What are Card Issuing Platforms?

They’re everywhere: branded credit and debit cards that seem to hide away the Visa or Mastercard logo quietly in the design while highlighting another business. From airlines to retail stores to fintech firms, companies are increasing their share of wallet and introducing new financial revenue streams by offering branded cards to their customers.

The possibilities are endless, but so are the challenges that lurk in the darkness, waiting to trip up the unprepared.

Anyone who has flown on a major airline in the last decade is now familiar with the pitch that inevitably surfaces somewhere in the flight: sign up for the airline’s credit card and earn free miles, and impressive cash back when using it to buy travel. United is reported to have generated over $3.2B in just one year from this mechanism, and credit card revenue is now a meaningful portion of airline business.

That said, how a brand recognizes income from offering a branded credit card varies significantly from business to business. Airlines, for instance, generally get all their income by selling mileage points to the issuing bank to pass on to their customers. By contrast, other businesses, like retail chains, participate in the fees charged to merchants when a card is used, and a portion of the interest paid by customers.

Although it may seem as though the banks are giving up revenue, they often do not: interest rates for branded cards are often substantially higher than for those issued directly by the bank, and branded cards may require the consumer to pay an annual membership fee. Because interest rates are often largely invisible to consumers, they may not even notice that they are paying more to use their branded card.

Benefits for Businesses Issuing Credit Cards 

Beyond participation in the fees paid by merchants and customers, businesses also often find that customer loyalty is enhanced by issuing branded cards. A shopper at a mall, faced with a Nordstrom and a Macy’s store is more likely to make their purchases at the one with whom they have a branded card, often because they earn loyalty points, which can translate into discounts, either immediately or over time.

Beyond the additional volume of sales, combining the branded card with a loyalty program can also deliver invaluable information to a business, uncovering the buying habits of individual customers so that future promotions can be better tailored to deliver future sales. This data can also be packaged up for resale to data brokers, generally anonymized, so that it can be used to better target consumers in internet advertising and other promotional campaigns.

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Benefits for Consumers Using Branded Cards 

When brands issue cards for consumers, they inevitably offer customer benefits, often centered around loyalty programs that deliver targeted promotions and credits. For the customer who pays off their credit card at the end of the month, these benefits can be significant. Airlines, for instance, offer tens of thousands of air miles just for signing up for a card. Gas companies offer meaningful cash back deals for regular fillups.

While the higher APR levels for branded cards can introduce additional costs for customers who carry a balance month to month, this cost is often invisible, as it is simply absorbed into periodic bills.

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Fintech Card Issuing 

Fintech companies, which are generally not chartered banks, need branded cards to meet the needs and preferences of their customers. And, indeed, when these cards are connected to the services a fintech offers, they create the possibility of new and valuable consumer services. Expense management programs like Ramp, for instance, offer digital cards that employees can use for specific purposes, making the tracking of business expenses easier than trying to parse volumes of expense reports. Money management apps like Revolut use branded cards to give their customers easy and convenient access to stored funds and to establish themselves as the core financial nexus.

These cards are a fundamental physical representation of the criticality of the service to the customer, as well as a critical foundation for services that can drive revenue.

The beauty of issuing branded cards is that the fintech company need not build the infrastructure to manage card processing or balance management, both of which are maintained by the banks and card networks with which the fintech contracts.

Branded cards issued by fintechs are analogous to the owner-operators who provide transportation for ride-hailing services: the technology company at the center of the service collects a share of all consumer spend without having to operate the actual vehicle that is being paid for.

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Challenges in Card Issuing

Consumer information is not only vital to the operation of a card-issuing brand, it is also subject to strict PCI-DSS protection requirements. While most of the credit scoring and Know Your Customer (KYC) activity is undertaken by the underlying banking infrastructure, any company issuing cards must collect personally identifiable information (PII), which itself must be properly secured according to PCI-DSS standards. As such, the more information is collected and stored by the card issuing brand, the more effort and investment is required to maintain proper security.

For this reason, many brands, and especially fintech companies, that choose to issue cards are opting to work with a third party to collect and store customers’ information. Among the options, the most popular is a programmable payments vault such as the one offered by Basis Theory. This system allows all PII to be collected and stored by the tokenization vault provider, then to be accessed for purposes of customer support and transaction submission by the brand. By keeping that PII out of their own systems, brands can reduce their PCI scope, creating a more manageable and less expensive solution.

Brands can increase their customer loyalty, open up new revenue streams, and introduce new products and services by issuing branded cards.

While the potential benefits are great, they create challenges of data security and protection, which can be offset by building a payments system that includes the services of a third-party token vault to collect, store, and submit card details for each transaction, while reducing PCI scope.