Why Launch a Credit or Debit Card? Benefits & Reasons

The Rise of New Card Products

The past few years have witnessed a significant surge in the introduction of new debit and credit card offerings. This expansion is driven by both consumer-focused and business-to-business (B2B) fintech startups.

Notably, even companies not traditionally associated with financial services are now entering this market.

Consumer and B2B Innovations

For individual consumers, platforms such as Venmo and PayPal are now providing debit cards. These cards offer a convenient method for users to access and utilize the funds held within their accounts.

Within the B2B sector, startups like Brex and Ramp have revolutionized expense management. They’ve done so by providing corporate card issuing capabilities.

Furthermore, there's been a notable increase in the prevalence of branded credit and debit cards, often associated with well-known brands and sports teams.

Opportunities for New Entrants

If your organization has not yet ventured into offering a debit or credit card, there is positive news. Launching such a product is now more accessible than ever before.

Moreover, there is a genuine potential for revenue generation. However, be aware that the market is becoming increasingly competitive.

Successful customer adoption will likely hinge on the stickiness of your core service and the attractiveness of the rewards program you provide to your most engaged users.

Expert Insights on Card Product Launches

TechCrunch consulted with leaders from Marqeta, Expensify, Synctera, and Cardless to gain a comprehensive understanding of the advantages and disadvantages of launching a card product.

Here’s a summary of the key considerations, outlining the compelling reasons to explore this opportunity, as well as a significant factor that might suggest a different course of action.

• Key Players: Venmo, PayPal, Brex, Ramp, Marqeta, Expensify, Synctera, Cardless.
• Focus Areas: Consumer debit cards, B2B corporate cards, branded card programs.
• Success Factors: Service stickiness, valuable rewards programs.

The Increasing Accessibility of Card Programs

A primary driver behind the surge in fintech and traditional companies offering debit and credit cards is the relative simplicity with which they can now be deployed. The emergence of companies like Marqeta has fundamentally altered the landscape of card issuance.

By providing API-driven solutions, Marqeta has made card programs significantly more accessible to developers, substantially reducing the barriers to entry over the past five years.

Salman Syed, SVP and GM of North America at Marqeta, explained that the success of foundational fintech infrastructure is the key factor. “With companies like ours available, launching a card product has become considerably streamlined.”

Anu Muralidharan, COO of Expensify, highlighted that viable card issuance and payment processing options have existed for several years. However, the expansion of technical resources across the broader fintech ecosystem has simplified the approval process for new card offerings.

“The decision to offer a card is now easier because it’s not solely about the issuing platform,” Muralidharan stated. “Considerations include underwriting, KYC procedures, risk management, and product appeal.”

Previously, modern solutions weren’t readily available for all these essential components.

Turnkey Solutions for Non-Technical Companies

For organizations lacking extensive technical expertise, comprehensive, ready-to-use solutions are available. Cardless is an example of a startup specializing in branded loyalty cards for sports teams and brands.

Cardless collaborates with card issuers and lenders, assuming full responsibility for compliance, risk management, customer service, and card provisioning. They also match applicants with suitable lending partners.

This approach eliminates the need for non-fintech companies to independently source partner banks, lenders, card issuers, and payment processors. It also alleviates the need for the specialized technical knowledge required to integrate these elements.

Profitability in the Realm of Debit Cards

Peter Hazlehurst, the founder and CEO of Synctera, a banking-as-a-service startup, explains the economic structure of most consumer debit card transactions. Revenue generation for consumer fintech companies largely depends on a percentage of the interchange fees collected from each debit card transaction.

The maximum interchange fee issuers can receive on consumer debit cards is 140 bps (basis points), equivalent to 1.4%. A standard revenue share arrangement typically divides this 80/20, granting the fintech 100 bps while the bank retains 40 bps.

Fintechs experiencing rapid growth may negotiate a 90/10 split, potentially earning up to 125 bps. Beyond this, partner banks often impose additional fees for services like ACH transfers, wire transactions, and ledger maintenance.

Startups generally need to engage a payment processor such as Marqeta or Galileo, or alternatively, collaborate with a fintech-as-a-service provider like Synctera or TreasuryPrime to consolidate these services under a single agreement.

This consolidated approach typically incurs an additional cost of 20 to 30 bps. Consequently, a consumer fintech usually operates on a margin of approximately 70 bps per transaction, which, when scaled effectively, can prove quite viable, as Hazlehurst points out.

Enhanced Economics for Business-Focused Fintechs

The financial landscape shifts favorably for fintechs concentrating on startups and small businesses. In this segment, issuers can access a maximum interchange of 240 bps.

Following revenue sharing and processing fee deductions, these startups can anticipate retaining between 150 and 160 bps. This represents a significant improvement over the consumer debit card model.

It is important to recognize that these economic figures apply specifically to companies whose primary business model revolves around interchange revenue. For established businesses or brands, interchange income can serve as a supplementary revenue stream.

This additional income can be leveraged to enhance customer loyalty without fundamentally altering the core business.

Michael Spelfogel, founder of Cardless, indicates that card issuance can boost annual revenue by roughly 20% per customer for their clientele. This represents a substantial increase in sales with minimal associated expenses.

The Power of Customer Retention Through Branded Cards

Both financial technology companies and businesses in other sectors are consistently seeking methods to enhance customer engagement and foster long-term loyalty. A key strategy in achieving this is the introduction of branded cards coupled with rewards programs for users.

According to Marqeta SVP Syed, acquiring customers in the fintech industry is a significant expense. Therefore, retaining those customers is paramount, and deepening their involvement with the service is considered crucial.

Cardless CEO Spelfogel emphasizes that offering a loyalty card generates a level of customer retention unmatched by most other products. This explains its prevalence in industries like airlines and hotels, where services are often highly similar.

The issuance of cards can demonstrably improve customer retention rates and reduce customer churn, even when customers aren't actively utilizing a specific brand offering.

Loyalty rewards linked to a card provide a compelling incentive for repeat business and encourage increased interaction with the brand.

Why Branded Cards are Effective

• Increased Stickiness: Cards create a strong connection between the customer and the brand.
• Reduced Churn: Rewards programs incentivize continued use and discourage switching to competitors.
• Enhanced Engagement: Cards encourage more frequent interaction with the brand’s services.

Spelfogel further explained that the inherent value of a loyalty card lies in its ability to foster ongoing relationships. This principle is already well-established in competitive markets, and its application is expected to expand across various industries.

The Flywheel Effect of Data Collection

A significant driver for increased brand participation in the card market is the enhanced customer understanding it facilitates. This allows companies to gain insights into consumer behavior beyond their direct purchasing activities and website interactions.

Such off-site behavioral data can yield exceptionally valuable business intelligence.

Insights Fuel Growth

Spelfogel highlights the potential for a positive feedback loop:

The data gathered can, in theory, establish a flywheel effect. Brands can leverage this information to offer more compelling rewards, boosting card utilization.

Increased card usage then fosters greater customer loyalty, ultimately leading to further revenue growth.

The Value of Comprehensive Data

This cycle demonstrates how data collection isn't merely a byproduct of card programs, but a core component of their strategic value.

By understanding customer spending habits and preferences across various platforms, brands can refine their offerings and strengthen customer relationships.

Enhanced Customer Loyalty

The ability to personalize rewards and incentives based on real-world data is a key differentiator.

This personalization drives card usage and cultivates a stronger sense of customer stickiness, making it less likely for consumers to switch to competitors.

Revenue Amplification

Ultimately, the flywheel effect translates into tangible financial benefits for brands.

Increased revenue is a direct result of enhanced customer engagement and loyalty, fueled by data-driven insights.

The Challenge of Developing a Distinctive Card Program

Considering the factors previously discussed, the appeal for companies to begin issuing cards to their user base is readily apparent – it represents a virtually cost-free revenue stream and valuable insight into customer spending habits.

However, does this potential justify the undertaking? Expensify’s Muralidharan, having observed the market from both perspectives – as a provider of company cards integrated with a travel and expense system and as a business development leader within a card-issuing platform – expresses skepticism regarding the sustained success of numerous business-launched card products.

“I’ve witnessed numerous companies attempting to introduce offerings of this nature,” Muralidharan stated. “I remain highly doubtful, predicting that 99% of these ventures will ultimately falter due to consumer reluctance to manage a multitude of cards.”

As the market becomes increasingly saturated with card options, securing significant user adoption for any single card becomes progressively difficult, even among dedicated customers. Capturing a substantial share of wallet requires delivering genuinely unique value.

Even Cardless CEO Spelfogel, possessing a collection exceeding 250 credit cards, acknowledges that he actively utilizes only approximately five on a regular basis.

The remainder, he notes, remain unused and stored away.