CardsFTW #17: The Blurry Lines of Credit Cards and BNPL

Plus, cards for creators and more changes to travel card benefits

A Quick Point of Order

Credit card news has slowed down these first six weeks of the year. I've decided I'm not going to force out a weekly newsletter just to publish weekly, so you might see me skip a week or two. Based on some discussion I've been having with other startup founders, I think this will change as we head into the rest of the year. Besides, COVID continues to provide new challenges for major issuers, and I think we will see many changes to card benefits in the next 12 months.

The Blurry Lines of Cards and Buy Now/Pay Later

Credit cards make it easy for consumers to purchase items today and pay for them later. That's not what people mean anymore when they say buy now/pay later (BNPL). Now, BNPL refers to companies like Affirm, Klarna, Afterpay, Quadpay, and others. These companies finance individual purchases, primarily through ecommerce transactions. The purchase is usually split into four installments with either no interest or a fixed fee. The merchant pays a fee to the financing company to cover some of the cost of the funding.

BNPL takes volume from credit cards, helping consumers finance larger (and smaller) purchases online with clear and understandable costs. By contrast, credit cards have long been maligned because once you leave the interest free grace period of approximately 23 days, credit card interest rates can be very high and compound. With an Affirm payment, that $1,000 purchase might be four simple payments of $250 each, whereas a credit card transaction of $1,000 on a card with a typical 16% APR split over four months costs $1,033.55.

Credit card issuers are not going to stand on the sidelines and leave their businesses unprotected. Large issuers like Chase and American Express offer the ability to convert larger purchases (typically more than $100) into a fixed set of repayments. Chase's "MyPlan" product allows consumers to make a purchase of greater than $100 and split it into fixed monthly payments, with no compounding interest, over 3, 6, 9, or more months with a fixed monthly fee. 

Chase offered me up to 12 months for a hypothetical $1,000 purchase on my Sapphire Reserve for a fee of $4.07 per month or just $48.84. My APR is 15.99%. With typical credit card interest charges, I would pay almost twice as much in interest ($88.77). In addition, I would be charged interest on all of my card purchases once I started revolving a balance.

Along these lines of innovation and blurring of the fixed payment and open revolving credit cards Tymit, a British startup seeking to reinvent credit cards (aren't we all?), announced its partnership with Marqeta for card processing. Tymit promotes that users can pick a plan for every purchase and "repay over three months at 0% APR." They also offer longer plans up to 24 months "with transparent costs quoted upfront." Longer installment plans carry APRs between 12% and 22.7%. The card has no annual fee, foreign exchange fee, or over the limit fees.

Tymit looks like a very solid and consumer-friendly card product. The economics on the backend could be challenging if their underwriting and repayment rates don't hold up. I'm not sure it's reinventing cards; it looks a lot like Chase MyPlan and Affirm, but with a card. 

The good news of all this is that there are more options for consumers regarding ways to pay and ways to finance their purchases. My prediction is that the lines will continue to blur. We have already seen BNPL companies experiment with instant issue card numbers to enable financing at non-partner merchants, which ends up looking a lot like a debit card attached to a fixed loan.

Cards for Creators

I didn't expect to find fintech news in Variety, but there it was: an announcement of a new credit card for musicians from Create Music Group. The Create Carbon Card is a waitlist only for now, and there is no publicly-available information on the issuer or network.

The music industry is outside my expertise (aside from listening), but Create says they provide the tools of a major label to independent artists and list The Chainsmokers and Jennifer Lopez on their site as clients. The card sounds like a debit card for payouts. The landing page promises artists will receive their royalties daily, directly onto the card, instead of waiting for bank transfers. The Variety article calls it a credit card, so it's also possible that credit is advanced based on royalties to be paid at the end of the month.

The creator economy is huge, and fintech is hot, so we should not be surprised to see the two coming together. I am aware of at least two other startups in the creator space looking at financing, payouts, and cards: The Music Fund and beatBread, both of which appear to offer advances based on streaming royalties. Neither appears to have card products today, but that is a natural extension.

Creator economy work is at an exciting intersection of business and personal products because the creator is both an individual and a business in many ways. Cards are typically in one of two easy buckets: personal or business. It will be exciting to see how these companies straddle the traditional boxes and bring the immediate spending power of these advances to artists who have daily needs to use that income.

Banks Love Raising Rates

Chase caught some flak this week for announcing changes to their fees for all consumer credit cards. Late Payment and Returned Payment Fees went up to $40, and the Penalty APR was moved to 29.99% (the penalty APR applies when no payment is made or a payment is returned). For those paying attention, that means that if your payment bounces you get charged $40 AND 29.99% on your balance.

Nothing says classic bank behavior like raising rates during a pandemic and economic crisis. Banks do need to make money … and they do … a lot. Fee increases are unnecessary right now. These are the types of charges that affect the folks hit hardest right now. This behavior is why consumers are considering alternatives, like BNPL. Many consumers do need financing, and there is a fair way to make this work as a business. These increases are not a good example of it.

It's All About Takeout

Filed under major travel cards' continuing efforts to stay relevant in a travel-free world, American Express's new Uber/Uber Eats benefits for their popular Gold Card started this month. Previously, American Express rolled out a $10 per month dining credit that applied to an odd set of restaurants and providers (Grubhub, Seamless, Boxed, The Cheesecake Factory, Ruth's Chris Steak House, and participating Shake Shack locations). Cardmembers now also receive a dedicated $10 per month Uber/Uber Eats credit, which is applied directly in the app. Cardmembers also enjoy a free Eats Pass for 12 months (waived delivery fee and some discounts). Platinum cardmembers get $15 in Uber cash each month ($20 in December). Cardmembers can use this Uber Cash either for rides or Uber Eats.

Chase has benefits with DoorDash and their DashPass program. Chase Sapphire Reserve cardmembers receive a free DashPass on orders for 12 months after activation (which includes Caviar, which DoorDash owns) and a $60 statement credit for DoorDash purchases per promotional year. Caviar purchases don't count for this. Sapphire Preferred members get the pass but no credit. Freedom and Slate cardmembers get a 3-month pass and then a 50% discount.

Complicated.

If you use these cards and services, there are some serious savings. The programs have a lot of fine print. While you can maximize these benefits, I get the impression they are more about the impression of value than actual value. There is a corresponding cost to the benefits: American Express Gold Cards, for example, are losing their traditional airline spend credit this year (likely to cover the cost of the Uber benefit).

What we need now is an app to tell us which app to use to order food from which restaurant, along with which credit card to charge it to. (I kid.) 

CardsFTW

Thanks for reading CardsFTW, a weekly newsletter about all things debit and credit. CardsFTW is written and curated by Matthew Goldman, Founder, and CEO at Vertical Finance, a challenger credit card startup. If you're looking for insights into everyday payments beyond deal blogs, please subscribe for free at cardsftw.substack.com. If you enjoyed this, please share it with a friend! Follow me on Twitter @magoldman.