Dear Luc: To give my customers cards I just need an issuer – right?
In Dear Luc, we answer the questions the industry’s fintech founders are too afraid to ask, and solve the problems they don’t want their VCs to know about.
From regulation readiness to technology teething troubles, our start-up agony uncle, Luc Gueriane, is here to help.
Luc has over seven years’ experience working with flagship fintechs like Revolut, Transferwise, Monzo and Curve.
His expertise and extensive work in the fintech ecosystem mean that Luc is able to offer unique insight into the building of a successful fintech company.
Confession #4: Issuing Issues
Dear Luc,
If I need to provide my customers with cards, I just need an issuer – right?
Wrong, I’m afraid.
Unfortunately, launching and scaling a payment card isn’t quite that simple. The payments ecosystem can be a complex space to navigate. However, working with the right partners will help you achieve your goal and get you to market quickly, cost effectively and most importantly, in a compliant fashion.
The approach you should take will be decided largely by the type of card you want to provide your customers. Some fintechs are only interested in a white label card programme. In this case, it is likely the fintech is not looking to reinvent the wheel, but instead provide a solution that fits its business and has its brand on it.
Here, working with a one-stop-shop partner (and only having one contract) might be the best option. However, you must understand that it will only ever be an “off the shelf” white-label solution that doesn’t allow for customisation or the integration of innovative new features and capabilities. Scaling the service quickly can also be problematic.
For those who want to be different and even disruptive, I suggest that you take full control of the value chain and seek out specialist partners. Their deep expertise will ensure you create a unique card proposition that both scales and helps you’ll stand out from the crowd.
If you choose to develop your own card programme, rather than take one from off the shelf, here are the key partners you’ll need to work with:
- Issuer / BIN Sponsor
Bank identification number (BIN) sponsors are established, licensed entities or issuer with membership to payment networks (for example, Mastercard or Visa). By having scheme membership, BIN sponsors can work with fintechs to provide access to payment networks for their card programme, enabling transactions to be processed and cardholder funds to be settled.
They have the technical and regulatory set-up needed to help launch the product, and this lets the fintech focus on building their business.
Working with a BIN sponsor is a successful method used by many of the strongest players as it is a quick and cost-effective way to get a proposition live without the need to become a scheme member yourself – which is cumbersome, costly and time-consuming.
- Issuer Payment Processor
A payment processor provides the transaction processing tech behind a fintech’s business by acting as the information sharer between various players such as the merchant, card scheme and issue.
Processors share information between the issuer and the card network – providing the system of record, authorising transactions, monitoring data in real-time, and communicating with settlement entities. Processors offer great flexibility and allow a fintech to add or subtract the functionality they and their users need.
- KYC Provider
Know your customer (KYC) is a process by which fintechs need to obtain and verify information about the identity of their customers at the point of onboarding and on an ongoing basis. This process is designed to ensure that the individual or company who uses a fintech service is indeed who they say they are to guard against money laundering as well as other types of fraud and criminal activity.
Having a KYC provider is essential when launching a card programme because you need to identify any individuals suspected of being involved with criminal activities and any politically exposed persons (PEPs) under The Sixth Anti-Money Laundering Directive (AMLD).
- Card Bureau or Manufacturer
If a fintech wants to provide their customers with cards, then they need to have them designed and manufactured. They need to work with a specialist company that can help them in all areas of this process, from concept to completion.
Their card needs to adhere to scheme standards and work with all point of sale (POS), various terminals, and ATMs to ensure no card acceptance issues occur. Customers also want new cards to look and feel different to what they already have. Working with a card manufacturer allows you to decide on your unique requirements and create a bespoke product.
These four partners are key to providing cards to your customers, and although many of them will also provide additional services that may benefit you, it is also worth considering other partners and features. For example, you may also need:
- An app developer if you want an app to accompany the card.
- An Open Banking provider if you want to connect the card to other accounts.
- A digital banking provider if you want to connect the card to other rails like Faster Payments.
- A tokenisation provider so the card can be held virtually in Apple Pay and Google Pay.
The entire payments industry is evolving at speed, so try to think about what will allow you to operate without any payment friction and set you apart from your competitors.
It is important to remember that every use case has different requirements and there is no one best partner for every solution. It does depend on what you would like to provide your customers and how each partner can best assist you to provide a better financial experience.
Do you have an embarrassing question you want answered, or a seemingly unsolvable problem you’d want help with? Post an anonymous comment below, or email FinTech Futures’ Alex Hamilton in confidence.
You can read our previous fintech confessions below:
