In 2020, the first wave of non-traditional credit cards will hit the market. Instead of focusing solely on miles, cashback, or points, these young fintech companies began to focus more on unique rewards, from wine and crypto to fitness benefits and environmental benefits.
There was a sense that a reward evolution could be in the works. It was a great idea until it didn’t work.
By mid-2023 many new cards will be discontinued:
What is the Grand Reserve World Mastercard, a wine-centric card? It’s as simple as putting a cork into it.
In February 2023, the fitness-oriented Paceline Card held its final race. In its FAQ, Paceline says: “We will be back. “)
Aspiration Zero, the green card that promised to plant one tree with every purchase. The Aspiration Zero card was removed from the market in May.
Are novelty lifestyle rewards not enough for consumers to switch from the major credit cards that offer known quantities of rewards? It may be a matter of what niche the cards are targeting.
High costs can make it difficult to be heard over the din
Fintechs can take one of two routes to bring a credit card to market. They either start from scratch or they partner with an existing company who has a back-end system.
According to Matthew Goldman of Totavi in Pasadena California, an expert in the development of financial technology products, the first option allows the startup to own the infrastructure of the card, making it easier for them customize. However, it also requires the creation of systems such as licensing, transaction processing and customer service. It’s also time and resource intensive.
Goldman was interviewed over the phone and by email. Goldman said that this can be a long process, and then a period where the company may lose money while it tries to gain market share. The total investment required to launch a new credit card can reach more than 100 million dollars.
Goldman said, “It is difficult to compete with the Chases of the world.” Goldman says that the startup capital costs are two to three times more expensive than those of established companies. You can’t stand out among the crowd. ”
Timing is important, even if costs are covered
The other option for startup card companies is to partner with a credit-card-as-a-service, or CCaaS, provider. They already have financial systems and backends in place. The startup brings their idea to the CCaaS which curates a card for them. A CCaaS, if capital has already been raised, can bring a product to the market within a year.
Goldman said that “lending, compliance and service to customers are covered.” This allows Goldman to focus more on the consumer experience and rewards. ”
Goldman focused on rewards and experiences when he partnered up with a CCaaS to launch the Grand Reserve World Mastercard in 2020. Goldman claims that partnering with a CCaaS enabled him to launch the Grand Reserve World Mastercard with only $1 million of development costs.
Goldman’s Grand Reserve Card, which was released by 2020 and partnered with wineries from across the nation, came out at the wrong time. Many of these partners were closing their doors due to COVID-19. About 18 months after its launch, the card was shut down.
Other external factors, such as market trends, can play a part. BlockFi was one of the first crypto lenders to offer a credit card that earns cryptocurrency. However, this product has been wiped out by the FTX bankruptcies in 2022.
The lessons learned from credit card success
Fintechs have found success in niche reward programs despite growing pains. M1, an Illinois-based fintech, launched a credit cards in 2021 which allows customers to transfer cash back rewards to their investment accounts. Deserve powers the card, which is the same CCaaS that Goldman used for the Grand Reserve Card.
Ben Reid, general manager of M1 Spend — an account which works with the credit card — stated in an email M1’s card was designed to enhance relationships with current customers by improving the value proposition for the investment platform of the company. M1’s credit card requires that all applicants have a current investment account, which helps to drive growth in the business.
Reid stated that “even the most generous rewards program can’t match megabank marketing budgets for generating awareness and breaking through to the public.” Reid believes that M1’s expanding cardholder base has already become familiar with the M1 eco-system, and using this ecosystem to boost awareness can also help generate new cardholders.
There’s also the Bilt credit card, launched by the same company in mid-2021. This allows rent payments to be made directly via an app, while earning rewards. The landlord receives a check or ACH. The cardholders have the option to redeem their rewards in a variety of ways, including traditional travel, but also for upcoming home down payments, fitness classes or home décor and art.
Goldman explains that “Bilt was very clever in its growth strategy by working with big landlords to address a problem on the tenant and landlord side.” Tenants want a simple way to pay their rent and get rewards. Landlords want payments made on time.
What do consumers really want?
Michael Gomez is a Southern California photographer who uses Bilt. He said that credit cards which align with his goals are important to him.
The newer players have better user interfaces. Gomez says that they have better apps and features, and are easier to use. I like the newbies’ offerings, as they do things in a different way.
Goldman says that people don’t all want airline miles or points. He believes the long-term winner in this market will be those who offer rewards in niches where they are interested, such as investing, wine, fitness, golf, and even sports. In support of his argument, and in spite of the demises suffered by predecessors such as the Paceline Card, new credit cards that focus on wellness are constantly being introduced.
Goldman believes that such unique reward systems are tied to underlying consumer psychology.
He says that it’s a way to spend money you would not otherwise. If I only have 500 points to spend, I get a unique experience .”