Fiserv’s Georgia MALPB Charter: Implications for the Payments Industry
Fiserv’s journey to obtain a Merchant Acquirer Limited Purpose Bank (“MALPB”) charter in Georgia stands out for its speed and efficiency. After submitting its application in January 2024, Fiserv received its charter on October 4, 2024, in just under 10 months — an impressive turnaround compared to the typical 12-18 months seen in other states for similar regulatory approvals.
Although many questions remain, Fiserv’s acquisition of an MALPB charter, and the speed with which it secured it, have fascinating implications for the payments industry.
The Georgia MALPB Charter
The Georgia MALPB charter, first made available in 2012, allows companies to provide merchant payment processing services without relying on a sponsoring bank. Specifically, with an MALPB charter, a company can:
- obtain membership in card networks;
- underwrite and sign up merchants to accept network-branded cards;
- facilitate the clearing and settlement of transactions; and
- offer card network access to affiliates or their customers.
For any applicant seeking this type of charter in Georgia, there are strict requirements. First, the company must meet minimum capital requirements, including at least $3 million in statutory capital, and maintain a leverage capital ratio of 10%. The company must also have a certain level of capital tied to the value of its payments and risk exposure, particularly around chargebacks. From a personnel perspective, the company must have at least 50 employees that are Georgia residents. Background checks are mandatory. Furthermore, anyone convicted of a felony related to financial crimes is prohibited from employment with an MALPB. Additional requirements include the submission of a detailed business plan covering at least three years, with financial projections that show the company’s ability to execute its vision. The MALPB must also keep proper records and operate within defined constraints regarding subsidiaries, contracts, and investments.
MALPBs are restricted to merchant activities. They cannot perform typical banking functions, issue loans, or offer payment cards, nor can they accept public deposits. Merchant funds must be deposited into federally insured financial institutions immediately, and any advertisements must clearly state that the institution does not accept public deposits.
Finally, any outsourcing of services or dividend declarations must receive prior approval from the Georgia regulator. This ensures that MALPBs operate with integrity and in full compliance with state regulations.
Fiserv’s Charter and Implications for the Industry
Fiserv is not the first entity to obtain a Georgia MALPB charter. That honor went to Credorax, an Israeli firm, which has since been acquired. But Fiserv’s acquisition of the MALPB charter is nonetheless significant.
While Credorax had difficulty gaining traction with the card brands, Fiserv is among the large merchant acquirers in the country. Mastercard has already signaled an openness to work with Fiserv directly, without the necessity of a third-party sponsor bank sitting between Fiserv and the network. Industry prognostication is that Visa, among others, may well follow suit.
Although Fiserv has indicated that it does not intend to abandon its incumbent sponsor bank partners, the ability to participate directly as a member in the card networks has profound implications for MALPBs. In an environment where some financial institutions are abandoning the merchant acquiring business, it provides a level of stability that might otherwise be lacking. And being able to disintermediate the payments ecosystem may also allow MALPBs to exercise greater discretion in processing for certain merchant verticals that banks traditionally restricted or prohibited their partners from supporting. Not only that, but the financial advantages associated with bypassing a sponsor bank could be sizable. It may position a MALPB to garner additional margin or pass along cost savings to merchant customers or referral partners. And even if a processor elects to maintain a relationship with a sponsor bank, the theoretical ability to obtain a MALPB charter may help put downward pressure on sponsor bank fees or expand areas for contractual negotiation.
All those potential benefits, however, remain subject to certain assumptions. For one, there is no definitive guidance from the card brands that a Georgia MALPB is a ticket into membership at the networks. And even if Fiserv secures such membership, the card brands may exercise their own discretion regarding whether other legacy acquirers or new entrants would be entitled to the same. Statutory and regulatory hurdles to obtaining a charter likewise make the path a difficult one, especially for less well-capitalized players. Likewise, it is unclear how federal banking regulators or other states may view a Georgia MALPB. Finally, given the need for Georgia MALPBs to maintain settlement funds at a federally insured financial institution, any would-be entrant into the MALPB universe will need to ensure that it has a banking partner willing to support the movement of transaction proceeds through the firm.
It will be interesting to watch how Fiserv navigates these challenges. But having such a titan of the acquiring industry enter the Georgia MALPB fray has potentially wide-ranging implications for the industry.
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- Allison E. Raley
Partner
- Edward A. Marshall
Partner