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February 26, 2009

Instant card issuance an instant hit

Instant issuance of payment cards is a relatively new concept but one that is growing in popularity with banks as they seek to reduce production and distribution costs Ask any bank card issuer and they will say that the relationship between itself and the customer only becomes tangible when the customer receives his or her card and begins using it

By Verdict Staff

Instant issuance of payment cards is a relatively new concept but one that is growing in popularity with banks as they seek to reduce production and distribution costs. It is also driving a re-evaluation of existing business models by leveraging cross-selling opportunities, as Victoria Conroy reports.


Ask any bank card issuer and they will say that the relationship between itself and the customer only becomes tangible when the customer receives his or her card and begins using it. It sounds simple enough but the process is considerably more complicated, and the process also contains pitfalls that can break the relationship before it has even begun. How can a bank ensure the customer receives the card, activates it immediately and begins using it? Could instant issuance be the answer?

Counting the cost of card issuance

Typically, when launching a card portfolio, banks draw up a mass-issuance business model based on how many thousands or millions of cardholders they expect to have. They would then pre-order a fixed amount of cards, typically from a third party, which would then sit in a factory or bank vault until being called upon by the bank.

Although banks have some idea of what their fixed costs would be when doing things this way, there is also a certain amount of wastage and inefficiency in the process. Card numbers can fall short or exceed bank estimates of uptake, leading them to having order more cards to be produced at greater cost, or having wasted money on manufacturing cards that may never be used.

Cardholders themselves also have to wait to see if they are approved to have the card, followed by a further wait (usually between one or two weeks) while the card is personalised with the cardholder details and data. Cardholders also have to wait to be assigned a card number and PIN, which is usually delivered separately, further pushing up costs for the bank. In many cases, banks not only have to utilise the services of a third-party card manufacturer to distribute both the card and the PIN separately, they also have to stump up the costs of hiring staff or contracting the services of an outsourced provider to handle card activation calls from customers after they receive their cards.

The risks of doing things this way are manifold. The threat of fraud hampers the process, as cards can be intercepted in the mail by fraudsters and stolen before the cards get to the intended recipients, pushing up the costs for issuers of cancelling and replacing cards. And even if the card does arrive in a timely fashion, there is no guarantee that the customer will actually activate it and begin using it, meaning that issuers lose out on that all-important interchange revenue. The longer a customer has to wait for a card, the less likely they are to use it.

Whatever delays the card getting to the customer can fracture the customer’s trust in the bank, which may find itself with a reputation for poor customer service as a result.

Instant issuance is an instant success

Instant issuance is a concept that started in the 1990s, and is now beginning to gain traction in many parts of the world. It involves a card being handed to the customer at the moment they are approved to receive one – this process typically happens when a customer applies in-branch and they receive their card in a matter of minutes, boosting the likelihood of them using the card straight away and eliminating the risk of the card being intercepted by fraudsters.

The instant issuance process involves a bank branch or retailer location using a software package, a PIN pad, a card embossing machine sometimes in tandem with a photo-printing machine to issue cards to customers in-branch. According to US instant issuance provider Dynamic Card Solutions, a 10-branch banking network pays around $10,000-$12,000 per branch for the necessary equipment.

However, once instant issuance is in place, bank card stock inventories and distribution costs are reduced, and because the process takes place in-branch, the bank also has the opportunity to cross-sell other financial products or services to the customer, deepening the relationship life cycle and increasing revenue for the bank.

Although cost benefits will vary from bank to bank, the savings and return on investment can be significant. US-based Fidelity Financial estimates that instant issuance cuts $2.32 per card off the cost of issuance, since it does not have to pay a third party to mail the card and PIN in two separate envelopes, nor does it have to pay a third party to handle activation calls. Fidelity Financial says that by rolling out instant issuance it immediately paid for the cost of the equipment needed to store and emboss cards in its branches.

Although instant issuance is more commonly associated with prepaid cards, which can be bought, loaded with funds and used instantly, the concept can also apply to other forms of payment cards, including debit and credit. Up until recently, instant issuance was mainly the preserve of small financial institutions such as credit unions, but bigger banks are now taking an interest.


Linked to instant issuance is personalisation, where cardholders can customise their cards with a range of pre-approved photos or images, increasing the likelihood the customer will make the card ‘top of wallet’ which will increase usage and interchange revenue.

European smart card manufacturer Gemalto announced in November 2008 that it had equipped over 300 shopping malls worldwide with its Dexxis instant issuance solution, with some clients personalising and issuing up to 200 cards per week – given that banks spend around €100 ($127.60) per account on marketing efforts, Gemalto says that instant issuance is certainly paying dividends.

German card manufacturer Giesecke & Devrient (G&D) is one company that is capitalising on the growing popularity of instant issuance.

Speaking to CI, group vice-president and head of business development Dr Hermann Sterzinger, explained: “G&D started to promote instant issuance more than three years ago and set up one of the world’s first pilots combining the possibility of an individualised picture card with the instant issuance delivery. Customers could load their own pictures into the system and modify the images at their discretion. Subsequently, the picture was printed on the full card front and the card was issued.

“While some banks are looking for cost saving potential, others focus on increasing their service, extend their portfolio and in making banking products an experience for the customer,” he added.

“G&D is currently involved in several instant issuance projects. One of the projects G&D implemented recently for a financial institute in the Philippines comprised the printing of individual pictures on a card in the bank’s branch. The financial institute aimed at achieving a clear differentiation from their competitors in terms of immediate service and individual customer treatment.”

Expanding distribution possibilities

Instant issuance can also take place outside the branch location. In November 2007, Visa Europe launched its own instant issuance solution, enabling cards to be issued outside the traditional banking environment, so that bank employees do not need to be physically present when the card is issued to the customer. This solution was developed for the retail card environment, and enables the bank to manage the process securely and remotely.

Visa cards can also be instantly issued ‘on the road’, for example at special sporting events or other promotions. In August 2008, Italian card issuer Findomestic launched the first retailer-operated Visa instant issuance pilot in Europe at the La Rinascente department store in Catania, Italy.

Instant issuance credit cards?

Although instant issuance for the moment is confined mostly to prepaid and debit cards, instant issuance on the credit side has been problematic. Credit card applications have to be checked, the customer’s credit worthiness assessed, risk profiles formed and credit limits agreed.

“Prepaid and debit card markets are important for instant issuance, primarily due to the reduced credit risks,” says G&D’s Sterzinger. “Using prepaid and debit cards, customers can only spend money they have available in their accounts. Before a credit card is issued, the creditworthiness of a customer must be evaluated. Until recently, evaluations in real time were hardly possible.

“Banks therefore often set up new accounts, issue a debit or ATM card and as a second step, a credit card. As new technology and services become available, checks can be carried out immediately, making instant credit decisions and card issuance possible. More and more countries are adopting the exclusive service of instant credit card issuance.”

However, it is unlikely that instant issuance will completely do away with existing application and distribution processes, but it is likely to be more useful for niche card products or occasions for the time being. According to G&D’s Sterzinger, it very much depends on the issuer’s business model, regional market, and customer profile.

“Instant issuance is a smart customer loyalty tool, and usage is a strategic decision to be taken by the issuers,” he said. “For efficiency reasons, mass volume personalisation will remain the main way of issuance. Instant issuance is an add-on tool for special use cases including VIP customer treatment, companion device issuance, enlargement of business operations with retailers and for card issuance at special events.”

There are also risks inherent in the instant issuance process that must not go overlooked.

Visa’s implementation requirements for instant issuance describe physical and logical system design and operations to ensure that all equipment, customer data, card stock, consumables, cryptographic keys and PINs are adequately controlled and protected. Visa also requires that all systems must enforce dual control and segregation of personnel duties so that no single person has the ability to enter a customer’s personal information, create a card and choose or obtain the PIN. Non-branch systems located in environments such as retailer locations require additional physical and logistical controls.

But there is definitely room for growth in this sector. It is estimated that only 5 percent of all payment cards in existence globally have been instantly issued, and with the growing popularity of debit, prepaid and contactless cards worldwide, demand for instant issuance looks likely to increase considerably.

This is particularly the case for banks looking to get a grip on their costs in an uncertain economic climate, or for those banks in emerging markets that are making efforts to reach out to the unbanked and bring them into the realms of financial inclusion by giving a previously unbanked customer their very first payment card. Mobile bank issuance units can also eliminate the problem of rural customers being out of reach of branch networks.

In rural areas especially, for example in countries like India or Brazil, instant issuance could be the first step in forging a lifelong relationship between the customer and the bank, and banks in several emerging card markets such as the Middle East and Asia-Pacific are now rolling out instant issuance. Arab National Bank, Syndicate Bank and Andhra Bank of India and UniCredit in the Ukraine are just some of the players in emerging markets that have successfully deployed instant issuance programmes.

Even in more developed markets such as Turkey, banks are using instant issuance to roll out more sophisticated offerings. Bank Asya partnered with MasterCard in July 2008 to roll out the instantly-issued contactless-enabled Asyacard DIT, a multi-application EMV card which combines payment and transit applications.

For contactless, instant issuance means that cardholders can start using their cards as soon as they step outside the branch, and according to G&D’s Sterzinger, instant issuance doesn’t have to be restricted to just cards.

“The functionality is not limited to the card form factor – it can be used to personalise and immediately issue key fobs, NFC mobile phones and other new devices in a bank branch or at a point of sale,” he said.

Instant issuance may gain more prominence in the months ahead as regulatory pressure increases on interchange in many parts of the world. If banks are forced to reduce interchange rates, it will become more important than ever to not only reduce the number of inactive cards, but to increase transaction volumes in order to offset any interchange losses.


  The instant issuance process

• Bank staff load cards into instant issuance machine

• Customer requests card, machine is activated

• Machine embosses cardholder details and card number onto card

• Machine downloads encryption codes from a separate location as an additional security measure

• Necessary equipment and software typically costs between $10,000 and $12,000 per branch.

  Benefits of instant issue

• Card issued and activated immediately

• Encourages card usage versus cash and cheques

• Increased card usage rates

• Increased sales and interchange revenue

• Decreased personalisation costs

• Decreased mail fraud/identity theft

• Decreased risk of lost/stolen/damaged cards

• Greater control of card issuance from initial request to delivery

• Enhanced cross-sell opportunities

• Enhanced customer service

• Decentralised operations

• Leverages existing branch network

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