UPDATE: Mastercard have now mandated transaction alerts for UK issuers – with a deadline set for 13th April 2018. Get the details
Banks in Europe and elsewhere are asking when they will be subject to the new mandate introduced by Visa and Mastercard which requires issuers in the USA to offer their customers a Transaction Alerts service.
The VISA mandate came into force on October 14th 2016, and applies to credit, debit and prepaid cards. Commercial cards (and anonymous prepaid cards) are not included. Mastercard will provide an opt-in for small business cards, when their mandate on personal cards becomes operational on April 21st 2017.
Reduce Fraud & Increase Consumer Confidence.
The fundamental driver for the mandate’s introduction is to reduce fraud and increase consumer confidence in card payment. While the networks have systems in place to identify fraudulent or suspicious transactions, the person best placed to identify such transactions is arguably the card-holder. If they are alerted to a transaction on their card that they know they have not initiated, they can immediately inform their bank. In fact fraud falls on average by 40% when cardholders receive transaction alerts.
Also, because they know that they will be immediately alerted to any fraudulent transaction, their confidence in card payment should increase. The aim here is to drive the use of cards which is good for the networks, the banks and the consumer.
While the mandate only requires transaction alerts to be made available to cardholders, there’s no reason for banks to stop there. If involving the customer in the payment process with alerts reduces fraud and drives card use, why not put more power in the hands of the consumer?
Both VISA and Mastercard encourage issuers to include ‘card controls’ in their payments propositions. Controls allow the cardholder to set a range of restrictions around their card use (through a payment or banking app).
Cardholders can temporarily switch their card on and off, if it has been mislaid, or simply for added security. They can choose which payment channels to enable: allowing (or not) internet payment, ATM withdrawals, and in-store purchases. For those uncomfortable with contactless payment, they can simply switch it off. Cardholders can choose in which countries the card may be used, so they can turn off all foreign countries and then switch on specific destinations when they plan to travel there. All of these filters are real-time and temporary, and so cardholders can activate and deactivate them whenever they like, and as often as they like.
Research by the networks found that card controlling functionality reduces the cost of fraud and increases card use. It also indicated that these features are highly desired by cardholders. So why would banks stop with a simple alerts offering?
But to view transaction alerts simply as a means of fraud reduction would be to miss a vital opening for a real increase in customer engagement. In an environment where many customers rarely enter a branch, it’s an uncommonly good opportunity.
Transaction alerts accustom the customer to receiving brief, regular communication from the bank. Banks can build on this to promote their services, to invite customers to meet a branch manager to discuss their financial requirements, or to create loyalty programmes with special offers for customers.
The key here is relevance to the customer. If the customer doesn’t find a message relevant, the risk is that it becomes an annoyance, and so rather than leading to customer engagement it leads to disengagement. This is where the effective use of data analytics on the customer’s spending habits is key, and will provide insights into what special offers will be of interest.
No date has been set for the expansion of the Transaction Alerts Mandate to Europe, or globally, but as the aims of the mandate apply universally, so too should its implementation eventually. Banks outside of the USA should be prepared for its roll-out and try to get ahead of the curve. They need to think about how alerts may be used as starting point for customer engagement and how they can be exploited to offer value-added services.
Image via Flickr – Britt Reints