Program Management vs. Direct-to-Bank: A Nuanced Take

Everyone launching a card product is presented with the same fundamental question at the beginning of their journey: Will you go with a full program manager, or will you take the direct-to-bank route? Most blog posts and thought pieces will distill it down to the following framework:

• Program Management = Faster to market, but less control
• Direct-to-Bank = Slower to market, but more control

However, the reality is far more complex.

The general consensus is that the decision between full program management vs. direct-to-bank comes down to four main factors: 

1. Flexibility
2. Speed to market
3. Your balance sheet
4. In-house expertise

The first two are often the factors that are highlighted for new entrants into the market.

However, at Lithic, we feel pretty strongly that it’s actually the last two factors – capital and in-house expertise – i.e. money and talent – that should dictate whether a startup moves forward with program management vs. direct-to-bank.

Money Matters…Somewhat

Asking other card businesses about their relationship with their sponsor bank can be helpful, but remember that each startup is evaluated differently. In particular, the frequency of financial reviews and compliance requirements may vary.

On the surface, you might assume that a startup with $30 million in reserves will be less intensely scrutinized than a startup with $10 million in reserves. However, there are several variables that may cause a sponsor bank to more intensely scrutinize a company with 3x in capital reserves, including:

1. An inordinately high burn rate
2. High employee turnover or sudden loss of in-house expertise and knowledge
3. Failure to outline a path to profitability
4. Changes in target audience preferences
5. Changes in regulatory landscape
6. Launch or success of competitive product or solution

Money is a factor, but if an idea is flawed or a business is mismanaged, the only difference is how quickly the business becomes a liability to the bank.

Talent as a Differentiator

Many advisors frame the decision to go directly to a sponsor bank as a matter of what your company wants to build. In reality, it’s less about what you want to do, and more about what you know how to do.

If you're considering working directly with a bank, we recommend making these key hires—based on the successful strategies we've seen from other Lithic clients who have taken the direct-to-bank path with us.

1. Head of Compliance with Fintech Experience

As every card startup knows, banks play a crucial role in compliance, and they review almost all customer-facing materials. However, banks don’t always stop at regulatory guidance—they often try to extend their influence into branding, marketing, and product decisions. How many blog posts or CTA buttons have you had to change as a result of “compliance” requirements determined by your bank?

An experienced Head of Compliance understands where the lines are drawn and can help you navigate when a bank’s suggestions go beyond regulatory requirements. Without this expertise, you may end up making unnecessary product changes or adopting overly restrictive policies as a result of misinterpreting the bank’s intent or regulatory requirements.

Lastly, having a strong, dedicated Head of Compliance will help give the bank confidence that you won’t make significant mistakes that get them into hot water with regulators. Ultimately, you will be able to forge a stronger relationship with your bank that is built on trust.

2. Engineers and/or Product Managers with Payments Experience

While general engineers can build great products, we feel pretty strongly that payments engineers bring the specialized expertise necessary to ensure your card program’s success. Here’s why hiring engineers or product managers with payments and card network experience is a must, in our opinion. 

Card transactions involve multiple parties, real-time decision-making, and strict network rules. Engineers without payments experience may not understand how to handle transaction authorizations, declines, and reversals, leading to failed payments, unnecessary disputes, or customer churn. Engineers who understand card network rules (e.g., Visa, Mastercard) can ensure that your system properly handles authorization messages, chargebacks, refunds, and fraud detection from day one. Payments engineers also know how to design low-latency, high-availability architectures that meet the stringent uptime and speed expectations of modern payments systems.

As mentioned in the compliance section, it is also important for engineers and product managers to understand the nuances of:

• PCI-DSS compliance (keeping cardholder data secure)
• Chargeback rules (reducing fraud losses and dispute costs)
• BIN sponsorship requirements (working effectively with issuing banks)

Without this knowledge, you may struggle with fraud prevention, increased transaction costs, or even fines from networks for non-compliance.

3. Head of Marketing with Fintech Experience

The goal of a great head of marketing is to drive growth.

The goal of a great fintech head of marketing is to drive growth, without getting dinged by regulators. 

That’s why having a Head of Marketing with fintech experience is so important. They know how to create compelling campaigns without setting off compliance alarms. They ensure ads, promotions, and messaging are clear and compelling without compromising on compliance. Plus, they can push back when banks try to overreach into branding and marketing decisions, keeping the company’s voice and strategy intact. The right marketing leader strikes the perfect balance between growth and guardrails, helping the brand scale without unnecessary roadblocks.

Customer Highlight: Atlas

Regardless of the number of industry experts on your team, we recommend that every CEO and entrepreneur take the time to deeply understand their customers and customer pain points. One argument we would make for starting out with program management is that it allows company leaders to prioritize activities such as:

• Taking customer service calls directly
• Reviewing support tickets
• Conducting user interviews
• Attending events that put them face-to-face with their target audience

Rewards credit card company Atlas took this approach when CEO and founder Zane Salim launched with Lithic’s program management service, with the long-term goal of transitioning to direct-to-bank and working directly with a bank. While Atlas was using Lithic for program management, Salim took a hands-on approach by fielding customer support calls himself. This gave him key insights into:

• The recurring challenges Atlas would need to address, regardless of whether they worked with a program manager or directly with a bank.
• Where issues originated—whether they stemmed from Atlas itself, the processor, or the bank.
• Ways to improve the product to resolve customer issues more efficiently.
• How to design the product to ensure smoother collaboration between all key stakeholders—processor, bank, program manager, and Atlas.

This firsthand experience helped Salim build a stronger foundation for Atlas before making the shift to direct banking relationships with Lithic as their processor.

It’s Three Options, not Two

Most articles on this topic will mention two possible paths – program management vs. direct-to-bank. However, there are actually two options within the direct-to-bank path. The first option is to go directly to a bank and work with one of their existing processors. The other option is to bring your own processor to the bank.

Thus, there are actually three paths worth considering when launching a new card product:

1. Program Management
2. Direct-to-Bank with their processor
3. Direct-to-Bank with your own processor

These options are generally listed in order of speed to launch. A program manager is typically the fastest route, as they already have banking and processing partnerships in place. On the other hand, bringing your own processor to a new bank tends to take the longest, as it requires establishing a banking relationship and handling all integrations from scratch.

To further complicate matters, not all program managers are created equal. So, even within that first bucket, there are several options. For example, not all program managers provide fully managed disputes and chargebacks (Lithic does!). Not all program managers offer print-on-demand cards (Lithic does!). Not all program managers offer multi-currency support (Lithic does!). Bottom line: if you're going the program manager route, make sure to do your homework and pick one that actually offers all the features and services you need.

Hot Take: Go Direct-to-Bank if…

At Lithic, we typically recommend full program management since the benefits almost always outweigh the challenges of working directly with a bank. However, there are a few specific industries where a direct-to-bank approach may make more sense.

Payroll

If you're launching a payroll card, working directly with a bank can be a smart move. Payroll regulations vary from state to state, and banks will need clear legal guidance to stay compliant. Most program managers don’t have deep payroll expertise, which means they might miss key product requirements or create unnecessary roadblocks when acting as the go-between. Going direct gives you more control, ensures nothing gets lost in translation, and helps you build a payroll card that actually meets all the legal and compliance needs from the start.

Health Savings Accounts and Flexible Spending Accounts

HSA (Health Savings Accounts) and FSA (Flexible Spending Accounts) cards come with complex regulatory and tax requirements that could make working directly with a bank the better option. 

The biggest challenges stem from how funds are classified and used—whether transactions involve pre-tax or post-tax dollars and ensuring compliance with IRS regulations, employer benefits structures, and healthcare eligibility requirements. Unlike general-purpose payment cards, HSA and FSA cards must strictly adhere to IRS-approved merchant category codes (MCCs) to prevent misuse of funds. Further complicating the issue, healthcare-related payments often require real-time substantiation (i.e. transactions must be validated at the point of sale to confirm they are eligible expenses). 

Conclusion

Ultimately, our goal is to empower you with the knowledge you need to make a more nuanced and informed decision on whether to leverage a full program manager or take a direct-to-bank approach. It’s not as simple as speed vs. control.

‍Key Takeaways:

1. Money matters, but a clear path to profitability matters even more.
2. Hiring the right talent is essential—don’t underestimate it.
3. Not all program managers are created equal.
4. Deeply understanding your product and customers will set you up for long-term success.
5. If you’re in payroll or offering HSA or FSA cards, working directly with a bank is likely the better move.

‍