bin sponsorship – time for improved regulation · evolution of the bin sponsorship model payment...

BIN Sponsorship – Time for Improved Regulation

Merchant Acquiring Conference, London23rd November 2012

Peter Jones, Managing Director, PSE Consulting

V1 19/11/2012

BIN Sponsorship - What Might Happen!

Cards business failure stops Christmas shopping in

Oxford Street

PSP mismanagement causes failure of Scottish low cost

airline

Card issuer collapse impacts UK MNO

Major fraud breach costs Northern supermarket £2mUK MNO Northern supermarket £2m

I i h dh ld l d Loyalty card operator’s profits take a major hit from

merchant bankruptcy

Irish cardholders loose due to cards business

bankruptcy

Russian fraudsters breach online payments network and steal

millions

PSE – BIN SponsorshipV1 19/11/2012

Observation: how have we allowed BIN sponsorship to develop?

2

Evolution of the BIN Sponsorship Model

Payment Services Directive (PSD) enabled non-banks to become direct members of Visa and MasterCard (ICS).

2008

Rapid expansion of prepaid cards and move out of closed to open loop by 2009

programme managers.

Six to eight non-banks established as EU BIN sponsors – members of MasterCard initially then Visa.

2010

Germany regulator (BAFIN) tightens up AML rules and bans anonymous prepaid cards.

Many small ICS branded programmes launched 200 to 300 within the EU

2011

Many small ICS branded programmes launched – 200 to 300 within the EU.

Major BIN sponsor player exits from UK market.2012

PSE – BIN SponsorshipV1 19/11/2012 3

Why Use a BIN Sponsor?

To enable new cards market entrants (non-banks, merchants, loyalty providers) 1 to become scheme members.

To become a direct acquirer to support mPOS, merchant aggregation, merchant offers PSPs hardware service providers

1

2 merchant offers – PSPs, hardware, service providers.

To become a direct issuer to support prepaid debit, credit card issuing – often adding payments functionality to loyalty cards

2

3 adding payments functionality to loyalty cards.

To avoid costs of scheme membership and compliance.4

But … sometimes an interim arrangement to enable all the above, whilst full scheme membership is processed.5


Benefits of Using a BIN Sponsor

Much faster route to market – potential savings of up to six to nine months.savings of up to six to nine months.

End to end solutions which includes:

Scheme sub-membership/brandp

Programme management

All aspects of implementation/launch

Full card issuer operational service

Arms length from card schemes – no need for representation or scheme relationshipsfor representation or scheme relationships.


Also Major Benefit to Card Schemes – lower support costs for small prepaid card portfolios

The Scope of a BIN Sponsor Services

P

AN

TS

Card Management

A thorisation

Application Processing

Set Up & F lfilment

Scheme Interfaces

Outsourced Processing Back Office Support

Proposition Build/Support

M k ti Pl

Programme Management

ME

RC

HA

SU

ME

R

sore

d C

lient

s

Authorisation

Risk Monitoring

MIS Reporting

Set-Up & Fulfilment

Call Centre Support

Fraud and Risk

e aces

Sel

ling,

Sup

portMarketing Plan

Communications Plan

Card Design

Account Processing

Car

d M

alls

CO

NS

BIN

Spo

ns

PS

Ps

Clearing and Settlement

Partner Scheme Management3rd Party

Interfaces

Mar

ketin

g, S

Launch Support

Ongoing Distribution

PTo

p-U

p N

etw

ork

ACH/ICS Connectivity

Accounting/ Control

Interfaces

p

Scheme and Regulatory Compliance


10 Themes of an Offshore BIN Sponsors

Executive Team limited experience in banking/cards.

Wide range of clients who want card scheme brand but not the burden of

1

2 Wide range of clients who want card scheme brand but not the burden of risk and responsibilities.

Perceive BIN sponsorship as the “bait” to attract and build prepaid card portfolios.

2

3

Poor recognition of BIN sponsors role and duty to card schemes and regulators.

Strong on selling, weak at risk assessment.

4

5

Multi-country delivery and card loading claimed but in reality limited.

Optimistic view of prepaid market opportunities and volumes – struggling togain traction.

6

7

“Lite” management – operate limited customer compliance controls.

Few operational staff with experience of managing ICS card businesses.

Poor recognition of extreme collateral damage a client failure can have on

8

9

10


Poor recognition of extreme collateral damage a client failure can have on scheme membership and on regulator’s attitudes.

7

10

Direct Scheme/eMoney LicencesTypical Feedbackyp

“Assume at least nine months for the membership approval process plus a further three months live operation before we are happy ”plus a further three months live operation before we are happy.”

- International Card Scheme

“You have to make a solid case to show you will be a credible player inYou have to make a solid case to show you will be a credible player in your market, show you are capable, put up collateral and then pass legal approval!”

- International Card Scheme

“We thought it would take 12 weeks but it’s now one year since we applied for an eMoney licence; we have just received approval – the fi h h i i G ”first they have given in Germany.”

- EU loyalty operator

“We can get you up and running in 60 90 days if you use our services ”


We can get you up and running in 60-90 days if you use our services.- EU BIN sponsor

8

A BIN Sponsor is an Agent for a Card Scheme

A Bin Sponsor should….

Perform a role similar to a card scheme.

Require potential clients to complete a scored application process much as a card scheme –credit worthiness/fraud.

V lid t th b i f th d t d h t li t t Validate the business case for the product and pass scheme type compliance tests.

Clients must fully understand scheme mandates and regulatory rules (KYC, EMD, PSD/R).

Must implement compliant processes for customer support, complaints management and nominate an accredited responsible executivenominate an accredited, responsible executive.

Ensure that clients implement best practice Terms and Conditions that meet regulatory norms.

Ensure Website content meets scheme/regulatory requirements.g y q

Ensure clients take on a share of the BIN sponsors risk – collateral and other guarantees.

Ensure they continue to comply with scheme rules – mystery shop, unannounced audits.

Ensure they have in place a risk and business continuity framework


Ensure they have in place a risk and business continuity framework.

9

BIN Sponsorship Causes for Concern

ICS initial tests for PI membership too loose/relaxed –failure to impress on non-bank BIN sponsors roles andfailure to impress on non bank BIN sponsors roles and responsibilities.

BIN sponsorship market highly competitive with players offering plans at very low/no fees.

Lack of awareness of scheme agency status – perceive BIN sponsorship as simple ICS brand transfer.

Focus on rapid growth means some prepaid programmesFocus on rapid growth means some prepaid programmes launched that would not pass ICS scheme compliance tests.

For some now too complex to audit programmes and p p gimplement retro active operational models.

Do not fully recognise consequences of failure/fraud.


Action to be Taken

Improved, more rigorous PI membership criteria.p , g p

Criteria to include ICS issuer knowledge, compliance officer and on-going monitoring processes.

Closer on going monitoring by ICS to ensure Closer on-going monitoring by ICS to ensure compliance.

Greater scrutiny by national market regulators.

Much closer scheme reporting on new BIN sponsored clients performance over first two years.

Increased collateral/deposits by BIN sponsoring membersmembers.


Conclusion: the BIN sponsorship model needs speedy improvement to reduce risk to payments sector

Thinking of Using a BIN Sponsor?

Points to consider ….

Low prices are no guarantee of a service managed to scheme standards.

Ensure you vet each supplier in detail – use a good checklist and visit the plant.

Be aware that loss of their licence could have a catastrophic impact on your future service.

Use BIN sponsorship as a stepping stone to full membership Use BIN sponsorship as a stepping stone to full membership.


Peter Jones+44 (0) 20 8891 6244+44 (0) 20 8891 6244

[email protected]


bin sponsorship – time for improved regulation · evolution of the bin sponsorship model payment...

Documents