CardsFTW #21: SoFi Stats & Interchange Fee Delays

Plus, the Roman god of finance

In CardsFTW #13, I touched on details of the SoFi Credit Card, which emphasized a rewards and fee structure built around positive spend behavior. In 2014, Citibank launched its Double Cash Card which awarded users 1% cash back on each purchase, plus an additional 1% reward when you paid your minimum payment on time. 

SoFi recently announced the official launch of their card which takes this concept further. The card rewards users for redeeming their points at twice the rate (2% effective vs. 1%) when the rewards are redeemed to pay down a SoFi loan or invested in a SoFi cash or investment account. In addition, SoFi will reward your on-time minimum payments with a 1% reduction in the card’s APR after a year of good behavior. This is a unique double incentive for improving credit behavior and something that other lenders could emulate.

Something that jumped out to me in the press release were statistics from the limited enrollment period. SoFi noted that “17% of reward points have been invested with SoFi Active Invest, 60% have been redeemed into SoFi Money®, and 15% have gone into paying down SoFi loan debt.” This leaves 8% missing which I assume went to straight cashback (or perhaps are unredeemed). 

Rarely have card issuers shared how cardholders use their points. We know that approximately one-third of points never get redeemed and often consumers make economically irrational choices to redeem for lower value rewards. (Although I would argue that if you use your points for something you want, you are receiving maximum utility and that is the definition of rational behavior).

Something must not have been working originally, as SoFi specifically noted in their release that they “revised the SoFi Credit Card’s cashback methodology to make it easier for users to see how many points they have earned.” Which means it was confusing before the revision. 

The card uses a two points per dollar system with points being worth one-half of one cent for cashback redemption and one cent for the qualified SoFi activities. I am surprised by the use of points here as it doesn’t seem consistent with SoFi’s brand. While many cards have points (and I am a big believer in the systems overall) many cards designed around credit behaviors or lower tier credit bands are focused on cashback.

Also of note, SoFi teased that cryptocurrency redemption is coming. This newsletter has noted on several occasions the upcoming crypto cards and there will be a lot of them soon. Adding bitcoin redemption directly to an existing card is something we can expect to see from many challenger brands.

A lot of features and information was packed into one release from SoFi. Now we will wait and see if there is corresponding customer demand.

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Interchange Fee Delay

Two issues ago, I touched on how merchants hate interchange, but an interchange fee hike was coming from both Mastercard and Visa. This change was originally scheduled for last year, but was delayed due to COVID-19.Now it will be delayed again. Also, Visa seems to really be having a terrible time getting along with the US Government.

First, the Department of Justice sued to block the Plaid merger, which did in fact fall apart. (No problem for Plaid, who is rumored to be raising funds at 2-3x the valuation Visa offered.)

Second, the networks agreed to delay the swipe fee increases as lawmakers, notably Sen. Durbin of Durbin Amendment fame, questioned both the value and timing.

Third, the Department of Justice is probing Visa over their debit card routing rules and adherence to Federal regulations.

It’s been a rough few months over there at Visa. (Actually, it’s probably OK -- payment volumes continue to grow because people love cards.)

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Why Do People Love Cards?

A recent MIT study noted that credit cards activate our brain’s reward center, paving the way for more spending. The study hooked subjects up to an MRI to watch brain activity. These scans showed that the brain’s reward centers activated more when people were to pay for an item with a card, rather than cash.

The study notes that consumers often overestimate their ability to repay debt (also true outside of credit cards) and that users paying with cards spend more on their cards (also long true because you have more available money on hand and are more likely to make a big purchase with the built-in protections). Also, as the authors note, prior card experience (say using one to buy a big ticket item or use the rewards for something enjoyable) have likely conditioned our brain.

It all sounds pretty damning, until you see that only 28 people participated in the study. 

My take: our brain likes tools that help us acquire products and services we like. That’s just science.

Cavs Card Launches

Startup Cardless (formerly Guild Credit) officially launched their first product, a Visa card for Cleveland Cavaliers Fans issued by First Electronic Bank.

Cardless, who appears to be heading for a head-to-head with Synchrony as a private-label issuer, moved very quickly to get this card in market. The company went from concept to well-funded to issued in about two years, which is impressive. Personally, I remain skeptical of sports-driven cards as the total superfan market can be quite constrained. That said, I am not a basketball fan, so I am talking out of turn here.

I was intrigued to see First Electronic Bank as the issuer for Cardless. They have backed a few fintech cards in the past, such as Blispay, but I haven’t heard much activity from First Electronic lately, compared to other issuers such as Evolve Bank & Trust or Celtic Bank. It’s good to see the bank continuing on as it was started as part of Fry’s Electronics. (The bank is an industrial loan charter.) Fry’s Electronics themselves just closed up shop earlier this year. Fry’s couldn’t withstand the shift to online retailing nor the competition from Amazon. Fry’s may be gone, but its former bank lives on!

Company Name Suggestion: Lincoln Payments

Most folks know that Mercury is both the planet closest to the sun and the Roman god of communication and trade. No wonder payments companies love the name Mercury and have made him the god of payments.

We already have Mercury Payments, which was acquired by Worldpay and then on by FIS. We also have Mercury Insurance. We have Mercury, the neobank for startup businesses (who paid out for mercury.com, the big win).

Now, CreditShop, which offered the Mercury Mastercard, has rebranded as Mercury Financial.

Look, I get it. Mercury is the god of commerce. However, it’s getting confusing out there, which is ironic for the god of communication. Can we please try something new?

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.