You are here: VRL Financial News - Home » Cards & Payments » Cards International » Reports » Strategic Excellence in Card Outsourcing- Credit, Debit and prepaid

Strategic Excellence in Card Outsourcing - Credit, Debit and Prepaid

Published: June 2010

Strategic Excellence in Card OutsourcingThe underlying rationale behind outsourcing either a new or existing customer management operation is made up from a combination of both hard and soft benefits.

This report assesses the issues involved in choosing the preferred supplier and presents a number of the template documents that should be used to shape discussions from the outset.



Interested in this report but require a different territory or focus? Contact Jeannie today to discuss a customised version. Email on or call +44 (0)20 7563 5605


The key issues through which an outsourcing decision is likely to be justified are:

  • Speed to market - and risk: For a new player, such a course will be faster than building an in-house capability. The outsourcing route will avoid the risks that exist in the areas of skills needs, costs and timescales.
  • Economies of scale: The service provider may build in a minimum fee to ensure that they cover fixed overheads. Nevertheless, the very high volumes that the major service providers usually run through their businesses open up the potential for consequent economies of scale.
  • Reduced capital commitment: Costs avoided by outsourcing can be expensive and complex undertakings such as the operational premises and any supporting computer infrastructure.

Overall, the costs, complexity, resources, timescale and risks involved in creating a new operational capability are such that few players have difficulty in justifying an approach based on outsourcing. However, players will be wise to ensure that they have negotiated the ability to bring the operation in-house in due course and without any disruption to their developing business.

Part 1 of this report assesses the issues involved in choosing the preferred supplier and presents a number of the template documents that should be used to shape discussions from the outset.

Part 2 uses a sequence of case studies supplemented with original data to look at the practical challenges involved in outsourcing core card functions.

Part 1of this report assesses the issues involved in choosing the preferred supplier and presents a number of the template documents that should be used to shape discussions from the outset.

Contracts and service level agreements

The draft contract: Whilst all organisations will usually and rightly subject contracts to rigourous scrutiny, the underlying relationship will only actually work if it is based on trust- and this philosophy should set the tone for negotiations.

Key finding: Care should be taken to ensure that the term of the contract does not constitute an inhibiting factor, should there be a later need for a material change in the strategy of the client organisation.

Costs and pricing: The pricing tariff of the service provider is a complex proposition. Once the transaction profiles and volume figures are agreed, the resultant projected costs from the service provider offer the best possible basis for taking a short and medium term view of the financial implications. This is clearly an area where the client will wish to minimise any threat of premium pricing that may result from under-performance in the scheme.

Key findings:

1. The service levels compare with those already applying in other services run in-house by the client organisation.

2. Establishing effective sanctions for any shortfall against these standards, and the basis on which it will be enforced.

3. Ensuring that there is an effective escalation procedure for either unresolved issues and complaints, and a periodic review where minor matters can be resolved collectively.

4. It is also critical to ensure that the service provider has effective plans to recover from a partial or total disaster.

5. Recent years have seen significant changes and churn in the relationships between clients and their service provider partners. Therefore, premature termination of the contract should be considered an issue within contractual negotiations wherever possible.

Managing the Service Provider

The contract established with the service provider- including service level agreement (and a schedule of sanctions in case of need) - will form the basis of the working relationship.

Key findings:

In order to make the arrangement a success, a client will need a careful understanding of:

  • Operational performance by function- compared to the agreed service levels
  • The incidence, source and implications of sanction invoking service level failure
  • Ongoing contingency planning exercises
  • Ongoing development projects e.g. new software and process redesign.
  • The negotiation and agreement of proposed variances to contracts or service level agreements. Wherever possible, all the foreseeable requirements of the client should be specified at the outset. These can be included within the contractual negotiations, where the greatest leverage can be achieved on any associated costs. However, new facilities requested at a later date may prove to require no less time to launch, and could prove proportionately more expensive.
  • Disaggregation: Many new players have used outsourcing as a rapid route to market. However, the circumstances of the client organisation might change. While a service provider will usually be happy to contemplate undertaking more work, it is advisable to ensure that the contractual arrangements also allow for parts of the operation to be taken back in-house at a later date. Factors to be considered here include unduly heavy cost penalties, the time scale in which the service provider will undertake any systems or telecommunications changes that might be required to achieve the switch, and the continuation of goodwill through and after the completion of the change. Attention must also be paid to provisions that will protect the business and information systems up to and through the transition. These are issues that are worth incorporating within the initial contractual arrangements, wherever possible, in order to avoid difficulties and possible acrimony at a later date.
  • Chemistry! The working relationship between a client and their service provider must be close if it is to work to best effect. Positive chemistry between the two parties from the outset is a huge advantage. The development of empathy between the client’s team and the staff of their service provider will frequently yield many soft benefits. These can include: a better attitude towards the customers of the client organisation, a genuine interest in looking for small-step improvements, and a greater willingness to use sensible discretion to pre-empt possible difficulties.

A particular problem that has plagued outsourcing projects in the card industry is over-optimism, resulting in:

  • Over resourcing on the part of the service provider
  • The possible triggering of premium cost levels put in place by the service provider to protect itself from any shortfall in volumes
  • The further undermining of the profitability of a scheme that is already experiencing a shortfall in expectations.

Part 2 of this report uses a sequence of case studies supplemented with original data to look at the practical challenges involved in outsourcing core card functions, including:

  • Collections
  • Customer Services
  • Loyalty Programmes
  • Marketing
  • Payment Processing
  • Technology and back end processes

A particular focus of this section is on the outsourcing of call centres. More than one senior industry officer took the view that if the focus and effort that goes into outsourcing an operation were applied to the improvement of its existing status, the gains that would arise from the outsource operation may well be marginal or disappear.

There is also an issue of principle that may need to be taken into account in formulating a location strategy for an institution’s call centres. Research conducted in Australia and the United Kingdom, for the ANZ Bank and Nationwide Building Society respectively, has revealed genuine consumer concern about off shoring, which is seen as exporting jobs. Both organisations have worked hard to develop strong brands and well differentiated positions within their domestic markets, and both took account of this in committing to retain their call centres on home shores.


Costs: Given the ability of a supplier to provide the required level of call centre support, the initial consideration must be that of cost. As the market becomes increasingly competitive, and margins are challenged, the cost effectiveness of the operational platform becomes even more critical. Application processing is an example of a limited number of areas where card issuers elect to incur more costs in pursuit of a better decision, or where (for example) recent money laundering regulations have imposed more costly procedures. Otherwise, from the outset, it is critical to establish a cost sensitive regime. Recent critics of the trend towards off shoring have pointed to inflating salary costs within the markets to which many institutions are moving their operation. The whole basis on which the charges levied by the service provider may inflate is an issue to be dealt with as part of the contractual negotiations.

Service levels: As stated above, there is a need to decide on the required service levels that are required in each part of the business. And these may vary according to the type of product that is to be handled. This is a key part of the process of shaping the contract, tariff and service level agreements. For example, the understanding of call centre staff operating offshore must at least meet that of workers in the home market.

Business plan volume projections: Established players outsourcing an existing operation should have a reliable base of information and projections from which o build estimates of the capacity that will be needed. In the case of new players, many business plans are often over optimistic in projecting the number of applications that will be received, the consequent growth of the account base, and the resultant demands on the call centre. This situation can be exacerbated by a business plan that has its origins in an early feasibility study- when the prospective client’s knowledge of the market potential and likely customer activity levels was less well developed.


Outsourcing ‘cards’ activity is a well established discipline, and a wide range of options and suppliers are open to any organisation taking this route. This report sets out the critical successful factors involved in creating a framework that will provide the basis of a long-term, mutually beneficial partnership between the parties.


Definition of outsourcing
Approaches to outsourcing
Reasons for third party use
Client position in vendor relations

Chapter 1 Key Vendor Selection Steps

Needs definition
Market Review
Operational capability
Agreement content

Chapter 2 Selection and Ongoing Relationship Considerations

Current and potential capabilities
Quality of staff
Adherence to documented processes
Management and supervisory quality and practices
Onsite observations
Technical support
Physical environment
Disaster planning

Chapter 3 The Request for Proposal

The purpose of the RFP
Typical use in the card business
Constructing the RFP
Typical issues with the RFP
After receiving the proposal
The comparisons
The decision

Chapter 4 Outsourcing Agreement

General purpose and tone
Standards of performance
Measurement definition and review period
Major, minor violations and penalties
Standards, major and minor
Quantification of quality
Issue resolution
Pricing options
Duration Bring it back

Chapter 5 Best Practice in Vendor Management

Onsite representation
Information availability
The relationship

Chapter 6 Technology

Dimension of potential outsourcing
Development, maintenance, "fixes", options, parameters, releases
Selection and ongoing considerations

Chapter 7 Customer Service and Call Centre

Dimension of potential outsourcing
Telephone outsourcing
Selection and ongoing relationship considerations
Call centres operations in credit cad issuing
The principles and practice of outsourcing

Chapter 8 Credit Cycle

New accounts
Risk policy
Credit administration
Selection and ongoing relationship considerations

Chapter 9 Operations

Payment processing
Charge processing
Card production
Selection and ongoing card production

Chapter 10 Collections

Using third party services
Basics of External Collections Management
Pre-Charge-Off Third-party Assignment

Chapter 11 Sales

Card sales
Merchant sales
Merchant network administration
Special selling
Sales administration and support
Service post-sale

Chapter 12 Cards Marketing and Loyalty Programmes

Card promotional campaigns
Expanded take one
Communication plan
Internal spending lift, additional cards, special product sales, balance transfers, cross-sell
The Loyalty Programmes
The outsource option- availability and capability of vendors and suppliers
Outsourcing and retaining
Partnership and structures

For more information about any of our reports, please contact:


To purchase a report or request more information:

For information on writing for us or to discuss upcoming titles: