Accelerated adoption of digital payments necessitates rethink of card proposition

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Heads of digital banking, cards and lending from leading financial institutions and technology companies in Asia Pacific discussed the evolution of cards as alternative types of digital payments become prevalent in 2022.

Vipin Agrawal of CIMB Bank Berhad, Calvin Wong of RHB Banking Group, Frans Verdinan of PT. Bank Tabungan Negara (Persero) Tbk, Vishal Gupta of Mastercard, Albert Naranjo of Tonik Digital Bank and William Cheong of Entrust discussed the rapid rise of digital payments and their potential to disrupt card usage. Various initiatives introduced by issuers in navigating this fast-changing digital payments landscape were also considered to re-imagine the positioning of cards.

Agrawal described the growth of debit cards in Malaysia where the chip and pin security feature is considered an important driver for usage as it facilitates the safety of transactions. Debit card-based transactions have continued to grow in the country to offset the widening market share of various digital payment alternatives. Verdinan added that issuers need to be cognizant of customers’ payment experience and the value-added benefits that can be realised. Naranjo explained that different ways of catering to the needs of customers require effective engagement through product/service enhancements and robust assessment of risks. Gupta highlighted that convenience was a central feature of cards-based payment experience and that incentive and reward schemes such as cashback, loyalty points and frequent flier miles were effective tools in maintaining customer loyalty. Wong underscored the need to exploit the synergies across the digital payment landscape, given that superior customer service was built on understanding customer pain points. Cheong proposed a “hybrid model” where the interplay of digital and physical cards would enable customers to transact in real-time through online or physical stores using contactless mobile or card payments.

Mobasher Zein Kazmi, head of Research of The Asian Banker, in summary said that cards still have a role to play within the remit of digital payments. Reimagining its positioning has become an imperative for the digital banking and card business teams across banks and card schemes, working to ensure that customer pain points are being meaningfully addressed. He added that consumer adoption of digital has transformed expectations over the last decade and card issuers will need to keep up pace by leveraging digital innovations to provide a seamless, interactive and intuitive payments experience.

The following key points were discussed:

The following is the edited transcript of the dialogue:

Mobasher Zein Kazmi (MZK): Good afternoon attendees and welcome to our session on “Reinventing cards in the era of digital payments.” I'm Mobasher Zein Kazmi, Head of Research at The Asian Banker, and I will be your host for the next 60 minutes. With us we have a very distinguished group of senior executives and digital banking cards and lending from some of the leading FIs, card schemes and technology service providers in the region. They will be sharing with us their perspectives on key issues impacting the ongoing transformation of the payments business and assess some of the different approaches being adopted by various market players in navigating this fast changing digital payments landscape. So this session we'll be focusing on leveraging integrated data to offer a better and more, more personalised payment experience that customers desire. We will also be looking at the pandemic's impact on customer payment experience and holistic card offerings that drive successful customer journeys. Finally, we'll be touching upon how issuers can differentiate themselves in this highly competitive environment. First, allow me to introduce our guests and with us is Vipin Agrawal, senior managing director and senior sustainability advisor, as well as former regional head of digital banking ePayment and Personalisation at CIMB Bank Berhad. Joining him is Calvin Wong, head of digital at RHB Banking Group. Also with us is Frans Verdinan, head of card business at Bank Tabungan Negara. Included in the panel is Vishal Gupta, who is the regional director of digital consumer products APAC at MasterCard. As well we have Albert Naranjo, who's head of credit at Tonik Digital Bank. And with him is William Cheong, senior regional sales manager Asia Pacific at Entrust. Thank you all so much for joining us today and I really look forward to a very interactive and insightful session. As mentioned, we want to keep this very interactive as interactive as possible, really for our audience members. So those that have joined us via Zoom can send in their questions through the chat function. The ones listening through Facebook can also drop their questions in the comments section. With that said, and also due to some time constraints, I would request that our guests keep to three minutes each for their respective responses. So let's get started, then, understandably, the payments ecosystem has become quite complex in recent times, and this is really due to the rapid growth of digital commerce. We've seen the proliferation of new payment methods, and really the introduction of next generation payment infrastructure. With that said, the foundation or the foundational architecture of payment platforms has been designed really for a world of card based payments. But with the new schemes in place, this payments universe is transforming really by how customers choose to pay. So what we see is now a world that was initially a cash or card centric one, you know, it was obviously dominated by the international card schemes, but one that is moving towards an increasingly mobile or digital wallets based one, where we see the likes of Alipay or Grabpay. And given this backdrop, we're also seeing the phenomenal rise of digital payment players such as Venmo, and PayPal, as well as the use of crypto assets for payments. And so we've seen the entry of the likes of bitcoin and etherium.

Suffice to say that, you know, globally cashless transaction volumes are expected to more than double, rather by 2030. And if you look at some of the key markets in ASEAN, and specifically, Indonesia, and Malaysia, that really show how traditional players in these markets have come under pressure, you know, especially with the introduction of all of these different mobile based payment services that are being offered by technology companies. Now both Indonesia and Malaysia have shown significant spikes in their eMoney transactions with flows likely to hit about 17.7 and 2.3 billion in terms of payment transaction volume by the end of this year. With that said, we do see that inadequate card ownership has created the conditions for eMoney to become, you know, the primary retail payment method. But having said that, the growth in eMoney usage hinges on rising card and bank account ownership levels. So funnily enough, e wallets still need to be like linked, you know, with bank run infrastructure to draw funds into their proprietary system and linking bank cards is a popular way for users to top up their eWallets. Clearly, the need to modernise has become imperative. And this is a requirement for all digital players and banks who are really hard pressed to achieve the most optimal and effective outcomes for their respective businesses. Looking at some of the major drivers of change, whether it's regulation, technology, innovation, as well as intensifying competition, there is a need for collaboration amongst banks, the card schemes and technology service providers to manage this transition. So to kick things off, I would really like to focus on, you know, some of the steps that you know, these each of our guests respective institutions are taking to provide a more personalised experience for your customers. So perhaps we can start with you Vipin, you know, how are you complementing this at, you know, at CIMB with the issuance of card solutions that provide customers with that flexibility and that optionality versus the range of other digital payments that are on offer?

Growth of e-wallet transactions started before pandemic

Vipin Agrawal (VA): Yeah, so I just took introduction and within a while I worked for CIMB. CIMB is the second largest Malaysian and fifth largest Russian bank. I was with Citi for a number of years working in five different markets. So I think you know, in my view, we look at the payments overall holistically and not just cards and so we you talk about online payment through internet banking or mobile banking, or debit card info got credit cards. Clearly the wallets in the market have taken a large number of transaction share which was showed by Mobasher just earlier but on our side, the distal growth was going on as it is even before COVID but COVID has made people to do banking at home. So online transaction have gone up as you saw for the industry for us as well. And then the debit card has also grown so debit card is growing quite fast for us like 40% to 60% for last five years. The credit card is growth challenge because a credit card has been big in past but it is the debit and the wallet are chipping away market share. So we are on the debit space, we are really looking at expanding the market, you know, for two out of five customer for ATM card use the debit function, otherwise they primarily use the ATM function. So opportunity is that the people who use ATM card or debit card only as ATM, how do we make them use the card outside. And that has really grown quite nicely in Malaysia context, wherever the chip and pin the security, which is important to the client has come in play. And then with the pay wave and the rewards and so on. The debit card has grown a challenges, I think, like many banks is how do you grow the credit card, because the volume is moving to credit and debit. And that is really about the partnership about new products about features, and then leverage the credit feature, which is on your credit card. So that's, that's that's what we've been doing back to you, Mobasher.

MZK: Thank you, Vipin. I'd like to bring Frans in as well. Frans, is this something that you're seeing as well, in terms of, you know, the challenges from promo cards, perspective, specifically credit cards and the impact that that is having on transaction volumes? How can you make this a more personalised experience for your customers?

Frans Verdinan (FV): Thank you. Hi, everyone. My name is Frans, I'm from Bank Tabungan Negara Indonesia. We are the largest  mortgage bank in Indonesia. And we have a quite unique portfolio because most of our customers are mortgage customers. But to answer the question, what actually we see, we see that this wide range of digital payments is also something that also excited the market and expedite the transition to cashless society. Actually in Indonesia, we are quite struggling in the past few years to how to how to migrate from the cash and to cashless society. Because we have a very, very large island. So main island Indonesia and again, very geographically challenged. So it's something that quite so having a digital payment has become something that also interesting to educate the market to educate the customers and to make them try to see that digital payment. And cashless is something that could provide a solution and space and also more convenient for them. However, given the fact that you previously mentioned that, we see that kind of payments still have their own position on the markets, cards, whether it is credit or debit card has still has a bigger access to customer funds compared to the wallet that only contains a small percentage of customers money. Therefore, we see that card is still very important, and still very important for larger transaction for long, and also high ticket items. Even those several years ago, where new payments methods are coming in Asia, now we see there is a difference of behaviour, where customers usually use their wallets where customers seldom to use other cards and still and still comes out whether it's debit or credit card still being used more frequently like to participation, restaurants, travelling electronics and all the high ticket items, cards is still quite prominent. Their security is also a one thing that we see where transaction our cards has a has a head of the competition, because card still has a bigger security function, especially Indonesia, where when you use a debit card or credit card, you need to have a pin. So it's more it's more secure to use a credit card and debit cards rather than your wallet. But I think we need to do also catch up on the payment experience and customers benefit which currently are the strongest part that digital payments have.

MZK: Absolutely agree with you Frans, it's that payment experience that you know some of the players are having to address and given you know the massive amounts of customer data that has been generated. You know, Calvin perhaps I can invite you to weigh in on this. How are you looking to really apply all of this you know, these various analytics so that you can help meet, you know, those customer needs, and really help in terms of enhancing the you know, the business intelligence at RHB? So what steps are you taking to address this? 

Calvin Wong (CW): Guess to begin with is that, you know, FIs or banks in general, we generate a large amount of data by and we look talking about on a daily basis. And the data comes in various formats via structured and unstructured, you know, but ultimately, this, these are all the first party information that really allow us to really gain insights on a customer's preference, behaviour, and even potentially, you know, identify situation that actually wow, the customers the wow moments. But if you look at some of the telemetry data as well, you could also tell us some of the challenges or the pain points that the customers are facing, but it really require a fair bit of persuading to actually look into that level of information for us to analyse. So it really depends on the level of analytics that you want to go into the amount of data and the sources of information that you can capture. So have, you know, having all these fists in from first party information may not be sufficient to be honest, right. And it doesn't really tell us information that we already know, in a sense, but they are information that we don't know. And that is big. And that, you know, basically, that's where the opportunity lies, in a sense, as well. So it's very prudent for us to really go on the ground, get a direct feedback, and I'm sure, in this space, everyone's doing the same thing. Total customers get feedback, to try to understand their needs and wants and typically, this is what what we do as well, in our experience, and I suppose it's no different. So we've got an organisation, we did the information, essentially, and we slice and dice in various dimension, right, and then overlay with, you know, hypotheses that we have already defined. In terms of where you see the opportunity lies, as far as the challenges. And then we've made a decision, whether if it's, you know, allow as to proceed, or we probably need to tweak the hypothesis, or the product yourself. And this and, you know, the cycle continues, right, to the extent that we deliver what we call minimum viable products, and get out there. And then again, iterate and process continue. 

MZK: Thanks, Calvin. So, bring in Albert as well. Albert, looking at, you know, the application of these advanced analytics and really looking to build on, you know, addressing some of the unmet needs that customers have, what is Tonik doing really, in this instance, in terms of providing, you know, that, you know, high or value added payments, experience, you know, for your customers.

Albert Naranjo (AN): So, hi, I'm, Albert of Tonik digital bank we are the first digital bank in the Philippines and we call ourselves neobank. So the Tonik approach to banking focuses on let's say, we are marrying the alternate scoring models we have with industry standard processes, we use the raw data of customers on hand to better understand who's the right person to extend a product to we study the kind of customers the demographics, behaviours, and particularly in how comfortable or as a man of credit, over comfortable they are with transacting with a purely digital bank, we are always exploring different and effective, comfortable ways to cater to the customer, like what Calvin has pointed out, it will boil down to data slicing and how to reach out to the proper customer. Of course, along with it, you're not just extending your products, you are also extending the risks right. So, on the other hand, we also use the data that we have to further safeguard of course, the bank and other capital that we have, when extending a loan or, or whatever product we have to safely have not only a convenient way of reaching out to the customer, but also secure way on both ends. So mobile phone payment behaviour, anti fraud measures. That's all and data slicing. So absolutely all married we will marry those modern tools with the traditional way.

MZK: Right but I think you've hit on some key points, especially, you know, trying to balance the security element of it as well as you know, ensure a superior experience really. And getting it right. Often, you know, is, is not that easy. So I'd like to bring William in, in this instance, William, you know, looking at what we've seen happened during the pandemic, and you this entire push from customers for this speedy convenient contactless payments, you know, they're asking for this, you know, wow, sort of improved checkout experience. And then, you know, you're seeing all these introduction of all of these different loyalty incentive schemes. You know, it has enough been done, what's missing here in terms of some of the gaps from payments experience perspective, following what we've learned during the pandemic?

William Cheong (WC): Well, thank you very much. Well, first of all, there's no doubt that the pandemic has accelerated a change in consumer behaviour towards online and contactless payments. And I think according to the report from Facebook and Beynon company, an estimated 70 million more people shopped online, in the six Southeast Asian countries of Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam since the beginning of the pandemic, right. And in Mackenzie's 2020 Global Payment report, you know, they forecasted that the e-commerce revenue to be worth some $15.3 trillion by 2023. So, so the growth is definitely aided by the COVID-19 pandemic, as consumers are staying home more and shopping online, rather than at brick and mortar retail stores. So digital first is an important evolution, I think that that issuers really need to be on top of. However, at the same time, I do believe that the physical card is still an important component of the overall payment credential. Right customers today want choices as well as immediacy. So why not offer customers you know, the choice of both instant digital as well as instant physical card issuance, a hybrid model if you'd like. From account opening, issuers can provide both the physical and digital cards instantly, enabling the customer to transact immediately. Be it online in app in web payments, or physical stores via contactless mobile or contactless card payment. Now, to me, a successful card offering is one that will meet the needs of the customer, regardless of the type of transaction. So therefore, choice is important, you know, as each and every customer is unique in their preferences. So I'll use myself as an example, you know, my primary or go to credit card is one that satisfies you know, my preferences and needs. When I commute to the office, I take the bus and MRT in Singapore, right? To pay for these fees, I use my plastic card, and simply tap and pay using the contactless feature on my card. It's the most convenient form factor, and therefore my preferred choice in that particular situation.

However, whenever I go and play tennis, for instance, I normally don't bring my wallet along. So after a good workout, which means I'm tired, I'm thirsty and near collapse, I'm drawn to the drinks vending machine next to the court. Now previously, I had to dig through my tennis bag for the necessary coins, you know, sometimes not having enough money, short by maybe 10 cents, not an optimal experience. Now recently, the same vending machine has been upgraded to accept mobile payment, I now use the same card that I use for my commute, but provision onto Apple Pay on my phone to make that purchase. It's faster, it's more seamless. And rather than being on the brink of collapsing, I get to quench my thirst just in time. So for this situation, as I always have my phone with me wherever I go, mobile payment is definitely my preferred choice. Now because the issuer of my card has seen the set to give me these choices. And of course along with all the relevant value propositions on the card, I keep this particular card, you know, as my primary card at the top of my wallet.

MZK: Very good. Absolutely makes a lot of sense. Actually believe it on that note. We were getting a question actually from the audience. And this is really on the issuance of central banks and then launching their own digital currencies. So the question that has come in actually is really around it the current status in APAC, you know, as a payment instrument as a payment method. What are we likely to see, you know, is this also going to be another sort of displacement, you know, of the different payment methods on offer? So, you know, perhaps I can ask Vishal to weigh in on this, on this particular, you know, where these CBDCs sit compared with all the other different payment instruments.

Vishal Gupta (VG): Okay, Hi, I'm Vishal here, and I work with Mastercard. So I think I'll take the liberty to add my personal views here, because not necessarily represent the views of Mastercard, you know, I think on this question, in particular, I think, at least for AP, I think CBDCs is very, very nascent right now. You know, I think it's yet to, you know, evolve CBDC is definitely a much more stable coin versus say, a crypto asset, and there would be into reality of cards accepting, you know, CBDCs for payments, and the ecosystem, it will evolve, and, you know, building on the, you know, the conundrum of choice, I think, choice is evident, anything that comes in would be provided to assure to issuers and to consumers to, you know, freely use, and depending on how the growth happens in any market, right. You know, I think that take up will happen. So, there is no, yes or no answer at this stage, I think the question is more on how the regulations evolve, and how, you know, the consumer happens, and the stability of these new forms of currencies take place.

MZK: And on that note, also Vishal, we're seeing all of these different new sort of initiatives come into play, whether it's the you know, the buy now pay later, you know, the QR codes, real time payments, instant payments, you know, and then we've got crypto assets as well. So given these, you know, these range of different digital payment options, you know, what value are or potentially could cards bring? Or what would be the positioning of cards, given all of this that's happening currently, you know, in the digital payments landscape?

Card as a payment instrument

VG: Okay, so cards, in my view, have a unique positioning here. Right? And the fact is, can you hear me? Absolutely, yeah, sorry. So if you look at the way the cards ecosystem has been built over the last 50 years, you know, it has a certain benefit in the basic economic model, right, the interchange dynamics, the merchant discount rates, you know, the whole four party system, right? You know, the car inherently has a has an economic model, in a win win scenario. So what I feel is cards bring much more than just convenience of payments, convenience of payments, which I'm sure a lot of digital wallets provide even more conveniently than cards to you know, in some select markets. But convenience is one of the features that cards provide. And there's another aspect of value back to the customer right now, whether it's in the form of benefits that issuers give back, you know, it could be, you know, range of benefits, you know, like cashback, or loyalty points and stuff. But it also adds the third dimension, which is status and recognition. 

Now, cards, you know, you feel some people feel good when they are accepted in allowance, you know, they want to be treated special when they go to a golf course, right. They want to get a, you know, a special dining sort of entitlement. Right. So, you know, and they, we did some internal research, but, and it has proven that, you know, there is a section of consumers who do recognise cards with your status and eliteness right. So that third element of fitness and I think fourth is security, right. So the over depth of years that we have been playing with cards, I think, whether it is the chargeback process, the dispute resolution mechanism, or just, you know, the benefits of the you know, the whole security around fraud and cybersecurity, etc, I think cards have a distinct advantage. So they will, you know, they continue to stay and like most of the like most of the panellists already mentioned, cards also. And you you started the talk by saying that card still sort of feeds into loading a wallet, right? What is the most frequent repayment mechanism on a buy now pay later? It is a debit card. Right? So so, you know, cards maybe might not be getting into the last mile of visibility from a complete merchant, you know, transaction level, but it is still sort of an inherent component into making even the other form factors more successful.

MZK: Right. So, Vishal, wanted to get your thoughts on this as well. Do cards still have an advantage compared with the others?

VG: Yeah, I just explained, right. So if you just look at the value locked into the cards ecosystem, the amount of benefits that you know, okay, let me ask you, you know, a simple question to anyone on the panel, right? You're you if you're eligible for a, you know, you have two cards, right, one gives you 3% cashback, the other one gives you 1% cashback and, you know, there's 30 mechanisms doesn't give you anything, right? What will you use? Right, so most the value component is, is still there, I know and, and the value, it doesn't need to be in the form of cash backs, you know, a lot of stuff, which the panellists are trying to speak about in the new form of collaborative, you know, partnerships that will come into place, ultimately, you need a economic model going for that, you know, consumers might not want a reward point or something, but consumers might want for example, or, you know, a kind of flexibility in consumer controls, right, or to do any sort of development to build on any data rich richness that Calvin mentioned, right? 

The economic model is, is much, much stronger for cards, and cards to our mind is not just not just physical or digital cards, it's also like William set credentials, right. And ultimately, it is a card token that is sitting on back of the Apple Pay wallet, or any x pay wallet that is making that seamless, you know, tap and pay possible. So I think it's basically moved to a new to an industry of credentials, rather than just the regular, you know, 10 year old card that we used to see. And like William mentioned, we have a digital first, extensive focus on digital first, when issuers struggled to provide, you know, there were a card replacement when COVID started, because, you know, you really can print cards and courier them out, right? So, so the whole process, and the bank needs to be re-engineered to certain extent, you know, the application flow, the underwriting, the ability to instantly give a digital card to push provision to x pay, right, and to then engage the consumers to the benefits on the app itself. Right. So the whole process of digitisation is, is I think, quite, you know, is quite hastened. And with the advent of COVID. And I, you know, I would say just in last one year, I think we have seen at least more than 20 issuers just in Asia Pacific, completely digitising into it.

MZK: Wow. Very interesting. Thank you, Vishal. And Vipin, your thoughts? Given all of these initiatives that have come in, that are coming into play, you know, what value, I mean, who do you see moving ahead, really given all the range of different payment instruments cards versus the rest?

VA: I think the fact is that, the wallets and as a banker, I don't like it that such a large number of transactions have gone to wallets, and they might be low ticket, and they might not make much money. But we all know that Alipay has used the transaction data in China very effectively, not just for marketing, but we might know the semis for whichever is credit score, leave a score they do based on the transaction. And guess what just based on the payment transaction data, without giving any credit, we can actually assess the credit risk of the client and this score is being used in China by traditional bank. So, when you apply for a loan in China, the bank will ask you two things, one is permission to access your credit bureau. The second thing is permission to access Alipay or Wechat pay score and that score actually has been defined. So the transactions having gone to wallet are actually not good for the banks, but obviously the wallet where we spend huge kind of money I mean most of the players are losing a lot of money and they can do that because they have the investor on the back, but as bank we have to be profitable, we have to have acceptable return. Right. 

So that is clearly a loss to the banking industry. Now what is what is compositive for banking industry is that the online transaction, you know, internet banking, mobile banking really grown, they were growing all along, but now they're growing faster because of the COVID. And because of what banks are doing. So I think the online is kind of giving competition to the wallet. But when you talk about debit and credit, I think the debit game is here to play debit transactions are growing and you showed in your chart earlier. The debit transaction going anywhere from 40% to 60%. That game is still banks have to play. The credit card is a bit more challenging, but I would say that when I go overseas, I will always use credit card right if I go to a hotel, they will not do a pre-order on anything other than a credit card. So credit card is some basic credit features. I don't do it but client who don't have money to pay if they get a bill they can choose they pay 5% 10% 20%. So the payment flexibility is the most one of the very important thing of a credit card. Then the talked about the BNPL, and this equal payment plan. So there are things on credit card, but on transactions, it is hard to really compete with the wallets, I would say.

MZK: Absolutely. Frans, is that even your experience as well, in Indonesia, where we've seen the growth of these wallets and this displacement that is taking place in that market? Would you would you like to share your thoughts on that as well?

FV: Well, I think I have a fairly much agreement with what Vishal mentioned that actually they will cut plays a unique role here in the payment, you will know that there are many payments Yoji our offer of the solution of payment, the unique part of credit card where we are ahead of in terms of the debt security, who our customer our debit card has a is a very strong security and also the debit card business model in the four party model is very sustained, where many of the digital payment methods are developed with the deliver business, what they did, they just try to have the customers that are based on to be used for that and other parts of the business, I think just get a handle. But we also have to certainly check is that providing a seamless payment journey where customers, our customers, more microfinance to pay depending on where the environments, the method of payment need to be adjusted the payment for a man so customers are more convenient and royal, but also given all the explanation, let's not also forget where the other important factor. 

So, the customers education about transaction security and also how we can provide benefit to the customers still very, very important factors that will become a key to separate the position of debit cards and all those digital payments method that currently also struggling in the market. So I think that finally there will be a place where there will be a safe situation where customers are paying prefer to use debit cards. And there is also situation where customer or more of the prefer to use credit cards as Vipin mentioned for hotel and travelling. And also there are some environment that may be digital payments are fairly strength for restaurant offers.

MZK: Very interesting. Thank you for that Frans. So we're actually also getting some a lot of questions from the audience. So they're quite active, and really great discussions. So I'll probably point that starting with Calvin, Calvin, based on this, this conversation, I mean, looking at potential synergies that can be exploited amongst all of these different type of payment methods. You know, the question really is, you know, in terms of whether what type of synergies can be exploited or leveraged. And then potentially looking at the loyalty strategy as well. You know, which one you see being the most effective, given all these, you know, the different range and options and optionality that optionality is that exists from a cards perspective. So the question from the audience that we're getting here, as well as, whether we're looking at cashback versus, you know, virtual currencies, you know, whether we're looking at miles, for instance, or spending offers deals, is there a winning formula? Or is it you know, a lot more nuanced than that?

CW: No more, you know, what, I sort of wish that I could find that answer for you. You know, what, one plus one equals two and applies to everyone, I suppose everyone will be a winner here, but I suppose a winner here and actually would be customers themselves, essentially will be spoilt for choice, right? Is a good thing that a lot of these products going out in the market, be whatever products you just mentioned. So I mean, coming back to me coming to a question is that I guess from our perspective, from f5, or from our CIO perspective, this this represents opportunity as well as challenges right. The operating opportunity here in a sense that someone is someone beat regulator or beat the market essentially doing their part in terms of earning, find the needs recognising there's a need or even projecting there's a need to address writing coming up with potentially standards, a standard rules, regular guidelines and whatnot even coming with these debug to offer to the customers. 

So there, there isn't much of conflict from that perspective, right? It is truly at the end day, it boils down to, we have this product of capabilities that actually fit your customer segment in the first place. So we need to understand our own customers, we shall work for them. And at the end, I suppose every organisation will have a different size of customers, you have different profile, different personas, demographics psychographics, what have used, these are, you know, by understanding them, it allows us as a product developer at the same time to carve out and customise the product and offer to them, right. So there is no one winning formula, which, like I said, just now we can actually identify. But I think it really comes down to finding out which works for your customers. And I think that's important. Right?

VA: Can I add something more? Yeah, sure. Go for it. Yeah. So this is a classic question, right? If I may add to what Calvin said, that is miles better, or cashback better, or points better, especially on the credit cards, my own experience is that the in terms of loyalty miles provides the highest loyalty on uses, but normally works for the high end client. So if you have a good miles core brand, and customer like it, they will just use it all the time, because they're thinking of flying whenever they pick up the card. But when you want to mass space, then between cashback and points, we have found in my own experience in multiple markets, that cashback or simple cashback generally works well, because customer can see the money in the wallet. So I thought I'll say that.

MZK: Absolutely. Thank you for that.

CW: Maybe I just you don't mind just just to be thing. Yeah, I think totally agree with what Vipin said. There's no right there. Just just on top of that, is that when you talk about loyalty, I think you asked me that question. So that when it comes to loyalty, the challenge for banks at the same time is it's very costly, it's costly to maintain, especially loyalty points and rewards, so you want to manage them. So again, is coming back to the segments that you want to manage, what a profitability model where it will make sense to manage and maintain loyalty points, their loyalty programme, on the long run, right. Otherwise, is basically you didn't do a bottom line.

MZK: Fair enough. Thank you for that Calvin. So on that note, I'll just bring Albert in. Albert, looking at potential convergence that we're seeing, you know, among standard schemes, payment rails, you know, and also looking at, you know, this whole push towards, you know, from an insurance perspective, thinking about the acquisition versus usage, any thoughts, really, in terms of, you know, monetising, or, you know, the different sort of suite of payment offerings. And, and looking at cards in particular, potentially, you know, as a as a, you know, looking at usage specifically as a revenue driver.

AN: Yeah, so, what Calvin has said, and what the other previous gentleman has been pointing out, I wish there was a single approach or a single effective model in all this, right. But on the other hand, if there was any, we'd all be doing the same thing, right? Most especially in this pandemic thing, new normal. I guess it will just boil down to how we reach to our customers, what makes them comfortable, what do they want? And how do we reach to them. So, in the, in this era of having a substantial amount of data, we cater we, we make or we produce the correct product for them. I guess even the term cards being coined loosely right now, we have the debit cards, credit cards, I mean, here in the Philippines. Previously, before the pandemic, I can say that credit card is the way to go. But surprisingly, I guess, even the other gentleman here can attest that the traditional debit card is really holding up well. I guess even performing well as a payment model right now. 

You have the wallet top model which is surprisingly, being utilised more. So, to circle back on your question, yes, we are going to see a lot of we are going to see a convergence of different standards schemes. Because previously we already had roughly a base model or, or a palette of, of the of what products we have the typical credit cards, and when we do miles, and then the pandemic hit. So it really reshuffled everything. So which is a good thing, you know, a silver lining, right. So it gives us an avenue to be more critical and aware of what the customers want and how we reach to them.

MZK: Absolutely. On that point. Thank you, Albert. On that point. William, looking at that experience, that user experience, and as we're sort of shifting to a more holistic card offering and looking for that point of differentiation, as we've discussed them, there's perhaps no one sort of winning formula. You know, and, to add to that, also, because we've gotten, we're getting a question also from the audience in terms of, you know, the likely future of credit cards, you know, because we've spoken about how say debit is well positioned, given, you know, the BNPL sort of structure or model. So, how do you see this evolving, and what would be that point of differentiation? 

Effective issuer and customer engagement

WC: Thank you. So earlier I spoke about offering a hybrid model, you know, of issuing both digital and physical card instantly, as an issuer, basically, you want to get the payment credential in the hands or the mobile phone of the consumer as soon as possible, so that they can start transacting right away, and maybe push that credential to, you know, Apple Pay and so on, so forth, maintain that top of wallet positioning, so in my opinion, that in itself is the point of differentiation. But if you want to take that holistic card offering to the next level, you know, issuers can actually improve the physical cards’ relevance by adopting some of those features that you know, fans of digital wallets enjoy, for example, the ability to update card functionalities in real time, you know, the control of their payment credentials, such as blocking your card or specific transaction types, you know, such as contactless or online transactions, you know, the ability to push one's credentials to global wallets, and merchants using tokenisation. You know, those kinds of features. And this, to me, can be achieved by pairing the physical card with the mobile banking app or wallet. And we've seen some of the digital or neo banks, in fact, embracing this enhanced hybrid approach.

MZK: Excellent. On that, just to follow up and given, you know, what we're seeing, and you mentioned this, you know, hybrid approach. So, Vishal, probably, I'll ask you to jump in on this one. But, you know, given this competition, that we're seeing the disruption in payments, what adjustments do you think card issuers need to take really going forward in, you know, this year and beyond? And, you know, how do you see say, cards versus a credit card, excuse me, versus a debit card and potentially building up, you know, the actual usage and driving usage as a contributor to revenue?

VG: So I think William touched upon it, and a few other panellists as well. So just coming, you know, continuing from the previous point of, you know, a holistic sort of card offering, you know, and kind of tying it up here. So I know the lines between what a credit card is and what a credit line is, and what an instalment line is, is blurring. Right. So what is happening is and we've launched a couple of programmes in Hong Kong last year, one with Mox, what they did is, you know, the same card, you can access your funds in your bank account, or you could access funds in your credit line, same card, you can just and switch it on and off within the app, you can link your card instantly within the app to draw money out of your credit line or draw money out of your bank account. Right. So sometimes, in some markets, few rules need to be rewritten as these lines are blurring. That's, one point. Second is I think, you know, just for making card propositions holistic, and, you know, not having the debate of points versus miles versus cashback, we in fact, have a product, which one of the largest issuers in Thailand use last year, where at a cardholder level, a customer can choose what rewards programme they want to get into. Right? So a customer chooses on the card, okay, I want a miles space card programme, or I want a cash back card programme. Right? I could even go to the extent of saying, okay, I want a travel insurance, or I want, you know, free lounge access, right. 

So, you know, so these are the kind of disruptions that are taking place in the market, they'll want the largest banks, probably the largest bank, probably in Asia Pacific - Commonwealth Bank of Australia, already has on their card choice, given that you could join com rewards, com bank rewards, or you could take the contest points what's right, so, you know, so that's how, you know, this is all coming together in terms of, you know, creating opportunity out of disruption. And the real winner of in terms of revenue is the one that will get the customer to be more sticky with them. So guess where you want to be your credit card with it should be with your main financial institution, right, which you would like it to be with your banking institution, there are individual card, credit companies, there are separate BM banks, right. But somewhere, someone who can offer a one stop shop with either through partnerships, or on their own, I think will be the winner in the end in terms of creating the higher share of wallet of the consumer.

MZK: Very good point. And on that note, actually, I'll bring in Vipin here. Vipin and we're also getting a very interesting question. And perhaps William can follow up on this as well. But Vipin, so there's a question from the audience on the potential of fingerprint cards, or rather smart cards, as they're being positioned. Any thoughts on these types of innovations as also a potential point of differentiation?

Embedded card security features

VA: Yeah, actually, when I was in city, Singapore launched this card where the physical card stays in the wallet, and you can just touch your finger on the, on the terminal of the merchant, and it looked very hot and sexy. You know, and maybe it was ahead of his time, but it was shared within a year. And the reason it was the problem is that you have thousands and thousands of merchants in your own country and overseas, and trying to change the merchant infrastructure to let's say, accept fingerprint, as Vishal will confirm, is a huge thing worldwide. So I think there will be some innovation, but to me, unless it can be used across a large number of merchant. It does become complicated on especially on the fingerprint cards. But this was our experience, like 10 years, man. Yeah.

MZK: Well, William, did you want to weigh in on this?

WC: I think Vipin hit it right on the mark. You know, how, you know, how prevalent can you actually use that? And secondly, the card itself, you know, how expensive is that? I think fingerprint card might be the one that authenticates your your fingerprint on the card itself, at this point, is probably quite an expensive product to have. So, yeah, I think it's some, some will be very good, and others may be just a little not quite as feasible at this point.

MZK: Right. Okay. And, really, in terms of, you know, the partnerships and in the ecosystem, you know, any thoughts, you know, in to help all the issues in terms of maintaining their competitive position, given all this disruption that we're seeing in payments, William? Oh, sure. The question was really, how can issuers really expand or build on their, you know, partnerships, you know, across the payments ecosystem to maintain their position? You know, particularly from a cards perspective.

WC: I think what it comes back to is really a constant improvement in the payment experience. You know, the issuers really need to get closer to their customers. And, you know, working through, you know, third parties, to be able to provide better products, better offers services in engagements and interactions, you know, at the right time, and also when it comes to you know, what I talked about earlier. Now this digital first transitioning, you really need to find the right partner to execute on that, you know, digital first is a great concept to be able to offer to, you know, consumers, you know, the ability to push your car to tokenisation, and all that. But when it comes to actually executing it, it's actually quite a lot of effort. And a lot of time and resources required. 

So you really need to find the right partner for doing that kind of engagement. So at Entrust, you know, we do have the solutions that enables issuers to offer, you know, all of these kinds of choices, especially digital first type of initiative. So, I would say, you know, talk to, you know, Entrust as one ideal partner, because of the fact that we have done a number of previous integrations with many of the payment ecosystems today, and we'd be more than happy to, to help you.

MZK: Right on. Thank you, William. We're actually also getting another question. It's been a very lively audience. I'm really excited about that. So the question is, and perhaps I can get Calvin or Frans or both of you actually to weigh in on this. And it also speaks to the risks, right? So digital risk, and the fact that you want to offer a safer, more secure payment for your customers. So perhaps, Calvin, I'll start with you. And then, you know, looking at some of the challenges in terms of fraud, card fraud, you know, can you identify, you know, what are some of the biggest risks that you're seeing, particularly from a fraud perspective, and you know, looking at how these can be addressed within? 

CW: So, I would say treating, actually communicate, communicate and communicate, or you can replace it with education. Because I suppose, you know, technology is out there to mitigate or at least prevent, you know, all these potential frauds and whatnot, but usually boils down to, you know, the end users at the same time, right, it will be as good as development as worse as not really as good, but it's as well as divulging your own personal details as well. So if we, we could put top of the line, you know, first class defence system or solution out there, but at the same time, density education is not quite there yet, and customers or users at the end day, and not how to poorly aligned with that. And, you know, the just to continue to put yourself at risk divulging the personal details I didn't have, right and we have all these all these issues going on at the same time, where application is not actually done by the actual customer themselves. So it will be fairly difficult, right? So it has to be both sides. Besides technology that we put in place. At the same time, we also need to make sure we continuously educate the customers on how to safeguard their own, you know, whatever accounts transactions, and so on, so forth, I think these are all critical stuff. 

MZK: Absolutely. And Frans, also on the security aspect, security piece, in terms of protecting customers.

FV: Well, it is an interesting thing to discuss, because risk is something that also has to be executed carefully. So we don't want to ruin the customer experience. And most of the time, they like to set up two sides of a coin. So it's something that needs to be choose within seamless customer journey or security. And I think the key is how we can develop a good adaptive risk management system. And also customer education is also very important thing. And I think there's a quite unique market adaptation in Indonesia, because some of the e-commerce, Indonesia also having like adaptive risk management and where our customers where they the system can identify also, where customers are attempted to use OTP and some authorisation or attempted and not to use OTP it is actually quite, quite convenient in double payment. But turns out so many times I spoke to the customers and stockholders not very not very much people and so there are many people are not very confident also about it. 

So I think we need to develop something that tells the customer who our customers can be fine there. Their risk management, or maybe on the on their mobile phone or mobile apps customers can choose what are the types of security that they want to employ for themselves. Some are some more convenient with with a tight risk. But some customers are more convenient on the loose and more convenient method of payment. So the flow developing something that really can be adjusted to the customers, our customers can adapt our customers and choose what are the security levers that they want to employ? I think it would be a thing that we need to have.

MZK: Very interesting, thank you for that Frans. And actually, we're getting a last question that has just come in and a little stretch for time. But I'll still open this up to the panel to the guests Vipin or Vishal, either, if you would like to take this. So the question from the audience is historically card retention has been one of the most critical factors to drive profitable card portfolio. So how has this last wave of digitisation impacted ways to improve average customer life? Either of you would like to have a stab at that?

Card retention and usage

VA: I can talk about I mean, the retention is a challenge. And depending on the bank, they have five to 20% customer losing and credit card acquisition is expensive proposition. So return is important. So I have two dimensions. One is if the product appeals to the client, and I talked about the miles, so customer who love miles, they will not cut their cart, because they just want to earn miles. So either relates to the feature of the product. The second, which is relatively new is the whole personalisation piece. How do you make the customer you know, comfortable, convenient, and give him what he needs. 

And credit card customer hate when they miss a payment by a day and they get a late payment charge and so on. So some of the personalisation thing. And some can be very basic. I mean, I send you payment confirmation when you when I received the payment versus you waiting for the statement later. Or I give you a reminder for your bills to be paid. So for example, what we did in CIMB was that we know let's say a customer pays 10 days before the due date for telephone bill, then we send a reminder 10 days before for that client, and therefore they don't miss payment on time. So to me the features or the the personalisation are two way to reduce attrition.

AN: I'd like to add on to what Vipin has said.  I think historically, card retention has been really one of the one of the most critical factors, right. And I don't think it has changed ever, ever since. Even in this pandemic time. I think the thing is, we just have to be more creative and more flexible, on how to approach and how to, again, reach out to our customers. It's just that it's like a language. So basically, the language just changed, right. But it's still the same, the issue still the same. So it's all about retention. And we just have to always get our message across for our customers and our reach to them. Give them what they want. But give them what they want, safely and securely for both parties like the customer and the bank itself.

MZK: Absolutely. All right. Thank you. Thank you, Albert. And with that I'm being flagged for time here. And I know that we can continue to talk about this the whole day. There's just a lot, a lot of ground to cover. But, you know, with that said, I mean, it's fairly well established. I mean, everybody is sort of reiterated, you know, I mean, in terms of the role that cards has, it still has a role really to play within our despite this evolving digital payments landscape. So looking at how to re-imagine or re-imagining its position is critical. You know, I'm sure that you know, the digital banking and card teams across the region are looking and working at this to you know, to ensure that those customer pain points are being addressed by the communication is in place. And you know, and you're tempering that are balancing that also with, you know, the safety and security of the transaction given how everybody's now positioned for digital first, while also, you know, providing a very seamless, intuitive payment experience. 

With that said, I would like to thank each one of you for having joined us for the session. We hope that the audience has really benefited from the insights and the thought leadership that our guests have shared and their perspectives. I'd like to remind everybody that we do have a recording which will be available on the RadioFinance website for download and playback. And also invite everybody to register for upcoming sessions. I want to thank everybody for for joining us today and have a great day ahead.

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About The Asian Banker RadioFinance

The Asian Banker RadioFinance aims to enhance understanding of the finance industry globally by bringing together thought leaders, industry experts, practitioners and futurists to examine current, critical issues through a discussion facilitated by visual and web-based platforms. Through the use of interactive technology, participants do not have to take time out from their crowded schedules or leave the comfort of their own desks.

Keywords: App, Bank, Card, Cashback, Contactless, Credit, Customer, Data, Debit, Digital, E-wallet, Financial Institutions, Fraud, Issuer, Loyalty, Mobile, Miles, ATM, CBDC, Covid-19

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