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Insights and Expertise

I excluded banks with assets in excess of $10 billion and included some smaller banks with either significant year-over-
year growth or large processing relative to assets. I also added Synovus, as it is a common sponsor bank. Keep in mind
that this is not a top 20 list.

Additionally, this table is only as good as the bankers who complete their call reports. Both Mission Valley Bank and
Cross River Bank’s call reports, for example, did not indicate they processed in either 2023 and 2024, yet we know they
are acquirers.

It is interesting to see both the growth in processing and the volume relative to asset size. Unlike lending, bank processing
volumes are not constrained by the size of their balance sheets. Bank loans are constrained by deposits.

A bank may only lend what it has on hand in the form of deposits or equity capital. And banks do not want to lend all
the funds they have; that could lead to a liquidity crisis. Further, banks must maintain sufficient capital to meet specific
capital ratios, or face sanctions by their regulators – which comes with an entirely different set of issues.
A shadow balance sheet

Merchant processing does not have capital requirements. Processing is a shadow balance sheet item, as it is not reflected
within the balance sheet. Banks like Merrick, Esquire, Pathward and FFB process many multiples of their asset size. Tiny
SSB Bank with only $317 million in assets processed over $2.7 billion in 2024.

Banks typically make money based on the spread between the rate charged borrowers for loans and the cost of those
funds from depositors. Income from loans is the bank’s interest income. Income from merchant processing is non-interest
income and is coveted by banks, as it is less volatile. Interest income fluctuates based on the federal funds rates, which
vacillates with the economic cycle.

Consequently, if a bank is willing, and regulators and the card networks allow, unlike with loans, a bank is not constrained
by its assets. Merchant processing income is insulated from fluctuations in interest rate changes. To be sure, processing
volume will be muted during recessionary times, but it is not as directly impacted as interest rates.
Powerful data at your fingertips
It is also interesting to examine the growth in the portfolio of select banks. Some of the smallest banks have the fastest
growth. David Leppek (https://www.linkedin.com/in/davidleppek/ ) and I recently hosted an APP-sponsored webinar on
BaaS.

We discussed that, in junior high school, we learned through the properties of transitivity and in sexual education, the
virus of your partner’s partner is your problem. This partner risk is magnified at smaller institutions, as their smaller
capital could more easily be impacted.

The FFIEC bulk data is readily available to compare many aspects of bank reporting including non-interest income, total
income, cards processing and assets. Use it, along with other evaluation tools, to monitor your bank partner or to compare
the relative health of banks to each other. It's powerful information.

As founder of Humboldt Merchant Services, co-founder of Eureka Payments, and a former executive for such payments innovators as WePay, a division
of JPMorgan Chase, Ken Musante has experience in all aspects of successful ISO building. He currently provides consulting services and expert witness
testimony as founder of Napa Payments and Consulting, www.napapaymentsandconsulting.com. Contact him at kenm@napapaymentsandcon-
sulting.com, 707-601-7656 or www.linkedin.com/in/ken-musante-us.
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