Mobile Banking Card Management MOBILE BANKING THOUGHT LEADERSHIP SERIES DECEMBER 2014 Malauzai Software, Inc. COOL SMARTAPPS EASILY MANAGED EASILY MEASURED
Synopsis The future of electronic payments is happening now. Community banks and credit unions can provide useful mobile banking tools that allow consumers and businesses to manage their behavior around their usage of debit cards. This is the beginning of the movement towards eventually providing a full mobile wallet. Card management features are practical and easy to implement. The features allow credit unions and banks to focus on two very important goals; cost savings and fraud prevention. First, by turning card management into a self-service application available in the mobile banking SmartApp, a community financial institution can cut down on calls to the call center and visits to the branch related to simple tasks associated with the debit card, such as asking for ATM and point-of-sale increases. This has an immediate impact by moving service to a more cost-effective channel. Second, the credit unions and banks can fight fraud by putting in the hands of the consumers and business a tool to turn on and off the card in real-time. By denying transactions at the source, directly within the core banking platform, fraud is stopped in its tracks. All of this is possible today using simple and easy to deploy technologies available now in mobile banking applications. 2 MOBILE BANKING CARD MANAGEMENT
The History of Plastic Paying for goods and services with plastic was a novel idea when first pioneered by department stores at the turn of the 20th century. The first credit cards were in fact not plastic but paper-based stock. Issuing credit to worthy customers was not a new or novel idea. But allowing them to access these lines-of-credit with a card was quite different and innovative. Certain merchants issued these cards to facilitate access, to remove barriers and allow goods and services to flow more freely. The first credit cards were tied to specific merchants. The next big innovation was to allow for purchases at syndicated merchants, or in simple terms, merchants who accepted this form of payment and who had existing relationships with the organizations set up to issue the cards and handled the clearing of the payments behind the cards. In these early schemes, the actual credit was still, many times, held by the merchant but increasingly the BIG BOX MART credit itself was also transferred to the issuer of the card itself. And thus was born the behemoths such as Visa and Paying for goods and services with plastic MasterCard, which are now fully in charge of maintaining was a novel idea when first pioneered by vast acceptance networks of merchants, indicated by department stores at the turn of the 20th century. the proliferation of the ubiquitous brand symbols of Visa and MasterCard, arguably the best known brands in the world. It is also interesting to note that the actual credit eventually fell into the hands of the issuer/financial institution. Banks and credit unions now underwrite the cards and benefit from the profits generated but also assume the risk of credit card processing. And then there was the debit card. In the 1960 s the idea was struck upon to allow the use of the merchant and clearing networks with the subtle difference of hooking the card directly up to a bank account. The risk profile of this transaction was considerably changed as account balances could be verified to a greater extent, and settlement could happen in real-time. While it has taken years to proliferate, debit card transactions are now the primary mechanism people use to make payments from their checking accounts. In fact the term checkingaccount has become a generic term for a payment account, as checks are no longer the main way people make payments; it is plastic, the debit card. And again credit unions and banks benefit. On every profit and loss statement for every financial institution both small and large there is a considerable percentage of revenue generated from the interchange fees that a financial institution collects for issuing debit cards and settling the BIG BOX CREDIT The first credit cards were tied to specific merchants. The next big innovation was to allow for purchases at syndicated merchants, or those who accepted this form of payment and who had existing relationships with the organizations. 3 MOBILE BANKING CARD MANAGEMENT
transactions. While this revenue is under pressure due to the new regulatory environment, it is still considerable. Along with the benefits of plastic-payments there is considerable risk. Fraud is an ever present factor in issuing credit and debit cards and settling the payments behind them. The industry is constantly seeking ways of managing the risk. From new innovations such as putting chips in cards (EMV) to advanced monitoring systems that look for patterns in payments and pinpoint fraud in real-time, it is a constant battle to fight credit and debit card fraud. Now there is a new tool joining the war against fraud; mobile banking. Through a mobile banking SmartApp, a consumer or business can turn their cards on and off in real-time. This simple feature, which is so easy to implement and deploy, can stop fraud in its tracks. The risk model can be substantially altered for processing these payments and ultimately, more revenue can be retained by the financial service providers. The fight against fraud will continue, but the card world is experiencing the largest innovation since the inception of the debit card itself, and mobile banking is making that happen. Thus was born the behemoths such as Visa and MasterCard. In the 1960 s the idea was struck upon to allow the use of the merchant and clearing networks with the subtle difference of hooking the card directly up to a bank account. Consolidation of ATM and debit card networks began in the mid- 1980 s and continues today. DEBIT Through a mobile banking SmartApp, a consumer or business can turn their cards on and off in real-time. Debit card transactions are now the primary mechanism people use to make payments from their checking accounts. 4 MOBILE BANKING CARD MANAGEMENT
What Does it Do? Mobile banking card management features are taking the industry by storm as consumers demand more control over their security. Malauzai has helped more than 80 community financial institutions deploy these features. Card usage is strong and in a typical month approximately 15% of active mobile banking consumers and businesses use the feature-set. There are seven primary components to the card management features on the market today: CARD STATUS & LISTING The main-door to card management, this feature allows an end-user to see the status of all of their cards. Multiple cards can be viewed regardless of how many accounts the consumer or business maintains. This is a simple and effective way to see what cards are turned on and off with a single glimpse. CARD ON/OFF SWITCH An end-user can turn on and off a card in real-time. The feature is directly connected to the core banking system so the account associated with the card can be shut off immediately and then turned back on. The On/ Off Switch can be used to block all transactions or can be configured to allow for certain transactions to flow through, such as standing authorizations set up with billers that are processed on a regular cycle. ATM LIMIT INCREASE REQUESTS ATM transaction limit increases can be requested, also in real-time. End-users can either ask for a specific limit increase or can choose from pre-determined choices set up by the credit union or bank. P.O.S. INCREASE REQUESTS Point-of-sale transaction limits can also be increased automatically using the mobile banking feature. As with ATM limit increases, the end-user can choose from predetermined limit increases or request a specific increase. INT L ACCESS SETTINGS Cards can be configured to allow an end-user to utilize the debit card outside of the United States. An end-user can turn on and off this capability in real-time, saving them from having to call the credit union or bank when they leave the country and want to use the debit card. MERCHANT & CARD LIMIT MGMT The card can be limited to work at certain merchants and specific limits can be set for certain categories of merchants. Also, certain card limits can be managed so that secondary cards associated with an account, let s say for a child, can be limited and managed by the primary account holder. GEO-FENCING The usage of the card can be limited to certain geographic areas. The consumer or business can decide on a specific geography and change this setting in real-time. It is important to understand that the GPS feature of mobile devices does not come into play here. Where the mobile banking SmartApp is and where that consumer or small business is, does not get factored in as the mobile banking SmartApp is not used to make the payment. Rather, where the card processing transaction takes place is what drives this feature. A consumer or business uses mobile banking to configure this geo-fence only. 5 MOBILE BANKING CARD MANAGEMENT
Card Management Usage Usage of the debit card features is exploding. As stated above, on average, 15-18% of Malauzai s active mobile banking users take advantage of debit card management when it is available in their SmartApp. Checking on the status of the card is the most used feature and turning the card on and off is a close second. 1. Checking Card Status Checking the status of the card is the most used feature of card management. 2. On/Off Switch Turning the card on or off comes in a close second. 3. ATM Limit Increase Requests Requests to increase ATM withdrawal limits are popular with card management. 4. Point of Sale Increase Requests Point of sale increase requests are showing an upward trend in usage as well. Card Management 5. International Access Settings Users value the ability to limit or permit access to the card outside of the US in real-time. Much of this growth can be attributed to well publicized breaches in debit cards. Merchant POS devices have proven vulnerable to hacking and fraud has become a huge issue for businesses and the financial service community. End-users are responding by using their debit card features in mobile banking at unprecedented levels. But why? BIG BOX MART 6 MOBILE BANKING CARD MANAGEMENT
How it Works in other instances, the off status can be achieved by setting the allowable limit for debit card usage to $0 which in effect denies all transactions. ATM and POS limit increases and requests to utilize the card outside of the USA are also set within the core banking system. Each core banking system has different capabilities when supporting the card management feature-set so it is important to understand how the core banking system works before deploying real-time card management using this method. 2. CARD PROCESSING SYSTEM DEBIT There are two models for making card management a reality; connect to the core banking system and connecting to the card processing environments. 1. CORE BANKING SYSTEM Debit card management solutions can be implemented by building a direct interface to the core banking system of a financial institution. This requires a real-time connection to the core system. While some core banking systems vary, most if not all, support the ability to turn on and off the debit card associated with a specific account. In some instances this is a simple on/off switch and Card management solutions can also be implemented by interfacing directly to the card processor environments that are used to issue cards and settle transactions. This is possible, if the card processor has an open interface (sometimes called an API) that they are willing to expose to the mobile banking vendor. All of the current features can be made available in this model assuming the card processor can support it. Integration will require a real-time interface. This processing model has certain advantages and certain disadvantages when compared to integrating with the core banking solution. Specifically, the advantage is being able to deploy a greater range of features, as some core systems do not support all the features of card management. The big disadvantage is that there is no better way to stop fraud than to effect the on off switch at the core system level, as it pushes the control back to the system-of-record for the financial institutions which delivers a higher degree of control. 7 MOBILE BANKING CARD MANAGEMENT
What Transactions Go Through When the Card is On or Off? Either all transactions can be stopped, or just POS transactions can be stopped when the card is in the off position. Again, depending on the capability of the core banking system, the solution can be implemented to allow standing authorizations to continue to be approved and money debited from the account. In this instance, the maximum flexibility and fraud prevention is achieved as the credit union or bank can allow certain activity to continue (standing authorizations). This is convenient for the end-user, while encouraging them to leave the card off most of the time, stopping fraudulent activity not generated by the end-user. Geo-Fencing - How it Works & The Challenges One of the newest features in debit card management is a capability called geo-fencing. This capability combines card management controls with GPS location-based technology to allow the end-user to establish a geographic fence where the card can be used. If the debit card is used outside of the fenced area, the transaction is denied. If the merchant is within the area, the transaction can be processed normally. Another potential use of geo-fencing is to also consider the location of the end-user and their mobile device. In this case, if the end-user and their primary mobile device are outside of the fenced area, the card transaction can be denied. This becomes a secondary validation for card usage. So both the card AND the end-user must be within proximity of the merchant processing the transaction. Geo-fencing can have certain drawbacks. First, online usage would be difficult, as the merchant invariably is outside of the geographic area defined by the end-user, which tends to be more localized to where the enduser lives and works. Second, if the location of the end-user is added to the validation, it can be difficult to attain exact location on a real-time basis. The mobile banking app would need to be running continuously, feeding details to the card processing environment and this is less than practical given that apps do not run all the time. Mobile banking apps are usually completely closed down once regular usage is completed. It is possible to run persistent widgets on select devices such as apps using the Android platform, but again this is not universal and not ideal. Also, there are potential privacy concerns that end-users will have if their location is constantly being tracked. The end-user could decide to opt-in to constant tracking but many are bound to object to this technology on privacy grounds. 8 MOBILE BANKING CARD MANAGEMENT
Real-Time Card Controls Stopping Transactions Another potential usage for card management that is under consideration is being able to intervene in the processing of a card transaction in real-time. In this scenario, the end-user will have the ability to accept or deny a transaction prior to it being processed directly within the mobile banking application. This would provide ultimate fraud control. There are a few pitfalls with this capability, such as once it is turned on, it would be difficult to use this if the mobile device is in an area of bad coverage, or for other reasons did not have access to a network. This feature will also require integration at the card processor level, rather than directly with the core as these types of controls do not always exist within the core banking system. Once this feature is a reality, it will have potentially big implications for fraud control. Visa & Mastercard Overrides? In some instances, the bank or credit union utilizes a feature of the card processing network where the card processor, or Visa and MasterCard, actually control the limits allowed without checking the core banking solution in real-time. In these cases, the network limit can come from outside the core environment. Sometimes this feature is only used as a back up, when the core banking system is going through a maintenance window. This capability of the card processors can make the model of implementing the card management feature at a core-banking solution level a challenge. While in actuality this is only true in limited cases, it must be considered when implementing the feature set. Extending to Credit Cards Lastly, debit card management will eventually be extended to the credit card processing world. There are very different considerations when looking at the risk behind these credit transactions and how payments are settled. This will happen over time, but for now the focus is on managing risk in primary direct deposit accounts (DDA), not credit accounts. In Summary It is an exciting time for the world of the financial service executive. Mobile banking can and will surpass Internet banking as the channel of choice in the next 18-24 months. New innovations such as debit card management can help drive the adoption curve. In the end, consumers and businesses win as fraud is mitigated and they can use their cards with greater certainty. And community credit unions and banks also win. To-date, no money center bank has implemented debit card management while over 80 community banks are already there. In addition to being known as innovative, a community financial institution s interchange revenue can be fortified and debit card fraud can be managed more effectively. Lastly, servicing costs can be lowered by providing improved access to self-service features. Debit card is a winner any way you look at it. Usage is up, and the dawn of the next-great card innovation is upon us. Winner! 1 2 9 MOBILE BANKING CARD MANAGEMENT