National Australia Group UK – owners of
Clydesdale and Yorkshire Banks – could perhaps be called the dark
horse of prepaid card BIN sponsorship.
Roy Driver
caught up with Gary Rimmer, head of Third Party Payment Solutions,
to understand more about what NAG are doing and their future
plans.
CI: NAG UK could be described as a dark horse
in prepaid sponsorship, in that so far the company has kept a
fairly low profile. Could you explain what services NAG UK
currently offer in the prepaid sector?
Gary Rimmer (GR): In the UK, Clydesdale Bank is the regulated
entity and has been authorised to issue e-money since March 2006.
Yorkshire Bank is, from a regulatory perspective, a brand of
Clydesdale Bank. Clydesdale Bank currently has three direct BIN
sponsorship relationships with prepaid card processors, who in turn
manage programmes on Clydesdale Bank’s behalf with distributors of
prepaid cards.
We have been very careful in selecting partners based on real
business cases. Thus although you say we have kept a low profile, I
would argue that in effect what we have done is allow our partners
to have the profile while we support them.
Clydesdale Bank’s business sponsorship activity covers all of
the key areas that you would expect including:
• Due diligence of prospective programmes;
• Programme review/approval;
• Risk and regulatory compliance overview and ongoing
monitoring;
• Interface to card schemes (Visa/MasterCard);
• Reconciliation and settlement;
• General banking services (including float); and
• Legal (for example, terms and conditions).
In addition, Clydesdale Bank acts as a distributor of its own
products – a generic prepaid card, a travel card (available to own
customers only) and a staff corporate prepaid incentive card.
By having our own product it allows us to really understand
first hand the issues in the market and the practical implications
of any regulatory changes on our partners. In this we are, I feel,
able to offer a better service and a more understanding
partnership.
CI: How did NAG UK first get into BIN
sponsorship of prepaid cards?
GR: We have probably been involved in prepaid longer than many
other banks in the UK. We had previously been heavily involved in
the development of e-money in the UK and, among others, ran a
Mondex e-money pilot in Dublin in 2000.
This obviously gave us some experience and understanding of the
concept of prepaid. In late 2004 and 2005, the bank’s emerging
business area was approached by a number of processors looking to
develop prepaid cards in the UK, which led to our first product
launches in 2005-06.
CI: Is prepaid BIN sponsorship the only
sponsorship activity you do?
GR: We review all new opportunities based on a rigorous business
case basis, and as such are happy to consider other opportunities
as long as it makes sense for both the bank and the partner.
We have recently agreed to partner with another bank for BIN
acquiring sponsorship, one of – if not the first time – this has
been done in the UK/Europe. This highly innovative solution is
expected to launch in early 2009. I think this demonstrates clearly
how when there is a solid business case, while not shouting as
loudly as some others in the market, NAG is actually a very
innovative bank.
CI: Which networks do you offer BIN sponsorship
on?
GR: We currently are full members of both MasterCard and Visa,
and our BIN sponsorship activity covers both brands. It is very
much down to our partner if they have a preference or if there are
particular reasons they want to go with one network or the other.
We are one of the few active banks that can offer both Visa and
MasterCard sponsorship and this gives us a real advantage when
talking to potential partners.
CI: What areas does Clydesdale Bank have
programmes live in today, and what do you expect to have in the
next three months?
GR: Currently we have over 20 programmes covering a wide range
of areas. These include:
• Corporate (running incentive programmes for over 45
corporates);
• Travel;
• General-purpose; and
• Gift.
The key thing for us is not around the number of programmes
live, but, more importantly, around card numbers and balances. As I
said, we use a rigorous business case policy when partnering and as
such could be said to be quite selective on who we partner
with.
To that end, we are always looking for those partners who will
have programmes that can create profitable metrics. We would expect
5 to 10 further programmes to be launched over the next three
months.
CI: How many countries can NAG UK issue cards
in, and which countries do you currently have programmes live
in?
GR: Working on a business case scenario means that we will
consider BIN sponsoring cards in any markets that make sense for
both our clients and for us.
Currently we have chosen to only get authorised to issue cards
in the UK. Should a current or future partner require other
countries, then we are happy to consider putting in place the
required regulatory framework to allow us to do this – based of
course on a sound business case for all parties.
CI: Do you see the growth coming from the UK or
internationally?
GR: The UK is still a vast, relatively untapped evolving market
but it is becoming increasingly competitive across all product
segments. We envisage corporate incentive programmes and other
corporate-loaded and process replacement solutions continuing to be
an attractive proposition.
The key question is how the market will be affected by current
market conditions, from both a consumer and processor perspective.
There maybe a few casualties among the early adopters, and there’s
still a need to see whether the bigger banks have an appetite to
enter the market – will they see prepaid as an attractive source
for consumer deposits?
In the medium term we would anticipate an impact on the prepaid
market coming from mobile phone companies combined with the further
development of contactless capabilities.
All of this, we believe, means it is right to be selective about
our partners and to work closely with them as there will be a
variety of opportunities that arise, and it is key to have a close
relationship with those partners so that you can mutually take
advantage of any opportunities.
CI: Given the recent announcement by MasterCard
to allow MasterCard-branded gaming prepaid cards, is this a sector
you will be looking to carry out BIN sponsorship in?
GR: We continually review potential card programmes and will
look at all sectors that align with the bank’s corporate
principles. Gaming is something we have considered but, as it
stands today, rejected. However, we continue to keep an open mind
and will continue to look at initiatives put to us by both current
and future partners.
CI: If you look to the US, BIN sponsorship has
become very competitive, almost commoditised. Do you see this
happening in the UK and Europe as more companies enter the
market?
GR: There will always be new entrants and Visa’s recent
announcement to fall into line with MasterCard and allow full EML
holders to obtain membership will undoubtedly lead to additional
Visa BIN sponsors entering the market.
Globally NAG UK has size and solidity that many of these new
entrants may not have, and many end clients are looking to ensure
that the banking partner behind their brand is well-known and
secure.
We feel therefore that while there may be new entrants, and
prices could be commoditised in some aspects or areas, there will
always be room for correctly-priced BIN sponsorship solutions from
well-known full FSA banking licence holders.
CI: What are the biggest challenges in your
mind regarding the BIN sponsorship role?
GR: One of the main challenges is the role of ‘oversight’ to
ensure legal and regulatory compliance meets with the standards of
a financial institution.
A high level of compliance is essential, and one which can be
underestimated by new participants in the market, and particularly
with the introduction of the sale of a financial product in a
retail environment that may not previously have sold financial
products.
Education is also key – both internal to the BIN sponsor bank,
and external (including distributors, consumers, media), as the
prepaid product has suffered from adverse press (particularly from
experiences in the US) relating to anything from facilitation of
money laundering to high fees, anonymity, and age-related
sales.
Again we feel with our relatively long experience in this area,
it is an aspect we have a distinct advantage in.
CI: Given you already have BIN sponsorship, are
you likely to move at any time into offering other services such as
full programme management?
GR: BIN sponsorship by its definition requires the involvement
of third parties. The business model and infrastructure we have
developed does not envisage us undertaking the programme management
role, as we see the bank doing what it does best and relying on the
partnerships we have already built to work to their strengths.
Our experience has shown that better results are achieved by
working with a programme manager that is close to, or part of, the
processor.
CI: With the launch of the RBS PayPal card, do
you think that the major high street banks will start moving into
BIN sponsorship of other programmes? What effect might this have on
you?
GR: Any potential may have been deferred by the current economic
environment as other priorities come to the fore. There may be an
attraction for own-branded corporate, travel and general prepaid
cards being issued on their own platform, using their own
licences.
However, the business case differential between self-issue or
outsourcing may still be close enough for outsourcing to remain an
attraction.
As with all markets, entry of the big banks may have a negative
impact on current players and impact their ability to compete
within certain segments – travel and general-purpose, for example –
those products which consumers primarily associate with banks
rather than niche players. Going forward, it is also likely that
large current/potential issuers (for example, mobile phone
companies) would prefer to partner with established banks, rather
than relatively new entrants to the market.
CI: Many of us have seen the advertising by
Visa and MasterCard for contactless. Do you believe there is more
that the networks should be doing to promote prepaid cards and
consumer understanding of them?
GR: All promotion is good, however, with so many prepaid
programmes in the market, we as an industry need to ensure that any
promotion is in the best interest of the consumer, and should not
just push the product to increase market share.
It is right that the schemes concentrate on the development of
their brand and the technology, such as contactless capability.
Increased education of consumers and businesses is also key and
there will always be issues around who should pay for this.
CI: Going forward, what do you see as your
continued points of difference to other BIN sponsors in the
UK/Europe?
GR: We have been very selective in terms of our partnerships and
thus our BIN sponsorship model ensures that the bank sits in the
background without overly onerous interference in the day-to-day
business, thereby relying on the expertise of the processor and
distributor.
This enables the parties, as a partnership, to develop and bring
products to market in a short period of time. This is achieved
through a small but dedicated prepaid team that enables development
of strong relationships with the processors while maintaining
careful management of brand associations. I feel that it is this
closeness of working relationships with a few key partners that
really provides our point of difference.
We will not partner with everyone – just those who we feel can
work with us best and profitably for all parties.
CI: Some people say that pure programme
managers will be squeezed out by banks and processors both offering
programme management as part of a larger ‘solution-led’ approach.
Do you believe this will happen?
GR: At this stage in the development of the prepaid market, I
think there is still a role for pure programme managers.
While I thought at the outset that this would not be the case,
there are a number of programme managers proving that they can be
successful, although I think the key thing here is that many of
them are finding some form of added value they can offer, whether
in the structure of technology, knowledge or specialist
support.
I agree that over time there is likely to be continued pressure
on the business model, for example, as pressure continues to be
placed on lower consumer fees. Cards issued two years ago attracted
application fees of up to £20 and today these are down to £5-£10 –
in many cases for the same product. When reviewing programme costs,
the costs of pure programme management are probably one of the
first that you would look at.
CI: Given the increasing regulation and
compliance in the UK, do you see this as a challenge or opportunity
for the prepaid sector?
GR: Compliance and regulation is always a challenge, but a
necessary one to ensure that the reputation of the prepaid market
is maintained for the benefit of all players.
We, along with other members of the various industry bodies,
work closely with the FSA, HM Treasury and other European
regulatory bodies to ensure the prepaid sector is properly
regulated.
Current developments in the regulatory environment (PSD, E-Money
Directive) should see a more level playing field across the UK and
Europe and the potential for new entrants into the market.
I would say though that as a full bank, we have always had to
deal with extremely complex regulation, and this is an area where
being a full bank with its associated resources and years of
experience can assist us in working with our partners to better
understand, and also implement, the requirements of new regulations
as they come in.
CI: Many people have said that the quickest
opportunity for prepaid will be in the corporate area with cards
such as payroll and insurance cards. Would you agree?
GR: The reason that these products are identified as ‘quick
opportunities’ is related to the lower risk profile and easier
cardholder identification (KYC) requirements associated with these
products.
As stated earlier, we are a supporter of corporate card
programmes. However, ‘quick’ does not mean that they necessarily
shorten the time to market. It merely means that the card issuance
procedures are simpler and maintenance is often undertaken
externally by a corporate incentive company rather than the
processor.
The crucial difference though is that with these ‘focused’
distribution products, the speed to achieve critical mass in the
programme is shorter and thus the speed at which break-even or
profitability is reached is less.
CI: With consumer prepaid cards, where do you
see the majority of revenue coming from going forward: loading
fees, POS fees or others?
GR: We don’t believe that the pricing of prepaid cards has yet
been resolved. There is a natural resistance to any fees,
particularly when potential cardholders perceive bank debit cards
and even banking to be free! This belief is further impacted by
media interest in bank charges.
These issues have probably led issuers to move towards
‘pay-as-you-go’ methods of charging related to how the card is
used, for example POS, ATM, domestic/international use, and so on.
The downside is that it adds to cardholder confusion and can make
fees look disproportionate when used in ‘expensive’ channels.
In the short term, I would anticipate that the current pricing
models will remain, although I expect to see changes in the future
as more innovative products are developed – particularly those
linked to other products as a ‘packaged’ solution.
CI: What do you see as the greatest challenges
for the prepaid card industry in the UK and Europe over the next 12
to 24 months?
GR: There are four key areas; pricing and profitability as
already highlighted, both in terms of how consumers are charged,
but also in that many of the pure consumer programmes currently in
the market are selling very few cards and cannot be profitable.
These programmes will either need to significantly attract new
customers or their very survival is threatened. Second, competition
in so much as we are seeing new entrants in all areas of the
market, many bring new ideas and thinking.
This is good, as a market needs to continually innovate and
develop to keep up with consumer demand and change, however, it
will also increase competition in many areas putting pressure on
some existing operators.
Thirdly, the implementation of all regulation affecting e-money.
Finally, and perhaps the key challenge as already touched on, is
one of education of both consumers and businesses on what prepaid
is and how/where/when to use it.
CI: Going forward, what do you believe the
greatest challenge for NAG UK will be and where do you hope to take
the company in the next 12 months?
GR: While there are many industry challenges, there are no
specific challenges to us other than to ensure that we continue to
build on current base-building relationships with strong brand
values and, in line with our corporate values, ‘Always Thinking’ to
look at what we can do better!
To that end, we see the greatest challenge in identifying and
taking advantage of the correct opportunities that arise in this
very fast moving market.