BIN Sponsorship of Prepaid Card Programs: Benefits for Financial Institutions outlines the basics of BIN sponsorship of prepaid card programs from the perspective of the financial institution providing the bank identification number that is necessary to connect to the major card brand networks and serve in effect as issuer of a prepaid card. The report defines the BIN sponsor’s role in the prepaid card value chain, responsibilities, ways to make money from BIN sponsorship, and the market scope.
The report focuses on the many connections the BIN sponsor/issuer must have and maintain for a prepaid card program and identifies the party responsible for each portion of the transaction, areas of concern, and items to consider before becoming a BIN sponsor.
"Prepaid BIN sponsorship is poised to once again be of interest for issuing banks and credit unions as prepaid debit functionality propels the financial services industry forward. Almost every new product, feature, or functionality brought to market by fintech firms runs on a prepaid debit card platform, due to open networks and the use of application programming interfaces (APIs). The key to being a successful prepaid BIN sponsor is to follow the regulations and have continued and frequent oversight of the programs sponsored," commented C. Sue Brown, director of Prepaid Advisory Service and author of the report.
Highlights of the report include:
- Prepaid cards can serve as a source of new revenue for financial institutions.
- The proliferation of financial technology (fintech) firms with new product offerings is fueling a need for BIN sponsors of prepaid cards.
- Now is a good time for banks and credit unions to look at options in the prepaid industry: The vast majority of new financial services products are built on a prepaid debit platform, the economy is growing, and prepaid program managers still want to have a variety of issuers to diversify their risks.
- Financial institutions’ primary functions in a prepaid program are to provide regulatory and network oversight while delivering access to major payment networks and settling transactions for all the parties in the prepaid value chain.
- Risk management is a major concern for BIN-sponsoring financial institutions, so they must establish policies and procedures to avoid unnecessary and unmanageable risks.
- Financial institutions earn income in prepaid by charging fees to program managers for the services they provide. They must make sure they are sufficiently compensated not only for the operational work they perform but for the risks entailed.
1 Executive Summary
2 BIN Sponsorship of Prepaid Card Programs
- Roles and Responsibilities of the BIN Sponsor
3 The Market Opportunity for Banks and Credit Unions
- Ways to Enter the BIN Sponsorship Business
4 Understanding the Prepaid Value Chain
5 The Financial Institution’s Job as a BIN Sponsor
6 A BIN Sponsor’s Duties
- Initial Due Diligence
- Ongoing Operational Activities
- Relationship Management
7 Processors and Other Vendors
- Card Manufacturers and Fulfillment Houses
- Customer Service
- Information Technology
- Establishing Risk Policy and Procedures
8 Operational Procedures
- Contracts and Agreements
- Personnel Infrastructure
- Compliance Policy and Procedures
- Risk Review
- Negative Balance Risk
- BIN Set-up
9 Where the Revenues and Income Come From
- Revenue Sources
- Pass-through Expenses
- Fees Charged to the Program Manager
- Learnings and Considerations as You Start This Journey
List of Figures
Figure 1: Taxonomy of prepaid cards: 11 categories, 26 market segments
Figure 2: Basic prepaid value chain model and market structure
Figure 3: Facets of prepaid risk management by a BIN sponsoring financial institution
Figure 4: BIN sponsors have oversight of the connections managed by prepaid program managers
Figure 5: Criteria for vetting additional vendors needed by BIN sponsors
Figure 6: BIN sponsors need to establish operational procedures
Figure 7: Risk management - contractual relationships
Figure 8: Income equation for BIN sponsors.