Leveraging Technology to Manage Mastercard & Visa Card Product Profitability: Unveiling the Hidden Margins
The payments industry is a complex web of payments issuers, acquirers, card schemes, products, customer segments and technology providers. Tracking product profitability across this web is a complicated task for card programme owners. Major banks with large finance and accounting teams can dedicate teams of people to the task. While fast-growing Fintechs who are still building their back office functions may find detailed programme profitability analysis simply out of reach.
One of Cambrist’s key takeaways from Money 20/20 was that Fintechs have become more focused on core profitability as fundraising has tightened in the current environment. In particular, we’ve seen Fintechs much more focused now on their ability to assess which product(s), geography and/or customer segments are driving financial performance. But we’re not referring to a one-time exercise. We’re referring to a need for Fintechs to have real-time, recurring access to data across their product segments each day to assess and monitor performance. Within this dynamic, one of the key challenges for Fintech issuers is navigating the complexities of Mastercard and Visa fee rules and the corresponding interchange income earned across their card products, particularly given the ever-evolving nature of fee items and fee rates. This makes it incredibly difficult for Fintech’s to grasp the full cost and income picture, especially when broken down by product, program, or partner.
For card programme issuers ensuring optimal profitability therefore requires a multi-pronged approach that includes:
Scheme Cost Performance Tracking: Real-time, ongoing analysis of scheme costs to identify trends, volume-based fee items and ad-hoc/periodical fees. Issuers should be able to attribute costs and revenue at the product, BIN, and customer level. This granular breakdown allows programme owners to develop targeted optimization strategies for specific products, customer segments, or even individual transactions. Imagine being able to identify a specific cardholder segment that is disproportionately driving interchange costs - with this level of detail, a product team can tailor its approach to address that specific segment.
Monthly/Quarterly Scheme Cost Forecasting: Monthly and Quarterly scheme costs can be difficult to forecast and cause cashflow challenges. Therefore, establishing an automated process to track activity and forecast the estimated value of monthly and quarterly fees will ensure that the Finance teams can adequately plan for future billing from Mastercard and Visa.
Periodic Cost Audits: Regular audits of your card program setup can ensure optimal configuration and validate that the services being received are appropriate to your program. This is a key and complimentary step with scheme cost performance tracking, enabling a specific focus on new fee items or fee items that change materially in a given period.
Implementing one or more of the approaches described above requires a detailed understanding of scheme data files, fee/interchange processes and a scheme reporting & reconciliation platform to extract the key insights for discussion across the business. This is made more challenging by the complexity of the data sets with 30+ cost categories and 100+ cost items (across fixed & variable costs).
Here's where leveraging technology becomes crucial. By implementing the right tools and processes or by identifying the right technology partner, you can transform your approach to the card scheme data.
About Cambrist
Cambrist is an award-winning technology company enabling payment card issuers & processors to gain more insight from their payment card programme data and create new, reliable sources of income. Our services are relied upon to provide better management insights (MIS), ensure compliance with payment regulations, optimize card scheme settlement and even solve the complexities of multi-currency settlement operations.
Learn more about Cambrist at www.cambrist.com or contact us at info@cambrist.com