As a non-bank entity, you cannot issue debit cards directly. To issue debit cards directly, a company generally needs to be a chartered bank or have a partnership with a chartered bank that will issue the cards on its behalf. White label debit card programs are partnerships between non-bank entities and financial institutions or payment processors that allow non-bank organizations to offer branded debit cards to their customers. The most popular white label debit card programs include PayPal, Venmo and CashApp.
Debit Card Program Manager
The easiest route to starting a white label debit card program is to engage a “debit card program manager.” A debit card program manager is a company that specializes in managing and operating debit card programs on behalf of financial institutions, non-bank organizations, or other entities. They provide end-to-end solutions and services related to debit card issuance, management, and processing.
The responsibilities of a debit card program manager can vary, but generally, they include the following:
- Card Issuance: The program manager handles the entire card issuance process, including card production, personalization, and distribution. They work with card manufacturers to produce physical debit cards or facilitate virtual card issuance.
- BIN Sponsorship: When starting a debit card program, BIN sponsorship is often required, as it allows the program operator to issue cards and process transactions under the sponsorship of the licensed financial institution. BIN sponsorship is a process in which a company partners with a licensed financial institution that provides them with access to their Bank Identification Number (BIN). The BIN is the first six digits of a payment card number, and it identifies the issuing institution.
- Cardholder Account Management: The program manager manages the backend systems and processes required to set up and maintain cardholder accounts. This involves activities such as account opening, card activation, PIN generation, and customer support for card-related inquiries.
- Transaction Processing: The program manager ensures seamless transaction processing for debit card transactions. They have the necessary infrastructure and connectivity to payment networks, allowing them to authorize and settle transactions in real-time.
- Compliance and Regulatory Support: Debit card program managers stay updated on the ever-changing regulatory landscape and ensure compliance with applicable laws and regulations. They handle compliance-related activities such as KYC (Know Your Customer) checks, anti-money laundering measures, and fraud prevention.
- Risk Management: Program managers implement risk management strategies to mitigate potential risks associated with debit card programs. They employ fraud detection systems, monitor suspicious activities, and implement security measures to protect cardholder data.
- Reporting and Analytics: Debit card program managers provide reporting and analytics capabilities to their clients. They offer insights into transaction volumes, trends, and cardholder behavior, which can help clients make informed decisions and optimize their card programs.
- Customer Support: Program managers often provide customer support services to cardholders. This includes handling inquiries, disputes, and card replacements, ensuring a positive customer experience.
Popular debit card program managers operating in the Fintech space include Synapse, TabaPay, and Marqeta.
Debit card program managers obviously do not work for free and typically formulate their fee based on four components:
- Setup or Implementation Fees: Program managers may charge an upfront fee for the initial setup and implementation of the debit card program. This fee covers activities such as card production, account setup, integration with systems, and configuration of the program infrastructure. This is a typically a one-time fee.
- Transaction Fees: Program managers often charge transaction fees based on the volume or value of transactions processed through the debit card program. These fees can be calculated as a percentage of the transaction amount or as a fixed fee per transaction. The percentage assessed by the program manager will vary based on risk underwriting, with higher risk issuers (such as crypto-related ventures) having a higher percentage fee.
- Interchange Fees: Debit card program managers may also earn revenue through interchange fees. Interchange fees are transaction-based fees that are paid by the acquirer (program manager) to the issuer (bank) for processing debit card transactions. The program manager may retain a portion of the interchange fees as their revenue.
- Monthly or Ongoing Fees: Program managers may charge monthly or ongoing fees to cover the maintenance and support of the debit card program. These fees may include services such as customer support, program management, reporting and analytics, and compliance management. This is typically charged on a monthly minimum which increases with transaction volume.
Direct Bank Relationship
It is not mandatory to use a debit card program manager to issue debit cards, despite the fact that utilizing a debit card program manager can offer several advantages and simplify the process. In such instance, the white label issuer must partner directly with a licensed financial institution. This would require the company to handle various aspects of card issuance, compliance, and transaction processing themselves, which may involve more resources and expertise.
There are certain regulatory requirements that issuers of white label debit cards must be aware of:
Money Service Business Registration
In the United States, the requirement for a company to register as a Money Service Business (MSB) to issue a white label debit card depends on the specific activities and services offered by the company. The MSB registration requirement is determined by the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury that regulates money services businesses. While issuing a white label debit card alone may not necessarily require MSB registration, certain activities associated with debit card programs might fall under the scope of MSB regulations. For example:
- Money Transmission: If the company receives and transmits funds on behalf of customers, such as loading funds onto prepaid cards or facilitating funds transfers, it may be considered a money transmitter. Money transmission activities typically require MSB registration.
- Currency Exchange: If the company facilitates currency exchange services, converting one currency to another for customers, it may fall under the scope of MSB regulations and require registration.
- Stored Value: If the white label debit card program involves the issuance of prepaid cards or stored-value cards, the company may need to register as an MSB depending on the specific features and functionalities of the program.
The practical implication of registering as a Money Services Business is the application of the Bank Secrecy Act – meaning that common Anti-Money Laundering and Know Your Customer procedures are mandatory. In the context of a debit card program manager relationship, the card manager is generally the party responsible for handling AML/KYC procedures.
State Money Transmitter Licenses
The requirement for a company to obtain a state money transmitter license to issue a white label debit card depends on the specific activities and regulations of the state(s) where the company intends to operate. Issuing a white label debit card may involve money transmission activities if the company is handling customer funds, facilitating funds transfers, or providing certain payment services. Most states require a money transmitter license to engage in such activities. Notably, if a company plans to operate in multiple states, it may need to obtain money transmitter licenses in each state where it conducts money transmission activities. However, some states have reciprocity agreements or streamlined processes for licensing across multiple jurisdictions.
Card Network Rules
Card network rules refer to the guidelines, policies, and operating regulations established by payment card networks such as Visa, Mastercard, American Express, and Discover. These rules govern the operation, acceptance, and processing of payment transactions within the network. Generally speaking, the obligations contained in card network rules fall on the shoulders of either the sponsor bank or debit card program manager. However, a white label debit card issuer should be aware of some card network rules that directly impact their marketing and use of its card program. These include:
- Security and Fraud Prevention: Card network rules include security requirements to protect cardholder data and prevent fraud. These rules often align with industry standards such as the Payment Card Industry Data Security Standard (PCI DSS) to ensure the secure handling of payment card information.
- Dispute Resolution: Card network rules provide guidelines and procedures for resolving disputes between cardholders, merchants, and banks. These rules outline the process for initiating and resolving chargebacks, where a cardholder disputes a transaction and requests a refund.
- Branding and Advertising Guidelines: Card networks have rules related to the use of their logos, trademarks, and branding materials. These guidelines ensure that branding and advertising related to the payment cards and acceptance conform to the network’s standards.
White label debit card programs can be immensely profitable and useful for non-banks. E-money providers find a debit card program to be particularly profitable, and necessary, for the effectiveness of their platforms. However, starting a debit card program is extremely complex and it is advisable to partner with a seasoned debit card program manager before launching a white label card program.
About Adam Tracy
Adam Tracy is a payments expert and entrepreneur who specializes in payment systems, blockchain technology, digital currencies, and other emerging technologies. He is the founder of Blockrunner, LLC that provides consulting services to clients in the blockchain, payments and cryptocurrency arenas.
Tracy has been involved in the payments industry as an attorney, consultant and entrepreneur since 2005, while he was become an expert in blockchain and cryptocurrency since its advent in 2013. Tracy has worked with a wide range of clients, including startups, established businesses, and investor – both in the United States and worldwide. He has advised clients on a wide range of compliance, legal and operational issues related to payment transfer systems, crypto token generation and architecture, cryptocurrency exchanges, regulatory licensing, smart contracts, and other blockchain applications.
In addition to his consulting work, Tracy has founded several companies in the payments, blockchain and cryptocurrency space, including a digital asset hedge fund, licensed electronic money institution and a blockchain-based tokenization platform. He is also a proponent of decentralized finance (DeFi) and has been involved in various DeFi projects.
Tracy is also a frequent speaker and writer on blockchain and cryptocurrency topics. He has been featured in a wide range of publications, including Forbes, CoinDesk, and Bitcoin Magazine.
Find Adam: https://linktr.ee/adamtracy