Program Model
A program model is the structural choice that defines how an embedded finance program accesses banking infrastructure — determining compliance obligations, economics allocation, and product flexibility.
The program model is the most consequential architecture decision in embedded finance. It determines who holds the banking charter, who bears compliance obligations, how interchange and float economics are allocated, and what products the program can offer.
The primary program models: BaaS (middleware between platform and bank), PayFac (platform aggregates merchants under master merchant account), direct sponsor bank (platform has direct bank relationship without middleware), MTL (platform holds its own money transmitter licenses), and ISO/agent (platform earns referral fees without being in the payment chain).
How the model affects economics: BaaS programs typically capture 0–25 bps interchange after middleware share. PayFac programs capture 40–100 bps. Direct bank programs capture 80–160 bps. The same $10M monthly volume generates $150K–$300K annually (BaaS) versus $960K–$1.9M annually (direct bank).
Program model selection should be based on volume trajectory, product requirements, compliance capacity, and a defined migration path. Most programs start on BaaS or PayFac for speed and migrate toward direct models as volume justifies the operational investment.