Startup Sees a Goldmine of Non-Interest Income in Virtual Cards
By Steve Cocheo, Executive Editor at The Financial Brand
(Reprinted with permission from The Financial Brand. Original article published on April 22, 2021 and can be viewed here.)
New program enables community banks and credit unions to offer virtual debit cards that can give consumers great peace of mind, small businesses more control over travel and entertainment spending and smaller financial institutions a lucrative interchange kicker.
Fintechs tend to sort themselves into those that try to solve a consumer friction point or those that aim to help small firms tackle some financial challenge better. But with Moca Financial, John Burns, a serial banking entrepreneur, is going for a trifecta. Moca is a payments business that not only serves both people and businesses, but also chooses to partner with banks and credit unions to address both revenue and security concerns.
Burns has been a banking industry fixture for decades and founded two notable players, FundsXpress Financial Network and BancVue, which later became Kasasa.
As payments and commerce shifted more to digital, Burns realized that for both businesses and consumers, control of their finances was becoming a bigger and bigger deal. He also knew that community banks and credit unions needed additional revenue streams, but weren’t in the position to invent their own new wheels to produce them.
“Community banks and credit unions can’t afford to spend a lot of money on developing their own technology and so they need to have somebody do it for them,” says Burns.
What began as a single card and virtual card idea has, even though it is early days, expanded into a family of related payment products that promise to provide extra revenue through a twist on interchange income. But we’re getting ahead of the story.
Enabling Consumers to Create Their Own Cards
Burns set out to develop a digital-first payment platform that uses Moca’s proprietary technology that runs on Visa’s payments rails. The company provides virtual and physical check, stored-value, credit and gift cards that all work as debit cards.
Hooked into the product line as well are MocaMoney, a P2P payment solution that, unlike other options, does not charge for real-time payments, and Mia, a payment assistant for browsers that uses one-time virtual cards to address ecommerce security concerns.
Consumers can use Moca Financial‘s services through the bank or credit union, for general-purpose cards or virtual cards or they can tailor them as needed. For example, they can create their own card that’s exclusively for use, say, on Amazon and they can even create cards devoted to a single purchase, if need be, locking it down. They can set up special purpose cards, such as one for their kids’ use, to oversee and limit their spending of allowances or at school.
Consumers can control everything through the MocaMobile app or desktop. They can access any cards immediately as virtual cards but can also request plastic, should they want it. Those cards are delivered by mail.
The idea here is to provide maximum personalization through self-service options.
Part of Burns’ reason for grouping everything together in this way was to avoid creating additional silos in both the institutions and in consumers’ own finances. The problem with apps already in the market, he says, is that they tend to be islands unto themselves, creating friction when moving funds from one form to another. The cards link to consumers’ checking and savings accounts, and they can select the scope and features for each card.
From the viewpoint of control and security, money flows into each card according to the consumer’s wishes, but the cards cannot in turn pull additional funds from the master account. This addresses some of the security concerns consumers have for using debit cards online.
From financial institutions’ viewpoint, this creates the ability to serve multiple needs without having to create multiple products and find markets for each. In a sense it becomes a cross-sell built into institutions’ existing relationships. Burns says cards generated through Moca can be added to digital wallets, lessening the need for the issuance of any plastic. (Additional integrations are being planned.) In addition, the Mia plug-in for online payments creates a one-time card that cannot be used again by anyone.
As Burns began talking up the consumer-side offering with banks and credit unions that he knows, a business-side need came to light.
Cards Can Give Company Controllers Peace of Mind
Burns realized that as companies have been moving more and more towards nontraditional payments, there have been frustrations. For example, while reloadable payroll cards have become more common for certain types of jobs and industries, small firms’ accounting departments have had more trouble coming into current practices in other areas.
“Debit cards have never been very popular with businesses because Accounting doesn’t like to hand company employees a card that draws on the corporate checking account,” says Burns.
Source of Fresh Debit Volume:
Making business-side debit card usage more appealing for companies creates a new channel for interchange income.
Companies that decide to go to corporate purchasing cards can get those, but they are only generally available from large banks offering such programs. Burns realized that the financial institutions he had set out to serve with Moca could match such offerings with the same types of controls and limits for small businesses that he was offering for parents to use with their kids. A new variation on the product came of this.
Burns sees specialized programs also developing. Certain industries like trucking have specialized needs for their fleet drivers, for example, that a controllable corporate debit program could facilitate.
Benefit to Institutions’ Financial Results Via Interchange
The cards issued virtually through the Moca program are technically prepaid debit cards, which for community institutions under the federal Durbin amendment means a higher interchange fee than if the transaction went through in other forms.
“In fact, the interchange fee is about 30% higher for an exempt bank than for debit cards,” says Burns. This difference provides additional income for institutions and also helps pay for a debit 1% cashback rewards program Moca makes available to participating banks and credit unions.
Covid-19 threw a monkey wrench into Moca’s original timing but Burns says that the delay enabled the company to develop additional angles. More deals are in the offing. So far four Texas community banks are on board with Moca’s program.
Going forward Burns expects Millennials to latch onto Moca early, because of their tendency to embrace tools that help control their finances. Other generations should follow, he says, as they see the flexibility virtual cards can provide.