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Education

Cardholders obtain and manage their cards through their
program manager—much like merchants who obtain and
Legal ease: manage their merchant accounts through acquiring ISOs.
The term "program manager" is used to emphasize the fact
that each card program is still a bank-controlled program
but managed by an outside supplier. Program managers
distinguish themselves by offering cards (of their banks)
to specific niche markets and combining the cards with
convenient expense management tools and integrations
Card issuing: (for (Quickbooks, for example). Bank regulators, such as
the Office of the Comptroller of Currency, require banks
the flavor of the to supervise the activities of their program managers.

In addition to bank oversight, program managers are also
month in acquiring often subject to oversight by federal and state regulators.
Depending on the relationship between the program

may be obliged to register with the U.S. Department of
By Adam Atlas manager and the issuing bank, the program manager
Attorney at Law the Treasury Financial Crimes Enforcement Network
(FinCEN). FinCEN is the federal anti-money laundering
t seems that card issuing is the next big thing in regulator and requires that every card program be
acquiring. For many years, ISOs and processors in operated pursuant to an anti-money laundering program.
the acquiring space paid no attention at all to card
I issuing. In the past, the issuing business was domi- Responsibility for AML oversight is often shared between
nated by banks that issue cards with a view to earning the issuing bank and the program manager, but one party
interest on unpaid balances. has to lead. The objective of these requirements is, of
course, to prevent bad actors from abusing the financial
Lately, however, a new crop of issuing businesses have system for illegal or harmful purposes.
risen to become key players in the payments marketplace. Where’s the money?
The purpose of this article is to highlight some of the
legal considerations pertaining to the new issuing models Acquiring ISOs and processors know a lot about issuer
of interest to ISOs, merchant level salespeople and other revenue; they collect it from merchants in the form of
professionals in the payments realm. processing fees. The majority of interchange collected
from merchants under merchant processing agreements is
Who is the issuer?
settled to the card issuing banks.
For now, technically, all issuers in the United States are
still banks. In the UK, payment networks have licensed If you pay your credit card balance on time and in full
nonbank entities to become issuers themselves, but that is every month, you might think your issuing bank is
not the case over here. ISOs, called program managers, do earning nothing from you. Not true. The issuing bank
all the work though. Just like acquiring ISOs, issuing ISOs earns a healthy portion of all the fees merchants pay to
undertake to solicit potential cardholders to offer them accept your card. Some of those earnings are converted
bank-issued cards. into air miles, points or cash-back programs, but a lot of
them are simply revenue to the issuing bank.
The cardholder then enters into a direct contract with
the issuer via the cardholder agreement. In most issuing Indeed, if the card is a debit card, for which there is no
models, the only entity to take possession of cardholder interest accumulating on unpaid balances, processing fees
funds is the issuing bank. This lightens the burden on the comprise basically all of the revenue for the issuer.
ISO because taking possession of client funds is usually a
regulated activity for which federal registration and state The money in issuing is in getting a taste of the issuer’s
money transmitter licensing is required. share of fees paid by merchants on their cards. As with
any ISO program, issuing ISOs will seek to maximize
What is a program manager? their revenue per card and per transaction.

A program manager is another term for issuing ISO. Where’s the catch?
The program manager contracts with an issuing bank to
provide services in support of the bank’s issuing program. There are two areas in which issuing is harder than
Example program managers include Mesh Payments, acquiring: technical systems and AML compliance.
https://meshpayments.com, and Divvy, https://getdivvy.com.
Most issuing banks do not have a significant amount of
in-house technology to support their issuing programs.
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