Next-Generation Card Processing

Next-generation card processing providers have experienced significant growth in recent years, outpacing the overall market. But what’s fueling this surge? Explore the three critical success factors behind this phenomenon.

Openness and Integration: The Rise of APIs

Initially, a key differentiator for new card processors was their API-based integrability. This allowed for seamless integration with various systems, fostering the growth of embedded finance. However, as incumbent processors have caught up, API openness is now the industry standard rather than a unique selling point.

While confidentiality concerns may lead some providers to keep their APIs private, there are compelling reasons to embrace openness and integration. Publishing APIs showcases technical expertise and allows customers to build solutions on the processor’s infrastructure, thereby expanding market reach.

Regulatory Enablement: Expanding Reach

The hypothesis that next-generation card processors achieve success by offering access to banking or payment licenses doesn’t hold up under scrutiny. While the “cards as a service” (CaaS) model does open doors for non-banks and smaller institutions, both incumbent and challenger processors demonstrate similar levels of licensing reach.

Partnerships play a crucial role in this space, enabling processors to provide regulatory coverage and scheme licenses through collaborations.

Functional Innovations: The True Differentiator

The true strength of next-generation card processing lies in functional innovations. These innovations leverage the combined power of advanced APIs, regulatory enablement, and flexible processing systems to deliver tailored solutions for specific customer groups and use cases.

This can be visualized as a pyramid with five functional layers:

• Core Functionalities: These foundational capabilities, such as card account management and transaction processing, are now largely commoditized and offered by most processors.
• Cloud-native Architecture: Cloud-native solutions provide significant advantages over traditional systems, including faster development cycles, enhanced security, and greater scalability.
• Platform Integrability: While open APIs are now commonplace, the quality of these APIs, along with comprehensive documentation and a tech-driven approach, remains crucial for successful integration.
• Regulatory Coverage: This layer addresses the need for scheme and regulatory licenses, essential for supporting card program owners in embedded finance and white-label issuing scenarios.
• Innovative Features: By combining functionalities from the lower layers and tailoring them to specific needs, next-generation processors offer a wide range of innovative features, creating strong unique selling propositions (USPs). These features include:
  • No-code/low-code program setup
  • White-label solutions
  • Onboarding-as-a-Service
  • Credit-scoring-as-a-Service
  • Instant funding
  • AI-powered customer support

Importantly, no single provider offers all these features, highlighting the unique strengths and differentiation potential within the next-generation card processing landscape.

Case Studies: The document presents three case studies that illustrate the impact of next-generation card processing across various sectors:

• UZCARD: This case showcases a public transportation company partnering with BPC to create a national digital payment network, demonstrating the potential of these technologies beyond traditional financial services.
• OneFor: This example features a remittance FinTech leveraging BPC’s platform to launch operations rapidly and cost-effectively, highlighting the importance of regulatory enablement and API gateways.
• TPBank: This study details a traditional bank’s successful migration to BPC’s platform, resulting in reduced operating costs and enhanced service offerings, demonstrating the benefits for traditional institutions.

Next-generation card processing is not defined by any single element but rather by the synergy of openness, regulatory enablement, and targeted functional innovations. This approach allows providers to cater to diverse customer segments, expanding the possibilities of card products and driving growth in the payments market. While the future landscape remains to be seen, one thing is certain: card processing is evolving rapidly, driven by innovation and a commitment to meeting the changing needs of businesses and consumers alike.

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