So You Want to Get a BIN?
Often a person will contact me and ask “can you help me to get a BIN with a sponsoring bank.” I find that there is a lot of confusion in the industry as to what a BIN actually is and the impact it has on an ISO. Below I will define what a BIN is and discuss what getting one means to an ISO.
What is a BIN?
A BIN is shorthand for a Bank Identification Number which is associated with Visa transactions. But that is only half the equation in that MasterCard also has something called an Interbank Card Association (“ICA”) that is associated with MasterCard transactions. So, in order to get the complete package an ISO needs both a BIN and an ICA. But what are they and what is their importance?
A unique BIN and ICA is a distinct way to segregate the merchants of a particular ISO from those of another ISO. The unique 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 the unique BIN/ICA. An ISO that has its own unique BIN/ICA always has to have a sponsoring bank for that BIN/ICA. The sponsoring bank issues the unique BIN/ICA and has control over the BIN/ICA 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 unique BIN/ICA is that the ISO can move the BIN/ICA 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, the ISO 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 that an ISO might need to move from one sponsoring bank to another. Some sponsoring banks have just decided to quit the industry. If that were to happen, the ISO with a unique BIN/ICA would be free to move its merchants to another sponsoring bank of its choice, and not the choice of the sponsoring bank that was leaving the industry. Having a unique BIN/ICA allows an ISO the right to periodically shop around for better pricing. This is a benefit that allows the ISO a competitive advantage over an ISO that does not have the same right to move merchants as seamlessly.
What are the ISO’s Duties:
Although having a unique BIN/ICA has the benefit of portability, there is a lot of other responsibilities that usually goes along with getting one. Except in very rare circumstances, an ISO with its own BIN/ICA is expected to be a full-risk, full-service ISO. By that I mean the ISO will be expected to take the risk of all merchant chargebacks, 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, as well as 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, TMF, OFAC and other reports for all merchants. The ISO has to set up a risk department to monitor the transactions in order to reduce chargeback risk. Also, customer service is another department that needs to be trained and staffed and all of this has to be in place before the first transaction is processed. If you want a unique BIN/ISO, you will need a considerable amount of capital to get the ISO organized and running.
Do You Really Need a BIN?
Given the responsibilities that go along with getting a BIN/ICA, it is not something that everyone should want or even need. The first question an ISO usually needs to ask itself is “are we primarily a sales and marketing organization?” If the answer to that question is yes, then it might be best not to get a unique BIN/ICA. Taking on the operational responsibilities that are required for a unique 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 you want to sell your merchant portfolio as a no-risk ISO you do not usually need a unique BIN/ICA because you don’t need to move your merchants in a sale. Most buyers will already be a no-risk ISO with the payment processor the selling ISO is working with. Since you and the buyer work with the same payment processor, the buyer can usually take over servicing your 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 unique BIN/ISO, which explains why no-risk ISOs almost never have a unique BIN/ICA.
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.
The information contained herein is for informational purposes only and should not be relied upon in reaching a conclusion in a particular area. The legal principles discussed herein were accurate at the time this article was authored but are subject to change. Please consult an attorney before making a decision using only the information provided in this article.