Should Card Issuers Outsource or Process In-House?

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The core of card processing—accounts receivables and payment processing—has remained unchanged over the years. However, the need for ancillary services, such as fraud management, loyalty management, product pricing, and regulatory compliance, has evolved significantly. These changes are forcing issuers to examine their ability to offer these services efficiently. A wave of mergers and acquisitions in both the issuer and the processing industry over the past two decades has changed the card industry landscape. Consolidation among issuers has led to the formation of megabanks and a move towards in-house processing. On the other hand consolidation within the processing industry has had the opposite effect and has allowed smaller issuers to capitalize on the scale benefits of outsourcing to third party processors. With the evolution of the third party processing business, this paper looks at which operating model best suits the internal competencies and overall sourcing strategy for issuers.