Principal membership vs BIN sponsorship for new card programs

When you're planning to start a new card program, the first decision is typically which route to take to connect to Visa, Mastercard, or UnionPay. That decision is between principal membership and BIN sponsorship.

The two models differ in how fast you can go live, how much capital you need, what level of control over the program you have, and the unit economics of the program as it grows.

In this article, we'll review the details of each model and give you a framework to determine which is the right model for your card program and which might allow you to make a future exit to principal status.

What principal membership means for a card program

If you want to go this route with a card scheme, you'll have to qualify as a member of that organisation. Each of the card schemes manages a collection of BINs and requires that members have a license to operate with the BINs they control.

In Europe, the license requirement is typically for one of the following:

Beyond the license, there are additional capital requirements, program application fees, and certifications that you have to complete. The program also has to include a certain internal team to support the controls required by the card schemes in running its card program.

What BIN sponsorship means for a card program

If you want to go this route, a financial organisation will have to sponsor your card program. As the sponsor of the BINs, they will own the license, the BINs, and the contractual relationship with the card scheme.

Your organisation will get to own the cards in the program, the customer relationship, the product, and the user data.

The sponsorship typically comes through a card processing organisation that will handle the technical aspects of your program, though it's also possible to separate the two if your program requires its own processor.

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Key differences for a new card program

The two routes come with different implications for your card program. The cost, time to market, control over the program, and unit economics all take different forms under each model.

Cost and capital requirements

The capital requirements to go into principal membership are higher than for BIN sponsorship. In addition to the fees from the card schemes, there are capital requirements based on the license, certifications are required, and your organisation has to be able to manage the technical aspects of card issuing directly with the card scheme.

The cost to go into BIN sponsorship is lower up front. Instead of having to pay for the licenses and capital up front for your program, you pay for the program on an ongoing basis with per-card and per-volume fees.

Time to market

The time required to go into principal membership with a card scheme can take longer than for sponsorship. The principal membership comes with additional certifications, licenses, and regulatory checks that add to the time it takes to launch the program.

With sponsorship, your program can go live much faster because a sponsor will already have their licenses and clearances in place with the card scheme.

Control and flexibility

In the principal membership model, the card program will have more control over the features of the product and which aspects of the program get negotiated with the card scheme directly.

For BIN sponsorship, the product features and aspects of the program are negotiated by the sponsor of the BIN. There are trade-offs between the two models for this aspect of the program.

Economics at scale

For programs that go into principal membership, the unit economics are typically better at high volumes. The fees paid to the card schemes are lower, and the program can collect more revenue from the card scheme incentives that are paid directly to the program rather than the sponsored programs of the sponsor.

For BIN sponsorship, the unit economics at high volumes shift in a way that is less economical than for principal membership. The per-card and per-volume fees that are paid to the BIN sponsor grow in cost at high volumes.

At high volumes, these programs typically begin to plan their exit to principal membership status.

When to choose which

Each model has its place for a card program. Based on the information above, there are indications of when each model will make more sense for a given organisation launching a card program.

When BIN sponsorship makes sense

This model makes the most sense for new organisations or for programs with limited capital. In both cases, the model allows an organisation to get up and running in a way that does not require a large initial capital outlay.

For programs that are targeting a high volume of card transactions quickly, BIN sponsorship can help an organisation to get live with its program as quickly as possible.

When principal membership makes sense

This route will make the most sense for an organisation that has a high volume of transactions in place already. The higher the volume, the more the cost of principal membership becomes offset against the initial capital and time required to start the program in that way.

If a program needs to have a high level of control over the aspects of the program with the card schemes, then the principal membership route may also be the right one for that organisation.

How to migrate from BIN sponsorship to principal

A migration to principal membership can occur, but it's typically not the most straightforward path from sponsored status. Planning for the exit in advance will give your organisation the most flexibility to exit sponsorship status.

Many sponsorship contracts include terms regarding:

Beyond the sponsorship contract, there are also costs to migrate to principal membership. Any cards that are issued on the sponsor's BIN cannot be moved to a new BIN without reissuing the cards to the holders.

The processor for the program will also have to be reconfigured, and there will be a period during which the program will need to be running in parallel with the new setup. During the transition, the program will be without cards live.

The right time to move from sponsorship to principal membership will typically occur after the program hits a certain volume of transactions. At this point, the economics will shift in a way that indicates that principal membership will begin to pay for the program.

At the same time, the program should have the transaction volume to support a principal membership and the internal knowledge and staff to handle the reporting and certification aspects of the program with the card schemes.

Any program that does not reach the required transaction volumes will continue to pay the sponsorship fees, even though they are potentially profitable with a principal membership agreement; any program that exits sponsorship too early will not have the transaction volume to support a principal membership agreement.