A card program is a system or service that allows businesses to issue payment cards such as credit, debit, and prepaid cards under their brands. These programs typically involve collaboration with card networks (e.g., Visa, Mastercard) and can include features customized to specific customer needs or business goals. Their branding, technological features, reward schemes, spending controls, and security measures can vary depending on a business’s goals and its intended customer base.

Card payments have increased year over year, with the global transaction volume from the major card networks growing from 625 billion transactions in 2022 to more than 687 billion in 2023. Businesses can take advantage of this growth by launching their own card programs to boost customer loyalty and brand recognition. In this article, we’ll explain how businesses can create a card program.

What’s in this article?

• How do card programs work?
  
• Why would a business launch a card program?
  
• Challenges with creating a card program
  
• How to create a card program
  

How do card programs work?

• Application and approval: An individual or business sends a card program application to a card issuer. The issuer assesses financial factors such as credit and income to determine eligibility and set credit limits.

• Card issuance: The card issuer provides the applicant with one or more physical or virtual cards for the program. These cards contain unique identifiers such as card numbers and security codes.

• Transaction processing: The cardholder uses their card to make a purchase, and the payment processor sends the transaction details to the card issuer for authorization. The issuer verifies the card’s validity, checks available credit, and authorizes the transaction.

• Settlement: The business completes the sale and submits the approved transaction to its acquiring bank for settlement. The acquiring bank forwards the information to the card issuer’s network for clearing and settlement.

• Billing and payment: The card issuer generates periodic statements for cardholders that detail their transactions, outstanding balances, and minimum payment requirements. Cardholders must make payments by the due date to avoid late fees and interest charges.

• Rewards and benefits: Many card programs give rewards and benefits to cardholders such as cash back, points, miles, and access to exclusive services.

• Customer service and support: Card issuers provide cardholders with customer service and support to address inquiries, resolve disputes, and assist with other card-related matters.

Why would a business launch a card program?

Businesses use card programs to simplify payments, boost customer loyalty, manage expenses, and gain insight into spending patterns. Fintech companies might launch card programs to expand their product offerings, differentiate themselves in the market, or create new revenue streams.

Here are the main reasons why businesses create card programs.

Customer loyalty and engagement

• Businesses can incentivize repeat purchases and strengthen customer loyalty with attractive rewards and benefits tied to card usage. This can increase sales volume and customer retention.

• Businesses can deepen a customer’s connection with the brand by giving cardholders exclusive access to events, promotions, or services.

Brand awareness and recognition

• Every time a customer uses the branded card, that serves as a small advertisement that increases brand exposure and awareness. This can attract new customers and reinforce brand presence in the market.

• Businesses that launch co-branded card programs can expand brand reach and introduce themselves to new customer segments.

• Card programs offer businesses another channel to communicate with customers, share promotions, and announce new products or services.

Additional revenue streams

• Businesses can offer optional value-added services such as extended warranties, travel insurance, and purchase protection for an additional fee. This can further diversify their revenue streams.

• Additional revenue streams might also be generated from interest charges and late payment fees.

Payments and cash flow

• Financial institutions typically process card payments faster than they do traditional payment methods such as checks and bank transfers. This can improve cash flow and reduce the risk of late payments.

• Card programs can help businesses simplify their payment processing operations, increasing cost savings and efficiency.

Customer insight

• Card programs give businesses insight into customer spending habits, preferences, and purchasing behavior. Businesses can use this information for product development and inventory management.

• Businesses can analyze customer data to create highly targeted marketing campaigns and promotions. This increases the likelihood of conversions and of maximizing return on investment.

Challenges with creating a card program

Here are the possible challenges businesses need to be aware of when launching a card program.

Regulatory compliance

• To comply with financial regulations, businesses must make substantial investments in legal and compliance expertise, technology, and internal controls.

• Businesses must continually keep up with and adhere to evolving regulations.

• If a business is found to be noncompliant, it risks fines, penalties, reputational damage, and a loss of its operating license.

Operational complexity

• Businesses must implement and maintain a wide range of resource-intensive operational tasks, from card issuance and transaction processing to customer service and dispute resolution.

• Businesses must have comprehensive, often costly technology infrastructure that can handle card management, transaction processing, fraud detection, and data analytics.

• Businesses must manage relationships and technical integration with third-party providers such as payment processors, card networks, and fraud prevention services.

Financial risks

• If cardholders default on their payments, businesses with credit cards risk major financial losses.

• Businesses must implement strong fraud detection and prevention measures to protect against identity theft, counterfeit cards, and unauthorized transactions.

• Interruptions to card programs due to operational failures such as system outages, data breaches, and human errors can result in financial losses and reputational damage.

Competition

• To attract customers in a market filled with established players and new entrants, businesses must differentiate their card programs.

• Businesses can face pressure from competitors to reduce fees. This can impact the profitability of card programs.

• Businesses must stay ahead of the curve with new features and benefits to attract and retain customers.

Customer acquisition and retention

• Businesses must convince potential customers to sign up for a new card program. This can be difficult in a market saturated with options.

• Businesses must keep cardholders engaged and active. They must continually provide value and incentives to prevent customers from switching to competitors.

How to create a card program

Here’s a step-by-step guide to planning, creating, and launching a card program.

Define your objectives and target audience

• Clearly articulate your reasons for launching a card program. Are you looking to increase customer loyalty, generate additional revenue, simplify payments, or achieve other specific objectives? Conduct market research and competitor analysis to validate your goals and identify potential opportunities.

• Define your target audience. What type of card program would resonate with your ideal customers? What features and benefits would they find most appealing? Create detailed customer profiles to guide your program design and marketing efforts.

Choose a card program model

• Decide whether you want an open-loop program (in which your card can be used anywhere) or a closed-loop program (in which your card can only be used at your business). Weigh your target audience’s preferences and your desired level of control over card usage.

• Consider whether you want to partner with another company for a co-branded card or launch a stand-alone program under your own brand. Evaluate the potential benefits and drawbacks of each model in terms of brand reach, customer acquisition, and shared responsibilities.

• Choose the type of card (e.g., credit, debit) that best suits your objectives and target audience. Consider factors such as credit risk, customer preferences, and regulatory requirements.

Select a card issuer and network

• Partner with a reputable card issuer that can provide the necessary infrastructure, technology, and support for your program. Compare different issuers based on their fees, capabilities, and experience serving your target market.

• Choose a card network (e.g., Visa, Mastercard, American Express) with your preferred features, benefits, and acceptance. Evaluate network fees, brand recognition, and access to value-added services.

Design your card program

• Develop a compelling value proposition with rewards, benefits, and perks that appeal to your target audience. Conduct focus groups or surveys to gather feedback on potential features and confirm they meet customer needs.

• Carefully structure your fee schedule and interest rates to balance profitability with customer satisfaction. Benchmark against competitors and conduct pricing sensitivity analysis to refine your fee structure.

• Create a visually appealing card design that reflects your brand identity and resonates with your target audience.

Develop your technology infrastructure

• Establish a card management system to handle card issuance, transaction processing, fraud detection, and customer service. Compare different software providers and choose a solution that is able to grow, secure, and integrate with your existing systems.

• Integrate data analytics capabilities to gain insight into customer behavior and spending patterns. Then, use data visualization tools and machine learning algorithms to personalize the customer experience.

• Consider developing a mobile app and integrating with digital wallets to improve the customer experience. Provide features such as real-time transaction notifications, balance inquiries, and rewards management through the app.

Prepare for regulatory compliance

• Consult legal and compliance professionals to confirm your program adheres to applicable regulations. Conduct thorough compliance audits and establish risk management practices.

• Develop strong internal controls to monitor and manage risk. Communicate clear policies and procedures, and regularly train staff.

• Keep up with regulatory changes and update your program as needed. Maintain open communication with regulatory bodies and participate in industry forums.

Launch and market your card program

• Develop a comprehensive marketing strategy to promote your card program and attract customers. Use a mix of online and offline channels such as social media, email marketing, and direct mail. Offer sign-up bonuses or referral incentives to encourage adoption.

• Implement ongoing communication and engagement strategies to keep cardholders active and loyal. Send personalized offers and rewards based on spending behavior and preferences.