Kriya Patel, CEO TPL
The payments ecosystem is a complicated multi-layered pathway of entities – which can include a BIN sponsor (issuer), processor, programme manager, card bureau, scheme (for example such as Visa or Mastercard), and acquirer – each one reliant on one another to fulfil their role successfully and securely in the transaction.
An environment in continuous transformation
Due to frequent updates in regulation the industry is constantly in transformation. For example, in the last 12-15 months we have seen new regulations and technical requirement mandates including PSD2 and 3D Secure 2.2, which involve new security, fraud protection, proactive alert requirements, and the need for FX transparency. All these requirements have implications on the scheme rules to which issuers and acquirers must adhere, as well presenting new technological challenges that each part of the supply chain must plan and be ready for. It also means there may be a need to involve further partners to ensure compliance with the new requirements and/or enhance value.
For such a complicated industry, there remains a distinct lack in education and understanding of change. While it is true that no one wants to add a layer of reporting for the sake of it, recent changes in the industry now demand it, yet some players in the payments chain may not prioritise it highly enough or see it as their direct responsibility. From an issuer point of view, whilst forward planning can negate the risk, if the key service provider is not ready to make the payments process work then the whole ecosystem becomes disjointed and clunky, leading to friction and even failure of a programme. Without exception, it is the cardholder who inevitably loses out, the opposite of what we all wish to achieve.
Brexit has highlighted how neglecting to plan far enough ahead can result in added cost, delay and risk. Those who were not prepared for the regulatory implications are now repaying a technology debt and consequently are already on the back foot. Those who did, have more financial freedom to forward-plan for other changes yet to come, for example, by April 2022 both schemes will require 8-digit BIN configuration, as opposed to 6, which will carry cost and technology challenges. This may be unsurmountable for fintechs that are still playing catch up after Brexit.
So, how do we make this extensive partnership payments model work for the benefit of all parties when behind the scenes it is becoming increasingly complex to seamlessly bring to market a future-proof product or service?
There are three key areas fintechs should initially consider when launching a programme to market:
Fintechs must be able to clearly articulate their product and commercial model. This includes understanding of their end-users needs and wants as well as the overall customer journey, how it will function, and whether it will provide debit, prepaid, or credit card, and the level of authentication the transaction requires.
- Rollout roadmap
What are the key markets they wish to operate in a first instance, and in that of the future, and predicted timeline of staged roll out? There are many implications of operating in other countries/continents, such as document and marketing translations, varying customer onboarding requirements, regulatory compliance and the implications on permissions and scheme licences. This all needs to be planned for and the costs fully understood.
The product and its rollout roadmap will help Fintechs determine the criteria on which they should aim to select supporting partners. Taking the time to choose an effective strategic partner chain to help navigate the payments ecosystem and deliver the end solution is crucial.
What to look for in a BIN sponsor partnership:
- Strong focus on pre-assessment work
A BIN sponsor should fully evaluate the product at the outset. At TPL we have very strict onboarding requirements including regulatory considerations, geography and licencing, KYC, and AML requirements. Be mindful that potential partners who promote speed may be inclined to be less thorough.
- Well-connected and able to recommend a bespoke partner chain
Selecting partners with a similar collaborative and transparent ethos and approach to understanding and anticipating market movements should mean a more sustainable and successful product, with that of carrying lower risk. Choosing partners that work together and look after each other’s obligations and best interests can only be done with the benefit of years of experience in this complex and complicated space. The right BIN sponsor will be able to use their networks and experience to advocate the most beneficial partners.
- Educates, provides consultancy and solves future problems
A knowledgeable BIN sponsor should be seen as an extension to your business, one that shares the same concerns and appreciates the needs of the successful rollout of your programme and can pre-empt niggles and hurdles based on a comprehensive pre-assessment. They should decipher legal requirements and provide education on the everchanging regulatory landscape. For example, we at TPL were getting ready for PSD2 two years before we needed to comply.
- Low risk profile
Avoid the temptation to bend the rules. A strong understanding of what is required to protect against fraud and AML risk, avoiding short cutting the funds-flow and onboarding processes are a few examples. Staying on the right side of the regulations is crucial not only for the individual programme, but for the whole industry.
Fintechs need to look how they can efficiently navigate the intricacies of the end-to-end payments process, and the key criteria to consider in selecting a BIN sponsor. At TPL we provide the gateway for fintechs to successfully navigate the wider payments ecosystem due to not only understanding and simplifying current complexities, but also preparing for future requirements. Although the payments industry is extremely complicated, choosing a BIN sponsor need not be if you follow these principles.