My friend Priya texted me a picture at around 1 am. Her company’s card, physical, tap-to-pay, with the company logo on the front, was sitting on her kitchen counter next to what appeared to be a cold cup of coffee.
Her team is four people. They don’t have a compliance department, or any banking license for that matter, or even a seven-figure “financial infrastructure” line item in their budget, because there isn’t one.
When I asked her how she pulled it off, she responded with “caas lol”.
I knew about that space, had been reading about it on Twitter for about a year, but never really understood how it applied outside of some vendor’s pitch deck, which is essentially what the phrase was until someone actually wrote about how it was being used to launch actual products with actual customers.
Her card was real, and her customers were using it, and, as far as I could tell, none of the people on her team had ever set foot in a bank’s compliance office for anything beyond an espresso. So I started digging and, in doing so, found out why your newest “embedded finance” product probably rents its card from someone else.
Banking-as-a-Service: why the “issue cards” checkbox on your fintech roadmap always got deferred
Issuing a payment card the traditional way was not something a startup did on its own
Either your company had to become a bank itself or find someone willing to let you “sponsor” your card program. This meant a banking charter for the former or a bank willing to risk its reputation for the latter. You needed a processor to handle authorisations, a relationship with a network (Visa, Mastercard), a PCI-DSS compliant environment, fraud and compliance teams, KYC/AML checks, and a reliable way to settle funds in whatever jurisdiction your users operated in.
It took anywhere from twelve to eighteen months and even that timeline was achievable only if you had the right experts on staff already; it was a regulatory and infrastructure-heavy endeavor, not a technology one. In other words, it was not something you did lightly.
That’s why every fintech executive I spoke with about the prospect of “issuing a card” always said it’s something they wanted to do eventually but never prioritized. It was lower on the roadmap than “rebrand the onboarding flow”.
The new alternative to lengthy and expensive card programs: rent the part you don’t need to build
CaaS (card-as-a-service) is essentially banking-as-a-service, but for card issuance. It is a service where a bank and a card-issuing platform operate as an ecosystem for you, handling all aspects of card issuance that require a banking charter, leaving you to do what you’re better at: customizing the app interface, spending limits, rewards, etc.
I think about this category as a way to achieve “embedded finance”, but for the embedded part is the card itself, which is what makes it unique. In short, your app now has a card in it, which means you can offer users all types of financial services without having a banking license yourself. To use an analogy that may or may not be entirely accurate, it’s similar to how electric power companies operate in your home: you don’t need to build your own power plant to have electricity, you simply use the grid and pay for it later. Similarly, you can now use a card network, but you aren’t beholden to a banking charter, which is why it’s such a compelling proposition.
Why a fintech company can embed a “payment card” into its platform and make its drivers instantly spendable, why an expense management system makes its cards show up on corporate expense reports, why some crypto projects let you tap a card at the register and, unbeknownst to you, covertly exchange your crypto for cash — they all essentially “rent” a card from companies that provide this service.
It can make a fintech company significantly more competitive when it launches, but it is not a quick way out of a difficult situation, as many seem to think
One of the things many articles on this topic seem to overlook is that the speed this solution offers comes with operational responsibilities, namely that once someone possesses your card, it essentially becomes financial infrastructure they rely on, regardless of who issues it. You’re responsible for its performance, even if the issuing bank handles the technical aspects of card tokenisation, fraud detection or settlement processing. Regulators don’t grant you leniency simply because you’re a third-party in this particular transaction, and your banking partner isn’t going to be sympathetic when your startup fails to meet the minimums required for a card to work abroad, or when you have to halt someone’s ability to spend due to an issue on their end.
This nuance seems to be lost on the teams that fail the most, which is why some of the most expensive fintech consulting calls I’ve had recently were with people who thought of this initiative as some sort of an easy win. Those that succeed seem to understand the importance of treating it like what it is: a regulated infrastructure play with a nice user interface, not the other way around.
Who is using it, and why
Issuing cards through an external service is proving to be an innovative way to offer financial services to one’s users. Expense management companies use it to let employees control spend in real time, rather than reimburse them later. Marketplaces use it to pay their sellers faster, or even let them collect payments directly from their customers. Traditional banks use these modular card-issuing platforms to avoid massive overhauls of their legacy systems, allowing them to be more competitive with fintechs. Essentially, any company that involves moving money from one party to another can benefit from being able to issue cards to their employees or customers. When I look into the details of the solutions provided by the biggest names in the space, it’s clear that they were all built with this particular application in mind.
Is it really as revolutionary as it appears, or is it just another flash in the pan for fintech
Embedded finance tends to promise much and deliver little, and I’m no different in that regard. In short, fintech has a habit of over promising about the power of its financial infrastructure verticals. “Banking in every app” is one such vertical, and it has a mixed record at best, as the phrase has been around for about a decade and has delivered only a handful of truly meaningful products. Cards, on the other hand, are an interesting case because they are a much more specific application, namely a regulated way to allow someone to spend money. It’s the kind of vertical where many fintechs inevitably find themselves at some point in their lifecycle, wondering whether it’s worth the time and resources to build an in-house solution or simply allow users to spend on a card issued by the company’s banking partner. That’s where I think CaaS excels: by enabling companies to provide their customers with cards, while handling the difficult parts of money movement separately, thus removing much of the risk typically associated with being in the banking space.
Priya’s company has a card program, a very small one at that in terms of users, but one that can be classified as successful: it has the functionality her users requested, it has real plastic with a company’s logo everyone can recognise, and nobody at her company spent eighteen months trying to launch it. It took them eleven days and a very patient banking partner willing to allow an experiment in card issuance to happen behind their charter. That’s really the point of this post, isn’t it? CaaS is about being able to say yes to a card-issuing request from one’s users, rather than being stuck saying no due to the massive time and resource commitments such a project usually requires.
If you’re trying to decide whether to build or rent a card-issuing platform, keep in mind that the conversation with your regulator is more important than the slick interface the service you’re considering will offer, and ask them about day 400 rather than day one, because there are very few things in life that are as disappointing as getting engaged in the thrill of a new card launch only to realise later that you’ve committed to financial infrastructure you aren’t prepared to handle.
The Hidden Shortcuts in Launching a Debit Card Chosen by One Founder, Which Took Her Company Only… was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.
