Prepaid Card Program Roles and Responsibilities

Transcription

1 Prepaid Card Program Roles and Responsibilities A Prepaid Primer for Clients of E&S Consulting Brand Association Issuing Bank Program Manager Distribution/ Marketing Partner Transaction Processor Plastics Vendor Consumer Reload Network E&S Consulting July 2011

2 Executive Summary When companies start new prepaid card programs, they often assume that experience with issuing credit cards will prepare them for running a prepaid card program. But in our 50 years of combined experience, we have found that prepaid card programs are very different from credit card programs. On the surface, the prepaid program value chain is somewhat similar to that of credit cards, including an issuing bank, a program manager/marketing partner and an issuing transaction processor. However, as opposed to the credit card industry, which has seen heavy consolidation and a declining cardholder base in the past 5 years, the prepaid market is growing and changing rapidly both in size and complexity. A recent research report stated annual prepaid card growth of 22% in Plus, there are currently over 20 different prepaid card vertical markets, all with their own rules and risk profiles. Federal and state regulations that govern prepaid card programs change frequently and the penalties for noncompliance can be steep including jail time and exorbitant fines Prepaid card programs are just different, from the players involved to the Brand association rules to the cardholder behavior. Despite several high profile IPOs recently, the prepaid marketplace is still highly fragmented. The players are generally smaller, and each has unique strengths and weaknesses. As the prepaid market grows more and more complex, value chain participants become more and more difficult to assess as potential partners. New prepaid card programs should consult with experienced prepaid professionals to ensure a profitable program. This paper contains an overview of the roles and responsibilities associated with common prepaid card programs. 2 P age Confidential

3 Prepaid Card Value Chain Brand Association: Visa MasterCard Discover Amex Private Label Issuing Bank ACH Processor Merchant Acquirer Program Manager Distribution/ Marketing Partner: Employer ISO Retail Store Lead Generation Companies Transaction Processor(s) Issuing Acquiring Plastics Vendor Consumer Reload Network Roles Program Manager Definition: The program manager runs the card program on behalf of the issuing bank. The program manager is responsible for: Program definition and strategy Card operations and support including fraud prevention Cardholder customer service Cardholder website, IVR Plastics design and procurement Card mailers/ marketing collateral design and procurement (including terms and conditions) Initiating and monitoring chargebacks BSA/AML compliance (on behalf of the issuer) 3 P age Confidential

4 Card marketing and sales Relationship with issuing bank Relationship with transaction processor Handling sales partners commissions Fee structure and Program P&L Program Manager decisions to be made: Type(s) of card program- gift, General reloadable, Payroll, travel etc.- each type of card may require a unique BIN Issuing Bank(s) and Processing partner Plastics providers Distribution and marketing channels to be used Card network (Visa, MC, Discover, AMEX or private label) ATM networks (STAR, NYCE) Load networks (How are cards reloaded?) How will cardholder support be handled? Financial model- How will the program make money? Issuing Bank All US prepaid card programs require a US banking financial institution to own the program. The Issuing bank is the official program owner with ultimate responsibility for program risk Issuer responsibilities include: Member of the Card Associations/ (Visa, MC, Discover, AMEX) Due diligence, audit and oversight of other channel partners Approving new programs and submitting program paperwork to Card Association Applying for program BINs Providing ABA routing number(s) and pseudo DDAs for direct deposits Regulatory compliance, OFAC, AML etc. Brand standards compliance 4 P age Confidential

5 Maintaining program bank accounts and program settlement Monitoring for fraud and program negative balances Processing SARs, CTRs and other fincen/ Government reporting ACH processing (sometimes this is done by another bank) Relationship with ATM networks Issuer decisions to be made: Financial model- which program managers to work with/ how will the program make money New BIN or segment of current BIN Card network to recommend Transaction Processor Issuing Transaction processor Processor responsibilities include: a. Platform for defining program settings, fees and parameters b. Processing cardholder transactions c. Settlement with Card and ATM networks d. Fraud parameters e. Cardholder card account statements f. Storing cardholder transaction data g. Processing chargebacks h. Cardholder customer service (if contracted) i. Sending track file data for new card generation to plastics vendor Acquiring Transaction processor- Processes credit card purchases of and loads to prepaid cards Distributors/ Marketing partners Can be retail vendors, independent sales organizations, corporate partners, or basically any company that has been contracted to sell the prepaid card. 5 P age Confidential

6 Plastics Vendor Plastics vendor plastics vendor responsibilities include: a. Plastics printing, storage and embossing b. Mailers and collateral c. Sending plastics to cardholders Reload Networks Prepaid cards only work for customers if there are safe and easy ways to load cash onto the cards. Ideally, a Program Manager wants to encourage direct ACH deposits to a card from the cardholder s employer. But many prepaid cardholders have a need to load cash. Reload networks accept this cash and electronically load it onto the card so that it can be used immediately. Economics (Example) 6 P age Confidential

7 What This Means to You Prepaid card programs are different, from the players involved to the Brand association rules to the cardholder behavior. Despite several high profile IPOs recently, the prepaid marketplace is still highly fragmented. The players are generally smaller, and each has unique strengths and weaknesses. As the prepaid market grows more and more complex, value chain participants become more and more difficult to assess as potential partners. New prepaid card programs should consult with experienced prepaid professionals to ensure a profitable program. How E&S Consulting Can Help E&S Consulting advises merchant acquirers, retailers, card marketers and issuers in a broad range of payment and financial services domains including prepaid program management, competitive research, training, marketing, POS hardware and software management and partner recommendations. The firm offers its clients a unique combination of extensive financial industry expertise, a focused and flexible business model, and access to a vast network of industry specialists, to address their greatest challenges. 7 P age Confidential