Under the Hood episode 7 - full transcript


UTH ep 7
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[00:00:45] Simon Taylor: [00:00:45] hello and welcome to under the hood, a brand new podcast from 11:FS and Synapse. We're lifting the lid on banking infrastructure and taking you deep into the technology that's disrupting traditional models, shaking up the system and improving the financial lives of customers around the world.
[00:01:06] Welcome to episode seven of Under the Hood. I'm Simon Taylor. Co-founder at 11 Fs and I'm joined by my cohost Sankaet, the CEO of Synapse. How are you doing today? Sancha 
Sankaet Pathak: Good thanks, Simon. How are you doing?
 Simon Taylor: Really well. Good to see you again. It looks like it's sunny where you are once again.
[00:01:20] Sankaet Pathak: [00:01:20] Yeah. It's it's California.
[00:01:23] So quite, quite sunny, which is nice.
[00:01:24] Simon Taylor: [00:01:24] I just brought it up because we're in the UK and it's a sunny day. Um, we’ve gotta take those moments where we can, um, 
In our last show we looked at cryptocurrency and stable coins and we've looked at how they're disrupting global money movement. But this week we're taking a look at our friend card issuance.
[00:01:42] How third-party providers are taking some of the stress out of card issuance, um, where the disruption is, and also how can things be better faster, cheaper in the whole card space generally. 
So to dive deeper into this, we're joined by some incredible guests. Uh, joining us today [00:02:00] is Sean . Who's chief product officer at global processing services.
 Simon Taylor: [00:02:04] Welcome to the show, Sean, how you doing?
 Shaun Puckrin: I'm very good. Thank you for having me. 
 Simon Taylor: Thank you for being here. And we also have Edoardo Volta, who's VP and head of fintechs over at MasterCard. Uh, welcome to the show, Eduardo, how are you doing?
[00:02:16] Edoardo Volta: [00:02:16] Thanks Simon. I'm very good. You
[00:02:18] Simon Taylor: [00:02:18] really, really well. Thank you. Excited to talk about card issuing because, well, frankly, there's just so much to understand under the hood.
[00:02:26] Um, so let's dive right in and what are, let's start with you. How does this actually work? What's the difference between MasterCard and a payments processor and a bank who, who are all of these actors?
[00:02:38] Edoardo Volta: [00:02:38] Yeah, that's a very good question. So hang on. Let, let me just maybe start by saying so. What is MasterCard?
[00:02:44] So MasterCard is a global payment network and in our role, in the, in the ecosystem is to facilitate payment transaction, which usually involve a MasterCard account holder and a merchant, along with the financial institution that goes, um, it's. [00:03:00] So we are like the network that that brings all the players together.
[00:03:04] And really the value that we bring in the, in the, in this ecosystem is to have a set of roles and a set of, um, uh, application that applies to all of the players globally, no matter where, where the transaction is taking place, as long as you've got the MasterCard, you know, that, that authorization clearing and settlement of the transaction when you make a payment happens in exactly the same way globally.
[00:03:29] So that's really what MasterCard does together with all of the players in the ecosystem.
[00:03:35] Simon Taylor: [00:03:35] That's a great jumping off point then to talk about a payments processor. Um, so what about GPS and payments processes, Sean? 
[00:03:41] Shaun Puckrin: [00:03:41] We were talking about calls. We have to talk about the full policy model, but I think, I don't think it's been a full party model from the one time.
[00:03:49] It said like a a hundred party model. Right? So there's lots of different players. You can play in the, in that process. And so GPS is a, as an issue of processor sits on the issuing side. So, uh, you know, it [00:04:00] manages the connection to the scheme. For a banker or someone who is actually sort of delivering that card to you as a user.
[00:04:07] And so we sit between them and the, scheme to make sure that you can do those transactions to receive those messages from the scheme like MasterCard, when a transaction is made and then we we'll kind of authorize or not, uh, or pass that onto our customer to authorize or not. So we really sit between, uh, the bank and the, the scheme.
[00:04:25] Um, but there are also payment processors on the other side, which is that to the, uh, to the merchant. And in that sense, that's like, uh, often, um, a PSP is often the term used or an acquirer or often they're one and the same thing, and that's a payment service provider to the merchant. So it has to be pretty kind of careful when you say payment processor.
[00:04:43] Cause there's some that sit on the, uh, on the card side, consumer side, and some that sit in the merchant side.
[00:04:48] Simon Taylor: [00:04:48] Yeah, worth unpacking. And when we're talking about called issuing, of course, we're talking much more on the consumer side. And then Sankaet. Um, talk to me about how the spaces has changed a little bit.
[00:04:58] When I go make a, uh, [00:05:00] a new company and I want to go build that company and I want to issue cards to my customers as an entrepreneur. Uh, why do I, how do I get started and what did that look like 10 years ago and, and kind of how it’s changed. 
[00:05:11] Sankaet Pathak: [00:05:11] Yeah, for sure. Um, so 10 years ago, essentially, Uh, you had MasterCard who was pretty much the messaging system, if you may, they're essentially building this network where, um, anyone can transmit a message and post a transaction. So that's essentially what MasterCard is doing. Then you had processors. So people who would be capable of, uh, plugging into the MasterCard communications channel, if you may, and then interpret the signals that are being sent back and forth.
[00:05:42] Um, so those people sat two ways, they sat on the side of somebody swiping a card. So that is the issuer. Um, the other one ended up being the acquirer, which is someone who's going to transmit the signal through MasterCard to the issuer. So the idea [00:06:00] being you're going to take your card to a restaurant, you're going to swipe it. As you swipe it and pretty much an inquirer processor is going to send that signal to MasterCard, to whoever issued the card to the customer, which would then be accepted by an issuer processor who will then forward that signal to the bank. 
Now, 10 years ago, nothing has changed in this fundamentally even today, but 10 years ago, the customers of issuer processors and acquire processors were core banking systems on one side, because essentially they had to plug into the banks core to be able to, uh, impact the balance, uh, give the customer visibility into them, creating a transaction and so on, and for acquirers it used to be point of sale terminals.
[00:06:44] So people who were building a point of sale software or hardware where cards would be swiped. What has changed now is it turns out things have just become a sponsoring entity, but the actual customers are [00:07:00] FinTech companies that are trying to issue cards to their customers. So now for an issuer processor, they're not per se going to a core banking software. They're not even per se going to partner bank. They're essentially going to a FinTech company and saying, “we know you have a group of customers that would love to get a card from you. We can enable this,” while a lot of transformation has happened on the acquiring side as well, and,  a lot of the economy has moved online. So you're seeing less partnerships if you may, between point of sale hardware vendors, and acquirers, but a lot of acquirers are essentially, enabling developers and who have you to be able to just submit a transaction to the MasterCard network and then send it to an issuer processor and so on and so forth.
[00:07:45] So the landscape's evolved a whole lot since then.
[00:07:48] Simon Taylor: [00:07:48] I think that's an important point is, is we've always got banks behind the scenes. We've got the, these core networks that connect all of those banks together, whether it's the buyers, or the sellers. Above [00:08:00] that, we've got specialists that have been around for some time, but, uh, you know, uh, really changing the game in terms of payments processes who connect either the banks or somebody else into those payments rails into the visas, the MasterCards of the world. And then above that, we're also starting to get, uh, either the payments processes themselves or these new specialists provide developer friendly APIs that modern software engineers can, can deeply understand. And I think that's really, really powerful and worth unpacking.
[00:08:28] So. Is that, um, what disruption has that really caused Sean? Cause I know you're a veteran of having seen a lot of the FinTech movement in the UK. And what do you think about as you look at more close to home the last five years and what supports really started to change?
[00:08:42] Shaun Puckrin: [00:08:42] Yeah, I think so. So he's absolutely right iIn terms of how that kind of unbundling has happened. I think. Yeah. So now that the bank doesn't have to be the provider of the tech stack, that's just liberated, you know, lots of players to get into that and offer, the services that we're used to, but in lots of different ways [00:09:00] that can be consumed by different actors.
[00:09:01] And so it can be really simple stuff. Like one, the fact that the, the accompany like GPS will actually work with a new bank or a new player in the way that traditional banks may not have done because, you know, it didn't make sense on the balance sheet, whereas for smaller players or for different actors, you know, there's a much greater incentive to work with with smaller companies.
[00:09:21] And then the, what those smaller companies want to do. They wanted greater flexibility. They wanted more control over the experience that they were having with cards, with whatever. And so at its simplest point, that that was, you know, features that we now take for granted, like being able to freeze a card or unlock a card via an app.
[00:09:36] Right. If you give developers an APR to be able to do that, they'll put it in the app. You know, suddenly you've got a compelling consumer proposition, but you know, that was the beginning, you know, Now, if you just take every element of a card and think about, if I turn this into an API, a switch that a developer could control, you know, what are the really interesting use cases that I can then apply to that?
[00:09:55] And that's what you're starting. That, that's what you see now is that that's been taken to lots of different places to [00:10:00] do lots of different things. And so, yeah, we kind of all think about the kind of consumer propositions, but, you know, it's, it's, it's thinking of card as a technology vehicle that can be useful in lots of different, uh, you know, aspects of purchasing payments and, and reporting and fraud and all of those things. So suddenly you're that metadata, all that data that you're collecting around a payment, all of the things you can do with the payment or exploded and can be leveraged in lots of different ways. So players like GPS have just enabled, uh, you know, uh, all of those players to think about how they might use that data.
[00:10:30] And as a result, we've seen a massive explosion in the types of services. That would be now being offered to businesses on consumers.
[00:10:37] Simon Taylor: [00:10:37] And I think, I mean, Sankaet on, previous episodes, we've had folks like Gigwage, we think about Donut, we think about some of these companies that are doing new things for the consumer, with, uh, with the fact that they're now able to issue a card.
[00:10:50] So talk to me about timeline. Like if, if five, 10 years ago I wanted to get a card into market, what was I looking at? And as an entrepreneur, what could I, what could I reasonably achieve today? [00:11:00] Yeah.
[00:11:00] Sankaet Pathak: [00:11:00] Um, so another piece to issuing a card is there are multiple components involved to be able to make that happen, right?
[00:11:06] Like the most common one being a core system of record. Right? Like even because now you're unbundling them. They're not coming in together anymore. Um, so historically, which is what we'll call the first of fintechs, it took you anywhere between 12 to 18 months to be able to put all this together and really get to market.
[00:11:23] Um, and now we're seeing those timelines shrink down to about six weeks. Um, so people can essentially go live, um, with a card issuance product in as quickly as six weeks. And the irony is the slowest part ends up being customizing and printing the plastic or the metal. So it's not the software anymore.
[00:11:41] It's essentially the, the metal or the plastic that you're trying to ship.  Manufacturing that in refining that takes the longest time, not even putting together the software components.
[00:11:53] Simon Taylor: [00:11:53] And that's it. It's, it's putting all of those. Uh, yeah, it, it, it just can be remarkably complex if you're not, uh, [00:12:00] not, not able to put all those together in quite the same way.
Edoardo, as you look at this, where do you think the majority of the disruptions are happening?
[00:12:07] Is it closer to the customer? Is it happening in the technology? What, what, where is the disruption?
[00:12:13] Edoardo Volta: [00:12:13]  It's a good question. Um, I really believe that. Well, I, I work with all of the FinTech in the UK, and I do believe that the disruption come from both sides. It comes in the plumbing or under the hood, as we are discussing, any comes on the front-end for the customer as well.
[00:12:30] So when you think about the front-end customer experience, think about what the fintechs have delivered to customer. They, they are able to create frictionless experience in app in a very user friendly environment, which did not exist five to 10 years ago. So payments have really evolved in space.
[00:12:51] Think about the Apple or the Google or the Samsung wallet. All of these type of payments are direct consumer experience, which have changed the [00:13:00] way we pay. However, I don't think innovation stops there. This is the one that we see, but there is a lot of innovation that happens in the backend. And when you think about the FinTech, I mean, Sankaet was referring to it, when you think about the FinTech, the one to issue cards, most of the time they're coming with great consumer proposition, they've a wonderful idea, great UX experience, but they don't necessarily want to deal with the hassle and the administration that goes with the actual issuing of the card at the end of the day, the dealing with the schemes like MasterCard.
[00:13:30] So there are companies which are banking as a service, or BIN sponsor providers who can provide that access. And what we've seen (and end up on one end that has a BIN sponsorship, and then the other processor like GPS who help providing access as well.) What we've seen is this company really leaping forward from a technology perspective in, in, in the last five to 10 years, incredibly.
[00:13:56] And they've really developed our technology in order to be able to [00:14:00] provide a new solution to customers like installments, the ability to tokenize a card, the ability to deliver digital issuance. So really when it comes to disruption, I think we are seeing both in the front end, but definitely also in the planning and in the, in the back end of the customer.
[00:14:16] Simon Taylor: [00:14:16] Wow. So it's coming from both sides, Sean. And what does that actually mean? Um, are we seeing, uh, this disruption really change outcomes for consumers? Are you seeing w w what is it?  And what does it mean in terms of, for the entrepreneur as well?
[00:14:30] Shaun Puckrin: [00:14:30] Yeah, so I think, I think we absolutely are, but also we got a long way to go as well.
[00:14:33] I think, um, the, the unbundling and rebundling of services is happening, not just in card issuance, but it's also that in combination with lots of other services, like fraud, Like KYC, uh, all of those things and you add all those things together and that's really enabled the fintechs to produce just much, much better user experiences for customers.
[00:14:52] So, you know, the ability to sign up for an account, you know, through an app, you know, directly, I get an account straight away. I get my cards straight [00:15:00] away. You know, I can have a virtual card in my wallet, you know, literally within 10 minutes of downloading the app. And so that's a much, much better experience than anyone had.
[00:15:09] Before, you know, the, these, all these players came together to provide an ecosystem that could then be recombined in the ways that, that, that the ultimate front-end bank has kind of delivered to customers. And I think, you know, it's really easy to kind of be cynical about these things, but actually all of those things added up has produced a much better experience.
[00:15:27] And not only is it driven a better experience for the fintechs, but you know, the banks have to take notice of this too. The big banks have all had to up their game as a result of these things being available. And so, yeah, the end consumer has benefited massively and just getting a much better banking product off the back of all of these things.
[00:15:45] That's just the consumer side on other sides, you know, I think it's, I think we're seeing some really interesting things in terms of using card as a technology vehicle for lots of different, uh, other reasons. Cards’, you know, major advantage over all the different kinds of new [00:16:00] payment methods that we see in the world, is acceptance.
[00:16:01] And so leveraging that ability to accept a card was combining that with all these other things like crypto, like open banking, all these things, these are all these things can be complimentary, but call it can be that really amazing conduit to acceptance that the, um, you know, th that we, that that really is, is a hugely powerful thing.
[00:16:19] And it's the thing that's often hardest to achieve in a payments product.
[00:16:23] Simon Taylor: [00:16:23] I'm interested in getting your views on, on that point, uh, in terms of like why card is, is so central to entrepreneurs and why it's become so flexible in, in the last sort of 12-18months.
[00:16:34] Sankaet Pathak: [00:16:34] Yeah, I think, um, the most interesting thing that comes with a card is.
[00:16:41] Not just the interchange rails, but pretty much a ubiquitous acceptance mechanism, right? Like, um, which you don't get with most payment processes or protocols now, um, it's cumbersome to make a wire from one country to another, or from one individual to another, same with [00:17:00] bank to bank transfers. But there are almost very few merchants, um, that do not accept a card payment.
[00:17:07] There are very few forms of commerce where you cannot use the card. Um, so the best way to be able to get your customer engaging with you at every step of the way is convince them to put their disposable cash with you and then have them spend it as they're going about their day. And that's the only way you can really get that kind of experience today, ends up being with some kind of a card product and nothing else.
[00:17:33] So that's one of the big reasons most fintechs are so eager and interested in getting a card in because it's the most profound way of building an engagement mechanism with their product or service
[00:17:46] Simon Taylor: [00:17:46] Edoardo, what are you seeing from your perspective? Is it that engagement thing that's, uh, that's really, really powerful and, and, and why cards have become so central?
[00:17:55] Edoardo Volta: [00:17:55] Yeah, absolutely. I couldn't agree more with Sankaet. I think what [00:18:00] is this everyday engagement? If you think about how many times we pull out a card product or now a wallet to pay, uh, there is, there are very few products that create such regular engagement between the provider and the consumer.
[00:18:15] And so if for companies want to enter, enter into card space, it's a great way to build trust and create this regular interaction. There is also another element which is also the card issuance is also sometimes a natural progression for some, some player while providing solution in financial services, space and card becomes an additional revenue stream in an additional service that they can provide to their customer. So when you look at it, we are seeing a lot of player actually ideally entering, the, the world of financial stuff with payments and with card, like Curve, Monz, Monese, and some of them moving into it, like Wise. Wise started from money transfers then they moved into card.
[00:18:56] But certainly we are seeing it as a, is a, is a good way for [00:19:00] companies to deepen that engagement with the customers.
[00:19:03] Simon Taylor: [00:19:03] Interesting. Um, let's do some definitions, go another layer under the hood now, Sean, and talk about, um, things like BIN sponsorship and program managers, uh, you know, w what are all of these terms?
[00:19:15] Because like, it sounds so jargon heavy, but why are those things important?
[00:19:20] Shaun Puckrin: [00:19:20] Yeah. And, uh, I, I say as an industry, we're pretty guilty of often overloading those terms as well. Right. So, well, one person's definition might be slightly different, to another's, but, um, yeah, so to go into a question: A BIN sponsor is, is, generally, a, principal member of the scheme.
[00:19:35] So they've signed up to all the regulation and requirements that the schemes put on them to, uh,
[00:19:42] Simon Taylor: [00:19:42] So the “schemes” being Visa or MasterCard.?
[00:19:44] Shaun Puckrin: [00:19:44] Apologies. Yep. Thank you for calling me out on that good point. Uh, or JCB or CUP or, uh, you know, there are many of them, um, uh, but the main ones are Mastercard and Visa.
[00:19:54] Um, and so yeah, they, they set regulations as to who could be part of their network. And that principle means that [00:20:00] they, they have, uh, accounts that they set up, uh, the, all manages in this certain way and that's quite an onerous, um, uh, responsibility. Um, and it should be because you know, these are the people who are ultimately handling customers' funds settling to, to, to, to mastercard or visa. And so, um, now what we've seen is that the, the, the fintechs that have come along have not necessarily been able or wanted to, or could at that particular point in time, go through that whole process and kind of wanted to get something up and running.
[00:20:28] So a BIN sponsor is a company that manages all of those rules, but then signs up a FinTech, uh, to then manage their accounts for them on that, on that basis and provides a platform for them to manage that, that account. And so they've been the, the advent of BIN sponsorship has been, really fundamental to that explosion of FinTech players because it's enabled a whole set of companies to enter the market that otherwise wouldn't have. But done so in a way that, you know, from a regulatory point of view, customers, money is still protected. You know, it's still, it's still, I a really, um, you know, [00:21:00] kind of well focused way of, of providing that service. And so, um, you know, you'll often hear, uh, you know, “issuing bank” kind of using the same sort of things.
[00:21:07] It's all the same thing. It's just the, the, the BIN sponsorship is the bank that you're, that you're with. And so when you sign up for a FinTech company, often you'll see in small print on the card, there is like “this card has actually been issued by XYZ”. That's the, that's the BIN sponsor/ issuing bank that’s sat behind the service that you're offering.
[00:21:26] Um, the other thing you’ll see, one of the things that we've definitely seen in the UK quite a lot is BIN sponsors, has been great. And they provide a really good service to customers. Some companies, you know, like a Curve or someone gets to a certain size and, and, uh, uh, you know, kind of successfulness that they then want to become a principal member of the schemes themselves. And so they kind of migrate from being BIN sponsor to being a full bank themselves. And I think again, that, that, that progression of companies as they go through that again, it's been a real trait that we've seen, um, through the last sort of five, 10 years.
[00:21:59] Simon Taylor: [00:21:59] It is interesting, isn't it? [00:22:00] How, as the company grows, it's able to take on more of the responsibility itself, but by having somebody that could handle that initially they were able to grow in the first place. [a][b]
Eduardo, talk to me about what the role of a program manager, because I think that's that may or may not be the same thing, but it's a slightly different role.
[00:22:17] Edoardo Volta: [00:22:17] It is a slightly, and I would like to establish my view with the, with the personal story, which is when I took over this role three years ago, my learning curve into all of these where the sponsorship program manager has been fairly steep because it is quite a complex ecosystem. And we often now take it for granted when we speak, but actually the different role to play.
[00:22:39] So what is the program manager? It really depends. The program manager is really the, the, the, the entity that could either sit between the binsponsor and the actual FinTech issuer, or it could be taken, the role could be taken on by either of the two. And the program manager refers to the [00:23:00] management of the customer.
[00:23:01] So providing the interface to the customer, uh, on, in order to interact with it, with our card programme, it means managing all of the controls and the, and the, the sort of alerts that you want to put in the card. So it's really that programme manager type of role where, where you have the, have the type of solution that you're providing to the customer, to the ultimate customer.
[00:23:23] Often with the way we seen in the UK, it varies as I said, but often we see the FinTech taking on that project program manager, uh, and the responsibility themselves from the very beginning. So Monzo, for example, when they launch, they launched their apps and they, that apps were the parts that they control. And the app was the program management part of the, of the whole piece.
[00:23:47] Sometimes though, we've got the third path in program management on behalf of the FinTech. So it's really, it really depends on how much control they want to take of their supply chain from the beginning.
[00:23:58] Simon Taylor: [00:23:58] I love that point. [00:24:00] And I mean, Sankaet, we've talked in the past about how much control do you want to take?
[00:24:04] And, and I guess, um, how much control should somebody take and does that answer vary and throughout the life cycle
[00:24:10] Edoardo Volta: [00:24:10] very much so, very much.
[00:24:12] Sankaet Pathak: [00:24:12] Yeah, I think, uh, it does vary. I think it, it really goes down to what product and service you're trying to provide  to your customer. Um, and for that, how much work do you have to do?
[00:24:23] Um, I've found, I found it rarely to be true for a FinTech company to say, I want to do everything,  just for the sake of it. Like, there's almost always a need for it. Um, so the thing that we see FinTech companies care deeply about is owning the customer experience. How do they interface and interact with their customers and then their, their product experience.
[00:24:44] So anything that is going to get in the way of enhancing that to their vision they will probably want to own it themselves over time. Right. So if that means, uh, an issuer processor is unable to provide or accommodate a certain feature or [00:25:00] functionality that is really core to whatever vision the FinTech company has, then it might mean they have to go and be an issuer processor themselves. In some cases it might be, I haven't seen that happen a whole lot after a couple of attempts on card manufacturing, but we've seen some FinTech companies even take on manufacturing the card themselves because their vision was combining a bunch of cards together and so on.
[00:25:25] So it really depends. But I think it always stems from, uh, what experience do we want our customers to have. And then from there, go back and figure out how much does that have to be built by us? Was this something that we can just buy from the market?
[00:25:38] Simon Taylor: [00:25:38] I think that's a great point. And actually, when you talk about, um, your own called production facility, I mean, show, that was a reality for a lot of banks at one point in history.
[00:25:46] And, and now as it's become more, more modular, more and more of this has been gone to specialists, um, What are some of those other things like card production that you have to sort of think about that set around the core [00:26:00] money movement? I hear terms like disputes and chargebacks and fraud. There's all, there's a few things there to unpack.
[00:26:06] Shaun Puckrin: [00:26:06] Yeah, absolutely. I think, you know, I think you're absolutely right. So, so, you know, a bank would have done all of these things themselves and many still do. Uh, you know, uh, sort of yeah, 10, 20 years ago. And if you take each one of those things and unpack them, there's a business there that can offer value added service.
[00:26:21] So yeah, I think one of the, we talked a little bit earlier about what are the benefits of card and disputes and chargebacks is absolutely one of those as well. So it's one of the few payment methods that has a built-in method to challenge the payment. And so that's an extremely valuable thing in lots of circumstances, extremely valuable for consumers Uh, and if they bought something, uh, and services and provided that they have a mechanism to go and say, look that that they can complain to their bank and say that that didn't happen. And so there is a organized and process with API APIs and data that flows between all the players in the, uh, in the ecosystem to say “I'm challenging this payment” that goes through [00:27:00] MasterCard and then goes through, through to the acquirer and then the acquiree tries to then resolve that dispute with the merchant. And if they can't, then depending on the type of products you may get your money back, or you may be able to kind of, uh, receive some funds or, or have, uh, a way to, to challenge that transaction in other means. That's, that's actually pretty rare in a payment vehicle. And it's a really interesting thing and unique thing about cards. And it's only really enabled by the fact that, you know, we have these networks like MasterCard, that that happens. I think the other thing you mentioned is fraud, and that kind of goes hand in hand with that.
[00:27:31] So, um, within any transaction, with any trade of value, there's always the chance that, that the one of the actors is bad. And so, you know, we try and use the data that that's there as far as the transaction goes, to be able to track whether that's true or not. This is, you know, one of the, you know, Card fraud is, is, is, is pretty low for a payment method in the fact that there are already many mechanisms in place to try and keep that low, but we always want to get it lower.
[00:27:57] And I think, you know, this, um, one of the things [00:28:00] that's really exploded and it continues to explode over the next, over the last five years and will continue to do so, is because we're just gathering so much more data about each transaction, the more sophisticated those fraud tools can be. And so again, you see the emergence of a whole range of specialist companies who are active in this area to really help, you know, fintechs and schemes really understand what's going on here.
[00:28:21] Um, and I think, you know, and the fintechs has been the key enabler of that, right? So, you know, the difference between, you know, a card that was going on a POS machine 10-15 years ago was that you got some information about the merchant and the bank. Now you've got an app, that's got location information, that's got lots of other ambient data as we call it, the data that can be collected around that transaction. You've got the same for the merchant. And so all these different factors really help us, you know, narrow in and understand fraud. And then we've got much more sophisticated tools to kind of look at that data. So machine learning, all those kinds of things. So if you think of a poor bank trying to do that 10 years ago, now you need, you know, having a [00:29:00] specialist company that can do that with all the access to the cloud technologies that they have available today, being able to analyze that data at scale. You know, the, these things are, you know, each one of the, each line item on that, on that kind of what it takes is a whole business that can specialize and become, you know, very valuable as a result of that.
[00:29:15] Simon Taylor: [00:29:15] It's interesting. The, um, the effort required to set up your own card production facility to build a fraud engine, to build a risk engine, to build the disputes and charge backs, to put a team in place like it's Herculean and it's incredible, but if you've put all of that together and you're just doing it for your own customers, your ability to change that is what it is. And if you've got enough scale, maybe you get really, really good at it. Um, but can you change all of the things all of the time? And I love that point, Sean, about the emergence of the niche specialists to make up a piece of the stack.
[00:29:48] How much are you seeing that Eduardo in your own work? I guess you sort of see a lot as you look at the issuing world, how important are these specialists?
[00:29:57] Edoardo Volta: [00:29:57] Very important That's a short answer. Very, very important. I mean, we are [00:30:00] seeing a enormous number of player that are focusing on specific niches. Like, like Sean was saying, and they are becoming the real  specialists providers of specific, um, to address specific customer needs. So you take a company like Ithaca, which MasterCard bought a couple a year and a half ago. They were focusing on fraud and chargebacks. So how and where to use fraud and chargeback. And to your point, Simon, some of those areas are so are quite complex in its own way. We define them under a big umbrella of payment, but some of these niches can be quite complex.
[00:30:39] And so having those specialists niche play, uh, focusing on those helps the ecosystem get better at managing those points. And also the last point I want to make is if you have, as a new FinTech startup, as Sankaet was saying, think about, you cannot think about everything yourself. So [00:31:00] partnership becomes so important, finding the right company that can help you deliver on some of those needs.
[00:31:05] It's it's even more important than probably a bigger play. Yeah. And then as you, as you, as you scale, you decide then which part you want to in source and take control of at which part to continue partnership on.
[00:31:16] Simon Taylor: [00:31:16] I think that sort of who do you pick and why, Sankaet, is a really interesting question.
[00:31:21] Uh, how do you think about that? Given when you talk to entrepreneurs, what, what do you think about as being the main reasons you would pick one specialist and other specialists and how do you re-bundle all of that? Because now there's hundreds of these things.
[00:31:34] Sankaet Pathak: [00:31:34] Yeah, I, I'm probably the only one here that, that actually thinks, uh, uh, too many specialists, probably not a good idea.
[00:31:41] Um, because that essentially ends up increasing your overhead and costs, which means it like translates that down to your end customers. And I think one thing we've been always sensitive of is increasing the cost per customer. Because if you do that, then you cannot really democratize financial products, because people who have less money kind of [00:32:00] become expensive for you.
[00:32:01] Um, So here's, here's how I would recommend, uh, picking specialists. There are certain things, um, Again, one goes down to your customer experience, right? Like for anything that you're being given, uh, let's say you go to Synapse or you go to some other provider and they're, they're kind of giving you a base capability of everything.
[00:32:22] Um, does that really get you to the user experience that you're really, really wanting to build? In most cases the answer is yes, because, um, uh, to Sean's point, like there are a lot of other hooks being built on top of this because now developers can decide at the time of transition, uh, at the time of a transaction, if something needs to be honored or not, how should it be funded?
[00:32:44] What kinds of notifications should be sent to the users? So a lot of the user experience stuff is kind of getting streamlined and you can by and large, get an off the shelf issuer processor and just build the right experience. The piece in the second piece where you want to [00:33:00] pick, uh, specialists and ends up being things that would actually cost you a, um, like unbudgeted amount of cash. So it's essentially fraud, right? So, uh, because every single, uh, FinTech company in their own regard is still an experiment, because a lot of these things are changing so quickly that how people try to abuse the system is also evolving very rapidly. So it almost always pays dividends to find a specialist in that area.
[00:33:28] Uh, and then just. Have them work with you in owning it and managing that. Um, and then the other thing, the third vector, and this ends up being things that are just so low stakes, you don't want to own and manage yourself, uh, in most cases, disputes management and chargebacks and all of those end up being that piece in itself.
[00:33:47] So usually you're like making decisions around these three variables. One is your user experience. One ends up being kind of like things that are just outside of your core expertise, but can cost a lot of money that you haven't [00:34:00] budgeted for. And the third piece ends up being things that are so low stakes, and you just don't care about building those yourself.
[00:34:05] Simon Taylor: [00:34:05] I like that, um, framework for how you decide what to specialize in and what you don't. That's super helpful if you're a builder or an operator right now, I can imagine you applying that day-to-day. I think the other terminology that comes up a lot. Uh, Eduardo is prepaid credit and debit. So do we want to just separate those three out because they are all slightly different animals?
[00:34:26] Edoardo Volta: [00:34:26] Yeah, absolutely. So maybe let, let's start by unpicking what do these mean? So we. So we define, uh, maybe to, to simplify prepaid debit and credit is pay early pay now and pay later if, if, if to make it a bit more consumer friendly. So I would say, eh, prepaid, obviously you, you put the funds in and then you spend them when you need. Debit is you, should you spend them immediately. So it's whatever funds you've got available, you can spend and credit is, is a way to delay the [00:35:00] payment to, eh, devolve functionality or on installments or whatever. I think when you, when you look at those, um, those three products, they, uh, have very defined level of, of, uh, challenges, but also very different level of risks.
[00:35:17] And that's why I would say probably when you look at the, the entry level FinTech in the payment space, they enter with a prepaid or maybe a debit card, which allows them to have a defined set of funds that the user can spend. But doesn't enter into the complexity of providing credit to a customer.
[00:35:36] That doesn't mean that we don't have players enteing the credit markets right away. But in order to enter the credit market, debt requirements are different, both from a regulatory perspective, you're, you're required to have a credit license and your abilities with your credit, but also from an operational perspective, the credit issuing platform and the requirements that go with it are much more complex and a bit [00:36:00] more, uh, more challenging than a prepaid or a debit functionality.
[00:36:04] Simon Taylor: [00:36:04] Interesting. Sean, anything to add on that? And what is the general shift because it's kind of been moving over time. Hasn't it?
[00:36:11] Shaun Puckrin: [00:36:11] Yeah, it hasn't. I think the, um, prepaid was the easiest vehicle from a regulatory and complexity point of view to, to kind of get going with.
[00:36:20] And I think, although it was important to recognize that that's good enough for some propositions, right? So not every proposition has to make its way through that journey. Some propositions are perfectly fine with, uh, with a prepaid solution. Um, but you know, as, as the sort of larger fintechs kind of got more sophisticated and the customers got more sophisticated and they had to add more features, then they progressed along, along that line, you know, there are real advantages to all of those products, but it's about, you know, as Sankaet has continually said, it's about, what's your proposition?
[00:36:49] What is your customer after? And therefore, then what's the best vehicle to address that. Um, the other thing to consider is that those. Those different vehicles, um, can have different regulatory, [00:37:00] um, uh, frameworks around them per country. And so it depends on which territory, which country you're going to as to whether a prepay, a credit or debit card kind of is the right solution.
[00:37:09] And, and they can be different in different countries, even for a relatively similar account and product.
[00:37:14] Simon Taylor: [00:37:14] Yeah, that's a really important point. Sankaet, what do you think from a trend perspective? I've certainly observed quite a few more, um, credit card as a service things popping up lately. Are you seeing that as well?
[00:37:24] Sankaet Pathak: [00:37:24] Yeah. Um, pretty much I think, um, uh, let's just call it like credit as a service. Um, there's probably going to be like the next, next big thing. Um, and the interesting thing is not all credit products inherently are more, more risky from a financial perspective. Some of them are, some of them are not. Um, there are some products that, that, that consumers can secure themselves.
[00:37:48] Um, while if you're, if you're giving people access to credit, then that definitely becomes a little more risky for you. But, I see over the course of the next, like two years, um, if not sooner, most [00:38:00] Neo- banking, debit programs will be converted into a credit program. Like there would not be a lot of debit programs anymore.
[00:38:07] Shaun Puckrin: [00:38:07] Yeah. Worth. Yeah. Whilst fintechs have been extremely successful maybe in terms of pure revenue and profits, that hasn't been kind of the, the thing that they've absolutely sort of blown the doors off. And so, um, your credit is a way of, uh, you know, achieving revenue from your customers. And so I think as, as the pressure.
[00:38:25] Uh, sort of increases on, on, on the fintechs to be profitable, then credit is an obvious place for them to, to occupy.
[00:38:32] Sankaet Pathak: [00:38:32] Yeah. In some cases that could be twice as much in revenue and then than debit. So, ah, definitely extremely, extremely lucrative comparatively.
[00:38:39] Simon Taylor: [00:38:39]  And I think that was going to be the last thing I was going to ask you to touch on Sankaet.
[00:38:44] It was like the economic trade-offs of prepaid versus debit versus credit. It feels like, or at least what I'm hearing is prepaid, possibly on the like lower regulatory burden, possibly less good economics; debit somewhere in the middle, especially if you're in [00:39:00] the U S it seems with the Durbin amendment; uh, and then credit sort of potentially more profitable, but also  in many cases, a higher regulatory burden.
[00:39:08] Would you say that's fair?
[00:39:10] Sankaet Pathak: [00:39:10] Yeah. Um, so, uh, we can, we can break it down even more. Um, so when you talk about, uh, essentially debit, what you're talking about is like customers have funds sitting in their account and then they can spend it. So the biggest thing you have to worry about is from a consumer reg perspective is funds availability. You cannot restrict access, um, uh, of consumers to their funds and you cannot charge them fees that you haven't disclosed to them. Um, now, as you, as you go into credit, uh, you start also have to, you have to start worrying about, uh, was there an adverse impact, not even an adverse action? Which means is it, is there some, some mechanism or flaw in my underwriting criteria that might lead to an adverse impact?
[00:39:53] For instance, there might be like some strange thing, um, that by and large, [00:40:00] um, rewards people are only on the lower scale if they, if they live in, I don't know Harlem. Right. So, um, yeah. Um, so things like that, and then you start kind of having to worry about those. Then, then there are other aspects to credit, which are, um, uh, some fees are too much.
[00:40:18] So you have to charge people fees lower than what the state usury laws are and so on and so forth. So it's just like, it's an additional obligations on, on, on consumer protection that gets added when you're doing, uh, an APR based credit program that you don't have otherwise.[c][d]
[00:40:34] Simon Taylor: [00:40:34] It's interesting. It gets a little tricky, um, but you can potentially make more profit.
[00:40:39] And I think that's a great point that often, uh, entrepreneurs don't go building something thinking about the negative outcomes for their customers, but actually, especially with credit, you have to really think through potential negative outcomes and, and manage all of that. Thinking through unhappy paths is really, really key.
[00:40:55] Uh, we are. Almost at a time. Can you believe it's shot [00:41:00] by? Um, so I'm going to ask each of you for 30 seconds as to what happens next. Where's card issuing going Eduardo?
[00:41:07] Edoardo Volta: [00:41:07] so for me, I think we will see more and more digital first cards. So cards in the digital wallet. Well, it's a wave. I think physical cars remain popular for a large proportion of consumers.
[00:41:18] And what we are going to see is innovation in the card form factor. So we are seeing cards being issued. We are recycled plastic. We are seeing experimentation in the card space. So while digital will continue going, cards will still have a part to play.
[00:41:33] Simon Taylor: [00:41:33] Interesting. Sean?
[00:41:35] Shaun Puckrin: [00:41:35] Yeah, I've said it a few times. I'll, I'll kind of like a, this term, this kind of Card as a technology vehicle.
[00:41:40] I think, you know, we still haven't seen the full extent of that. So, um, w you know, wherever a payment is made, um, actually issuing, one thing we haven't talked about is issuing a virtual card. Um, and so, you know, that's, that's already hugely a powerful vehicle that we see used a lot, but that can be used in more and more industries.
[00:41:57] So we see it in travel today, but, you know, for [00:42:00] any kind of business to business payment, why not use a one-time virtual card? For insurance payouts? for, you know, so seeing card issuance kind of work its way into more and more of the payment channel with cause, cause it's such a useful technology vehicle to be able to kind of power any type of payment in a really controlled and secure way.
[00:42:17] So rather than just thinking of these things as a one-off bit of plastic, that i keep for two years, it's that instant virtual card that can be used for any transaction,
[00:42:25] Simon Taylor: [00:42:25] powerful, um, Sankaet. What happens next?
[00:42:28] Sankaet Pathak: [00:42:28] Yeah. Um, so I'll kind of, I answer that with what's next in banking is essentially global banking. So just giving everyone access to banking in a much more refined way and all digital, um, and the first, uh, payment vehicle that's actually going to go, ubiquitous global is going to be card issuance.
[00:42:49] Uh, so, um, what's in the future of the course of next couple of years is more and more use cases of multicurrency settlements on a Visa or MasterCard bin, uh, because what you're [00:43:00] going to start seeing issuers do is offered the same bin, uh, to customers across multiple countries at the same time. So that's probably what's next.[e][f]
[00:43:08] Simon Taylor: [00:43:08] Wow. Bin being bank identification number as in BIN sponsor. So the regulated entity we talked about earlier, that's some next level stuff. We hit 201 there, but, um, I'm happy to, um, and I'm excited for that because that global money movement is, is still way too hard and way too expensive. So, yeah.
[00:43:25] It always feels like the innovation that the MasterCard types of the world do that then the ecosystem can kind of pick up on, so super powerful stuff. That brings us to the end of the episode, believe it or not. Um, next week we're lifting the lid on innovation and typically why incumbent banks have found that quite so hard.
[00:43:43] We really hope you can join us for that discussion. Um, thank you so much to our guests, uh, Shaun where can people find out more about you?
[00:43:50] Shaun Puckrin: [00:43:50] Uh, so, well, uh, find out about Global processing at Global processing.net. Uh, but myself, I'm at Puckrin on Twitter. Uh, that's probably the easiest place to find me.
[00:43:59] Simon Taylor: [00:43:59] Brilliant. Eduardo?
[00:44:00] [00:43:59] Edoardo Volta: And for me, the easiest way is LinkedIn. You can find me at Eduardo Volta and Mastercard on LinkedIn. 
[00:44:05] Simon Taylor: [00:44:05] Fantastic. And Sankaet?
[00:44:06] Sankaet Pathak: [00:44:06] yeah. Um, you can find Synapse at Synapse F-I same handle on LinkedIn or Twitter, or my first name if you want to find me on LinkedIn or Twitter.
[00:44:14] Simon Taylor: [00:44:14]. And remember to search for 11 Fs or 11fs.com, and all of your favorite podcasts are available, either Fintech Insider, or of course, Under the Hood on your favorite podcast client.
[00:44:27] Um, do y remember to tell everyone you know, about this podcast as well, pass the word along,  it really helps us if you'd leave us a review and do check out the other reviews that are already there. We'll be back next week. Thank you so much for listening. Bye for now. .
 


[a]possible extended waav - the definition of a bin sponsor and how they've helped grow UK fintech
[b]1:30 approx
[c]possible extended waav - with some trims - on the economic tradeoffs of different types of card propositions.
[d]circa 1:40 length
[e]possible extended waav - what happens next for card issuance, framed in terms of what's next for banking as a whole.
[f]45 secs approx