By Anil Goyal, CEO CorServ
The world of financial technology, or fintech, is undergoing a rapid evolution. By 2023, the industry is projected to become a $1.5 trillion industry with the U.S. accounting for a projected of 32% of global fintech revenue growth, according to the Boston Consulting Group. In our society today, where convenience, digitization and automation are important, CorServ makes it easy for our clients to embed financial technology for their customers. At CorServ, our mission is to provide innovative credit card issuing services to financial institutions and fintechs.
Our Turnkey Credit Card Issuing Program enables client community banks to own credit cards assets and provide full-service offering to all their customers without having to invest in infrastructure or people. This innovative offering is the result of collaboration between sponsor banks, client banks, and the CorServ team. In this dynamic, the role of sponsor banks is crucial. Let’s delve into their significance and the benefits they reap from these partnerships.
The sponsor bank is the organization that oversees regulatory compliance, creates policies, provides access to the card network, owns the Bank Identification Number (BIN), is the issuer of record, and settles all transactions each day. Our client community banks market their program to their customers based on the best product suited for them and deepens their relationships. They review applications flagged for resolution, purchase credit card receivables, and enjoy all the interchange, interest, and fee income. CorServ orchestrates the entire solution, leveraging technology and banking acumen to provide modern digital solutions for successful credit card programs.
In this important partnership, a question arises: What’s in it for sponsor banks? Let’s briefly explore the advantages of being a sponsor bank in fintech partnerships.
Sponsorship Fee Revenue
Sponsor banks earn sponsorship fees from client banks for program enablement. The sponsor bank leads regulatory compliance for the program so the client community banks can follow the established guidelines and procedures.
The sponsor banks launch their own program to offer to their customers. Leveraging the combined scale of bank partners allows them to reduce costs, boost efficiency, and improve profitability for their card program.
Payment Network Benefits
The BIN ownership grants sponsor banks access to the card payment network infrastructure. In many cases, the sponsor bank receives incentives and benefits from card payment network based on volume.
Sponsor banks receive deposit reserves from client banks, further fortifying their liquidity position. The deposits are volume driven and therefore increase as the number of client banks and the program volume grows. This is particularly important for banks when large deposits may be at risk from other customers.
Service Fee Revenue
Sponsor banks offer services such as Automated Clearing House (ACH) transfers, lockbox services, account servicing and back-office operations to the customers of client banks. Such services can be a steady source of revenue while leveraging the bank’s existing infrastructure and expertise.
To conclude, sponsor banks occupy a central position in the narrative of fintech collaborations, reaping benefits spanning financial gains, network benefits, regulatory acumen, and reputation enhancement. Beyond financial dividends, their involvement in decision-making and risk management underscores their commitment to holistic program success. As fintech continues to reshape financial landscapes, sponsor banks are key enablers in driving innovation by combining banking expertise with modern technology to drive innovation.