What is Required to Establish and Manage a BIN Sponsorship Program?

Only licensed U.S. banks can provide acquiring BIN sponsorship, and while there are thousands of U.S. banks, only a handful operate acquiring BIN sponsorship businesses. The scarcity of acquiring BIN sponsors is primarily due to banks’ concerns with compliance / risks and a lack of BIN sponsorship experience.

While sponsored parties (e.g., non-bank acquirers, PSPs, ISOs, etc.) perform virtually all the acquiring functions, the sponsor bank is ultimately responsible in the eyes of the card networks for ensuring appropriate activity and compliance. In this sense, the sponsor bank effectively acts as a guarantor for sponsored parties.

Acquiring BIN sponsors primarily perform these functions: implementing settlement and funding procedures, overseeing the ongoing activities of partners and ensuring compliance, liaising with the card networks, and establishing oversight policies / processes (e.g., merchant application guidelines, partners’ merchant underwriting approaches, fraud monitoring, etc.).

Many of the roles and responsibilities of an acquiring BIN sponsor are similar to existing functions at most banks. At the highest level, establishing and managing a sponsorship program requires:

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-> Investment in Time and Resources: Acquiring BIN sponsorship requires commitments. The direct costs for establishing and running a program can vary significantly, but overall monetary costs are not prohibitive. The time and resource requirements include:

- Establishing the foundation of a program (policies, procedures, reporting capabilities, risk management functions, technical integrations with networks, underwriting guidelines, governance approach guidelines, etc.)

- Staffing of appropriate resources to operate the program

- Recruiting and performing diligence on sponsored partners and

- Overseeing the performance and compliance of your sponsored partners and the program

-> Comfort with Heightened Regulatory and Card Network Scrutiny: Sponsoring third parties will result in additional scrutiny from both bank regulators and card networks. This only becomes an issue if the program is performing poorly or out of compliance, but the bank needs to be comfortable with accepting additional scrutiny.

-> Industry Knowledge and Expertise: Selecting the right partners, setting up the optimal infrastructure, and managing the program requires specialized skills.

Absent scale, meaning a portfolio of numerous sponsored third parties or massive amounts of card volume, banks primarily utilize existing resources (fractional employees) to manage acquiring BIN sponsorship programs. Banks may only need one or two additional FTEs for oversight, compliance, business development, and liaising with the card networks.

Insights by Flagship Advisory Partners

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