In the context of card issuing, Banking Identification Numbers (BINs) are used by card schemes (like Visa or Mastercard) to identify the bank or financial institution (being a Principal Member of the card scheme) that has issued the card, and the type of card (credit, debit, prepaid etc). The BIN underpins card issuance and transaction processing.
This information is then used to match payment transactions to the right card issuer to ensure payments can be successfully routed and processed through interchange [1], and the right fees / assessments charged based on the card and transaction type.
BIN Sponsorship (sometimes called "BIN rental") enables non-members of card schemes to offer payment cards under the relevant card scheme's brand by "renting" a Principal Members BIN to process transactions through interchange.
BIN sponsors may operate their own card programmes but may also sponsor others as a way of achieving volume benefits and economies of scale in relation to their Principal Member relationship with the card schemes.
Card schemes like transaction volumes and are prepared to incentivise issuers to maximise their transaction volumes by sub-letting their right to issue cards to third parties who are not members of the card scheme using BIN Sponsorship. For fintechs and other financial institutions who do not want to go through the process of obtaining card scheme membership this is a quick and efficient way of getting their credit or debit card into the hands (physical and digital wallets!) of their customers.
BIN sponsorship has evolved over the last two decades and is now a popular and efficient way to promote bespoke or sector specific payment offerings by companies who would not have otherwise been able to issue a card to their customers without becoming both authorised and a member of a recognised card scheme, including taking on the compliance and regulatory burden that comes with that.
Why consider BIN Sponsorship?
- Customer Need: customers still want to be able to make traditional card-based payments. BIN sponsorship enables any company to offer payment cards under major card scheme brands, such as Visa and Mastercard, and access the global network for payment transaction processing.
- Regulatory & Compliance Efficiency: it offers an alternative to the complex and resource-intensive process of obtaining direct regulatory authorisation and scheme permissions, by using both the sponsor’s card scheme membership – for issuing cards – and their regulatory authorisation for linking a payment account.
- Accelerated Market Entry and Scale: for fintechs and startups, it provides a quicker route to market entry and the ability to scale payment card offerings without the need for significant upfront investment in infrastructure and compliance capabilities.
Key players and roles
- BIN Sponsor: a Principal Member of a card scheme, holding an issuing licence and a direct relationship with the relevant card brand. The BIN sponsor has ultimate responsibility for the card issuance and related compliance.
- Account / e-money Provider: an entity that is authorised to offer a payment account – typically an e-money account – that the card is linked to. Frequently the BIN Sponsor and the e-money provider are the same entity.
- Programme Manager: manages the operational and compliance aspects of a card programme, including the technology platform, risk, fraud and dispute management, customer onboarding and support and adherence to regulatory and card scheme requirements.
- Fintech / sponsored 'Issuer': where the Programme Manager is not itself the party that takes the card programme to market, then a separate fintech/sponsored issuer will focus on marketing, customer onboarding, and enhancing the customer experience of the card programme – typically through a technology / app-based solution.
- Transaction (Issuer) Processor: as with any payment card, a payment processor is required to provide the technical link between the card programme and the card schemes, supporting with the processing of all payment transactions and authorisation requests made via the cards, managing the programme's transaction data and records, and submitting appropriate responses into the card schemes.
- Card Provider: if physical payment cards will be issued, a card provider is required to support with the design, manufacture and delivery of cards to customers.
- Other Key Participants: include various service providers handling customer-facing applications, AML/KYC processes, and fraud management necessary to support the card programme.
Navigating regulatory compliance
While BIN sponsorship primarily addresses card scheme licensing, broader regulatory compliance aspects remain fundamental to payment card issuance. These include banking/payment services/e-money permissions and adherence to AML/KYC and customer funds safeguarding requirements.
Regulatory authorisation, and compliance, is a complex and costly process. For many fintechs, and especially for a startup, the process of obtaining its own authorisation to carry on a regulated activity i.e. payments, is a significant time and money cost and could be a barrier to entry. Accordingly, Programme Managers or Sponsored Issuers may operate under the regulatory umbrella of the BIN Sponsor's permissions. Only if they have the necessary scale and time are they likely seek to secure their own.
In all cases, a careful assessment is necessary to ensure full compliance.
Considerations and challenges
A BIN sponsorship arrangement entails various legal, commercial, and operational considerations. These are likely to include:
- meeting regulatory / card scheme requirements relating to contracts / obligations between the BIN sponsor and other parties - for example card scheme rules and relevant material/critical outsourcing requirements, and for arrangements in the UK potentially the FCA's Consumer Duty rules;
- typical commercial contracting considerations, for example service levels and performance standards, disaster recovery and business continuity plans, termination and suspension rights, liability provisions, contract governance, as well as (frequently) terms relating to implementation and ongoing technical integrations;
- commercial terms dealing with interchange generated by card payments and the terms for any set-up fees, revenue shares, minimum fee commitments, settlement currencies, and how the costs of operating the programme (e.g. fraud prevention, compliance, customer support, card issuance costs) will be met;
- data and security terms dealing with how data may be shared between the parties (e.g. for analytics purposes), information security (e.g. in relation to PCI-DSS) and data protection law compliance;
- exclusivities and non-solicits / non-competes (which will always require careful review by competition counsel);
- credit risk, liquidity and financial security – this is particularly relevant in relation to ensuring the right funding arrangements are in place to cover settlement obligations to the card schemes;
- liability and indemnifications for regulatory or card scheme rules breaches, operational failures, or reputational damage, and how scheme fines/assessments will be allocated in cases of non-compliance;
- exit terms with a view to ensuring the arrangements can be wound down in an orderly manner and the 'owner' of the card book can buy back the book or migrate the book to a replacement arrangement in an orderly manner.
Why not just co-brand / third party brand?
It is worth noting that an alternative model to BIN sponsorship would be to issue a co-branded (or even third party branded) card instead.
In this (perhaps more 'traditional') model, the principal member of the schemes will manage the card programme themselves, but with a branding/licensing agreement in place with a third party so that the cards can carry the third party's brand (whether alongside, or instead of, the financial institution's brand).
There are several high-profile examples of this, in particular in the retail sector and the airline sector. These types of programmes typically target customers with strong brand loyalty, often offering tailored rewards to encourage usage and loyalty – e.g. cashback, points towards purchases at the non-financial partner’s stores or services, airline miles, hotel stays, and exclusive discounts or offers.
On the other hand, BIN sponsorship allows a fintech or start-up more control over the card program, including operations and customer experience, making it suitable for those introducing a new brand to the market, or looking to build or run their card program independently until they can scale sufficiently to become principal members of card schemes, and secure regulatory permissions, in their own right.
How we can help
BIN sponsorship arrangements need careful structuring and negotiation to balance the commercial objectives of the card programme, regulatory compliance and the operational reality.
Addleshaw Goddard’s Payments Team has specialised expertise with BIN sponsorship arrangements and has advised across prepaid, debit and credit programmes.
Footnotes
[1] "Interchange" being the card scheme processing platform that facilitates the routing, authorization, clearing, and settlement of card transactions between card issuers and merchant acquirers (banks or payment processors that accept card payments on behalf of merchants).
