Often a person will contact me and ask if I can help him or her to get a BIN with a sponsoring bank. There is a lot of confusion about what a BIN actually is and the impact it has on an ISO.
What is a BIN?
A BIN is shorthand for a bank identification number that is associated with Visa Inc. transactions. But that is only half the equation in that MasterCard Worldwide also has something called an Interbank Card Association that is associated with MasterCard transactions. To get the complete package, an ISO needs both a BIN and an ICA. But what are they, and what is their importance?
A dedicated BIN and ICA represent distinct ways to segregate the merchants of a particular ISO from those of another ISO. The BIN/ICA of an ISO can be viewed as a separate “bucket” that the ISO places its merchants into. No other ISO is allowed to place merchants into that dedicated BIN/ICA. An ISO always has to have a sponsoring bank for its BIN/ICA. The sponsoring bank issues the BIN/ICA and has control over it in accordance with the card association rules. The importance of this is that it allows an ISO a high level of portability for its merchants.
The benefit of having a BIN/ICA is that the ISO can move it from one sponsoring bank to another without having to reprogram all the credit card processing equipment and software used by the merchants in its portfolio. If the ISO also has the right to assign merchant agreements from one sponsoring bank to another, it in essence can, at the desired time, pick up all its merchants in its “bucket” and move them seamlessly from one sponsoring bank to another.
There are a number of reasons an ISO might need to move from one sponsoring bank to another. Some sponsoring banks just decide to quit the industry. In these instances, the ISO with a BIN/ICA is free to move its merchants to another sponsoring bank of its choice, and not the choice of the sponsoring bank leaving the industry.
Having a BIN/ICA enables an ISO to periodically shop around for better pricing. This is a benefit that provides the ISO with a competitive advantage over an ISO that does not have the same right to move merchants as seamlessly.
Reporting For Duty
Having a BIN/ICA has the benefit of portability, but there are a lot of other responsibilities that usually goes along with getting one. An ISO with its own BIN/ICA is expected to be a full-risk, full-service ISO, except in very rare circumstances.
The ISO is expected to take the risk of all merchant charge-backs, fines, unpaid fees and other losses that may be incurred if the merchants cannot pay those items. That means that the ISO must monitor risk, which includes monitoring the risk inherent in transactions, and limiting risk by underwriting merchants. In addition, the ISO is typically expected to perform all customer service functions for the merchants.
This necessarily dictates that an ISO with its own BIN/ICA has to invest heavily in building an enterprise to run those operations. The company must hire trained underwriters to run credit checks, evaluate terminated merchant files, verify prospective merchants are not on an Office of Foreign Assets Control list that ensures persons such as terrorists from engaging in U.S. transactions, and other reports for all merchants.
The ISO has to set up a risk department to monitor the transactions to reduce charge-back risk. Also, customer-service staff needs to be trained. All of this has to be in place before the first transaction is processed. If an ISO wants a BIN/ICA, it will need a considerable amount of capital to get organized and running.
Do You Really Need a BIN?
Given the responsibilities that go along with getting a BIN/ICA, not everyone may want or need one.
The first question an ISO usually needs to ask itself is, “Are we primarily a sales and marketing organization?” If the answer is yes, then it might be best not to get a BIN/ICA.
Taking on the operational responsibilities required for a BIN/ICA can dilute the sales activities of a company and render it less competitive. Most sales and marketing companies will do just fine as a no-risk ISO with one of the larger payment processing companies. There are only a handful of companies that offer a real no-risk ISO program in our industry, which works to the advantage of the no-risk ISOs.
If an ISO wants to sell its merchant portfolio as a no-risk ISO, it does not usually need a BIN/ICA because it doesn’t need to move its merchants in a sale.
Most buyers will already be a no-risk ISO with the payment processor with which the selling ISO is working.
Since the ISO and the buyer work with the same payment processor, the buyer usually can take over servicing the merchants by virtue of the payment processor flipping a switch to allow the buyer access to those merchants’ computer files. That means the no-risk ISO often get no real benefit from a BIN/ICA, which explains why no-risk ISOs almost never have one.
Getting a BIN/ICA may sound like a good idea given the superior portability it can convey. But it is usually a very expensive, time-consuming venture that only those with considerable experience in our industry should attempt. For most others, the expense, dilution from the main sales and marketing duties and other considerations make a no-risk ISO program the more prudent choice.
Paul A. Rianda is an attorney who has specialized in providing legal advice to the bankcard industry for over 15 years. His e-mail address is email@example.com.