Banking-as-a-Service Market Map for Card Issuance
A who’s who of sponsor banks and issuer processors for the modern debit/credit card
A fascinating trend has happened in fintech in recent years, where financial services are being delivered by non-financial companies. Or as a16z General Partner Angela Strange coined the phrase: “every company will be a fintech company.”
One of the best examples of this trend is with debit and credit cards. Historically, cards were issued by your bank — either a national bank brand such as Amex, Bank of America, or Chase, or maybe a regional/local bank or credit union. The card issuer was straightforward. If you had a checking account and debit card from Chase, then the card issuer was Chase. Simple!
But today, cards are now delivered to you by neobanks such as Cash App, Chime, or Varo. And as is the case with all but one neobank (Varo), the checking accounts and debit cards provided by these mobile banking apps are actually provided by small regional banks. In these cases, your banking brand may be Chime, you log in to the Chime app, but the card issuer is actually The Bancorp Bank or Stride Bank — as Chime makes explicitly clear in the fine print of its website (highlighted yellow below).
But it doesn’t stop with neobanks. There are other technology companies (read: not banks) that have started to deliver branded debit or credit cards to their customers.
- Corporate cards: Start-ups such as Brex and Ramp have built multi-billion dollar valued businesses by delivering corporate cards to their customers.
- Food delivery: Start-ups such as DoorDash and Instacart put tech-enabled prepaid cards in the hands of their drivers so that they can pay restaurants and grocery stores for the orders they ultimately deliver.
And each of these tech companies — Brex, Ramp, DoorDash, Instacart — put a branded card in the hands of their customers/drivers, but…none of them are banks. So then how do they do this?
Answer: the BaaS model. The tech companies partner with an Issuing Bank and an Issuer Processor, who together provide the regulatory and technical building blocks — as a service — so that any company (bank or not) can issue debit or credit cards.
The Banking-as-a-Service Model Explained
There are three parties in the Banking-as-a-Service model, which includes:
- The Issuing Bank, which is the member FDIC institution that issues cards on behalf of Visa or Mastercard. They open a credit account in your name and are responsible for funding approved transactions.
- The Issuer Processor, which provide several services to the issuing banks, including card approval authorizations and funds settlement. In the BaaS model, they are the “seller” of the the white-labeled card product to the tech companies (not to the end user).
- The User-Facing App, i.e., the tech company that offers a card product to its users. They effectively take the white-labeled card product, re-brand them as their own, then put these cards in the hands of their users. They acquire users and own the user relationship, and offer the re-branded card product as one of it many service offerings.
The User-Facing App acts more like a retail brand — it is the closest to the end user — reselling a white-labeled product distributed by the Issuer Processor.
Notably, the Issuing Bank and Issuer Processor are critical to the card product…there is no functioning card product without them!…but they operate largely under anonymity. They deliver a white-labeled card product to the User-Facing App, which in turn, builds its brand and relationship with the end users. Unless the end user can identify the bank by its BIN number (i.e., the first 6 digits of your Visa or Mastercard card number) or looks in detail through the cardholder agreement, the Issuing Bank remains anonymous. (similarly, you may not know that Starbucks produces the Kirkland-branded coffee from Costco)
For example, Ramp users see the Ramp-branded “wrapper” around their corporate cards and won’t typically associate these cards with the Issuing Bank (Sutton Bank) or Issuer Processor (Marqeta).
BaaS Model Anonymity
For me, one of the more interesting aspects about the BaaS model is this relationship between the User-Facing App and the end user, and the lack of a customer relationship between the end user and the two more critical parties behind the card product — the Issuing Bank and the Issuer Processor.
This dynamic reminds me of those Dell computers with “Intel Inside,” but with one important difference. Dell was the user-facing brand that marketed PCs to customers, but the microprocessor at the core of each PC was built by Intel. Most consumers associated their PCs with Dell, but there was no computer/computing without the Intel microprocessor. The difference here, however, is that the issuing banks and processors have been less deliberate about marketing themselves to the end user.
So when you peel back that metaphorical wrapper, who are the sponsor banks and issuer processors at the core of these modern debit and credit cards?
A BaaS Stack Market Map for Card Issuance
To answer this question, I have compiled my very own BaaS Stack Database for Card Issuance, building upon earlier work from the likes of Nikil Konduru (who identified several of the issuing banks and processors powering BaaS offerings) and samir.xyz (with a great twitter thread about the sponsor banks behind several fintechs). I’ve expanded my scope to include a couple of the newer issuer processors on the block, namely Highnote and Lithic, and tied each card product to its specific bank and processor — and I present it here through the use of market maps, grouping several BaaS stacks according to their Issuer Processor. Enjoy!
Marqeta
The innovator of Just-in-Time Funding and Dynamic Spend Controls, Marqeta successfully IPO’d in 2021 with an enviable customer roster that included Cash App, Instacart, DoorDash, and many others. As Marqeta stated in its S-1 filing, approximately 96% of the dollar volumes it processed in 2020 were settled through Sutton Bank, and it appears that the remaining 4% is supported in part by Evolve Bank, WebBank, and Cross River Bank.
Galileo
Customers include a long list of neobanks, such as Chime, Dave, MoneyLion, Current, and Aspiration. Relative to other issuer processors discussed here, Galileo partners with the widest range of sponsor banks, including The Bancorp Bank, Stride Bank, Choice Financial Group, Evolve Bank, MetaBank, and Coastal Community Bank.
Stripe
Best know for its payment gateway and PayFac business, Stripe recently expanded into card issuing processing, a business line it launched in 2020. Corporate card company Ramp is one of Stripe’s most notable customers (insofar as card issuing). I have not seen Stripe partner with any bank other than Celtic Bank.
Lithic (fka Privacy.com)
A new issuer processor on the block, Lithic most recently raised a $60 million Series C in July 2021 and according to Packy McCormick, Lithic surpassed $1 billion of total payment volume in just its first year (whereas Marqeta took more than two years to achieve the same feat). A customer roster is not disclosed publicly, but it appears to include Mercury, a digital bank for businesses. I have not seen Lithic partner with any bank other than Patriot Bank.
Highnote
Another recent addition to the stable of modern issuer processors, Highnote raised a $54 million Series A in September 2021 and appears to accommodate multiple (or at least two) issuing banks.
Honorable Mentions (i.e., areas I need to research further)
Brex is an interesting case study — the company was touted as one of Marqeta’s top customers in the run-up to Marqeta’s IPO. But today, it appears that Brex has changed its issuer processor to i2c (a 20-year old veteran of the issuer processing industry) and Brex’s website identifies its issuing banks as Emigrant Bank and Fifth Third Bank, neither of which are known sponsor banks for Marqeta.
A lot to digest here, especially given the number of Issuer Processors, Issuing Banks, and the permutations possible. The BaaS model is not confined to debit and credit cards, so I will try to highlight other BaaS-powered banking products, such as online loans and investment brokerage, in a future post. And if you’re interested in a tabular form of the above BaaS Stack Database, just message me!
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Disclaimer: The views expressed here do not necessarily reflect those of my employer.
