Building FX Innovation into your card programme – 4 key steps
As the world’s major economies have begun to emerge from the Covid-19 pandemic, airlines have reported a surge in passengers. Ryanair expects passenger numbers to quadruple in 2021 (vs. 2020) and recover to their pre-covid levels in 2022. For retail banks, the return of FX spend will be a welcome boost to Debit/Credit Card business models driven by FX Fees. However, these fees (averaging 1.5 – 3.5%) have increasingly been coming under scrutiny from two key trends which will become apparent with post-pandemic travel:
Regulatory enforced comparability of charges – the EU CBPR2 regulations require complete transparency on the costs charged to cardholders. It will be interesting to see if the FCA adopts similar measures to protect UK consumers, who currently only benefit from the simplest form of the regulation.
Availability of alternatives offering better value in both features and pricing – most new entrants in the Debit/Credit Card market over the last five years have prioritized either discounted FX Fees or advanced feature functionality. This takes the shape of low-to-no mark-up on the scheme rates, or true interbank FX rates, and multi-currency wallets to hold & spend in different currencies.
Traditional banking providers who charge FX fees in line with the market average and new-to-market card programmes who seek to target segments likely to have strong international spend need to factor FX into product planning. FX innovation on your card programme should be a key area of discussion as you head into 2022 planning.
With this in mind, we have compiled a four-step process for building FX innovation into your card programme. This can be used to either adjust your pricing strategy adapting to competitive pressures or build innovative services that expand demand into new customer segments and use cases:
1. Is FX innovation suitable for my card programme?
Our rule of thumb is that if your card programme meets any of the below criteria, then FX innovation is certainly worthy of detailed consideration.
Criteria A - Current Volumes: If your existing cardholders are spending >10% of their gross transaction volume in foreign currencies (measured pre-pandemic), then multi-currency wallets and FX-based innovation will likely have a positive business case & ROI for your card programme P&L.
Criteria B - Market Benchmarking: How is your card programme currently performing in cross-border metrics when compared to domestic competitors? Multi-currency wallets offer an opportunity to maintain your lead or can be a spur to drive growth to close a gap with your competitors.
Criteria C - Innovation Pressure: What is the presence and success of local and international disruptors such as Revolut and Wise? Does your card programme need to match or expand upon the FX innovations that fintech disruptors are using to capture market share?
2. What KPIs am I trying to manage towards?
Having determined that your card programme is suitable for FX innovation, product managers and senior leaders should be clear on their goals. There are multiple goals that FX innovation is often useful for achieving:
Goal A – Customer Acquisition: Positioning your product or brand as a challenger to incumbent card providers by differentiating on this key pricing point or product feature. FX based innovation has a proven track record in attracting frequent travellers and younger, more mobile customer segments. Banks and card providers can use FX to initiate a relationship with these segments.
Goal B – Spend Growth: Our research shows material differences between banking providers in terms of international card spend. Although some issuers may be top-of-wallet for domestic spend, this does not automatically translate into the more lucrative area of international card spend.
Goal C – Customer Retention: New entrants have a strong track record in attracting new customers via discounted FX pricing and FX functionality. These features typically attract specific segments of your customer base. Incumbents can defend their customer bases from being cherry-picked by responding in a targeted way.
“The reason that new entrants have focused so heavily on card FX pricing is that it is an easy proof point for brands to demonstrate their value to cardholders.”
3. What is key to customer experience?
When adopting new FX innovations, it is vital to remain focused on two core elements of the customer experience. Incumbent card providers and new entrants need to ensure that their FX innovation creates both (a) a perception of value and (b) makes it easy for cardholders to access the service.
Perception of Value: The reason that new entrants have focused so heavily on card FX pricing is that it is an easy proof point for brands to demonstrate their value to cardholders. This is particularly relevant to price conscious consumers or regular cross-currency spenders. Introducing new FX innovations that are priced at the top end of the current pricing ranges without a clear and demonstrable benefit will only succeed in driving your customers to alternative providers.
Ease of Access: Incumbent card providers and existing fintech issuers all have one area of material advantage vs. disruptors and new entrants – their existing customer base. These existing customer bases and product sets provide an excellent base upon which to deliver new FX innovations. However, the key to succeeding with an FX innovation to an existing customer base is ensuring that access to the innovation is seamless. That typically means enabling the new experience or pricing point in a product that the customer already has, rather than requiring a brand-new sign-up experience.
4. When should I start?
With international travel recovering and annual planning cycles kicking off over the next few weeks, now is the best time for product managers and senior executives to consider whether FX innovation is right for their market. This is particularly the case as FX innovation for card programmes involve multiple functions internally and externally with parties such as the payment schemes FX liquidity providers. Issuers that can identify the right product for their market and execute, will ultimately succeed during the rapid return of cross-border.
About Cambrist
Cambrist is an award-winning technology company enabling payment card Issuers & processors to better manage the foreign exchange requirements of their card programmes. Our proprietary SaaS platform simplifies the adoption of advanced customer features such as multi-currency wallets and enables compliance with new transparency regulations at a reduced cost. Our technology, combined with our team of industry veterans & experts, supports customers around the globe.
Learn more about Cambrist at www.cambrist.com or contact us at info@cambrist.com