“For many issuers, virtual cards form part of a broader strategy to modernize platforms that support digital-first processes to deliver superior products and service experiences to customers,” said FSS’ Deputy CPO, N Sathish.
FSS (Financial Software and Systems) Technologies was the first to launch virtual cards for a private bank in India. Since then usage of virtual cards in India has been growing steadily in the banking, digital payment, e-commerce and other segments.
FSS has built its Unified Issuance Platform that enables these virtual cards for NBFCs, neo-banks and digital-only banks and helping address customers’ payment needs.
In this interview, FSS Technologies’ Deputy CPO, N Satish talks to TechHerald about the company’s journey, virtual cards’ growth, market opportunities and its usage in India. He also discusses the challenges of frauds and how FSS Technologies is addressing them with tokenization and much more.
Q1. FSS was the first company to launch virtual cards in India. So, have been its journey so far in terms of growth, opportunities, and its usage?
N Sathish: FSS is a global leader in card issuance, powering 800 million cards globally. As a market leader, FSS constantly aims to bring new innovative solutions for its wide customer base. The company was the first to launch virtual cards for a leading private bank in India. Virtual cards can be single-use, reloadable or multi-use, and they also work as electronic wallets or e-wallets (e.g, storing funds used for purchases and more).
At its core, virtual cards have three value propositions for customers: speed, immediate availability, and security. For issuers, virtual cards are a cost-efficient way to issue cards and deliver a differentiated service experience to their cardholders. Issuers for instance can achieve cost-savings between Rs 100 million to Rs 150 million on issuance of 1 million virtual cards.
The payments economy today is digital, driven by the widespread adoption of mobile devices and consumer appetite for purchasing online. In India alone, digital e-commerce sales, according to industry estimates, grew by over 32% in the last year to reach $794.5 billion. The pandemic has accelerated demand, with growing customer concerns over the transmission of the virus through physical cards and reservations against visiting the bank branch.
To deliver the choice and flexibility that consumers need, issuers are increasingly launching virtual cards for customers to enable in-store and online payments. Over the last 12 months, across card issuers, virtual cards have recorded between 15% and 20% growth. At one of the largest private banks FSS works with, the number of virtual cards has registered 30% growth — from 6 million to 8 million cards in the last 15 months.
Q2. What is FSS’ strategy in driving the adoption and usage of virtual cards in the Indian market?
N Sathish: For many issuers, virtual cards form part of a broader strategy to modernize platforms that support digital-first processes to deliver superior products and service experiences to customers.
At the backend, virtual cards are powered by FSS’ Unified Issuance Platform. We have adopted a two-pronged approach to expand our overall market share for our card issuance products. On the one hand, we address established bank issuers to modernize legacy card systems to support new form factors and API-driven payment flows including virtual cards.
And on the other hand, we work with NBFCs, neo-banks and digital-only banks, who unencumbered by legacy systems, are deploying modern API-driven systems to address the growing payment needs of their customers.
Our vast experience in powering issuance for 240 plus financial institutions across the globe, as well as flexible commercial models, makes us a preferred technology partner. Buy-side institutions benefit from flexible deployment options. Our card management platform can be deployed and consumed, on-premises, through the public cloud or on FSSNeT – FSS secure private cloud, eliminating upfront capital investment and reducing the overall cost of ownership.
Q3. Do you see any major challenges in the Indian market pertaining to virtual cards?
N Sathish: Virtual cards in India are still at an early adoption phase and are evolving rapidly with the growth in demand for contact-free and online payments. Using virtual cards, cardholders can perform a range of transactions – send money, recharge their mobile, pay bills, shop online, conduct card-less ATM withdrawals, and perform contactless transactions in-store.
The cards can be expanded to support multiple retail and corporate use cases including buy now and pay later at checkout, payments to gig workers or instant card to employees to meet the corporate-related expense.
Despite the potential, many issuers are yet to tap into consumer as well as corporate segments and develop value propositions that are truly compelling. Most issuers, and banks, in particular, have restricted virtual cards to a single transaction, or online commerce alone, inhibiting wide adoption.
Further, they have traditionally not marketed virtual cards as part of their digital payments app or wallet strategy resulting in slower adoption. Issuers also need to develop ecosystem offerings based on the broadening of partnerships to scale adoption. Bank issuers, for instance, need to expose APIs to third-party payment providers to embed virtual cards, which entails they adopt a collaborative, open services approach.
Q4. From a technology perspective in which direction virtual cards have evolved so far and are moving n the next few years?
N Sathish: Instant card issuance via virtual cards is a key differentiator in meeting account holders’ needs as well as driving higher activation rates, increased usage, and program cost savings. Given the early stages of adoption, and the move towards greater digitalization, there is significant room for growth. Whilst issuer approaches to the market would vary based on individual growth and business strategy, the composition of users of virtual cards is evolving to encompass diverse segments. Emergent opportunities include:
Online Payments: With many customers shopping online, many service providers are launching e-commerce prepaid cards. Further issuers have an opportunity to tap into the current Buy Now Pay Later market. Current Pay Later products at the checkout whilst convenient do not guarantee customer stickiness. Issuers can embed virtual card products along the path to purchase allowing consumers to select the payment option ahead of a purchase, at the point of sale, and after a sale.
IoT and Payment of Things: With the payment of things, becoming a reality, virtual cards will form the backbone of emerging IoT payments and represent the future. For example, a connected car can host a virtual, tokenized payment card, which enables cars to pay for surrounding services at gas stations, tolling, parking, drive-in restaurants.
MSME Payments: The Indian economy is home to 63.3 million micro and small, medium enterprises which provides employment to 15% of India’s population. Prepaid cards are a cost-efficient way to pay suppliers as well as blue-collar workers, who are largely under-banked.
Unbanked Segments: Virtual cards have the potential to bring millions of blue-collared segments into the formal economy and also support the nation’s successful march towards Digital India. For instance, governments can credit funds into a customer’s virtual card- fostering greater financial inclusion.
Q5. How is FSS keeping helping banks keep themselves abreast on the security front and making products like virtual cards highly secure and fraud-free?
N Sathish: A study by LexisNexis Risk Solutions shows that for every dollar of fraud, financial services companies incur $2.92 in costs, up from $2.67 in 2017, representing a 9.3% Y-o-Y increase. Current counter-fraud measures primarily limit the velocity and the volume of transactions at a per-customer level and are inadequate against evolving intensification of fraud attacks.
FSS is helping banks with new technologies such as tokenization and risk-based authentication systems to safeguard customers and minimize risk. Tokenization masks the customer card number with a random number, rendering the card details useless if the merchant or bank systems are hacked.
Fraud detection strategies that bring together cross-product and cross-channel data, and apply intelligent machine learning models, can help in proactive detection of fraud signals. Risk-based authentication enables banks to verify legitimate customers by analyzing their transactional and behavioral profile leveraging a range of variables such as transaction amount device, merchant, location and, shipping address.
For instance, if a customer transacts at a specific location in Mumbai and initiates another transaction at a location 20 km away within a short span, the transaction would be immediately flagged.
In addition, programmable spend controls allow cardholders to control where, when, and how cards are used. Consumers can set transaction limits for dollar amount limits, merchant categories, transaction types and geographic location. For instance, customers can set a limit of Rs 5,000 spend daily on a specific channel or merchant or location, minimizing loss due to card stolen events.