How and why to launch a card program

Payment technology is evolving beyond fund flows. Payment instruments such as virtual credit cards (VCCs) can improve customer retention, drive up client satisfaction, reduce fraud, and even more.

If you think that only banks can create payment cards, we have news for you. As a fully compliant payment service provider, Checkout.com holds issuing licenses around the world. That means we can help you to design a custom card program.

If you’re curious about the reasons for becoming a card program manager and the steps to take, then this article is for you.

Though the opportunities are vast, expanding fintech operations brings challenges – particularly when scaling across multiple geographies.

Complexity and localization

Of course, the larger the card program, the more complex the configuration. For that reason, it’s essential to keep localization in mind. You need to understand how your customers and merchants expect to pay and be paid in each locale – as well as the implications for compliance in each region.

“The customer segment in question, the geography in question, and your global reach all have to be taken into consideration,” reasons Karim. “I think that's one of the complexities that happen as you scale. Because when you talk about localization, you're also talking about local tax structures, local entities, local rails, so the implications extend beyond just integrating with local players and local payment methods, it needs to become part of your overarching global payments strategy.”

Strategic benefits to launching a card program

First and foremost, you must know what you are trying to achieve with your card program. There are many possible benefits, but not all of them will apply to your business model.

Consider the following:

Who will use your cards?
Why is using the cards better than current payment options?
What business problem or pain point does this solve?

With the above in mind, let’s look at some of the main motivations for starting a card program.

Drive deeper customer loyalty

Today’s consumers are overwhelmed with options, meaning they’re less likely to remain loyal to any one brand. Diversity fuels competition, and businesses must offer innovative new services to keep customers on their platform. New fintech solutions are making it easier for everyday businesses to offer financial services, and create compelling reasons for customers to choose them over competitors.

When non-finance merchants offer financial services, it’s known as embedded finance – and it’s a growing trend in customer retention (or “stickiness”) strategy. The most familiar opportunity is offering prepaid store cards in retail, which sees customers deposit funds into your business before making a purchase. This can result in customers increasing their spending, and one in three (30%) will make more frequent store visits. The Starbucks stored value card and rewards program is one prominent example.

Convenient funds management services are now increasingly popular in B2B as well as B2C use cases; Angela Strange, General Partner, Andreessen Horowitz explained how competitive businesses like Uber and Lyft strategized to improve driver retention by offering financial services on their apps. Both Uber and Lyft offered instant payouts for drivers using their branded debit cards with the opportunity to earn cashback on spending. These aimed to incentivize gig workers to remain loyal to their respective (very similar) platforms.

Realize operational improvements

Bringing your card program in-house means you can design it exactly according to your business needs. This is especially beneficial for B2B merchants, who can take advantage of the custom controls that an in-house card program makes possible.

For example, Glovo, a food delivery app that’s part of the Delivery Hero Group, launched its own issuing program to improve the operational efficiency of courier purchases. Their existing third-party issuing solution was inflexible and didn’t offer enough control, leading to delays.

Glovo introduced in-house courier operational cards with full tech integration, their own branding, and complete real-time management of available funds, assignments, activation, and cancellation of cards. Szymon Zeslawski, Glovo’s Senior Director of Fintech and Risk, shared: “Whenever we had a courier that was making a purchase on behalf of the customer, we used the issuing product instead of cash to not only prevent fraud but also shorten the delivery times.”

Reduce payment fraud

First-party fraud, for example, when a staff member misuses a company card for personal gain, can be controlled through use of spend controls on company-issued cards. You must carefully design your card program to address the unique fraud opportunities that could occur within your specific business.

For example, Glovo connected its in-house custom card program with device tracking technology to ensure the authorized courier was using company funds on the correct types of purchase.

Cards issued via Checkout.com can be controlled in different ways, such as by velocity (how much can be spent within a time period), to specific business types (using MCC) or to particular merchants (using the merchant identifier). These measures can significantly reduce the opportunities for first-party payment fraud.

“If you're operating in the tens of billions, it opens up a lot of opportunities. Whether it's transitioning some of your operations in-house, or launching new fintech products for your customers – having that scale backed by the necessary license provides you with both commercial leverage and significant influence on the product roadmaps of your payment partners.”

Karim Bekdache, Payout Lead, Fintech Partnerships at a global OTA

Financial benefits of launching a card program

The chance to create more efficient business operations, reduce fraud, and drive up customer satisfaction are just two of the main benefits to launching a card program. The third major area of opportunity is to improve financial management within your business.

Revenue opportunity

Card transactions generate interchange revenue, which is paid to the card issuer. When Checkout.com is the issuer of your card programme, you stand to benefit by earning a share of this interchange revenue. Given you are going to continue paying suppliers into the future, it’s worthwhile earning revenue from this process.

Depending on the scale of your card program, this can become an effective way of recouping costs. As you scale your card programme, interchange revenue can potentially grow larger than your associated fees, making your programme cost neutral or cost negative.

Cost effective treasury and foreign exchange

Card programs are especially useful for merchants that need to pay suppliers all around the world. For example, Checkout.com partners with the Mastercard Wholesale Program to allow travel providers to save on foreign exchange costs and scheme fees.

Merchants can create virtual cards in a local country’s currency to avoid currency conversion costs on payments with Checkout.com.

Efficient liquidity management

Perhaps the main benefit of becoming a card program manager with Checkout.com is to take control of fund flows within your business.

One of the key benefits of using a single provider across acquiring and issuing is decreasing the time to access funds from acquiring. After you capture that transaction on the acquiring side, we can then fund the issuing transaction and you don't need to pre-fund your cards. This resolves the frustrating need to pre-fund your card program with funds from elsewhere in the business.

For example, grocery delivery business Jow uses acquired funds from Checkout.com to fund virtual cards that pay suppliers. It’s a secure and streamlined fund flow.

Track spending and improve reconciliation

Another benefit of combining acquiring and card program funds through the Checkout.com platform is the ability to track payments into and out of your business from one platform. The Dashboard allows you to track payment flows, view the balances of each currency account, create cards and assign cardholders, and observe payment statuses. Access to these data insights can assist accurate reconciliation.

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Technical benefits of launching a card program

It can seem daunting to think about the complex elements of managing a card program. It’s true that you will need to consider the compliance and legal implications of issuance. However, third-party payment services providers such as Checkout.com can take on a lot of this risk and responsibility on your behalf. So it may not be as hard as you think.

Moreover, there are a range of technical benefits which can make the process worthwhile.

Cards are easy to create and widely accepted

The infrastructure for accepting card payments is already in place for the parties you’ll be sending payment to. That means there’s no need to build point-to-point integrations. You can create virtual cards in controlled custom automation flows that ensure your suppliers are paid on time – without a human needing to send payment.

By contrast, using a pay to bank rail would mean you need sort codes, account numbers or potentially an integrated provider to send payment. This takes some effort and can allow errors to creep in, such as entering the supplier’s payment details wrongly.

Chargeback protections on supplier payments

Payments made with credit cards benefit from network protections such as the right to dispute payments and claim a chargeback. This is very useful in situations where you pay a supplier for products which turn out to be not as described, and, therefore, unusable for your business. If your business is a victim of payment fraud, you can file a claim for a chargeback on the relevant transaction(s) under the scheme’s protocols, too.

It can be much harder to reclaim funds lost to fraud or poor supplier practices (such as goods which never arrived or a supplier which goes bankrupt) through bank transfers, checks, or cash on delivery.

Secure payment instruments

Given the high level of control you have over the cards as a card program manager, card payments to suppliers are more secure than account to account payments. With Checkout.com, you can create cards which are single use or multi-use; constrained to a select range of merchant category codes (MCCs); restricted to one or more merchant identifiers (MIDs).

These are just some of the ways in which you can ensure your business’s funds are used appropriately. The examples illustrate the improved control which managed credit cards offer compared with, say, providing employee access to company bank transfers or creating checks.