The Great Credit Card Program Outsourcing Debate

Payments is in a state of constant change, with decision points shifting as fast as each innovation, disruption and tweak in consumer behavior. Among the biggest debates is how to construct and operate the best card program possible – a decision that served as the foundation for a new PYMNTS interview with Jim Geeslin, head of strategy for Elan Financial Services, an agent credit card issuer.

Financial institutions (FIs) face the issue of whether to outsource their credit card programs or do it themselves – a decision that will maintain its importance in the coming new decade. No matter what, one of the biggest challenges in crafting a successful program is dealing with compliance and regulations, Geeslin said. “That’s one of the biggest areas where we see friction,” he told PYMNTS.

Near-Term Challenges

Banks and credit unions that handle their own credit card programs are also likely to face another challenge in the near term. “The economic consensus is that we are not going to get much better than now,” Geeslin said, joining those voices that are predicting an economic slowdown. “The credit cycle will turn, and you’ll have a generation of credit risk managers who’ve not been through a recession yet. Do FIs want to navigate card programs through that?”

The PYMNTS conversation with Geeslin came amid new emerging challenges for FIs – especially smaller ones – as they go about improving their card programs and looking to the future via payment cards.

For instance, with the recent launch of the Apple Card, Apple has sent a signal that they seek to offer a better user experience than banks. In fact, their slogan for the card is “Created by Apple, Not a Bank‎.” The fact that Apple is entering the space should serve as a wake-up call to banks, according to many experts.

Not only that, but these are indeed the days for mergers and acquisitions (M&A) in the world of payments, and that trend looks likely to hold into the 2020s. That raises several questions for FIs, FinTech firms and payment service providers as they figure out how to best navigate this changing world. Another factor in all of this is the rise of FinTechs, often backed by favorable regulatory headwinds designed to promote more innovation in payments, including the sharing of data with legacy FIs.

One basic question, according to Geeslin, is whether an insourcing or outsourcing credit card operating model works better in this current payments environment. They differ in terms of assumed risk and FIs’ control over their card programs. Insourcing, for instance, generally allows for more control, but requires more costs and risks. Outsourcing, on the other hand, may limit some control, but can allow FIs to remove future technology investments and focus more on other areas of their business.

“There is a lot of scale and expense in running a card program,” Geeslin said. Not only that, but digital and mobile technologies – and the challenges of deploying them to the satisfaction of consumers – can be overwhelming for even some of the best FIs, especially smaller ones.

However, those aren’t the only important considerations in this year of big payment deals. Identity theft and fraud prevention are increasingly near or at the top of consumers’ minds, and those concerns must be taken into account during any reviews or crafting of plans by FIs and payment service providers.

Data Control 

Another issue when it comes to outsourcing versus insourcing decisions, at least according to Geeslin, is who will have control of data – that is, the consumer data that illustrates how cardholders respond to the program and use their cards, information that can lead to better offers and programs.

“You have to find a partner willing to share appropriate data,” Geeslin said. Branding matters, too, especially when outsourcing. He posed the question: “Does the customer know the card is offered by a partner but in conjunction with a financial institution?”

And efficiency matters on both sides of the outsourcing equation. “You have to make sure you have a seamless customer experience on both sides of the partnership,” Geeslin noted.

Amid all of those questions, it’s also important that FIs and their partners grasp the inherent advantage held by banks and credit unions: Consumers still trust and use them. That applies to younger consumers, including millennials, Geeslin noted. “It’s a little misleading, (the idea) that neobanks are taking over,” he said. But what could shift that balance in favor of competitors is a poorly designed and poorly operated card program.

Cards are still one of the main engines of payments, and that’s not changing anytime soon. But card programs can always get better, whether insourced or outsourced.