Card Programs: Managed Program vs. Processor Only
If you’re planning to launch your own card program or already have a live card in the market, you've probably considered whether or not you should act as your own program manager.
Having a managed card program requires fewer overall resources and allows you to spend less time interacting with your bank partner, the networks, and third-party vendors.
Managing your own card program requires more time and internal resources, but can also offer more control and better economics.
Deciding which path is right for you depends on several factors, such as internal staffing, resources, transaction volume, the maturity of your card program, and what responsibilities you’re willing to take on.
In this guide, we’ll explain the difference between a “Managed Program” and “Processor Only” program so you can figure out what path is right for your business.
- There’s a long list of parties involved with getting a card program up and running. Depending on the type of card you are issuing, certain special roles may be applicable. For example, if you are issuing physical cards then you need to work with a card manufacturer.
- Your card issuing partner (aka the issuer processor), plays a key part in getting a card to market. They connect the bank to the card network, process card transactions, and orchestrate network messages between the issuing bank and the card networks.
- For card programs, there are two types of relationships you can have with your card issuing partner: program manager or processor.
- As a program manager, your card issuing partner will handle all the critical steps like setting up your BIN and coordinating with the issuing bank and card networks. In a processor-only setup, you’ll act as your own program manager and they’ll simply focus on processing your card transactions.
- Even in a managed program, you’ll share some responsibilities with your bank and card partners, such as AML monitoring and risk management. But some tasks will be solely your responsibility, like onboarding and setting up push provisioning.
- Acting as your own program manager can give you more control over your program, partners, and product roadmap. It’ll also allow you to keep more interchange revenue. However, it comes with a lot more costs, responsibilities, and staffing needs.
- A managed program likely makes more sense if you're just starting out with your card program, experimenting with cards as a new product offering, processing a small amount, or not currently staffed to manage an in-house program.
What partners are involved in a card program?
- Fintech: This is you. You’re responsible for all the marketing, distribution, onboarding, and user experience as it relates to the card program.
- Partner Bank: Also referred to as the sponsor bank, BIN sponsor, or issuing bank, this party holds the principal issuing licenses with the card network(s) that allows them to issue cards.
- Card Network (e.g. Visa or Mastercard): The network remits payments between the parties engaged in the transaction. They collect money from the party using the card to make a payment and send it to the merchant or other party receiving payment.
- Issuer processor (e.g. Lithic): The issuer processor (aka, processor) connects the bank to the card network, processes card transactions, and orchestrates network messages between the issuing bank and the card networks.
- Card Manufacturer (e.g. TagSystems, Perfect Plastics): The card manufacturer creates the physical cards, which includes embedding and programming EMV chips in the card. This partner is only relevant if you’re issuing physical cards.
- Digital Wallet Providers (e.g. Apple, Samsung, Google): Create the digital wallet used to hold a tokenized virtual card. They also review and approve cards before they can be added to the wallet. This party is only relevant for wallet compatible cards.
- Card Program Manager: Manages the card program. The card issuing platform (e.g., Lithic) can hold this role, or the issuer fintech can manage its own card program.
Card program management
When you work with a card-issuing platform (such as an issuer processor or BaaS provider), you generally have two options for structuring that relationship:
- Managed program: The processor acts as your program manager and takes a more active role in the relationship. Instead of just ensuring that payments go through, they help configure your cards, manage several partner relationships, and work with you to manage the daily responsibilities of running a card program.
- Processor only: You establish a direct relationship with a bank and set up the card program on your own. You take on the majority of the responsibilities in managing the card program and the processor’s role is restricted to ensuring card payments go through.
There’s a long list of parties involved in getting a card program up and running. Depending on the type of card you are issuing, certain special roles may be applicable. For example, if you decide to issue physical cards you’ll need to work with a card manufacturer.
How does a managed program work?
In a managed program, your card issuing partner will “own” more responsibilities and relationships within the program and take most of the critical actions needed to get your program up and running.
This streamlines the time it takes to get your card to market because the processor will already have direct relationships, contracts, and technical integrations in place with the bank, networks, card manufacturers, and compliance vendors needed to:
- Acquire a bank identification number (BIN) range
- Coordinate with the card network, issuing bank, and third-party vendors
- Secure the required reviews and approvals from partners
Having this type of support is a huge value add to startups and companies new to card programs because it allows them to focus their resources on product development and executing go-to-market efforts.
But this doesn’t mean the program manager handles all of the work. There are still functions that you will also be expected to do, such as AML monitoring. This will vary depending on your card issuing partner. Some companies expect you to handle this on your own, some banks or partners will prefer to take this responsibility. Most providers will likely have a hybrid approach.
Some tasks always fall under your responsibilities. For example, if you issue digital wallet-compatible cards, it would be your responsibility to work with the digital wallet providers to configure push provisioning.
How does a processor-only relationship work?
If you want to manage your card program yourself, you can also work with your card partner in a more limited “processor-only” capacity.
Acting as your own program manager will give you more control over your program, partners, and the product roadmap. It’ll also allow you to keep more interchange revenue. However, it comes with a lot more costs, responsibilities, and staffing needs.
In this type of set up, you will be responsible for establishing the relationship with the bank partner, card networks, and third party vendors. After you get all the necessary agreements in place, you will then have to secure your own BIN and work with your partners on implementation, card production, and setting up your compliance tooling.
All of this can significantly slow down your go-to-market process, which is why it’s uncommon for a company to use the processor-only option initially.
Your processor will likely still help you with some aspects of the card program. Here is what the division of responsibilities typically looks like in a processor-only relationship.
Initial card issuance and onboarding
This is the foundation of your program, when you acquire your BIN, obtain the necessary network approvals, fund your settlement accounts, and align with your bank and network’s settlement reporting and billing parameters.
Physical card fulfillment
If you’re issuing a physical card to your end users, you will also have to work directly with card manufacturers. Your processor will help you maintain this relationship, but you will need to take the lead on submitting card art, securing approvals, managing inventory, and handling invoices.
Setting up digital wallet-compatible cards will also require additional steps from both the processor and the program manager, as well as the card networks. This includes integrating with the wallet providers, defining configuration profiles, and securing approvals.
Read our guide on digital wallets for more information.
Once your card program is up and running, managing the daily operations will also be your responsibility. This is true even in a managed program. However, there are some tasks that the processor will likely still help you with.
Ongoing legal and compliance
If you choose an issuer-processor only relationship, adhering to legal and compliance requirements are also your responsibility. However, your card processor may still help you with some areas, such as ensuring PCI compliance.
Read our guide on how to build KYC/KYB operations for more information.
Fraud management and risk
Managing risk and fraud will be an important part of your card program. While your bank partner will be responsible for filing suspicious activity reports (SARs), you will still be expected to monitor transactions and flag any suspicious activity to your bank.
This will typically be done through a tool like Alloy or Unit21. As a program manager, you will also have to work with this vendor to set up the appropriate rules and flags that are relevant to your program.
Read our guide on payment card fraud for more information.
Support and dispute management
You will need to handle all end-user support and dispute management. The processor may still aid you in managing chargebacks when users need to reverse transactions.
This is an area where having a program manager can make sense because processors typically have more experience handling chargebacks. The average chargeback recovery rate is around 65–70%, but at Lithic we’ve been able to deliver upwards of 90%.
Read our guide on chargebacks for more information.
* Your processor may provide support for technical issues with the program, but they will not typically provide support to the end user. They may, however, provide you with tools to help you perform technical support for the end users.
Should you be your own card program manager?
Managing your own card program is a lot of work, but acting as your own program manager may offer several benefits like:
- More control over your program. A processor-only option can be important for more established companies that want to more tightly hold the reins on their product roadmap. Having a direct relationship with their partner banks, rather than an intermediated relationship via a program manager/BaaS platform, affords this freedom.
- Choose your program partners. Having more control also means you can choose the partners you want to work with for all aspects of your program and can negotiate pricing terms with them directly (e.g. bank partner, card network, card manufacturer, KYC vendor, loan management system, loan servicer, etc.).
- Keep more of the economics. By taking on more of these responsibilities (and their operating costs), you can keep more of the generated interchange revenue and only pay out small fees to the processors and other vendors.
A managed program makes more sense if your company is:
- Just starting out with its card program
- Experimenting with cards as a new product offering
- Processing a small amount of volume
- Not currently staffed to manage an in-house program
The processor-only setup generally works best for larger, more established companies that are committed to their card program for the long-term, have the right staffing in place, and are processing a material amount of volume through their program.
We often talk to customers about a graduation path to processor-only, where you start out with a managed program and later establish your own BIN when you’re ready to fully manage the program on your own.
In our next blog on this topic, we’ll discuss how to manage your own card program.