Everything You Wanted to Know About Issuing a Visa Card (But Were Afraid to Ask)
Roi Ben Daniel, Digital Partnerships & Ventures
Working with Fintechs in Israel in the past years, we have seen how important a card program can be to a Fintech’s growth. Fintechs have different motivations for adding a card to their offering. To some, a card is an intrinsic part of the client value proposition; to others, cards serve as a superior payment channel. While many Fintechs and startups leverage the technical and commercial advantages of payment cards, many entrepreneurs are not familiar with the benefits of issuing cards, as well the know-how of launching such capability. Having basic knowledge on the technical, operational and financial aspects of card issuance, can improve Israeli Fintechs’ time-to-market
At Visa, we transformed some of our ways of working, to ensure that Visa properly supports Fintechs that wish to implement a Visa solution in order to grow their business. In the Visa Innovation Studio Tel-Aviv, we believe we have a responsibility to educate the Israeli startup ecosystem on payments. That is the basic motivation for writing this blog - it is meant to give a directional guidance, and a basic toolkit. We encourage you to reach out to our team at Visa, if you have any questions or comments
Card Issuing Basics
Most people do not know how the payments industry works. This is natural, but startups that are interested in issuing would benefit from knowing the basics, since this knowledge can affect their decision making from day one. The four party model is definitely the place to start, being the foundational business model of the payments industry
A payment transaction is typically initiated by a Cardholder (a consumer or a business), which is provided with a card by an Issuer. Issuers are financial institutions, or entities sponsored by financial institutions, that issue payment cards to their customers. A Cardholder will pay for goods and services to a Merchant, who works with an Acquirer. The Acquirer is another type of financial entity, which enables card acceptance for merchants. Visa sits in the middle of this model, enabling communication between the Issuer and the Acquirer, in order to perform Authorization of the transaction, and later, Clearing and Settlement of the funds
A common misconception we encounter is that Visa is an Issuer or a credit provider. Visa provides the technical rails (VisaNet) and the rules framework to the four parties, allowing all sides to exchange value in a reliable, convenient and secure way. In this post, we focus on issuing cards, but we recommend that entrepreneurs further educate themselves on this model (there are plenty of resources online)
Why Launch a Card Program
We see various motivations from startups that take interest in issuing cards. The list below contains the main motivations, with the intention of offering new thinking directions to startups. The beauty of the payments industry is that it evolves faster than ever before, so this is definitely not an exhaustive list. Our recommendation is that you try to be specific about why a card program interests you. This will allow you to ask the right questions, reach a better and faster decision, and come up with a relevant strategy
Access to Funds – Fintechs that hold funds for their customers, typically wish to provide them with an easy way to access their funds. Think of challenger banks, mobile wallets, and travel money solutions. A Visa card is a great way to allow access of funds – the card is secure, simple, ubiquitous and accepted almost everywhere
Payments Channel – this is relevant for digital platforms that facilitate the exchange of value between consumers and/or businesses in various shapes and forms. Think about peer-to-peer platforms, alternative lenders, accounts payables, B2B transactions and cross-border payments. These are new ‘payment pipes’ that solve for traditional inefficiencies. The Visa network, called VisaNet, has the capacity to process 65,000+ transaction messages per second , and can facilitate many use cases (not just a consumer paying to a business), while still providing for the same benefits for parties involved in the transaction
Value Added Services – typically a motivation of non-Fintechs that see a Visa card as a value-add on top of their platform, driving higher engagement and stickiness. Traditionally, this category included merchants, such as big retail stores and airlines. Today, we see many digital platforms that pursue this offering – for example, business management platforms that pursue a commercial card to complement their offering to their customers
What Do You Need to Consider
You decided to issue Visa cards, what’s next? Although it may be more complex than you might think, the good news is that Visa and its partners are here to provide support. Below are the main things to consider
Product Type – there are three main product types in the payment cards world: a) Prepaid - a ‘pay-before’ product, which allows the Issuer to fund specific fund amounts to a card; b) Debit - a ‘pay-now’ product, which allows the Issuer to authorize a transaction only if the client’s account has the appropriate funds; c) Credit - a ‘pay-later’ product, which allows the Issuer to extend a credit line to the customer. Your choice of product will affect your product build, risk profile, vendors and regulatory compliance
Regulation – most Fintechs think global expansion from inception. Naturally, the payments industry is regulated, and as such, providing a payment card involves regulatory approvals. One of the main issues to consider is that regulation is local - issuing cards requires different processes, across different countries. These will require resources and time, and therefore, regulation should be a significant consideration when you build your go-to-market strategy
Membership – to issue Visa cards you will need a license from Visa – this will require some time and internal resources. There are checks and balances built into the Visa membership process, which maintain the Visa network integrity. During this process, Visa assigns a Bank Identification Number (BIN), which is a card number range. Notice that not all Fintechs need to become a direct Visa member; many consume these services from ‘BIN Sponsors’ - these are direct Visa members that sponsor card programs as a service. Choosing to obtain a license directly or indirectly will depend on many factors, such as scale, time to market and unit economics
Processing – processing is the technical connection to Visa, which enables authorization, clearing and settlement of transactions. Many Fintechs opt to use a third-party processor, due to the complexity involved in processing in-house. Other outsourcing considerations include cost, speed-to-market, and existing in-house systems. Different to membership, Fintechs typically need one technical connection with Visa to cover many geographies. There is a growing trend to offer a ‘one-stop-shop’ for Fintechs, and bundle together licensing and processing as a service
Economics – this major consideration is often overlooked by early stage startups. Fintechs should carefully plan for how a card program affects their income statement. There are various revenue streams you can consider, from interchange fee through card fees to credit pricing. For example, the Interchange Fee (IRF) is paid by the Acquirer to the Issuer on each transaction in order to compensate the Issuer for risk and cost. IRF varies significantly across markets and product types. If you choose to outsource licensing and work with a BIN sponsor, you would need to put in place a commercial construct that possibly includes sharing IRF revenues
If you are a bit overwhelmed, that is natural, payments is a complicated business. The good news is that you can consume most of the above as a service from third parties, which simplifies the process significantly
How Can Visa Help You
The payments landscape is transforming at a pace that is faster than ever before. Visa is committed to collaborating with the next generation of payment innovators, and is transforming as a company to be faster and more flexible. Visa has launched a few programs, such as ‘Fintech-in-a-Box’ and ‘Fintech FastTrack’, which make it easier for Fintechs to apply for financial incentives and a faster membership timeline. Our reduced fees may be available even if you choose to outsource licensing and/or processing. We encourage you to reach out to us - we are here to guide and support your growth
We also acknowledge that there is an ever-growing need for a truly comprehensive digital payments solution. Visa has recently partnered to launch b.yond, an ‘all-in-one’ financial innovation platform developed by a consortium of companies. b.yond is currently available in Europe, with plans to expand in other regions, and enables firms to outsource the card proposition components through a single technical connection, and a single contract
For entrepreneurs who would like to deepen their knowledge on payments - Visa and PYMNTS have launched Payology, a free crash-course that educates on everything-payments, through four easy-to-follow modules. This project is sponsored by the Visa Developer Platform and can be found here
https://www.pymnts.com/payology
We encourage Fintechs to contact us, even if what they are looking for doesn’t exactly fit the description in this blog. We will be happy to provide guidance, and help where we can. If you are an Israeli startup, no matter which region you’re targeting, start the conversation with our team in the Tel Aviv office by emailing us at [email protected]. If you are a Fintech based anywhere else, you should write to your local Visa office, or write to us, and we will route you to the right team within Visa