The hard and hidden costs of running a card programme, and how to reduce them
If you want to launch a card programme then, after how , the next question is how much?
In these difficult economic times, never has it been more important to undertake a vigorous cost analysis before venturing out into unknown commercial territory. And launching and maintaining a card programme is certainly no exception. Fail to recognise the true potential costs of your new venture and you could find your business paying a high price.
There are many ways to fulfil your card programme ambitions and some are decidedly more costly than others. In considering which route to take, there are some costs, such as the initial set-up fees and ongoing recurring fees, that will be relatively easy to predict, but others will be harder. And, as recent research suggests, it’s those hidden inefficiencies that are actually the most damaging and could have a bigger impact on your business long-term.
How much does managing your card payment processing cost? The hard facts about the hard costs
Choose to go down the conventional card issuing route and you’ll be navigating a complex ecosystem, comprising of a scheme (usually Visa or Mastercard), BIN sponsor, Card Processor, Payments Clearing Partner, Card Manufacturer, 3-D Secure provider and tokenisation providers, to name but a few.
There will be a lengthy and potentially expensive setup process, one that you will have to oversee, with each stakeholder representing a separate relationship to procure, to manage and, ultimately, to pay for. Initially, there’ll be development work to support these new integrations and you may need to re-architect your own platform in anticipation of holding future balances and managing authorisations. There’ll be up-front fees to pay to join Visa or Mastercard and you’ll need to invest in new internal processes to manage the scheme reporting and compliance requirements. With all of these, you will pay higher unit costs due to having lower volumes and you will also have an array of regular management fees.
In addition to the ongoing relationship management with multiple vendors, there’ll be cost implications for the development work that will inevitably be required to keep up with schema changes, as well as the costs associated with managing any outages and downtime. There’ll be recurring card scheme costs too, including annual membership fees, and you’ll need to invest in ongoing training for your staff to ensure that you retain the relevant expertise to ensure continued programme compliance.
Hopefully you’ll choose a Card Issuer that doesn’t rely on retaining all the interchange as a source of revenue. Not to be confused with the card fees, interchange is the fee paid by the merchant’s card acceptance provider (acquirer) to the card issuer each time a card payment transaction occurs. It is the issuer who traditionally receives the bulk of the fees but some will share this with their customers. So, as always, choose wisely as this can offer additional revenue opportunities, particularly for those looking to launch corporate programmes.
Beware the hidden inefficiencies in your card programme
But, as well as the hard costs, setting up and administering a card scheme also incurs hidden costs for businesses, and as recent research suggests, these can actually be more damaging.
For example, the team hours you may spend on managing your complex card ecosystem also comes with hidden costs. The hard cost is the salary paid against the quantifiable hours spent on the manual management process, while the hidden cost is where those hours could have been better spent, as well as the impact those hours could have had on things like customer experience and satisfaction, interdepartmental coordination, competitor differentiation, brand reputation and business agility.
Dealing with the significant overhead of running your card programme and handling such a complicated partner network will require considerable time and money, all of which will draw your focus away from the business of, well, doing business.
Instead, your time will be spent managing the ongoing relationships, on the regular reporting and management of disputes/chargebacks, and all the chasing up and daily monitoring of treasury and settlement to the payment scheme. And we know this because our team has a lot of collective experience of running complex historic card programmes. We are only too aware of the pain points and reducing the friction for others has become one of our key internal drivers when creating our own offering.
Having such a complicated supply chain may compromise your ability to offer a responsive service, with all the complexity resulting in added friction, at every touchpoint, both for you and for your customers. The scheme may take longer to launch and even when it’s up and running, there could be delays in the card approval and issuing process which will frustrate consumers used to the many advantages of the Instant Economy – an economy of instant experiences, instant information and instant services. These frustrations will be to the detriment of the overall customer experience and the cost of this is likely to be far-reaching.
Card issuing, reimagined
Fortunately, nowadays there are less complex, more efficient and more cost-effective routes to running a card programme.
Thanks to the transformative effect of digital technology, it’s now possible to reimagine a lot of traditional ways of doing things. The emergence of Banking as a Service (BaaS), has facilitated the provision of financial processes, such as card issuing, through modern API-driven platforms, resulting in a better end-to-end journey both for those running card programmes, and for those using them.
By harnessing these digital technologies, it’s never been easier for brands to incorporate physical and virtual cards into a customer proposition by partnering with third party BaaS providers who can help them build out a card programme more efficiently and more cost effectively than they could on their own.
How to reduce cost and complexity in your card programme
The key to reducing cost is to reduce complexity by finding a partner who can help you consolidate your supplier stack with a simple, one-stop solution. Nowadays, there's no need to patch together different providers. Opt for a managed, full-stack platform and you’ll be able to leverage your partner’s existing relationships to get up and running quicker.
You’ll find that the process of setting up your card programme is both simpler and cheaper. The development work, and all its associated hard and hidden costs, will be limited to integrating with the one API, rather than multiple new integrations. A full-service provider will manage all the complexity for you; orchestrating between the players in the space. And, if you find a partner that is a Principal Issuing Member of both Visa and Mastercard then all the better, as this removes another layer of cost and complexity.
With a single party to work with, you’ll enjoy an easy-to-manage relationship with one commercial agreement, one set of SLAs, one technical integration and one operational interface. Any future development work required to keep up with scheme changes will be managed externally, as are the complex operational processes and compliance obligations.
Your internal resources won’t be spent managing downtime, disputes or chargeback issues. Instead you’ll enjoy simplified processes that save your back-office team valuable time, while outsourcing the more complex, costly requirements, which will also reduce the need to onboard and train members of staff in new roles.
The Modulr approach to card programmes
By partnering with a provider that’s free from the operating constraints of the traditional, legacy card issuing system, you’ll reap the benefits of their innovation. Cutting-edge APIs will enable you to integrate with the least effort and to take a modular (or even Modulr) approach; adding on functionality as and when you need it, or as new features become available, rather than having to constantly reimagine your entire technology stack. You’ll also be able to incorporate API-driven automation, and that’s where the real efficiencies can be found; replacing manual error-prone and time-consuming processes with real-time and responsive, digital ones.
Reducing the hard and hidden costs and resource overheads of managing suppliers, technology and the requirements of your card programme in this way, will enable you to focus on activities that grow your customer base and revenue, such as new products and services and delivering a great customer experience - an experience which will be further enhanced by having the physical touchpoint of your very own card.