Over the previous two or three years we’ve seen an explosion of new debit and credit card products come to market from consumer and B2B fintech startups, as well as companies that we might not traditionally think of as players in the financial services industry.
On the consumer side, that means companies like Venmo or PayPal offering debit cards as a new way for users to spend funds in their accounts. In the B2B space, the availability of corporate card issuing by startups like Brex and Ramp has ushered in new expense and spend management options. And then there is the growth of branded credit and debit cards among brands and sports teams.
But if your company somehow hasn’t yet found its way to launch a debit or credit card, we have good news: It’s easier than ever to do so and there’s actual money to be made. Just know that if you do, you’ve got plenty of competition and that actual customer usage will probably depend on how sticky your service is and how valuable the rewards are that you offer to your most active users.
To learn more about launching a card product, TechCrunch spoke with executives from Marqeta, Expensify, Synctera and Cardless about the pros and cons of launching a card product. So without further ado, here are all the reasons you should think about doing so, and one big reason why you might not want to.
Because it’s (relatively) easy
Probably the biggest reason we’ve seen so many new fintech and non-fintech companies rush to offer debit and credit cards to customers is simply that it’s easier than ever for them to do so. The launch and success of businesses like Marqeta has made card issuance by API developer friendly, which lowered the barrier to entry significantly over the last half-decade.
“The reason why this is happening is because the ‘fintech 1.0 infrastructure’ has succeeded,” Salman Syed, Marqeta’s SVP and GM of North America, said. “When you’ve got companies like [ours] out there, it’s just gotten a lot easier to be able to put a card product out.”
While noting that there have been good options for card issuance and payment processing for at least the last five or six years, Expensify Chief Operating Officer Anu Muralidharan said that a proliferation of technical resources for other pieces of fintech infrastructure has made the process of greenlighting a card offering much easier over the years.
“It’s not just your issuing platform, but also your underwriting, how you are going to KYC this, how you are going to limit your risk but also have an attractive product,” she said. “It wasn’t always the case that you had modern solutions available for all this.”
And for firms that are even less technically savvy, there are turnkey options available. Cardless is one startup in the space that helps sports teams and brands offer branded loyalty cards to their fans. It partners with a card issuer and a number of lenders and takes on all compliance risk, compliance management, customer service and card provisioning while matching card applicants with lenders that match their profile.
Doing so eliminates the need for a non-fintech company to do the work of finding a partner bank or lender, card issuer and payment processor, as well as most of the technical expertise to bring all of those pieces together.
There’s actual money to be made
The economics for most consumer debit card transactions work like this, according to Peter Hazlehurst, founder and CEO of banking-as-a-service startup Synctera:
“Consumer fintechs primarily earn their income based on a rev share of interchange from a debit card swipe. And in consumer debit cards, the maximum amount of interchange that the issuers get is 140 bps (basis points, or 1.4%) … The traditional rev share is about 80/20. So in bps terms, the fintech will get 100 bps, the bank will keep 40. A really hot fintech can push that up to 90/10 and earn up to 125 bps.”
Partner banks will add on other charges, like ACH, wire and ledger fees, and the fintech startup will need to find someone like Marqeta or Galileo to process those payments — or it can work with a fintech-as-a-service provider like Synctera or TreasuryPrime and sign one deal for everything. Either way, that will run another 20 to 30 bps, so a consumer fintech will typically be living off of 70 bps per card transaction, which at scale is actually OK, Hazlehurst says.
For fintechs focused on serving startups and small businesses, the economics are quite a bit better. In that case, the maximum interchange an issuer can get is 240 bps, so post-rev share and processing fees, the startup will have something like 150 to 160 bps to play with.
It’s worth noting those are the economics for companies whose core business will be built solely around interchange revenue. If you’re a startup or brand with an existing business, that interchange money may be more of a bonus revenue stream that you can tap into while building loyalty with end users.
According to Cardless founder Michael Spelfogel, issuing cards can increase revenue by about 20% per customer per year for clients his company works with. So it can be a meaningful boost to their sales with very little cost involved.
Because it’s sticky
Fintechs and non-fintechs alike are always looking for ways to engage with customers and make them more loyal over time, a primary motivation for launching a branded card and offering rewards to those users.
“It’s very expensive in fintech to get customers, so the last thing you want to do is lose them. And honestly, if you can get them even more entrenched in your service, I think that becomes really important,” according to Marqeta SVP Syed.
Issuing a loyalty card “just creates stickiness unlike any other product out there,” said Cardless CEO Spelfogel. “That’s why airlines do it, that’s why in commoditized spaces like hotels it’s so common … and it’s going to happen more in other places, too.”
Spelfogel noted that issuing cards could increase retention and decrease churn among end customers, even when they’re not using a particular brand or service. Loyalty rewards tied to a card basically keep customers coming back and gives them more reason to interact with the brand.
Data collection has a flywheel effect
One final reason more and more brands are entering into the card market is that it gives them deeper insights into what their customers are doing when they’re not purchasing products or interacting on a company’s website. This view into what happens off-site can provide incredibly valuable business intelligence.
According to Spelfogel:
If you’re Glossier’s head of revenue, you only know what your customers are doing when they’re on your website. Or if you’re the CMO of the [Cleveland Cavaliers], you know what a fan is doing when they’re in your stadium. But what are they doing beyond that?
For that brand, it is really, really valuable to understand what your customers are doing elsewhere. So you can inform all sorts of strategies, partnerships, discounts, promotions and things like that.
At the end of the day, that data theoretically could create a flywheel by which brands could provide more valuable rewards that could increase card usage, which could increase stickiness, which could grow revenue even further.
But it’s hard to create a unique card offering
Given all of the reasons above, it’s easy to understand why a company would want to start issuing cards to users — after all, it’s effectively free money and a sneak peek into what your users are spending money on. But does that mean they actually should?
Expensify’s Muralidharan has seen this from both sides of the market — both as the operator of a business issuing company cards that tie into its existing travel and expense platform and as a business development executive at one of the card-issuing platforms — and she’s pretty bearish on the long-term staying power of some of the card products businesses are offering.
“I saw every one of these people that wanted to launch some product like this,” Muralidharan said. “And I’m a total cynic about this and believe 99% of those businesses are just gonna fail because nobody wants all these cards.”
With more and more cards coming to market, it’s becoming less and less likely that any single one is going to be all that useful, even among superfans. The so-called share of wallet is hard to break into, unless you’re truly providing something unique to your users.
After all, even Cardless CEO Spelfogel, who claims more than 250 credit cards to his name, admits he only actively uses about five at any given time.
The rest, he says, are just gathering dust in a closet somewhere.