocket.
-Your pal, Bob

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And so ends the first installment of our Payments Mail Bag. I wouldn’t be an Official Payments Prognosticator if I didn’t throw out one bold prediction in this article: I believe that by 2017 we will start to see “bankmobiles” plodding through small, rural communities. As banks consolidate and invest in remote means of banking, they will be in danger of leaving a new segment of the rural communities as unbanked. I see huge RVs with satellites, ATMs and personal bankers/customer service reps rolling into rural towns to help the baby boomers with their banking needs. If I wasn’t so damn old, I’d roll out a fleet of my own. Stay tuned.
-BR

Shout out to fellow GonzoBanker Scott Hodgins for his first-rate contributions to this article.

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