BIN sponsorship is a financial arrangement in which a regulated financial institution (the “sponsor”) lets another business access its payment environment using the sponsor’s Bank Identification Number (BIN). A BIN is a unique identifier used in payment card transactions to route transactions to the correct financial institution for processing.

Under this arrangement, the sponsoring bank lends its license and regulatory permissions to the partnering business, which is typically a nonbank or fintech business that wants to issue payment cards or other financial services but does not hold a banking license. This partnership lets the nonbank business issue debit or credit cards, process payments, or provide other financial services under the regulatory umbrella of the sponsoring bank.

The global fintech market, which relies heavily on BIN sponsorship, was valued at almost $295 billion in 2023. BIN sponsorship is valuable for fintech businesses because it lets them offer services associated with banks without becoming a bank, which requires a lengthy and costly process. Instead, these businesses can focus on their core competencies, such as technology, customer experience, and innovative financial solutions.

Below, we’ll explain what BIN sponsors do, who needs a BIN sponsor, the challenges associated with BIN sponsorship, and how to make the most of a BIN sponsorship.

What’s in this article?

• What is a BIN?
  
• What do BIN sponsors do?
  
• Who needs a BIN sponsor?
  
• Challenges of BIN sponsorship
  
• How to make the most of a BIN sponsorship
  

What is a BIN?

A BIN, now commonly referred to as an Issuer Identification Number (IIN), is the first four to six numbers on a credit card, debit card, or other payment card. These numbers identify the institution that issued the card.

What do BIN sponsors do?

BIN sponsors enable businesses to issue payment cards without being members of major card networks such as Visa, Mastercard, or American Express. Here are the main roles and responsibilities of BIN sponsors:

• Access to payment networks: BIN sponsors facilitate access to major card networks, letting partners issue cards or process payments with these networks.

• Risk management: BIN sponsors manage the risks associated with card issuing and card transactions, including monitoring for fraudulent transactions, managing credit risk, and minimizing operational risks.

• Settlement and reconciliation: BIN sponsors handle financial settlements and transaction reconciliations, recording transactions, transferring funds between parties, and resolving discrepancies.

• Technical and operational support: BIN sponsors often provide technical support to their partners, assisting with integration with payment processing systems, technical infrastructure for card issuance, and ongoing operational support.

• Regulatory compliance and licensing: BIN sponsors are regulated as financial institutions and must operate in compliance with all associated regulations and requirements. They ensure their partners have compliant operations when issuing payment cards and processing payments.

• Market entry: For new entrants in the financial services market, a BIN sponsor can speed up the process of launching new products by providing access to financial infrastructure and network connections.

Who needs a BIN sponsor?

If your organization meets these criteria, a BIN sponsor can help you reach your goals:

• Your business model requires issuing payment cards.

• You want to launch a card program quickly.

• You lack the infrastructure, expertise, and financial resources to become a direct member of a card network.

• You are not comfortable assuming the risks associated with direct network membership.

Here are examples of businesses that need BIN sponsors:

• Neobanks: Digital-only banks that provide financial services (including debit and credit cards) through mobile apps and online platforms

• Payment service providers (PSPs): Businesses that facilitate online payments for other businesses and issue branded cards to customers

• Lending platforms: Peer-to-peer (P2P) lending platforms and online lenders that issue cards for loan disbursements or credit lines

• Large retailers: Major retailers that issue credit cards with loyalty rewards and special benefits

• Ecommerce marketplaces: Online marketplaces that provide sellers with branded cards for receiving payments or accessing working capital

• Nonprofits: Organizations that issue prepaid cards for fundraising campaigns or to distribute aid to beneficiaries

• Government agencies: Agencies that provide citizens with prepaid cards for social welfare programs or disaster relief efforts

• Transportation businesses: Public transportation systems or ride-sharing businesses that issue cards for fare payments or loyalty programs

Challenges of BIN sponsorship

Though BIN sponsorship has major benefits for nonbanking entities that want to issue payment cards and process transactions, it also has challenges for sponsors and their nonbank partners:

• Regulatory compliance: The fintech or nonbank partner must adhere to the banking regulations that apply to their sponsor, including standards for Anti-Money Laundering (AML), Combating the Financing of Terrorism (CFT), and Know Your Customer (KYC) protocols. These requirements can be complex and vary across jurisdictions, and they require substantial resources and continual monitoring for compliance.

• Risk management: BIN sponsors must oversee the risks their partners take, including credit risk, fraud risk, and operational risk. Any mismanagement on the part of the fintech can affect the sponsor’s regulatory standing and financial health.

• Dependency: Entities that rely on BIN sponsorship can face constraints related to the products and services they can develop, how they offer them, and their market expansion plans. Partners with BIN sponsors must adhere to the sponsor’s policies, infrastructure, and limitations, which can restrict innovation and responsiveness to market changes.

• Costs: There can be substantial costs associated with BIN sponsorship, including transaction fees, setup fees, operating costs, and an agreement to give up a share of revenue. These costs can affect the profitability of the fintech or nonbank partner.

• Technical integration: Integrating systems between BIN sponsors and fintech partners can be complex and time-consuming, requiring secure, effective, and flexible interfaces for transaction processing, data exchange, and reporting. Technical challenges can delay product launches and affect user experience.

• Brand risk: There is a shared reputational risk for BIN sponsors and their partners. Any operational failure, security breach, or compliance lapse by the fintech partner can adversely affect the reputation of the BIN sponsor. Conversely, issues with the sponsor such as service interruptions or legal problems can affect the fintech’s operations and customer trust.

• Scalability and flexibility: As fintechs grow, their needs might evolve beyond what their BIN sponsor can accommodate, leading to potential conflicts or a need to renegotiate terms. Scaling operations internationally can introduce more complexity, requiring additional sponsors or compliance measures in different markets.

How to make the most of a BIN sponsorship

Here are some best practices to get the most out of a BIN sponsorship:

• Alignment: Seek a BIN sponsor whose goals and technological advancements align with your long-term vision. Consider their ability to support next-generation payment technologies and potentially codevelop new offerings that can differentiate you in the market.

• Contractual specificity: Tailor your contractual arrangements to include specific performance metrics, detailed service level agreements (SLAs), and explicit terms for scalability and technological upgrades. By setting precise expectations, you can preempt potential conflicts.

• Compliance framework: Develop an integrated compliance framework that meets regulatory standards and is adaptable to future regulatory trends. Use artificial intelligence (AI) and machine learning tools to improve compliance monitoring with real-time insights and proactive compliance management.

• Communication strategy: Establish a dynamic communication strategy with your BIN sponsor that includes regular reviews, technology updates, and risk management discussions. This communication should include operational updates and strategy check-ins to confirm both parties are synchronized in their growth and adaptation process.

• Market insights: Take advantage of your sponsor’s insights into customer behavior and regulatory shifts. This can help you anticipate market changes and adapt your product offerings accordingly, creating a competitive edge.

• Infrastructure: Ensure your technological infrastructure with your BIN sponsor is flexible so you can integrate new technologies and payment methodologies as they emerge.

• Risk management: Develop a sophisticated risk management system that includes mitigation strategies and predictive risk modeling for cybersecurity, transactional fraud, and operational risks. Use advanced analytics to foresee and address potential threats.

• Customer experience: Improve the customer experience, using data analytics to understand customer needs and behaviors.

• Compliance: Stay ahead of the regulatory curve by participating in industry forums, engaging with regulatory bodies, and possibly influencing policy through thought leadership. Being proactive can help you anticipate and prepare for regulatory changes that affect your business model.

• Performance optimization: Implement a performance review process that assesses current metrics and works toward key objectives. Use these reviews as opportunities to refine processes and ensure the partnership continues to provide value.