Prepaid and Managed Debit Cards Card Issuing Policy Summary

Introduction

The purpose of this document is to summarise Newcastle Building Society's approved Card Issuing Policy to current and possible future business partners. The document is based on Version 0.6 of the Card Policy Document approved by the Newcastle Building Society Board of Directors on 27th June 2006.

Purpose of Policy

The purpose of the policy itself is to provide clear and concise instructions relating to the pursuit and control of quality Card issuing business and in particular to set out Newcastle Building Society's risk appetite and how it identifies, measures, monitors and controls that risk.

Responsible Issuing

Currently, the Society assesses each card scheme on its own merit against an agreed approvals procedure. The requirements of this procedure are to ensure that:

  • Our issuing partners are financially viable and will continue to remain so ensuring continued customer fulfillment;
  • Our issuing partners understand and embrace the necessary regulatory frameworks and are committed to ensuring ongoing compliance:
  • Market expectations for card distribution numbers are realistic and profitable;
  • The customer proposition is viable;
  • The terms of the issued cards are not unduly onerous;
  • The cards issued will promote further the growth of prepaid and managed debit cards and will not in any way undermine confidence in that market;
  • Our service providing partners (System and Processor) will be selected and monitored to ensure a quality service is delivered.

Underpinning philosophy

  • Manage reputation risk
  • Manage financial risk
  • Generate income
  • Quality partners
  • Full compliance with all current and future regulation
  • Treat Customers Fairly

Periodic review

Issuing policy will be reviewed by the Executive on an ongoing basis and referred to the (Risk) Committee of the Board for changes considered appropriate. Annually, full Policy Statements relating to issuing will be readdressed and confirmed, or amended, as necessary.

Roles and responsibilities

NBS

NBS is responsible for holding all funds, performing daily reconciliation and settlement with MasterCard®, maximizing interest on balances held and settling interchange and transaction fees with Programme Managers. NBS is responsible for all compliance items and for approving all aspects of any scheme in operation. NBS holds the relationship with MasterCard® on behalf of the Programme Manager and is responsible for proposing all new schemes or amendments to schemes.

MasterCard®

MasterCard® provides the mechanism for cards to be used via their merchant/acquirer networks and calculates all clearing and settlement amounts. MasterCard® is also responsible for approving all card scheme types, card designs and marketing/promotional material. Any disputes between the card issuer (NBS) and merchants/acquirers are handled by MasterCard®.

Processor

The Processor is responsible for the technical system which authorises or declines each transaction. All card balances are held on the Processor's system. The Processor also manages card production and implements velocity checks as part of card fraud management.

Programme Manager

The Programme Manager is typically any third party wishing to issue cards but is not eligible for MasterCard® issuer membership (NBS sponsors the Programme Manager to issue cards). The Programme Manager proposes schemes to NBS for approval along with associated items such as card designs, terms and conditions, card volume projections and transaction profiles for the scheme.

Insurance

NBS passes on responsibility for any fraud (except internal fraud) through contracts in place with Programme Managers/Nomad Processing Services. This is reflected in all contractual arrangements. As Programme Managers and Processors have an exposure for professional indemnity/fidelity insurance risks (negligence & fraud), contractual arrangements will incorporate the Society requirements that these covers are in place throughout the term of the contract with the Society with appropriate annual levels of indemnity being set, minimum recommended level £1m. On an annual basis the Compliance/Insurance Manager will carry out insurance audits of Programme Managers and feedback the results to the Card Relationship Manager and Chief Solicitor.

Current Maestro®/MasterCard® Card Scheme types

The prepaid card market in the UK is mirroring the already mature market of the USA. The common types of card schemes are:

  • Closed loop promotional cards (Private label cards)
    Restricted POS use (by merchant code) low denomination
  • Gift card - Single load, low denomination, POS use, distributed through POS outlets
  • Travel card - Single load/reloadable, POS & ATM, often denominated in other currency (€/$)
  • Teen card - Reloadable, POS , ATM & CNP, typically multiple cards per account with some restricted (under 18 year old) merchant acquirer access
  • Payroll scheme - Reloadable, POS , ATM & CNP, loaded directly by known/approved company
  • Payroll 'Plus' scheme - Reloadable, POS , ATM & CNP, loaded either with personal funds or directly by employer
  • Personal spend scheme - Reloadable, POS , ATM & CNP
  • Cash replacement service - Single load/reloadable, POS , ATM & CNP
  • Cross Border payments/money transfer - Reloadable, POS , ATM & CNP, multiple cards, can be reloaded. Extra KYC required
  • Conversion from E-Money (on-line) account - Reloadable usually POS /ATM may have CNP

The following factors are key to the operation of the card:

Card Dynamics

Prepaid cards are covered by the FSA's Electronic Money Sourcebook and as such limits are placed on the value that can be loaded on the cards. It is generally accepted that the lower the value on the card, and the more control over how the money is loaded and taken from the card, the lower the risk.

Each card scheme will be defined by parameters including

  1. Maximum life time value loaded on the card
  2. Maximum value on the card at a given point in time
  3. Maximum value per load
  4. Maximum POS withdrawal
  5. Maximum ATM withdrawal
  6. Maximum combinations of the above loads/redemptions within a defined period

Source of funds

It is a requirement that, proportionate to the risk, the source of funds is identified. This is typically carried out by Know your customer (KYC) checks when the card is ordered/purchased.

  1. Issuing Partner
  2. Branding/Co-branding
  3. Distribution
  4. Marketing

Card schemes acceptable to NBS

The following are deemed acceptable subject to them having satisfied normal vetting procedures. Card schemes should not conflict with agreements in place with other third parties where some exclusivity has been agreed.

  1. Card scheme types
    1. Promotion cards
    2. Gift cards
    3. Teen/personal spend cards
    4. Payroll cards
    5. Travel cards
    6. Cash replacement cards
    7. Conversion from e-money accounts
    8. Cross border currency transfer where KYC is not possible on the second cardholder but where the functionality of the second card is restricted.
      9. These restrictions will include, as a minimum:
      1. no ability to reload funds directly via this card
      2. Limited maximum card values
      3. Limited daily/weekly unload transaction levels
      4. Maximum lifetime purse value on each card of £5,000
  2. Source of funds
    1. Cash at point of sale no ID (Limited)
    2. Cash at Point of sale with ID (Limited)
    3. Cash via approved network (subject to appropriate ID)
    4. Debit/Credit Card at Point of sale
    5. On-line via card
    6. Bank Transfer (on previously authorised debit/credit card
    7. Inter company transfer
      8. Acceptable company types include
      1. Shopping Malls
      2. Registered employers
      3. Recruitment agencies
      4. Marketing agencies
      5. Affinity brands
      6. Publications
      7. Cheque cashing outlets
      8. Credit organisation wishing to offer debit functionality
      9. E-money issuers as regulated by the FSA (or passported equivalent)
      10. Gambling companies (where the company is a reputable company and who pass due company approvals procedures)
  3. Branding
    1. NBS will appear as the issuing bank on the back of all cards issued.
    2. Branding will be deemed acceptable as long as it conforms to the accepted norms of good taste and complies with MasterCard® rules and general advertising standards and FSA rules and guidance on financial promotions. NBS must approve all promotional material.
    3. As a principle we accept that cards will be branded with company names, logos and branding marks of all those companies for whom we have approved the source of funds except in those cases where this would infringe copyright on cards already issued or the logo or trademark is deemed inappropriate.

Card schemes unacceptable to NBS

  1. Source of funds
    1. Credit funding for cards with the purpose of being directly used in gaming or gambling.
  2. Branding
    1. The word gaming/gambling is not to appear as part of the card.
    2. Adult branding is not allowed.
    3. The promotion of any card is not allowed on 18+ only web sites/Internet/Magazines of a sexual nature.

Approvals Procedure

All new Programme Managers will be subject to a rigorous approvals procedure based on agreed internal procedures. The following departments are involved in the approval of a new Programme Manager or card scheme:

Legal Department

  1. KYC proposals
  2. AML proposals
  3. Card designs
  4. Terms and Conditions
  5. Legal and Compliance issues
  6. Contracts

Finance Department

  1. Business model
  2. Company standing
  3. Director checks (where appropriate)

Newcastle Strategic Solutions Limited (NSSL) Management

  1. Scheme overview
  2. Risk assessment
  3. Processes
  4. Customer Service provision
  5. MasterCard® approvals

Central Controls

The following central controls must be satisfied:

  • Due diligence on new partner companies or company directors in the case of start up companies
  • Approval of financial models by Finance
  • Approval of new schemes before go-live by PPC Committee
  • AML/fraud training and site visit by Financial Crime Unit
  • NBS approval of KYC measures
  • NBS managed Suspicious Activity Reporting

Monitoring Procedures

  • Monthly review of each scheme against revenue/card number targets
  • Monthly review of SLAs and customer service
  • Minimum 2 AML/fraud visits per year dependent on scheme type
  • Monthly board/management reports including Management Accounts
  • Review and approval of all financial promotions material

Further information

NBS will be happy to advise further on any aspects of possible card schemes. Requests for information should in the first instance be directed to Head of Card Relations:

Newcastle Building Society
Principal Office
Portland House
New Bridge Street
Newcastle upon Tyne
NE1 8AL

As a Principal Member of MasterCard®, Newcastle Building Society is currently acting as the issuing bank for several innovative prepaid and debit card schemes. These schemes range from non-reloadable gift card schemes through to fully reloadable online and instant issue prepaid cards from personal spending, payroll, employee incentive and money share.

Newcastle Building Society through their subsidiary Newcastle Strategic Solutions, Card Solutions celebrated its 1st anniversary in December 2006 with the production of its millionth prepaid card. The Society now has the most MasterCard® approved card programmes in the UK market and predicts that the huge growth is set to continue in 2008. Loyalty and card programs are an excellent opportunity to reward customers and reinforce repeat visits and personal referrals from your customers.

To discuss how this system could work for you call +44 (0)191 244 1777 or email cardsolutions@newcastle.co.uk.