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As of this writing, Bear Stearns, AIG, and Freddie and Fannie are being bailed out by the Feds. Lehman Brothers has melted without a rescue. Wall Street is all the election rage and everyone is left with a hangover from a decline in the stock market. What can all of this mean for the card industry?
There has been an increasing tightening in credit. Credit at all levels will be tightened and likely be watched more tightly as will all facets of the financial industry. This may affect transaction volume as well as the overall scrutiny at the federal level of all aspects of transactions.
Even a bigger concern to the card industry is the effect that the financial crisis will have on Main Street. Merchants and smaller firms who participate in card transactions and service them may feel a trickle down strain from the financial crisis. It's hard to see a true opportunity from what seems to be unfolding this fall.
No matter who is elected, there will be a new President and a new administration. How much damage can a new administration do to the credit card industry?
"Short answer, a lot," says Victoria L. Strayer, senior director, TSYS Enterprise Business Compliance. "The consumer legislative landscape is filled with proposed bills that will introduce extensive change for Issuers and their processors. While some proposals have merit from a consumer protection perspective, the combined impacts of these actions could introduce risk of additional unintended errors if the appropriate lead time to prepare to support the resulting regulations is not given."
For those who subscribe to laissez-faire as a sound policy, this could spell trouble for acquirers. "From an Acquiring perspective, the various proposals around regulating interchange all substantially interfere with market forces that have worked effectively to date," says Strayer. "By limiting interchange, financial institutions and related parties will have to recover income to cover potential merchant credit losses and incentives that are currently paid for by interchange. Regulation has not worked well in either the EU or Australia, and there is no reason to think regulated interchange would work well in the U.S."
Dr Tim Cranny, a chief executive officer of Panoptic Security, and an internationally recognized security and compliance expert concurs and says that the one thing that unites us all as Americans is the knowledge that government can make things worse if it really tries.
"In addition to the change-of-administration factor, government is currently being asked to actively intervene in the financial sector as economic conditions worsen, and this dramatically increases the odds that it will also impose tighter regulatory constraints on the sector," he says. "If this is done wisely and carefully it could help, but if it is done in a short-sighted or careless way, it could impose real inefficiencies and cost across the entire credit card industry."
Others in the industry believe that the President of the United States won't directly impact the industry, as there are appointees downstream that will likely determine the degree of intervention and regulation, however the new Administration will at least have an indirect impact.
"Not really sure if it is the President that would truly affect the credit card industry," says Joe Rosenbaum, an attorney and partner in Reed Smith's Advertising, Technology and Media practice. "Major trends and effects tend to be more aligned with financial and monetary policy and credit risk, than in the executive branch. Obviously, the President can appoint advisors, cabinet officials, etc. that can affect how the government responds to particular events, but I think the new President will have his hands full dealing with the economy generally and the tumult in the credit and financial markets generally."
Niket Patankar, CEO of Adventity, one of the world's leading knowledge and business process outsourcing firm's state that the surge in transactions make card policy quite important.
"The growth in the credit cards industry has been astounding," says Patankar. "All types of cards included, over one eighth of the world population uses cards, and this figure is expected to go to one fourth of the world population in the next 5 to 10 years. It is widely hoped that global card associations and banks — especially the global banks— will 'put the customer at the center of everything they do' and therefore eliminate the need for regulation."
Patankar believes that oversight might not be such a bad thing. "In he aftermath of the housing crisis and subsequent financial crisis, some amount of oversight by the government is expected — and needed," says Patankar. "Growth in credit cards can reflect economic prosperity, i.e. BRIC countries, but sudden growth in consumer debt, ie South Korea prior to the Asian crisis, can also adversely affect the economy. If the Administration fails to monitor the good and the bad that credit cards can do to economic prosperity, and instead takes a one-sided view that credit cards are bad all the time, it will not augur well for the global economy."
With change, there is often opportunity. So with this is mind, it begs the question as to what could a new administration do that could greatly help the card industry?
Vicky Strayer feels that a new administration must first, engage personnel that are part of, and truly understand, the card processing business. "This includes the roles of the primarily players as well
as those of downstream entities,"
she adds. "Holistically review how the industry operates and the actual influence on the economy."
She notes that there is one exception to the presumption that the card industry prefers to regulate itself. "Currently it is difficult to decipher the series of state laws around data breach and notification," she says. "At this point, with almost every participant in the industry operating in multiple states, a single federal law with a pre-emption clause would continue to protect consumers, while taking into account the nationwide coverage of industry participants."
Despite the idea of one federal law rather than a web of smaller laws, the impending question and presumption that the industry prefers self-regulation still seems to stand.
"In terms of security and compliance, the signs are surprisingly positive, so far," says Dr. Tim Cranny. "PCI has done many things right, out of self-interest rather than diligence, admittedly, but a win's a win. The plans laid out for coming years seem likely to make things better still."
Still, Cranny feels the biggest danger nowadays comes from a lack of political will. "Some of the improvements planned will trigger protests about expense and overhead, from merchants as well as acquirers, and those driving the changes will need to be able to withstand the protests if they want to improve the general level of security across the card industry," he says. "These sorts of systemic improvements to an industry are like trying to turn an aircraft carrier around: what is needed is the discipline of a long, consistent effort, rather a single dramatic big push."
So at this point in time, what should we focus on?
Attorney Joe Rosenbaum favors competition that is more open, more intelligent credit decision-making standards, and a less doctrinal approach to form over substance. "There is a growing blur between credit, charge, debit, stored value, prepaid, gift and other cards, checks, certificates, - all within the payment instrument marketplace," he says. "While I don't think there is a crisis brewing - at least I don't have a crystal ball to see one, I do think there remain a plethora of Federal and State laws and regulations that do not quite take into account how blurred and convergent many of these have become as a result of changes in both technology and the financial services industry."
Rosenbaum says that this is likely to grow as a problem as mobile and wireless payment instruments, methodologies and devices, increasingly replace or complement traditional payment mechanisms.
"This is an area that can and often does cause confusion and uncertainty in the law and regulation of financial markets are generally not good for the economy, he says. "That doesn't mean no regulation, rather I mean a more coherent, transaction or substance based approach, rather than the formality of what an instrument is called, might be in order."
Vicky Strayer of TSYS has several things sheÕd like to see in the industry. While she doesn't think the Tax Gap provision in the Housing Bill is likely to go forward, she believes that it is important that we keep states from using PCI as a standard of conduct for legislation as proposed in California and Texas.
"The somewhat haphazard efforts to meld PCI with traditional legislation has yielded bad laws that are of questionable value in securing cardholder data, which is the ultimate intent of PCI," she adds. "Experts in this field should be left to provide the appropriate guidance for the merchant and consumer community. In addition, continuing to allow for appropriate comment periods, such as was done with the proposed changes to Reg Z and Reg AA-UDAP, is critical to ensure the intent of the proposal can actually be executed. This allows Issuers, Acquirers, and the supporting third parties to surface issues that would not be known by a legislator." 
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