BIN Sponsorships: A Revenue-Boosting Strategy for Banks with Minimal Effort

BIN Sponsorships: A Revenue-Boosting Strategy for Banks with Minimal Effort

Introduction

In the world of financial services, the Payment Card Industry (PCI) operates on a complex web of relationships between issuers, acquirers, processors, and networks. One of the most lucrative but often overlooked opportunities within this ecosystem is BIN sponsorship. Through BIN sponsorship, banks and financial institutions can partner with fintechs, payment processors, and other non-bank entities to issue branded payment cards, generating new revenue streams with minimal incremental effort.

This article explores the concept of BIN sponsorships, how they work, and the various ways banks can leverage them to boost their income.

What is BIN Sponsorship?

A Bank Identification Number (BIN) is the first six digits of a credit or debit card number. These digits help identify the institution that issued the card. BIN sponsorship refers to the arrangement where a bank (the BIN sponsor) allows non-bank entities, such as fintechs, startups, or even established companies, to issue cards under the bank's BIN. In return, the bank earns fees for the use of its BIN, without the need to directly engage in card issuance or handle the associated risks.

Key Features of BIN Sponsorships:

1. Card Issuance: Non-bank entities (e.g., fintech companies) use the bank's BIN to issue their own branded cards.
2. Revenue Streams: The bank earns a variety of fees, including transaction fees, annual card fees, and card issuance fees.
3. Risk Mitigation: The bank maintains compliance with regulatory requirements and handles certain aspects of risk management, such as chargebacks, without assuming the full risk burden.

Example:

• Fintech Partnership: A fintech company wants to issue a prepaid debit card for its users, but it lacks the banking license required to issue cards. The fintech partners with a bank for a BIN sponsorship arrangement, enabling it to issue cards under the bank's BIN. The bank earns a fixed fee per card issued, as well as a percentage of the transaction fees generated by card usage.

How BIN Sponsorship Works

The Stakeholders Involved:

1. Bank (BIN Sponsor): The bank holds the BIN and provides regulatory oversight and compliance, including adhering to PCI DSS standards and handling chargebacks.
2. Non-Bank Entity (Sponsor): The fintech or company seeking to offer a payment card but without the necessary regulatory licenses.
3. Payment Networks (e.g., Visa, MasterCard): The card networks that process payments.
4. Cardholders: The end customers who use the cards.

The Process:

1. Partnership Agreement: The fintech or non-bank entity partners with a bank that holds an active BIN. The agreement outlines the terms of sponsorship, including revenue-sharing models and risk management protocols.
2. Card Issuance: The non-bank entity designs and brands the card, while the bank issues the card under its BIN.
3. Transaction Processing: The bank handles the underlying transaction processing, ensuring compliance with industry standards.
4. Revenue Generation: The bank earns revenue from various sources, including: Interchange Fees: A percentage of each transaction, typically 1-2%, is collected by the bank from merchants. Annual Fees: Many cards come with annual maintenance fees, which the bank can collect. Card Issuance Fees: Banks charge the non-bank sponsor an upfront fee for each card issued.

How Banks Can Generate Income with Minimal Effort

1. Low Overhead and Minimal Risk

BIN sponsorship offers banks the opportunity to generate income with relatively low overhead and minimal risk. Since the bank isn't directly issuing cards or marketing them to consumers, much of the day-to-day effort is handled by the non-bank entity. The bank’s primary responsibilities are ensuring regulatory compliance, processing transactions, and managing risk related to fraud or chargebacks. This means banks can earn passive income without significantly increasing operational costs.

2. Leveraging Existing Infrastructure

For banks, offering BIN sponsorship is a logical extension of existing infrastructure. Banks already have the capabilities to process payments, handle transactions, and comply with PCI DSS standards. By allowing non-bank entities to use their BINs, banks can maximize the utility of their existing systems and software, extracting additional value from their infrastructure.

3. Diverse Revenue Streams

BIN sponsorships can provide a variety of revenue streams for banks, making them an attractive option. Some of the most common ways banks earn money through BIN sponsorship include:

• Interchange Fees: As cardholders make purchases, the bank earns a percentage of each transaction processed by the payment networks. This is one of the most lucrative sources of income, especially for banks that sponsor cards with high transaction volumes.
• Annual Fees: Many cards come with an annual fee, especially if they offer added benefits such as rewards programs, travel perks, or cash-back incentives. The bank can earn these fees directly from the cardholders or share them with the non-bank sponsor.
• Card Issuance Fees: The bank typically charges the fintech or other non-bank entity an upfront fee for each card issued. These fees can add up quickly, especially when large-scale programs are involved.
• Transaction Fees: In addition to interchange fees, the bank may charge per-transaction fees to the non-bank entity for each processed payment.

4. Scalable and Flexible

BIN sponsorship is a highly scalable model. Once the systems and processes are set up, banks can handle sponsorship agreements with multiple partners simultaneously. Each new partner brings in additional revenue with relatively little incremental cost. For example, a bank that sponsors one fintech's card program can easily expand to sponsor others, increasing the total revenue without adding significant operational complexity.

5. Targeting Niche Markets

BIN sponsorships enable banks to tap into niche markets that may not traditionally be accessible. For example:

• Cryptocurrency Wallets: A bank can partner with a cryptocurrency exchange to issue branded debit cards that allow users to spend their crypto holdings in real-world transactions.
• Travel and Rewards Programs: A bank can partner with a travel company or loyalty program to issue co-branded cards that offer travel perks, attracting high-net-worth individuals or frequent travelers.

These niche markets often provide high-margin opportunities due to the premium nature of the products and services offered.

Case Studies and Industry Examples

1. Revolut and Mastercard

Revolut, a UK-based fintech, partnered with a bank for BIN sponsorship to offer its customers prepaid debit cards. The cards are issued by a partner bank but carry the Revolut brand. Revolut leverages this BIN sponsorship to provide a wide range of financial services, including international transfers, cryptocurrency trading, and budgeting tools. Through this partnership, the sponsoring bank earns interchange fees, card issuance fees, and transaction fees.

2. Chime and Stride Bank

Chime, an American neobank, uses Stride Bank as its BIN sponsor. Chime offers a no-fee, mobile-first banking experience, and its debit cards are issued under Stride Bank's BIN. Stride Bank earns a percentage of the interchange fees from Chime card transactions, generating consistent revenue while taking minimal risk, as Chime handles much of the customer service and support.

3. The Rise of Neobanks

Neobanks, such as Varo and Monzo, also rely on BIN sponsorship to issue their own branded cards. For these neobanks, partnering with a traditional bank for BIN sponsorship allows them to offer a competitive range of card products without the need to hold a banking license or directly manage the card issuance process.

Conclusion

BIN sponsorship is a powerful yet underutilized strategy that banks can use to generate revenue with minimal incremental effort. By partnering with fintechs and other non-bank entities, banks can capitalize on their existing infrastructure and regulatory capabilities, earning income through a variety of fees while mitigating much of the risk associated with card issuance. As the payments landscape continues to evolve, BIN sponsorships offer a scalable, low-risk opportunity for banks to expand their business models and tap into emerging markets.