Shift From Interchange Arbitrage
Karim Atiyeh, co-founder and CTO of Ramp, on the future of the card issuing market
The fight over neobank interchange was really a fight over who gets to keep the subsidy that made consumer fintech growth so cheap. Small sponsor banks under the $10B Durbin threshold could earn much higher debit interchange than big banks, then share that revenue with fintech apps that handled branding, growth, and the customer relationship. That let neobanks fund free checking, rewards, and aggressive marketing in a way large banks could not match, which is why incumbents framed it as a regulatory loophole rather than normal competition.
-
In practice the stack had several layers. A consumer used a Chime or Cash App card, an issuer processor like Marqeta or Galileo handled card operations, and a sponsor bank like Sutton, Bancorp, or Stride held the charter and compliance burden. The economics only worked because the small bank at the bottom of the stack was exempt from Durbin debit caps.
-
That model was strongest in consumer neobanking, where the product could look free because merchants paid the interchange. But it was fragile. Operators in the space expected heavy fee negotiation with BaaS providers, and some warned that if Durbin treatment changed, many debit led startups would lose most of their revenue overnight.
-
The long term winner in fintech was unlikely to be the company with the cleverest debit split. Surviving players moved toward bundles with lending, deposits, and software, while B2B companies like Ramp and Brex added subscription revenue on top of cards. That reduced dependence on a regulatory edge that pure neobanks relied on more heavily.
Going forward, the market keeps shifting away from pure interchange arbitrage and toward companies that own a full workflow. The more finance products look like embedded features inside payroll, expense, procurement, or vertical software, the less advantage comes from a small bank exemption alone, and the more it comes from controlling customer demand, underwriting, and software distribution.