By John San Filippo
On October 19, 2022, Brookfield, Wis.-based Fiserv announced that it had partnered with Kansas City, Mo.-based IncumbentFI to offer Fiserv card processing customers a new service add-on the company calls “programmable payments.” According to a Fiserv press release, programmable payments allow “cardholders to link multiple funding sources to a single payment card and prioritize a specific funding source based on the type of payment transaction. Funding sources may include a demand deposit account (DDA), health savings account (HSA), rewards points, cryptocurrency, or a line of credit, among others, enabling the universal payment experience needed for a card to achieve top-of-wallet status.”
At the recent Money20/20 conference in Las Vegas, Finopotamus had the opportunity to speak with Fiserv’s Head of Fintech and Growth Sunil Sachdev to gain more clarity on this new offering.
Finopotamus: This seems similar to what smart cards were promising 20 or 30 years ago. Is this an evolution of that technology or is this something brand new?
Sachdev: It's great that you're bringing up smart cards. In a previous life, I worked at American Express on the Blue Card. There was a lot of excitement around the applications that you could load on the chip that'll allow you to use that card for a variety of transaction types. This is a little bit different in the sense that what we're leveraging today for programmable payments is the ability for users to pre-select their preference from a funding bucket at different merchant locations. That allows the cardholder to use one card and be able to get the benefit of multiple cards at the same time.
The primary use case was born out of the fact that today, from an embedded finance perspective, we've got so many different players that are offering different payment choices and payment vehicles to their customers, it's hard for customers to keep up with which payment vehicle would be optimal for which use case.
By ensuring that there's an opportunity for the customer themselves to program their debit card in a way that optimizes its use and allows that one vehicle to touch multiple funding buckets, you then can be free from having to wonder whether you used the right card at the right location for the maximum benefit.
Finopotamus: Does this mean, for example, that I can program my card so that when I use it at Home Depot, the payment comes out of my checking account, but when I use the same card for a medical payment, the card knows to pay that from my health savings account (HSA)?
Sachdev: Yes. What we're trying to create is the ability for customers to consolidate different payment vehicles into one action. The example I use a lot is, when I go to a healthcare provider, I have a high deductible health plan (HDHP) and I need to use my HSA card right there. But I usually forget to bring my HSA card. So then I have to do a whole bunch of work with my wife to make sure that the monies get extracted from my HDHP. If you’re able to program the debit card to recognize that when it's swiped at a healthcare provider, it should pull money directly out of the HSA, you don't have to worry about carrying your HSA card with you.
Finopotamus: What's the user experience getting this all set up?
Sachdev: The way that we've configured the solution is that, when you take that authorization and you capture it in a single database or a ledger, that ledger then reflects balances for all of these payment products that could be setting at different systems of record. So by putting all those balances in a single ledger, you're able to interrogate those balances very quickly without having to go to all of these different companies to understand what that balance is. That takes care of the biggest issue that we see in these transactions, which is latency. Once you swipe a card, you need to get that transaction back before the transaction times out at the point of sale.
By having a ledger that basically carries all the shadow balances for all of these different funding vehicles, you're able to take care of the latency issue and be able to approve the transaction appropriately.
To configure your card, today there is an app that you could download and you could make the selections there. However, our goal is to embed that app so it sits next to card controls, or it sits next to your online banking. Then you’ll be able to go into online banking where you're able to turn on, turn off your card, you're able to look at different transactions on your card, and you're able to make those choices.
Finopotamus: What's the technology behind that aggregation?
Sachdev: We have a ledger today called Finxact. It’s a multi-position account ledger. It's a third-generation core – cloud native, API native. The main difference in this core versus cores that exist today is that it allows you to look at all the positions someone has across multiple accounts, under one account/party structure. It sets up for this use case very nicely in the sense that it can hold different positions one has across different funding vehicles in one location. So, when the authorization comes through our card processing platform, it then interrogates this ledger, and then it's able to then interrogate the right position and be able to send the response.
Finopotamus: Is this technology moving towards a point where consumers will be able to do this on fly, for example at point of sale, just decide they want this purchase to go on their credit card instead of their debit card?
Sachdev: That's our aspiration – everything done real-time. We also have the capability, depending on the funding vehicle that is interrogated, to be able to go back into the system before that transaction is settled to change the funding choice.
Finopotamus: What’s the biggest benefit to a credit union?
Sachdev: If there's a credit union that issues a debit card today, and if they look at balance sheet activity and see that a lot of their members have a crypto account, they have a PayPal account, a Venmo account, they have all of these different accounts that they leverage to purchase items. There's an opportunity there for the credit union to make sure their debit card will be at the top of the list and that all these other funding mechanisms can be subaccounts.
It can all be managed through the credit union experience, and therefore the credit union stays relevant, even though they're allowing a choice of funding mechanisms for their members.