Why Open-Loop Programmes Pose a Compliance Challenge for Fleet Cards: By Leon Du Plessis

The fleet and fuel card industry stands at a crossroads. For decades, the ecosystem relied on closed-loop solutions, accepting cards only at specific, pre-approved merchant locations. This model has been stable and predictable, but a new era of technology,
driven by consumer expectations and evolving regulations, demands a shift. The industry is now embracing open-loop processing models, integrating with major payment networks like Visa and Mastercard to offer enhanced flexibility and a wider acceptance network.

While this move promises significant benefits, including leveraging mobile wallets like Apple Pay and Google Pay, as well as reducing the maintenance costs of proprietary systems, it introduces a new wave of complex challenges, particularly concerning regulatory
compliance and fraud. For fleet and fuel card professionals, understanding and proactively addressing these issues is critical to a smooth and successful transition.

The New Regulatory Imperative

The push toward adding an open-loop solution to their customer value proposition isn’t merely about offering convenience; it’s increasingly driven by regulatory pressure. As new regulations mandate greater interoperability across payment systems, the traditional
closed-loop model is becoming less viable. This shift forces fleet card providers to align their operations with the stringent requirements of global payment networks, exposing them to a new world of compliance protocols.

Suddenly, a solution that once operated under its own rules must adhere to broad, complex, and often unfamiliar regulations like Know Your Customer (KYC), Anti-Money Laundering (AML), and data privacy laws such as POPI. The burden of proof for compliance
is now shared with card schemes and BIN sponsors, who, while experts in their own domains, often lack a nuanced understanding of the unique dynamics of the fleet industry.

The Problem with KYC in the Fleet Ecosystem

The most significant compliance hurdle is KYC. Traditional fleet cards are designed to track expenses linked to a vehicle, not an individual. This vehicle-based card model is perfect for monitoring the “cost of ownership” of an asset, but it creates a fundamental
disconnect when trying to identify the individual user of the card—the very person a KYC process is meant to verify.

The realities of fleet operations compound this challenge. Many companies, particularly those with shift-based setups, such as security firms, utilise rotational and temporary drivers. For example, a vehicle may be driven by four individuals in a single
day, each with access to the same fuel card. This constant rotation of users makes it nearly impossible to maintain consistent, up-to-date KYC data.

Adding to the complexity is the role of BIN sponsors—the banks that enable a company to issue cards on a major payment network. These sponsors and their associated card schemes rely on generic KYC processes designed for consumer banking, not for the unique
structure of fleet cards. This misalignment can lead to significant frustration for fleet card issuers who want to capitalise on the benefits of open-loop programs but are met with a one-size-fits-all approach to compliance that simply doesn’t fit.

While fleet card issuers can easily perform Know Your Business (KYB) checks on the corporate entity, this is only part of the solution. It confirms the company’s legitimacy but leaves a critical gap in verifying the individual using the card, turning the
KYC on individual users into a regulatory grey area.

A Path Forward: Solutions and Collaboration

The uncertainty surrounding compliance has caused many fleet card issuers to hesitate, delaying their addition of open-loop programs as part of their customer value proposition and slowing down the adoption of modern technology. To move forward, the industry
must embrace a collaborative and innovative approach.

1. Enhanced Identity Verification: The industry needs to develop hybrid KYC models. Instead of a full KYC on every driver, a more practical approach could combine a thorough KYB on the company with a “lightweight” KYC on key personnel, such as fleet managers
   or designated company representatives.
2. Driver Authentication Systems: Technology can provide a solution to address the issue of rotational drivers. Implementing temporary driver authentication systems, perhaps through PIN, biometrics, or token-based authentication, could validate a driver’s
   identity at the point of transaction without the need for a full, permanent KYC profile.
3. Fleet Card-Specific KYC Guidelines: The industry must advocate for the creation of customised KYC frameworks tailored to fleet management’s unique environment. This involves a collaborative effort to educate BIN sponsors and card schemes on the nuances
   of vehicle-centric cards and multi-user contexts.
4. Education and Awareness: A continuous dialogue between all players in the ecosystem—fleet card issuers, BIN sponsors, and payment schemes—is essential. Bridging the knowledge gap will help align expectations and create a shared understanding of the challenges
   and potential solutions.

Adopting an open-loop programme is not just a technological upgrade; it can transform the fleet and fuel card industry. While the journey presents significant compliance challenges, particularly around KYC, the benefits are too substantial to ignore. By
working together to create customised solutions that account for the unique needs of the fleet environment, the industry can ensure a smooth transition, unlock greater value for customers, and confidently navigate the future while still being compliant.