What it Actually Takes to Launch a Card Issuance Program on Your Own

Apr 14, 2022
Highnote Team

Over the last few years, embedded finance innovation and the pandemic have created high customer demand for digital payment options. Organizations have responded by increasingly embedding card products into the overall service and product offerings. Offering embedded finance solutions is good for building customer engagement, loyalty, and the bottom line.

In B2C businesses, these card issuance benefits have been significant at companies like Amazon and Apple, whose card programs (Prime Credit Card and Apple Card) are beacons for the industry. But even B2B payment use cases are being heavily impacted by the movement away from costly (and fraud-ridden) checks and ACH, and towards rapid-settling, revenue-generating virtual cards.

The question for many organizations pursuing these benefits is how to do it: build your own program from scratch or partner with one of the providers in the space? We believe that in the vast majority of cases, it just makes more financial, operational, and strategic sense to partner with a card issuance platform – just as you would with a website host or CRM platform. This really allows you to focus your organization's time and resources on activities that are truly core to your business’ strategy.

To illustrate why, we’re going to use this space to walk through the (arduous) process of creating your own card issuance platform.

Step 1: Research the Space

Before anything else, you’ll have to take time to understand the many pieces involved in launching a card issuance program. A successful card issuing program would, at a minimum, need:

  1. An Issuer: This is the bank that would “sponsor” the card program. Since from a regulatory perspective, only a regulated financial institution such as a bank is authorized to issue a payment card. The barriers to finding a bank willing to be a sponsor is quite high. And after finding a sponsor bank there are many hoops to clear in terms of due-diligence, development and assessment of policies such as Vendor Management and Third Party Due Diligence, Compliance Policies and Procedures, Customer Identification Program (CIP), OFAC and Sanctions Screening, Customer Support Workflows, PCI Compliance Certification, Transaction and Fraud monitoring and management etc.
  2. An Issuer processor: This is the technology partner that will serve to parse the ISO messages received when a card payment is initiated, and ensure validity of the charge, and return an approve or decline transaction response. Besides checking the bank’s ledger to see if the funds or credit are available, a state-of-the-art issuer-processor enables you to drive innovation in your card program, through things like real-time spend limits, granular spend controls (geographic limitation, merchant types, etc.) and more. Additionally, a strong issuer-processor will also handle KYC and fraud detection, and perform reconciliation and settlement of transactions between the bank and the card network.
  3. A Card Network: This is the underlying network that connects the terminal that accepts your card and the bank that issues the card (#1 above). Think of the card network as the plumbing that carries payment activity. Currently there are three major card networks - MasterCard, Visa, and Discover, as well as ATM networks like NYCE and Pulse that transport that card-generated payment activity. These are relationships you must establish and maintain as part of your program. You and your processor will also need to work with the networks to set up your card BIN and get approvals.
  4. A General Ledger: Accounting matters! And a card issuance program brings with it a potentially large number of transactions that need to be reconciled with your accounting systems, banking partners, and business counterparties. Behind any successful card program or financial services product is a general ledger that can keep granular level information on the transactions that have happened. Not having a robust and scalable general ledger from Day 1 can lead to many sleepless nights for your engineering, finance, and operations teams as your card program becomes successful and begins to scale.
  5. A Program Manager: Not only are there core technology requirements to issue a card, but also, there are significant administrative and operational requirements. These include KYC-KYB, regulatory compliance, transaction monitoring, cardholder support, physical card printing and shipping, setting up bins on card networks, daily reconciliation and settlement, seamless money movement between the bank accounts – and more! For many of these functions you have to formulate partnerships, build integrations, and maintain them all over time.

As you identify players in each of the above areas, you’ll want to evaluate their services with the lens of how well they’ll fulfill the needs of your card program. Other key questions: Do they provide transparent pricing? Are they nimble enough to operate at your speed? Can they help you future-proof your product roadmap? How responsive is their support when you need it? Do they provide a clean escalation pathway when pressing customer issues happen? How open are they to incorporating new feature requests and enhancements? Can they even support new requirements without forcing you to spend much more on professional and development services?

The research phase alone can take months, especially if you’re new to this world. Once you’ve identified providers you’d like to partner with for each area, you’ll have to focus on developing those partnerships.

Step 2: Develop Your Partnerships

The success of your card issuance program will depend in part on what’s in your partner contracts, so it’s worth taking time to negotiate favorable terms.

Of course, that requires contract expertise and some expectation of what terms will lead to success for your card issuance program. As you navigate this process, keep in mind that some of your partners will also have to connect with each other, so you’ll want to be sure your contracts take those connections into account.

Naturally, the only thing more expensive than the legal costs of negotiating all these contracts is the potential cost of not spending time negotiating favorable contracts. A few basis points here and there add up fast when they’re tied to fees for every physical or virtual card swipe.

There is yet another important consideration. Most of these partnerships are long term (3-5 years). At the beginning of your program you will simply not have enough leverage to negotiate favorable terms. Then as you scale, and deserve better terms, you will have to face the fact that those terms are locked. You can’t optimize terms until the next cycle, so take that into account in your cost model.

Step 3: Hire Your Team

The timing of your hires will depend on what talent you already have in-house and what their skillset and workload are. To build and manage a DIY card issuance platform, you’ll need to hire a full team to oversee day-to-day activities. That team should include…

  • A program manager to oversee the program.
  • A well-staffed payment operations team to work through transaction reconciliation and settlement for all the transactions your organization will be processing, as well as treasury activities such as funding of the card program, reserve deposits and other money movements associated with the program.
  • A development team, not only to create and maintain your card platform, but also to create and maintain your partner integrations over time. Then of course, you need resources to fulfill the expansion of your program, which may include new features or even adding card types (debit, credit, prepaid, fleet cards, etc.).
  • A legal team familiar with the fintech space and banking partnerships. These resources are not just needed at inception, but on an ongoing basis.
  • A compliance team to adhere to the regulatory and compliance requirements that come with a card program. Remember, your bank sponsor will want oversight and auditability on your compliance programs on a frequent basis.

The important takeaway here is that becoming a card issuer isn’t a side project one person can oversee. To be successful, you will at a minimum need 8 to 10 FTEs across all the functional areas outlined above while you build, and will need to add more team members as you scale.

Of course, hiring ahead of revenue is always risky. But on the DIY route, there’s no alternative: adding this net-new functionality will require many additional team members with strong domain knowledge or expertise, and entirely new organizational functional areas to be built. And while your embedded finance products might ultimately become significant revenue drivers, that revenue won’t be flowing in the short term.

Step 4: Build Your Card Issuance Platform

You’ve probably already considered this part: to become a card issuer, you have to build a platform. This step requires all the effort that building any new digital product requires, plus coordination with all your external partners. Woah!

Step 5: Maintain and Iterate Your Card Program

Launching your card program is just the first step of becoming a card issuer. Once you choose an issuer-processor partner, you have to build a custom version of their product to make it do what you want, which requires a lot of additional engineering time (internal or external resources). Then, anytime you need to upgrade or add capabilities, you have to invest additional engineering resources. In many cases, the issuer-processor is built for handling a particular use case. Maybe you chose them because you were launching a “prepaid” program. But now that you want to enhance your program with credit or debit, you find you need a new issuer-processor, or fund a big additional build.

Once the program is live, you will have to have continuous oversight for regulatory concerns, like ensuring that your marketing does not run afoul of UDAAP, Reg-E, Reg-Z, Fair Lending Practices, Truth in Lending, etc. There is a meaningful amount of operational and compliance oversight.

Your development team will need to continuously maintain the platform, including pushing updates and bug fixes. They will also need to build those new functionalities requested by your marketing team (and likely sales and product as well).

Your finance team will need to undertake the heavy lift of transaction reconciliation for some unknown number of daily transactions (and hopefully more all the time!).

The Alternative: Partner with a Card Issuing Platform That Can Do It All and Scale With Your Business

As we saw, creating your own card issuance program is a lot of work. The good news is this isn’t the only option for organizations that want a custom card program.

Highnote provides an all-in-one card issuance platform which includes a purpose-built issuer-processing technology platform and full end-to-end program management. Partnering with us relieves you of significant compliance and operational requirements. As mentioned above, these include KYC-KYB, regulatory compliance, transaction monitoring, cardholder support, physical card printing and shipping, setting up bins on a choice of card networks and sponsor banks, daily reconciliation and settlement, seamless money movement between the bank accounts – just to name a few – and require significant resources to maintain over time.

Highnote, the world’s most modern issuer-processor platform, is API first, and enables you to continuously add functionality and capabilities as you scale your program. Importantly, you can launch entirely new card programs without having to do the same heavy lifting every time. For example, you can start with a prepaid program and graduate users into a debit program and then add a charge card or credit program, and instead of rebuilding everything from scratch, Highnote enables this easily, seamlessly, and iteratively, with very little time and effort required from your end. You get to future-proof your card program from the start.

Besides issuer-processor capabilities, Highnote’s ledger and in-house payments operations teams are available day one to handle all transaction reconciliation and settlement. All your finance team has to do is audit the report our ledger creates. We even provide extensive detailed transaction and interchange reporting - a capability which would take most firms months to build. These platform capabilities free up highly valuable finance and engineering resources for more strategic activities.

Highnote also helps improve your risk profile. Since we work with multiple card programs of all sizes, we have built proprietary intelligence, looking at data across the landscape, that translates into better fraud and risk insights. This expanded perspective is a great advantage relative to analysis based on a standalone entity.

Finally, your costs are optimized from day one. Why? Because we represent a large portfolio of partners and can negotiate prices at scale - and can pass that pricing on to you today, instead of you waiting for years!

Highnote provides an all-in-one embedded card program experience, offering best-in-breed relationships, a full support team, a complete set of API documentation, detailed reporting, and the ability to quickly iterate and A / B test. It is a one-stop shop for your card issuance that lets you launch your digital payment program in a matter of weeks, not months (or years).

Ready to start building your card program?? Get in touch today.

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