Will Fiserv and Stripe Pave Path for More Special Bank Charters?

Stripe’s the latest acquirer seeking a special banking charter. Fiserv made the move before Stripe, last year.

In the current landscape where payments processors want to maximize operations by minimizing costs, while expanding their business models, the lure of processing transactions directly may nudge other acquirers to seek special bank charters, too.

As PYMNTS reported, in an exclusive, last week, Stripe’s application for a Merchant Acquirer Limited Purpose Bank (MALPB) charter has been accepted by the state of Georgia’s Department of Banking and Finance, opening the door to obtain direct membership in the U.S. with Visa and Mastercard and to process payments without a sponsoring bank (known as a BIN sponsor).

Economics and the Expansion

That last point — the ability to process payments directly — allows the acquirer to have a more significant financial stake in processing debit and credit card transactions for merchants, as it saves money on the bank fees that would be paid to banking partners.  Stripe had noted to PYMNTS  that it would not look to displace banking relationships it has already forged.

And it’s important to note that the MALPB is limited; should Stripe be granted approval by Georgia’s regulators, the license does not allow the payments processor to take deposits or branch out into other traditional banking activities. Georgia is the lone state that grants the MALPB.

In further illumination of the strategy behind the applications, during the company’s fourth quarter 2023 earnings call held at the beginning of 2024, Fiserv CEO Frank Bisignano said, “There are clearly lots of questions about why Fiserv is applying for a bank license. … It’s a very specific purpose license that allows for sponsorship of merchant acquiring. Historically, you needed a bank that’s within the Visa and Mastercard rules.”

He added, “Our ability to be able to have an institution for that sole purpose that will allow us, to be a sponsor for our own merchant acquiring in certain instances, will be valuable as we can control more of the outcome than we could before. It’s a very specific purpose, very clear to our banks. We’re not competing with them.”

Stripe’s efforts would be a way to expand the roster of banking relationships. Application materials on the Georgia Department’s website indicate that a decision will be rendered “within 60 days” from the time of application, which suggests some time in late May or in June.

Much hinges on how and when the merchant acquirer can be granted membership into the payment networks such as Visa and Mastercard, which in turn means the acquirers can process, clear and settle those card transactions directly. Fiserv’s latest 10-K reveals that, in its income statement, the cost in 2023 (the latest full year reported) of processing and services stood at $5.4 billion, or 32% of its $15.6 billion in transaction-processing related revenues.

The documentation that accompanies the Georgia Department of Banking and Finance’s application process and guidelines indicates that “risk capital” must be maintained, which per the language of the guidelines indicates that “the minimum risk capital requirement directly accounts for the MALPB’s actual chargeback experience and is designed to ensure maintenance of adequate capital to absorb loss at least to the level expected by a MALPB in relationship to its credit and fraud risk profile. A forward-looking element is incorporated into the minimum risk capital requirement” that is tied to payment volumes.