Launching Your Own Co-Branded Credit Card Issuance Program: What it Really Requires
In recent years, advancements in embedded finance and the impact of the pandemic have led to a heightened demand for digital payment options. As a result, many organizations have integrated card products into their offerings to improve customer engagement, loyalty, and boost their bottom line.
For example, B2C businesses like Amazon and Apple have seen great success with their card programs, the Prime Credit Card and Apple Card, respectively. Even B2B payment methods are shifting away from traditional checks and ACH towards virtual cards for faster settlements and increased revenue.
However, the challenge for many organizations lies in deciding whether to build their own card issuance program or partner with a provider. In most cases, partnering with a card issuance platform is the more practical, cost-effective, and strategic solution. This way, organizations can focus their time and resources on their core business strategies.
To help understand the process of creating your own card issuance platform, we will walk you through the complex and time-consuming journey.
Step 1: Explore the Landscape
Before embarking on the journey of launching a card issuance program, it's essential to familiarize yourself with the various components involved. A minimum of the following elements are required for a successful program:
1. An Issuer: A regulated financial institution such as a bank must serve as the sponsor for the card program due to regulatory requirements. Finding a willing sponsor bank can be a challenging task, and once found, there are numerous due-diligence processes, such as Vendor Management, Third Party Due Diligence, Compliance Policies, Customer Identification Program, OFAC and Sanctions Screening, Customer Support Workflows, PCI Compliance Certification, and Transaction and Fraud Monitoring, that must be cleared.
2. An Issuer Processor: This technology partner will handle the parsing of ISO messages received during card payments, validate the charges, and provide an approval or decline response. The issuer processor should also enable real-time spending limits and granular spend controls, handle KYC and fraud detection, and perform reconciliation and settlement between the bank and card network.
3. A Card Network: This network connects the card terminal and the issuing bank. There are currently three major card networks - MasterCard, Visa, and Discover, and ATM networks like NYCE and Pulse that transport card payment activity. These relationships must be established and maintained as part of the program.
4. A General Ledger: Accounting is crucial, and a card issuance program requires a robust and scalable general ledger to keep track of transactions. Without a strong general ledger, your finance, engineering, and operations teams may face difficulties as the card program grows.
5. A Program Manager: There are significant administrative and operational requirements, such as KYC-KYB, regulatory compliance, transaction monitoring, cardholder support, physical card printing and shipping, daily reconciliation and settlement, and seamless money movement between bank accounts, that need to be addressed. Formulating partnerships, building integrations, and maintaining them over time is crucial for the success of the program.
During the research phase, you'll need to evaluate potential providers in each area and assess their ability to meet the needs of your card program. Factors to consider include pricing transparency, agility, support responsiveness, and the openness to incorporating new features and requirements.
This phase can take several months, especially for those new to the industry. After identifying the providers you'd like to partner with, you'll need to focus on developing those partnerships.
Step 2: Establishing Strategic Partnerships
The success of your card issuance program is closely tied to the terms of your partnerships, making it crucial to negotiate favorable agreements.
Negotiating these contracts requires a good understanding of the industry and the key terms that will lead to success for your program. Keep in mind that some of your partners may need to work with each other, so it's essential to ensure that your contracts accommodate these connections.
The cost of not spending sufficient time negotiating favorable contracts can be even more significant than the legal fees involved in the negotiation process. A few basis points can quickly add up when tied to fees for every card transaction.
It's also important to note that most of these partnerships have a long-term duration, typically three to five years. At the beginning of your program, you may not have enough bargaining power to negotiate favorable terms. As your program scales, and you become deserving of better terms, you'll be faced with the reality that those terms are locked in and cannot be optimized until the next contract cycle. This should be taken into account when developing your cost model."
Step 3: Building Your Team
The timing of your hires will depend on the existing talent within your organization and their workloads and skill sets. To launch and manage a card issuance program, you'll need to build a full team to handle day-to-day activities. This team should consist of:
- A Program Manager to oversee the program.
- A Payment Operations Team to handle transaction reconciliation, settlement, and treasury activities such as funding, reserve deposits, and other money movements associated with the program.
- A Development Team to create and maintain the card platform and partner integrations over time, and fulfill any expansion plans such as adding new features or card types.
- A Legal Team with expertise in fintech and banking partnerships, who will be required on an ongoing basis.
- A Compliance Team to meet regulatory and compliance requirements and provide oversight and auditability for your compliance programs.
It's important to note that becoming a card issuer is not a one-person job and requires a significant investment in resources. You'll need at least 8 to 10 full-time employees across all functional areas at the start, with the need for additional team members as you scale.
Hiring before revenue is a risk, but it's a necessary step in launching a DIY card issuance program. Adding this new functionality will require many specialized team members and entirely new functional areas within your organization. Although embedded finance products can become significant revenue drivers in the long run, the revenue will not be immediate.
Step 4: Creating Your Card Issuance Platform
This step involves the actual construction of your card issuance platform and requires a significant amount of effort and coordination with all your external partners. Building a platform to become a card issuer is a complex and challenging task that demands the same effort as building any other digital product.
Step 5: Sustaining and Improving Your Card Program
Launching your card program is just the beginning of your journey as a card issuer. Once you have selected an issuer-processor partner, you'll need to customize their product to meet your specific needs, which can require a significant amount of engineering time and resources. Anytime you need to upgrade or add capabilities, you'll need to invest in additional engineering resources. In many cases, an issuer-processor is built to handle a specific use case, and if you want to expand your program to include credit or debit, you may need to find a new issuer-processor or fund a major development effort.
Continuous oversight is necessary to ensure regulatory compliance and other regulations. There's a significant amount of operational and compliance work required to keep your program running smoothly.
Your development team will need to continuously maintain the platform, including updating and fixing bugs, and building new functionalities as requested by your marketing, sales, and product teams.
Your finance team will have the important task of reconciling a large number of daily transactions, which will increase as your program grows and becomes more successful.
The Easier Option: Partner with KSV for a Complete Card Issuance Solution
Instead of going through the tedious process of creating your own card issuance program, you can partner with KSV for a complete and hassle-free solution.
KSV offers an all-in-one card issuance platform that includes a purpose-built issuer-processing technology platform and full end-to-end program management. This partnership will relieve you of significant compliance and operational requirements, such as KYC-KYB, regulatory compliance, transaction monitoring, cardholder support, physical card printing and shipping, setting up bins on card networks, daily reconciliation and settlement, and seamless money movement between bank accounts, to name a few.
KSV enables you to continuously add functionality and capabilities as you scale your program. You can start with a prepaid program and easily graduate users into a debit program, add a charge card, or credit program without having to do the same heavy lifting every time. With KSV, you can future-proof your card program from the start.
KSV's ledger and in-house payments operations teams are available from day one to handle all transaction reconciliation and settlement, freeing up valuable finance and engineering resources for more strategic activities. With a large portfolio of partners, KSV can negotiate prices at scale and pass on the savings to you.
KSV offers an all-in-one embedded card program experience, with best-in-breed relationships, a full support team, detailed reporting, and the ability to quickly iterate and A/B test. It's 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 launch your co-branded card program? Contact KSV today.