Intro to Card Issuing
If you want to launch a card program but don't know where to begin - you found the right place. This guide provides an overview of the cards ecosystem.
- BIN: The Bank Identification Number is the six or eight digit number assigned by the Networks for card issuing and functions as the first six or eight digits on the card itself. The BIN identifies the bank that is responsible for issuing the program and handling daily settlement with the Network(s).
- Principal member: A financial institution holding a principal license with a Card Network has the right to issue cards itself and sponsor other institutions (fintechs) to issue on its behalf (BIN sponsorship). Affiliate/Associate members cannot offer BIN sponsorship and rely on a Principal for their Card Network activities.
- Debit card: A payment card associated with funds in an underlying bank account. The customer's account is debited (reduced) by the amount of the transaction when the card is used. Some debit cards offer overdraft services where a customer can spend in excess of their account balance with a commitment to repay the overdrafted amount.
- Credit card: When you use a credit card, you are borrowing money and agree to repay the amount at a future date. The amount must eventually be fully repaid but a balance can be held outstanding month to month (i.e. customers can pay the minimum payment). Interest is charged on any outstanding balance carried over month to month.
- Charge card: Like a credit card, a customer can spend funds that they don't currently have in their account, but the charge card balance must be paid off in full at the end of every statement period. Unlike a credit card, you cannot carry a balance month-to-month on a charge card. 30 day charge cards are most common but we see shorter or longer statement periods as well.
- Prepaid card: A prepaid card is not linked to a bank account. Instead, a customer spends money that has been loaded into a prepaid card account in advance. Prepaid cards also do not have overdraft capabilities.
- Ledger: The ledger records a series of debits and credits (i.e. withdrawals and deposits) to arrive at a customer's account balance. This balance, showing the total funds in a bank account, is used to make auth decisions (approve/decline) on transactions.
- Core: The core banking system is the back-end software used to support a bank's most common transactions (e.g. account management, processing deposits & withdrawals, recordkeeping & reporting and posting to the ledger).
- ACH: The ACH Network, managed by National Automated Clearing House Association (NACHA) in the US, is an electronic funds-transfer system that facilitates bank transfers. ACH transfers allow you to push (ACH credit) or pull (ACH debit) funds to/from a bank account. FedACH, through the Federal Reserve, is the typical mechanism to process an ACH in the US.
- Wire: A wire transfer is an electronic transfer of funds across a network of banks. During business hours, the funds transfer and settle instantly. Wire transfers are one-way and cannot be returned. Fedwire, through the Federal Reserve, is the typical mechanism to process a wire transfer in the US.
- Issuing Bank: Responsible for BIN sponsorship (providing a BIN associated with its banking license), oversight of programs' policies and procedures, and settlement with Card Networks.
- Card Network: Responsible for facilitating and settling card transactions. Examples in the US include Visa, Mastercard, Discover and American Express.
- Issuer Processor: Responsible for connections to Networks and facilitating message transmission to Program Managers. Many Issuer Processors also offer Program Management capabilities.
- Program Manager: Responsible for day-to-day operations of the program, including relationships with vendors, fraud and risk management, customer support, and authorization (approve/decline transactions).
- Non-bank Issuer: Responsible for marketing the program, branding, and maintaining cardholder relationships. Generally includes customer support.
- Third-Party Vendors: There are number of third party relationships (e.g. manufacturers, fraud vendors, risk/compliance vendors, etc) that are engaged to deliver a successful program but we've left them out for simplicity. Please engage with us to learn more!
- Acquiring: There are also similar roles (e.g. gateway, processor, bank, etc.) on the acquiring side of the equation.
- Card Interchange: The % of a transaction that the issuing bank is entitled to keep after customers use their cards to make purchases. Interchange varies depending on a range of factors, including whether the card is debit/credit/prepaid, if the card is commercial vs. consumer, where the transaction occurred, and the circumstances of the transaction. Overall, commercial cards have higher interchange than consumer and credit cards have higher interchange than debit.
- Core Banking Services: For card programs, Program Managers facilitate the opening of accounts at Column associated with each user. On the debit side, most partners choose to open individual bank accounts for their users which improves reconciliation and provides low-cost, highly scalable ACH and wire capabilities. These programmatic features facilitate account funding and streamline payments.
- Credit Origination: For credit and charge card programs, Column generates receivables associated with users' card spend. Whether you want to purchase receivables or prefer Column hold them, we can support your liquidity needs with creative lending facilities that align our interests with yours.
Most card program economics are driven by interchange revenue. Interchange is the preset fee (% of transaction amount) determined by Card Networks and due to the issuing bank. It is usually shared with the Program Manager. Rates are published publicly by Visa and Mastercard.
Typically, here is how the economics look:
- Interchange due to the issuing bank is heavily dependent on specific card product, form factor, usage, spend and other factors.
- Card Network fees are incremental and include transaction processing fees, BIN fees, scheme fees and other charges (e.g. third party registration and provisioning).
The overall cost to a merchant to accept cards is the merchant discount rate. The final net amount (net of the "merchant discount rate") is remitted to the acquiring bank and credited to the merchant's account. The discount rate includes the acquiring fees which varies depending on products, networks and acquiring stack.
For fintechs operating as Program Managers, we can deliver 100% of interchange we receive to our partners. Partners then pay our bank fees as well as other parties (e.g. Issuer Processor, card fulfillment provider, etc.) This gives Program Managers flexibility to negotiate for a greater share of economics. Note, we pass through any network fees, penalties or other charges levied against Column to our Program Manager partners.
Many of our clients prefer to manage their programs themselves. Program Managers typically support day-to-day operations of the program which include fraud prevention, card production and fulfillment, chargeback & dispute management, customer support and other key responsibilities.
Card Programs typically take 90-120 days for a successful launch, but we explore every opportunity to accelerate timelines while ensuring launch stability.
- Flexibility — evaluates risk and collaborates to adjust programs
- Responsiveness — pushes third-party vendors and reviews content quickly
- Scalability — lending and deposit capacity and program support
- Economical — attractive rates for BIN sponsorship, core banking and credit origination
- Speed — shortens time to launch and meets iteration needs
- Align on a card issuing plan
- Who is your target user?
- How will cards be used?
- Decide on type of card (debit, credit, prepaid)
- Decide on current and future planned program management capabilities
- Evaluate Issuing Banks for your BIN Sponsor (Column!)
- Choose an Issuer Processor and other vendors (as needed)
- Work with your Issuing Bank (Column!), Issuer Processor and Card Network to get the program live!
- For more a more technically focused guide to starting a card program at Column check out our Card Programs Guide.
Any questions — please reach out to firstname.lastname@example.org and we can help!