Consumers love using their debit cards for financial interactions, including physical cards and card-not-present (CNP) transactions. In a recent PCSU study, CNP transactions continue to grow with CNP debit cards representing 45.2% of purchases and 31.9% of transactions as of January 2021. In comparison, ATM withdrawals have declined 13% (from January 2020 to January 2021).
For a FinTech entering the market, a debit cards program is an essential part of a successful business plan, supporting the buying behavior of its user base and providing access to critical interchange-based revenue streams.
But building and launching a debit cards program is difficult and time-consuming. The FinTech must find an issuing bank sponsor, perform the necessary due diligence, and be prepared to provide ongoing oversight to ensure the debit cards program is compliant with all applicable laws.
If you’re looking to stand up a debit cards program as a part of your FinTech offering, here are four essential steps to streamline and simplify the process:
It’s all about the BIN
The first step in standing up a debit card product offering is finding the right issuing bank partner willing to act as a BIN sponsor. Without a BIN, you cannot issue debit cards to your users.
A BIN—or bank identification number—refers to the first four to six numbers on the debit card. These numbers identify the institution that issued the debit card and are used to match transactions to the debit card issuer.
Finding a sponsor bank to support a debit cards program and provide BIN sponsorship can be the biggest hurdle for an emerging FinTech. While banks are attracted to the additional business value of partnering with FinTechs, they are also concerned about damage to their reputation and regulatory standing due to the risk that the FinTech does not comply with all applicable rules, laws, and regulations. Even with a prospective partner bank in mind, the requisite lift with responding to the bank’s diligence requests, combined with complex backend integrations, are often daunting to a FinTech that is just starting out and does not have a large team to check all the boxes.
This is where a FinTech-as-a-Service (FaaS) platform can assist, helping to find an appropriate sponsor bank and providing regulatory and compliance tools that deliver the oversight a sponsor bank requires.
Pitch your pitch
Once the bank/FinTech partnership is in place, the FinTech must provide the sponsor bank with a debit card issuing proposal. The proposal will include the structure of the FinTech program, including how debit cards and transactions will be processed.
As part of the sponsor bank’s due diligence process, the bank will investigate whether the FinTech is able to fulfill compliance obligations, especially regarding the Fintech’s capabilities to comply with laws regarding financial crimes, consumer compliance and operational risk.
These financial crimes programs are important and also time-consuming and difficult to manage without significant expertise and resources.
Once again, a FaaS platform can provide the necessary workflows and rigor around these compliance processes. For example, the Synctera platform provides pre-integrated services for KYC, AML, and fraud protection, supporting a faster time to market for the FinTech.
Roll out your program
With its bank partner on board and the BIN sponsorship in place, the FinTech can begin to implement and configure its debit cards program. This will involve:
- Issuing debit cards (virtual and physical)
- Managing debit cards (activation, PIN admin, status updates)
- Implementing digital wallets
- Debit card design / branding
The FinTech can choose to promote its own brand on its debit cards or it can offer this as a special feature for its end users.
The Synctera platform provides FinTechs with a pre-integrated connection to major debit card issuers, allowing the FinTech to launch its debit cards program in as little as 30 days.
Keep it rolling
Once debit cards have been distributed to end users, the FinTech and the bank will work together to manage daily settlement and other back office requirements. Automated reconciliation tools and streamlined workflows will help expedite these processes.
Events that require immediate attention will be flagged in the Synctera Management System (SMS) for immediate attention by the FinTech. The system provides auditable logs that meet regulatory compliance standards. The SMS allows the bank and the FinTech to remediate issues quickly so they can focus on higher value work using fewer resources.
Synctera works with banks and FinTechs to help simplify the BIN sponsorship process by establishing a working relationship with the bank up front. The bank sponsors the BIN on behalf of Synctera, who in turn allocates a portion of the BIN to the FinTech for its debit cards program. This established business model saves all parties a significant amount of time.
For the bank, this model drives more revenue, improves operational efficiency, and improves oversight of the FinTech partners. For the FinTech, it provides access to a bank BIN sponsor, accelerates time to market, and reduces overall risk for its debit cards program.
Whether you’re new to bank/fintech partnerships or you have an existing program already in place, we can help. Contact us today.