Payment cards are booming. In the UK, startups like Curve, Pleo, and Soldo are enjoying huge success by reimagining the uses of the humble debit card, and the number of businesses providing either physical or virtual payment cards as a core part of their offering is rising exponentially. And the most surprising thing about those businesses? Virtually none of them are traditional banks.
This explosion has been made possible by a big shift in the card issuing and payments landscape. And that shift has major implications for the future of banking - and potentially huge benefits for your business.
How are the new generation of card issuers different?
Until recently, launching a card offering was an extremely costly and time-intensive process. Businesses would have to develop a relationship with one of the small number of legacy issuing institutions, a process that could take many months. Then they would have to plough significant development resources into integrating their product with the issuer’s technology, which was likely bespoke and extremely opaque. The costs involved were significant - generally too high for all but the best-funded businesses.
That all changed with Marqeta. Launched in 2010, the California company was the first new entry into the card issuing market for two decades. Marqeta took a new and modern approach to their product, and they quickly began to challenge the dominance of the legacy institutions.
Now, a whole new generation of card issuers is following suit. Companies such as Adyen and Stripe now offer card issuance as part of a complete payments solution. Through the innovative use of new technology, a move to cloud-based services, and a radical rethink of pricing structures, this new cohort is dramatically widening access to the world of payment card products. These new issuers:
- Allow customers to integrate their services through open APIs. This approach maximises interoperability with existing technology, and dramatically simplifies implementation and operation.
- Offer every element of the process through one integration. From KYC through to physical or virtual card fulfilment, the leading issuing platforms offer end-to-end solutions.
- Take a platform approach. Adyen, Stripe, and their leading competitors offer card issuing services as part of a comprehensive payments platform. Card issuing and management is just one part of a one-stop solution covering the entire payments process, which customers can understand and control at levels of extreme granularity.
What are these cards being used for now?
In the UK and beyond, new startups and existing players are putting payment cards at the heart of new products and services. These include:
- Digital-only banking. The new range of card issuers has helped enable the growth in digital-only banks. Challenger banks have benefited from the lower outlay and shorter lead times involved; for example, Transferwise use Adyen to fulfil their card operations.
- Merchant payments. New card issuers are making big plays for the retail marketplace sector. Marketplace businesses are increasingly distributing their own branded cards, and making payments directly to them. Small merchants can then use their funds immediately, and for whatever day-to-day spending they wish.
- Expense management. Controlling and managing expense payments is a major resource drain for businesses of every size. Employees have to collect receipts and often spend hours every month inputting their expense claims. Meanwhile they are out of pocket, sometimes to the tune of hundreds of pounds per month. A range of startups are combating this through dedicated card offerings, with spending controls applied by the employer and transaction data automatically collected.
- Employee retention. Card issuers are also making a play for the employee benefits market. Rather than relying on vouchers, reimbursements, or complicated benefits portals, employees can be provided with pre-loaded cards for use only with approved merchants.
- Controlled disbursements. There are many situations in which businesses might need to make disbursements but would rather not do this by conventional transfer. Card offerings make this possible. For example, insurers might pay claims through a branded card unlocked for use only with pre-approved merchant types, streamlining the settlement process and providing a more joined-up customer experience.
- Alternative finance. The new card issuers are keen to highlight the potential uses of their services in the world of alternative finance. The point-of-sale ‘buy now pay later’ model is now booming online, and much of that growth has been facilitated by the use of virtual cards. The most prominent example of this is the partnership between Marqeta and Klarna), the alternative consumer finance company. Klarna uses Marqeta’s platform to issue virtual cards real time and fund them on a Just-In-Time basis, enabling the lender to deliver a frictionless experience for shoppers.
What do new card issuers mean for the future of payments?
This quiet revolution in card issuing comes in the midst of broader, sweeping changes to the payments landscape more generally.
In the broadest sense, the boom in card offerings will likely continue the weakening of the link between consumers and banks. Consumers are becoming increasingly comfortable entrusting elements of their financial life to non-bank organisations, and this trend looks set to continue, thanks in part to the ability of smaller and newer market entrants to produce their own card offerings.
More flexible card issuing may also enable further growth in alternative finance. The partnership between Klarna and Marqeta shows one potential route, but it seems likely that we will also see the expansion of this model into physical retail environments. Similar changes seem inevitable in business finance, with more and more B2B lending being carried out through instantly-issued virtual (or physical) cards.
In the UK and Europe, the introduction of Open Banking (or PSD2) will continue to cause radical changes in the payments landscape, and card issuing will play a major role in this. Perhaps the most important theme of Open Banking is widening access to data. Rather than being siloed in individual institutions, consumers now have the option to make their financial data available to third parties. In the UK, apps like Emma are making impressive use of Open Banking by adding an additional ‘layer’ on top of multiple accounts and providing consumers with insights into their spending and saving. It seems inevitable that a new wave of fintechs will continue to explore the possibilities of Open Banking, and cards will certainly be at the heart of many of those projects. The financial services industry knows very well that consumers crave transparency when it comes to their finances; a recent survey from Mastercard’s Ethoca found that an overwhelming 96% of consumers would prefer to have access to detailed purchase information including digital receipts and shipping information for online purchases. The new ease of access to card issuing services, combined with the sweeping changes introduced by Open Banking, means that innovative fintechs will be able to meet this consumer demand quickly and efficiently.
What about the future of banking more generally?
The rise of the new card issuers also reflects some key trends in the general banking landscape, and gives some clues as to where the industry is heading.
The launches of Marqeta and its competitors are part of the huge transformation brought about by the advent of Banking-as-a-Service (BaaS). The leaders in the BaaS field have delivered a paradigm shift in transparency, accountability, and customer-centric approaches, and they will continue to radically change the banking landscape. Card issuance is a key element of the BaaS field, but it is only one part of a huge ecosystem. Today, it’s possible to launch entirely new financial products in a matter of months - in fact, at Dashdevs we did exactly this, delivering the highly popular UK digital-only bank Dozens in partnership with Pi1, one of Europe’s leading cloud-based BaaS platforms.
The new approach represented by BaaS is based in great part on the use of open APIs. Rather than having to negotiate with old, bespoke, and confusing legacy systems, companies of virtually every size can build services quickly and easily through simple API integrations - as we’ve seen with Marqeta, Stripe, and others. In the coming years this new simplicity will lead to an even wider range of new entrants to the financial services market, with nimble startups able to turn good ideas into solid products in record time and with low outlays.
At the end of 2019 Angela Strange, of VC giant Andreessen Horowitz, predicted that “every company will be a fintech company”. Strange believes that soon “nearly every company will derive a significant portion of its revenue from financial services,” a shift that is being made possible by BaaS. From new, dedicated card issuers all the way up to complete BaaS platforms, there is now an entire ecosystem providing businesses with the tools they need in order to add deep financial services integrations into their existing products, or build entirely new ones, in a way that has never been possible before.
So how does my business get started with card issuing?
There’s never been a better time to integrate a card offering into your existing business - or, of course, to build the new products you’ve been dreaming of. All you need is the right partner.
At Dashdevs we have deep expertise in card issuing and payment services. We can support you through every step of the process, from development and design through to management and manufacture. With our hands-on experience and industry-leading technical knowledge, we can help you deliver a world-beating product.
Want to talk about your idea? Get in touch today.