Virtual cards

Virtual cards key to driving e-commerce growth

Driven by the adoption of mobile devices and a spike in consumer appetite to purchase online, today, payments economy has taken a huge leap towards digital. According to industry estimates, in India, digital e-commerce sales have registered a 32 percent growth in the last year to reach US $794.5 billion. To enable digital payments in retail stores and online platforms, banks are increasingly launching virtual cards for customers.

Platform modernisation is step 1 for banks to facilitate virtual cards

Virtual cards enable electronic wallets or what we generally call as e-wallets. Virtual cards are synonymous with instant availability, speed, and security. For banks, they are a cost-efficient way to issue cards while delivering a differentiated experience to cardholders.

Research indicates that the issuance of 1 million virtual cards, can help banks save between 100 Million INR and 150 Million INR.

The only way for banks to achieve growth through innovation of a similar kind is to modernize their legacy card systems through platform modernisation and support new form factors and API-driven payment flows including virtual cards. This will help them streamline digital-first processes to deliver superior products and services to customers. Secondly, with the emergence of next-gen players such as NBFCs and neo banks in the market, this strategy will give banks a competitive edge.

Given the early stages of adoption of virtual cards, and the move towards greater digitization, there is significant potential for growth.

Emergent opportunities for banks in virtual card payments

Online Payments: Banks are launching ecommerce prepaid cards to drive more customers online. Further issuers can tap into the current ‘Buy Now Pay Later’ market and ensure customer stickiness. Virtual card, as a payment option, can be embedded along the path to purchase allowing consumers to select the card ahead of a purchase, at the point of sale, and after a sale.

IoT and Payment of Things: With payment of things, becoming a reality, virtual cards will form the backbone of emerging IoT payments and represent the future. For example, a connected car can host a virtual, tokenized payment card, which enables cars to pay for surrounding services at gas stations, tolling, parking, drive-in restaurants.

Performing contactless transactions in-store, send money, recharge their mobile, pay bills, shop online, conduct card-less ATM withdrawals, are a possible range of transactions that cardholders can perform using virtual cards.

Virtual cards in India are still at an early adoption phase and are evolving rapidly with growth in demand for contact-free and online or digital payments.

These cards can be expanded to NexGen customers preference of BNPL at checkout, instant card to employees to meet corporate-related ‘ controlled spending’ and multi-channel support.

MSME Payments: The Indian economy is home to 63.3M Micro and Small, Medium Enterprises which provides employment to 15% of India’s population. Prepaid cards are a cost-efficient way to pay suppliers as well as blue-collar workers, who are largely under-banked. The majority of banks in particular, have restricted virtual cards to a single transaction, or online commerce alone, and thereby inhibiting wide adoption.

Investing in AI to make virtual cards highly secure and fraud free

Currently, fraud measures are limited to the volume of transactions and are inadequate against the evolving intensification of fraud attacks. Tokenization and risk-based authentication systems are the new technologies that could safeguard customers and minimize risk. By masking the customer card number with a random number, tokenization hides the data and helps in rendering the card details useless if a merchant or bank systems are hacked.

The application of intelligent machine learning models can help in the proactive detection of fraud signals. For instance, if a customer transacts at a specific location in Mumbai and initiates another transaction at a location 20 kms away within a short span, the transaction would be immediately flagged.

Setting a roadmap for bank’s digital growth

Despite the potential, many issuers are yet to have a clear digital strategy to tap into this segment. Banks traditionally don’t market virtual cards as part of their digital payments app or wallet strategy resulting in slower adoption. To enable scale of adoption, they need to develop ecosystem offerings based on the broadening of partnerships. Bank issuers, for instance, need to expose APIs to third-party payment providers to embed virtual cards, and adopt a collaborative, open services approach.

Virtual cards are the first step to a huge disruption in how payments are perceived and processed. Banks must leverage the demand created by the pandemic and drive growth in this segment.

By Satish N, Deputy Chief Product Officer, FSS

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