# Why the business of payments is changing rapidly

From mobile apps to cloud computing, digital technologies are opening up new sales channels and transforming business operations. Indeed, digital business is increasingly business as usual and that is creating a new set of challenges. As companies struggle to meet customers’ expectations for faster, more personalized, and more secure digital experiences, they are discovering that their existing payment infrastructure is falling short. While the most commonly used payment methods — credit and debit payment cards and Automated Clearing House (ACH) messages — are by definition “digital,” they’re also outdated. Instead, digital-first companies are building payment solutions on modern card issuing and processing platforms. Accessible via open APIs, these platforms offer payment infrastructure as a service on a global scale, allowing for flexible solutions that scale and evolve as businesses grow and change.

## Fraud is a forcing function for payment innovation

On August 11, 1994, the shopping website NetMarket made history by processing the first online secured credit card payment. The company’s CEO, Dan Kohn, boasted to the New York Times that “even if the NSA was listening in, they couldn’t get [the] credit card number.” It’s unlikely Kohn, let alone hundreds of thousands of businesses that followed his lead, anticipated how distinctly determined cybercriminals would be in overcoming online security measures.

Card-not-present (CNP) fraud, which accounts for all digital credit card payments, now makes up the largest portion of payment-associated fraud. The consequence of cybercriminals’ diligence is a vast increase in fraud targeting online businesses. By some projections, retailers are set to lose $130 billion between 2018 and 2023 from CNP fraud.

### Rate of fraud

| Payment Type                         | 2015 | 2016 |
|--------------------------------------|------|------|
| In-person credit card payments       | 0.18 | 0.15 |
| In-person debit card payments        | 0.08 | 0.05 |
| Remote credit card payments          | 0.15 | 0.19 |
| Remote debit card payments           | 0.15 | 0.18 |
| Source: Federal Reserve              |      |      |

There are many reasons why remote card-not-present fraud is increasing. The transition to more secure EMV chip cards for in-person payments, which intensified in 2015 when new network rules went into effect, has thwarted many in-person scams. However, the weaknesses in commonly used digital payment infrastructure also share a large part of the blame. Payment system controls are far more robust and comprehensive than in years past, but these controls are often ill-suited to prevent fraud once static card information is stolen.

## Higher demand for on-demand

Prior to the rapid growth of the digital economy, everyone — from businesses to customers to employees — expected long wait times between when a payment was made and the time it was successfully processed and settled. Checks could take two or more days to clear. ACH added security and speed to transfers but still took several business days to complete. Even traditional credit card payments were not instantaneous. As much as two days could lapse between the time a credit card purchase was made and the moment it posted to an account.

These several-day turnaround rates have become untenable for all participants in the high-speed digital economy, and especially for workers. Employees increasingly demand immediate access to their earnings. Companies that offer it can strengthen employee satisfaction and boost retention, while also reducing some employees’ reliance on predatory payday loans. Additionally, many digital-only start-ups, such as Uber, Instacart, and DoorDash, are dependent on workforces which expect to receive immediate payments for their services. That type of flexibility and efficiency is only possible through real-time payment systems and is impossible for ACH and paper checks to achieve.

## Rich usage data and advanced security improve the customer experience

Open API platforms can aid organizations that wish to customize and issue physical cards with high transaction transparency. Organizations can also access a deeper level of usage data by activating real-time notifications at every stage — issuing, processing, and authorization.

There are myriad ways that the additional data can be used to improve the customer experience. When inclement weather strands travelers at an airport, an online travel agency will now have both the information and infrastructure needed to offer relief, including sending push-to-card payments or hotel vouchers directly to the digital wallet on a customer’s mobile device. Online food delivery agencies can automatically notify a hungry customer the minute their food order is fulfilled at their favorite restaurant. Insurance claims can be disbursed to an approved contractor, and the policyholder can be simultaneously notified at the time of the transaction.

Richer data contributes to better fraud detection at the same time that the advanced security provided by modern card issuing and processing reduces the risk that a cardholder’s personal information will be fraudulently obtained or misused. Features like dynamic spend controls restrict where, when, and how cards are used. By tokenizing cards and provisioning them directly to a digital wallet, card program owners protect cardholders from ever exposing their primary account number (PAN) to a would-be fraudster.

Businesses that opt for open API payment platforms can customize and deploy cards with just a few clicks that are tailored to their unique needs. Secure, flexible, and fast payments are possible with open APIs.

## Digital businesses need fully digital solutions

Digital businesses need the flexibility to make and receive payments instantly and at scale, with a highly reduced risk of fraud and the ability to dynamically adjust spend controls as needed. Similar to the cloud computing revolution that took hold in the wake of the creation of Amazon Web Services (AWS), the next wave of digital business transformation is happening in payment infrastructure. Just as AWS gave organizations access to modern computing infrastructure via open APIs, modern card issuing and processing platforms now allow organizations to build digital payment solutions on modern payment infrastructure.

Businesses that opt for open API payment platforms can customize and deploy cards with just a few clicks that are tailored to their unique needs. For example, they can programmatically create any number of single-use virtual cards. These cards are extremely difficult to misuse since they expire after an authorized payment is made. If desired, businesses can make multi-use virtual cards designed to work only during certain time periods and for certain purchases or vendors, reducing the opportunity for fraud.

## From novel to necessary

The rise of modern card issuing is changing how businesses think about how they pay workers and vendors. Since transactions moved online, fraud has been an ever-present reality. Every increase in security was met by an even more sophisticated attack. But new, more restrictive modern cards and increased use of tokenization are finally putting the fraudsters out of business. At the same time, payment cards created on modern payment infrastructure offer the possibility of instant payments and real-time visibility into transactions as they occur. Innovative new business models are emerging to take advantage of these new capabilities. Just as e-commerce evolved in response to the advent of HTML, and the customer experience was transformed by advances in mobile, so are business strategies morphing to take advantage of new, faster, and more secure custom payment experiences.

## About Marqeta

Marqeta brings speed and efficiency to card issuing and payment processing with the world’s first open API platform. Businesses have been limited by slow legacy platforms that did not allow for flexible new program set up and fraud control. Marqeta’s platform allows customers to instantly issue cards with much needed flexibility, control, and scale. Our modern platform was built from the ground up, and our APIs power innovative payment experiences for many of the apps and services you enjoy daily. Highly configurable, secure, and reliable, Marqeta’s platform helps B2B and B2B2C companies compete in a constantly changing digital world.

Today Marqeta has 350+ employees and operates globally in the U.S., U.K., E.U., Canada, and the Asia-Pacific region. We have extensive partnerships with multiple banks and card networks, including Visa, Mastercard, and Discover. Our customizable solutions are used by innovators in areas such as expense and supplier management, digital banking, lending, e-commerce, on-demand services, and disbursements and incentives.

Marqeta is backed by leading global investors including Visa, Iconiq, Goldman Sachs, and Coatue Management. In May 2019, we raised a Series E of $260 million raising the value of Marqeta to nearly $2 billion. Investors are excited about Marqeta’s ability to capitalize on the estimated $45 trillion global card issuing opportunity.