In the world of payments many companies deal either with issuing or acquiring of card transactions. This is surprising to some extent, because the nature of these activities lies on the infrastructure of the same entities – predominantly Visa and Mastercard. To go even further a principal membership in the schemes allows a company to do both acquiring and issuing.
Why then are companies reluctant to provide both type of services. The answer lies in the required technology and the competition landscape.
Card issuing requires an API and card management system that is robust and rich in functionalities. Very often a good API documentation contains 100+ pages and the technology behind it is no simple matter. Then to build on that complexity you need a whole team to take care of the physical issuing, packaging and distribution of the cards. On top of all that a customer service unit needs to be available to the cardholders 24/7 in case of a card being stolen or lost. To add to the complexity of technology there is tough competition in the issuing market coming from the mainstream commercial banks. They already have all the functionalities needed and can provide good customer service and add the cards easily to the existing bank account infrastructure.
On the contrary, card issuing can complement card acquiring very well. It is already happening with FinTechs around the industry in specific niches. For example, a payment facilitator that is processing the card payments for its merchants can build on its proposition and add business cards. This could be quite useful to the merchants, so that they can pay their own suppliers and earn cashback, which essentially makes some of the supplies for the merchant cheaper, ultimately improving their bottom line. This solution adds value also to the payment provider by increasing satisfaction of the merchant and subsequently retention. Additionally, there is the extra revenue from the associated fees.
The cherry on top is that when these business cards are issued within the same environment in which card acquiring is taking place, then upon negotiation with the provider the merchant can access the funds even quicker and not have to wait the 3 business days for the transfer to take place and move the money from the acquiring account to the bank account.
If a company is already a program manager either for Visa or Mastercard – business or personal, then they are already in the payment processing business. Most of the time what a company needs in order to be a payment service provider for card acquiring, are the contacts in the industry to be able to connect a merchant with an acquiring bank. It is a simple independent sales organization contract between the acquirer and the payment service provider. The acquirer takes care of the underwriting, onboarding and traffic monitoring and the payment service provider take care of the relationship with the merchant. For someone who is already on the issuing side, offering acquiring services creates another revenue stream purely from the client relationship that already exists.
When we are looking at the travel industry for example, a booking agency can benefit from accepting card payments, but also having business cards issued. It is a simple business case – issuing and acquiring with the same partner guarantees better financial flow. Pending settlement from Visa and Mastercard take a few days, but so do outgoing payments with a business card. In other words, while the travel agency is waiting for the client money to hit their account at the acquirer, they would be able to use the business card issued by the same provider to pay vendors. In practical terms this means instant access to the finance that usually take 3 days. No working capital needed.
Another example can come from the online gambling industry where players are used to instant payments via card but must wait days to receive their bank transfers. Using a product such as Visa Direct allows the gambling operator to make payments instantly, and if the operator issued the card via their payment provider, they could also add another revenue stream to its bottom line. How? Simple – every transaction made with the player’s card will yield a cashback for the merchant.
There are many more applications to combining acquiring and issuing. Yet it is still easier said than done, because a lot of the time a payment provider would have been sitting on one side of the card business and would find it difficult to visualize how the processes on the other end work. A good idea is to initiate a conversation with a principal member of Visa and Mastercard who does both acquiring and issuing within the same organization and request to meet with representatives of both acquiring and issuing in the same room. Once the ideas are flowing and there are experts to support them some very interesting business cases come out on the other end.