First National Bank of Omaha (FNBO) might not be the first name one thinks about as a significant player in credit cards. Still, the organization has a storied history, which laid the foundation for interstate credit card issuance. Where does CaaS come in?
Back in 1978, a U.S. Supreme Court decision on anti-usury laws and interstate banking decided that nationally charted banks “would be subject only to federal regulation by the Comptroller of Currency and the laws of the state in which they were chartered and that only Congress or the appropriate state legislature could pass the laws regulating them.” We discussed the topic in this PaymentsJournal classic.
The short story here is that the Court’s decision enabled credit card rates to export from the original state to any other. If a particular state had meager interest rates, all they had to do was incorporate a credit card subsidiary in a location with favorable rates. The issuing bank could then impose those rates on all customers. In other words, if New York capped rates at 12% and South Dakota had no limit, you could reposition your business, and the new rates would prevail. The 1978 decision was known as Marquette National Bank of Minneapolis v. First of Omaha Service Corp. The decision changed credit card banking in the United States. At the center of the suit was First National Bank of Omaha.
Over the years, FNBO built its banking presence in the Midwest and became a significant player in the bank card business. Today, the firm issues both Mastercard and Visa.
FNBO’s Big News
The firm announced a partnership with Marqeta to offer a Card-As-A-Service (CaaS) model. Mercator covered the fintech space in this recent report, but what is interesting in the launch is that FNBO solves the challenge of bank issuance. You need a banking license to offer Mastercard or Visa accounts. Here, a solution links a fintech and a lender in a pre-packaged offering.
FNBO is not the only bank to sponsor relationships, but this is the first we observed that directly ties a fintech to a bank financing program. Companies such as Web Bank have been doing this for years, as have some progressive financial institutions, such as Cross River and South Dakota-based First Bank and Trust, but FNBO’s connection with Marqeta looks like a tight alignment.
But, Marqeta Has Been Making Headlines, Also
In the Mercator report, we benchmarked Marqeta as a top CaaS firm, but the company has been going under stress, as many fintechs have in a changing economy. The CEO recently resigned, and the stock is tumbling, but FNBO is in sound territory dating back to 1857 when the Kountze brothers launched the bank.
CaaS has a bright future
As the payments industry continues to evolve, we expect many non-banks to want to control their destiny in payments. Many firms, such as Delta Airlines and Uber, engineered processes well. Sometimes the firm can align closely with an issuing partner and redefine the payments function to align with the business model. Think about how smoothly the McDonald’s app works with your Apple Wallet. In other cases, payments will become the enabling factor of the business company thing for sure, though, is that CaaS is here to stay, and this direct alignment between a tech provider and a financial institution is progressive and sets the stage for a new set of products.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group.