The financial crisis of 2007-08 has left banks in a quandary – revenue has been slashed by a steep loss in revenue from capital intensive areas like lending. The risk-on cycle and regulation means that banks are cutting back on certain business lines in the capital markets while they are short of credit and finding it difficult to raise funds for their loan businesses.
Six years later and banks are still searching for new revenue streams. Many have turned to transaction banking for the answer – the Basel III capital and liquidity requirements have meant that the world of transaction banking is viewed as an increasingly secure option for those after new, profitable business lines.
Prepaid cards in particular have enjoyed a boom in popularity. Consumers with poor credit ratings, ex-pats, and travellers alike have all found that the benefits of using prepaid cannot easily be ignored. In the corporate world, prepaid cards have the advantage of much greater flexibility and convenience with the ability to serve a number of different functions, including the challenges associated with payroll, purchasing and disbursement of funds, to name but a few.
Corporate prepaid is indeed one of the fastest growing sectors in retail payments. Last year, MasterCard commissioned the Global Prepaid Sizing Study, which estimated that the prepaid market will grow by 22% (CAGR) year on year. The corporate segment is seen to show the most growth, amounting to a staggering $385bn of spend by 2017.
Thus far, most banks have failed to capitalise on this revenue opportunity. IT departments are focused on dealing with the swathe of regulation resulting from the financial crisis which has crippled their ability to innovate in-house. Some banks have turned to third-party programme managers to run their corporate prepaid offerings. However the profits that they stood to gain are slashed under this model, as the programme manager takes vast majority of the cut.
Smaller, challenger banks, as well as regional institutions, face a similar problem. A lack of both financial and technical resources means that they are unable to develop a truly competitive corporate prepaid proposition – an inability that has left them losing out to non-bank rivals, such as e-money issuers.
However, the advent of cloud technology has meant that some providers are now able to offer cloud-based, ready-built platforms that allow banks to develop their own corporate prepaid offering in-house – and with minimal capital expenditure. For instance, my own company, Ixaris, has recently launched Ixaris Payments Server, a PCI-compliant cloud-based service that provides banks with highly-configurable, market-ready applications that can be tailored to different payments challenges, and in turn allow them to take a slice of the corporate prepaid market.
Of course, one problem that has prevented some banks from implementing this revolutionary service is the concern surrounding security in the cloud. However, thanks to the latest developments in cloud technology banks are now able to host solutions that enable them to improve their offerings to their customers, without compromising on security. Banks that catch on to this ahead of the market will ultimately seize with the competitive edge moving forward, on the advent of this new era of cloud banking.
By Alex Mifsud, Founder and CEO, Ixaris
About the author – Alex Mifsud is co-founder and CEO of Ixaris. Ixaris develops innovative payment applications based on global payment networks such as open-loop (Visa and MasterCard) prepaid card schemes and SWIFT transfers.. Before Ixaris, Alex worked as a senior consultant in the Cambridge-based technology practice of Arthur D. Little, a global management consultancy. There, he provided technology and innovation advice to blue chip clients such as Telia, VW Group, Granville Baird and 3i. Alex holds a bachelor’s degree in electrical engineering from the University of Malta and master’s and doctorate degrees in computer science from the University of Edinburgh. He has lectured in the University of Malta’s Department of Computer Science and Artificial Intelligence.”
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