Selecting the right Issuing Processor for prospective card issuers

If you are considering adding a payment card to your value proposition you will soon realize that there are many things to consider and questions that will arise. What card product makes sense to offer? What are the regulatory requirements? What technologies are available? How will I integrate the functionalities into my existing proposition? And the most important one, what companies should I partner with in order to launch a successful card product in the market?

In this article, we will provide an overview of card-issuing services, highlight the benefits of launching a card program, and guide businesses in selecting the right issuing processor. We will also emphasize the importance of assessing the business' needs, evaluating the issuing processor’s capabilities, and making an informed decision.

Part 1: What is an Issuing Processor?

In order to select the right issuing processor for your business you first need to understand what an issuing processor is, its role and position in the four-corner model, and a bit of terminology.

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First, issuing processors typically hold an Electronic Money Institution (EMI) license from a national regulator or partner with BIN sponsors who hold such a license. This enables the issuing processor to provide payment and electronic money-issuing services to other businesses so these businesses are able to complement their service offering with payment products.

"The number of EMIs in the EU and UK has increased by 44% over the last 5 years." - TheBanks.eu, 2024.

Many of the innovative issuing processors have become a one-stop-shop for easily managing a card program for non-licensed entities. The four key responsibilities of the issuing processor are:

Issuance of the cards and program management: An issuing processor can provide card issuing services to both licensed and non-licensed companies and take care of the card program management. They offer various types of card products, like prepaid, debit, credit, both physical plastic cards and virtual cards through Apple-, Google Pay, or other wallets including instant issuing, and are fully API driven.
Authorization, clearing, and settlement of transaction: Based on the availability of funds or a credit limit in the cardholder’s account, it is up to the issuing processor to authorize or decline a transaction. After authorizing the transaction, the issuing processor makes sure to debit the transaction amount from the cardholder’s account and transfer it to the merchant’s account through the acquiring bank.
Fraud management: Together with the acquirer and card scheme the issuing processor mitigates fraud (via third-party integrations) and handles chargebacks in case of authorized fraudulent transactions. In turn, this leads to increased protection for the cardholder.
System of record: An issuing processor maintains a ledger of the cardholder’s funds by providing a system of record. This information is useful for effective card program management, preventing fraudulent activities, transaction reporting, and legal ownership.

Second, the role and position of the issuing processor in the four-corner model. The issuing processor is positioned in the lower-left corner of the model and is licensed by a national regulator and a card scheme (e.g. Visa, Mastercard) and therefore licensed to issue cards to businesses and consumers. Typically, issuing processors, or their BIN sponsors, are licensed as EMIs and have the ability to offer payment services and issue electronic money to their customers.

Finally, a bit of terminology. When researching issuing processors, you will soon find that there are also companies that are only processing transactions, they are usually referred to as issuer processors. These companies typically only perform the role of the processor, which means they are not licensed by a regulator, but they are licensed by Visa and/or Mastercard and allowed to process their transactions for another licensed entity. For a non-licensed entity, this is usually when a BIN sponsor comes in to provide the necessary regulatory licensing for card programs.

Then the Issuer, which is a bit of a catch-all term, but in the four-corner model, we use it as the company that is legally responsible for issuing the card to the cardholder. Following that logic, the issuing processor can also be the issuer.

To summarize:

Issuing Processor: a company that is licensed by a regulator and card scheme to issue cards and process transactions, always in collaboration with other companies that need their card-issuing capabilities;
Issuer Processor: a company that is licensed by a card scheme and can process card transactions, always together with other licensed entities (e.g. bank, fintech, BIN sponsor);
BIN Sponsor: a company that provides licensing from both regulators and schemes to non-licensed entities (e.g. issuer processor);
Issuer: refers to the company that is legally issuing the cards to the cardholder, which can be the issuing processor.

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Part 2: Launching a card program

In today's highly competitive financial industry, offering payment cards such as credit, debit, or prepaid has become a necessity for different types of businesses that are looking to expand their financial services portfolio and increase revenue or loyalty with their customers. We have seen a large uptake in companies that are adding card-issuing capabilities in the following industries: mobility (incl. fleet & fuel), employee benefits, expense management, government, alternative lending, payouts, and many others.

The offering of a card program is not the core of the business but can be a means to an end and to complement the business’ value proposition. For example, an expense management company that also offers payment cards to their customers next to their SaaS solution, or mobility as a service provider that offers various In-App payment methods through e-commerce and also wants to offer physical forms of payment through a card.

Some of the benefits can be:

Competitive Advantage: Launching a card program can help businesses stay ahead of the competition and meet customer demands by providing convenient payment means and added value.

Customer Loyalty and Retention: Payment cards can enhance customer loyalty by providing rewards programs, cashback offers, and other incentives to encourage card usage and increase relevance and visibility for your brand.

Increased Revenue: Offering payment cards can help businesses generate more revenue from Interchange fees, card fees, foreign exchange conversion, credit facilities, or value-added services associated with card usage.

Product controls: Card programs can enable restricted usage for example on mobility-related expenses or business expenses. The transaction data gathered can be very granular and enable specific reporting for B2B purposes.

Assessing your business needs

Before selecting an issuing processor, businesses should assess the requirements, their needs, and objectives to ensure that they make an informed decision. Key factors to consider when assessing the business needs include:

Card program goals: Businesses should define their card program objectives, such as revenue targets, customer acquisition and retention, and capturing of specific transaction data.

Value proposition: Type of card (debit, credit, or prepaid, either physical or virtual), product features (e.g. a dedicated application for the cardholders), target verticals, target user (B2B or B2C), and any other value-added services which help the business to stand out from the competition.

Regulatory compliance: The card program must comply with regulatory requirements and card scheme rules to avoid costly fines and legal issues. The issuing processor can take care of these responsibilities.

Budget: Businesses should assess their budget and determine the cost-benefit analysis of launching a card program and choosing an issuing processor. The creation of a business case with all cost- and revenue drivers is an important aspect of this.

Selecting the right Issuing Processor

When selecting the right issuing processor a few important factors need to be considered before you can make the right decision.

Experience in the industry: the provider should have a track record of successfully launching card programs and expertise in the payments industry and if possible in your industry. Working with someone who has experience in your industry significantly lowers the friction when implementing, managing, and growing the card program.

Business continuity: selecting a partner that has a strong foundation and that will be able to work with you in the long run is an important consideration. In the past few years, there have been multiple Fintechs that have been under scrutiny due to regulatory or other challenges.

Services offered: the provider should offer modular or microservice-based solutions, enabling a combination of vendors to create the best-in-class solution for the needs of your organization.

Cultural fit: when selecting the right partner it is important to also consider the cultural fit with the company you are going to work with. Good collaboration is paramount for the success of a card program.

A consulting partner, such as PaymentGenes Consultancy, can guide you with the strategic purpose, card proposition, requirements, business case, and selecting the right partners (e.g. scheme, issuing processor, KYC/KYB, card bureau, credit, and other solution providers) to make sure you select the right partners to ensure a smooth launch and successful card program.

Making a decision

After the company determined its strategic objectives for the card program the right partners will have to be sourced and a decision has to be made on who to work with. The decision-making process should include the following:

*The decision-making process and how PaymentGenes can help you.*

It is crucial to choose a partner that has the right capabilities for your program that has a strong track record and preferably one that can offer case studies or references in similar or related industries.

Finally, take the time to assess the costs associated with each card issuing services provider. While it may be tempting to choose the provider with the lowest costs, be sure to consider the value that each provider brings to the table and how it can impact your card program's success in the long run.

With our extensive network within payments and Fintech and our experience with supporting companies making the right decisions PaymentGenes Consultancy can also support this phase of your project.

Conclusion

At PaymentGenes Consultancy - Issuing Services, we offer end-to-end consultancy services to help businesses successfully launch their card programs. Our issuing team has extensive market knowledge, and experience in navigating regulatory compliance, and card scheme requirements to ensure that your card program realizes its potential and meets your business objectives

If you're interested in launching a card program or adding payment functionality to your proposition, contact us today to learn how we can help you achieve your goals.