With the growing trend toward digital payments, non-financial brands are increasingly offering card-based products as primary offerings for fintech companies, marketplaces, and digital banks. In today’s world, card programs have emerged as a core way of generating revenue by ensuring maximum customer engagement. However, it is essential to remember that behind the success story of every card program lies the need for vital decision-making regarding how cards will be issued to engage customers.
There are two methods for issuing cards: BIN Sponsorship and Direct Issuing. It is needless to say that both the mentioned methods allow companies the benefit of issuing cards on a global network, including Visa and Mastercard, the intricacies associated with each of them, including company cost, and the level of control vary a lot. This article explores how the responsibilities, costs, and levels of control associated with these methods differ, the advantages and disadvantages of each, and the key elements a company should consider before selecting its preferred method for issuing cards.
The two methods of card issuance in this article, BIN Sponsorship and Direct Issuing, have two polar-opposite emphases. While the former emphasizes speed and partnership, the latter emphasizes control and independence. Hence, before choosing the right method, a company must first understand the basic responsibilities of a card issuer. Understanding these will help a company choose the right fit according to its purpose and goals. Below are some of the key responsibilities of a card issuer:
Although you might think that the above-mentioned responsibilities fall within the sphere of a licensed bank. But as we have started becoming part of the ecosystem, companies could also share these responsibilities, either fully or through a shared model, depending on the issuing method they choose.
BIN, or Bank Identification Number, refers to the first few digits on a payment card. It is through these numbers that a card gets linked to a specific network or program type. Hence, it is a model in which fintech or non-bank companies are granted permission by a licensed bank to issue cards, thereby allowing them to use the bank’s specific Bank Identification Number (BIN). Although the fintech can craft and manage the product experience, the bank remains the legal issuer of the card. That is, from a customer’s perspective, the fintech company brands the card; however, the bank legally holds ownership or authority over it.
To break it simply, in a regular BIN Sponsorship setup, the card-issuing company or the fintech must agree to the rules and mandates set by the sponsor bank, and the bank, in return, provides access to its unique BIN and issuing license. The cards are typically issued by the bank under its regulatory framework, while the processor connects the fintech, the bank, and the card network. The fintech is responsible for handling simple tasks such as customer onboarding, user experience management, and customer support, while the bank handles more crucial tasks, such as reporting and risk management.
Although advantages and disadvantages are the two sides of the same coin, and everything comes with pros and cons, companies must consider and rethink their choices before making a decision, keeping the above factor in mind.
As the name suggests, in Direct Issuing, the company itself becomes the card issuer, and hence the BIN is also owned by the company. It is the company that establishes direct relationships with card networks. Unlike BIN Sponsorship, in Direct Issuing, regulatory responsibilities fall within the company’s jurisdiction.
Usually, companies or banks with the capacity for substantial investments opt for Direct Issuing. Banks, licensed financial institutions, or large-scale fintech companies use Direct Issuing with no intermediaries. It is a setup that operates independently within its own made regulatory proforma.
Companies opting for Direct Issuing obtain their own licenses to regulate the process and interact directly with processors. In this process, the cards issued bear the company’s name and license, and hence the company is responsible for protecting customers, managing fraud, and handling other intricacies, including reporting.
A few of the most important advantages that Direct Issuing provides are listed below:
The disadvantages or the challenges faced by the process include:
Just like the first issuing model, this too has certain limitations. The company must consider both the advantages and challenges of Direct Issuing before choosing the model.
Before choosing the ideal model for your setup, make sure you answer the following questions:
Before finalizing the model, make sure you ponder the above questions and answer them thoroughly. Answering these questions honestly and strategically will help you choose the right model for your company, avoiding future hurdles and complexities.
Despite the fact that the primary objective of both is card issuance, there is a significant difference in their strategic implications. While the former enables a speedy, collaborative operation, the latter focuses on independent work and scalability.
While BIN sponsorship is ideal for companies and startups that want to explore new markets without incurring much risk or responsibility, it is best suited for established companies that focus on overall development and long-term growth.
