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The Front Page of Global Fintech

The largest fintech community in the world. Subscribe to our newsletter to stay up to date on the latest in news opinions, and all things financial technology.

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Signals: Embedding vs. owning your card infrastructure

For companies launching cards, the decision to embed vs. build in-house infrastructure comes with important tradeoffs. A breakdown of the benefits and risks of each path.

Signals: Embedding vs. owning your card infrastructure

It is easier than ever before to build and launch a card product thanks to the development of fintech infrastructure companies. However, amidst this convenience lies a critical strategic decision that companies must make: Should they partner with a Banking as a Service (BaaS) provider, opt for full-scale infrastructure development and transformation into a fintech entity, or consider a hybrid approach that combines the strengths of both?

Understanding the best path for a company considering launching a new card program is one of the most critical strategic decisions surrounding the degree to which your infrastructure will be owned in-house. This choice can significantly impact a company's operational efficiency, customer experience, and overall market competitiveness. In this feature, we'll explore when each path makes sense, critical providers in the space, the risks and rewards associated with each decision, and who is best suited for embedded finance.

Comparing the options

BaaS providers have become increasingly versatile as the financial technology landscape evolves, blurring the lines between traditional financial institutions and tech-driven startups. Companies exploring card program options encounter a spectrum of BaaS providers. On one end of the spectrum, some BaaS providers offer comprehensive solutions that encompass everything from issuing cards and managing compliance to delivering a seamless customer experience. Conversely, some providers specialize primarily in processing transactions, serving as the underlying financial infrastructure while allowing companies to retain greater control over the rest of the operational stack. This diverse range of BaaS offerings creates a “gray space” that companies must navigate when deciding how deeply they want to integrate with these providers to meet their card program objectives.

This spectrum is not clearly divided between its two ends. Instead, it is very fuzzy as each provider has its own model, and some fundamentally support both. To help illuminate this, we will focus on the far ends in defining the possibilities, acknowledging that many providers provide some flexibility.

Embedded finance: A plug-and-play solution

Embedded finance shines in scenarios where businesses seek to offer financial services without the complexities of building and maintaining their infrastructure. It's ideal for non-financial companies looking to add value to their existing offerings, such as retailers introducing branded payment cards or service platforms integrating payment processing.

Even if you are a fintech company and cards are not your primary product, embedded finance can vastly accelerate your launch and minimize operational costs (at some expense of long-term revenue). 

In technical terms, Banking-as-a-Service providers that offer a full-service product are known as program managers. The program manager is ultimately responsible to the issuing bank for the card program, and the brand that offers the card is known as a “co-branded card partner.” While many startups would like to say they run their program in the technical sense, using a Banking-as-a-Service solution, they are not.

When you work with a program manager, they are responsible for critical items like Know Your Customer (KYC), Anti-Money Laundering, Bank Secrecy Act, and fraud prevention processes. You may be able to participate in the authorization workflow (known as “cooperative auth”) or design your own plastic cards. Still, the BaaS provider holds and maintains the system of record and most (if not all) third-party contracts.