Brex Goes Big
Brex, the corporate card provider, announced a massive funding round and a shift in their product approach. Brex launched "Brex Premium," which the company describes as a software layer on top of their existing Brex Card and Brex Cash product. This software-as-a-service with a $49 monthly fee includes more than card payments such as bill pay, expense management, and reimbursements.
In the past four years since Brex launched, we have also seen Ramp and Divvy reach billion-dollar-plus valuations with their expense-management platforms based on a corporate card product. Brex's new product offerings look a lot like Ramp's offering, which has focused on spend-management more than credit card rewards, as Brex did initially.
All three companies differentiated themselves from traditional small business cards in a couple of key ways:
No personal guarantee
Traditional small business cards (such as Chase Ink) require the business owner to sign for the loan and bear personal responsibility for paying the card. The new entrants underwrite the business based on its cash-on-hand and cash flow, with the business securing the loan.
Traditional small business products from mainline and local banks are not great. Built from the ground up with modern user experience design, ease of use has been a significant factor for these new cards.
The new Brex credit card also introduces a faster repayment schedule: daily. In comparison, traditional small business cards act just like consumer credit cards (with a typical 21 days or so from statement close to payment due date). The startup card companies offer charge cards. These charge cards do not allow for carrying balances, and the payment due was automatically deducted from the small business's account after the due date with no grace period.
Now the Brex credit card will draw money from the small business account every day for transactions that settle the previous day. As the Brex website says, "like a debit card." Last week in CardsFTW, I wrote about decoupled debit, and that is effectively what this is. The networks appear to be allowing these cards to operate as corporate cards (which earn much higher interchange rates), but they effectively act as decoupled debit. Brex also promises the card will build credit, but few details are available on the "how" other than "payments are reported to credit bureaus."
Expensify, which started in 2008 intending to build a corporate card, but pivoted to an expense management platform, offers a corporate card product launched last year that also uses a daily payment schedule.
I understand why a company like Brex would want to switch to the daily payment approach. It massively reduces their risk (any failed ACH debit from the underlying account can cause an immediate freeze on the card). It also reduces the cost of capital, as funds outstanding should drop dramatically. (Brex has to pay the network daily on a monthly card, even though customers had only been paying Brex back monthly.)
The Brex daily credit card requires a Brex Cash account and the card limit is 80% of the available cash. The Brex monthly card requires a linked bank account with a balance of $50,000 or more. Both cards are free and earn points in a proprietary system.
The new products open a new revenue line for Brex and will increase their addressable market by allowing many smaller businesses to use their products. The open question is if these small businesses are interested more in credit access than in cash flow. I think many small businesses value the 30-day float a traditional credit card provides them.
Card Offers Accelerate
As the economy picks up steam and the COVID-19 pandemic lessens in the United States (although certainly not globally), major credit card issuers appear to be ramping up incentives to drive new consumer credit card acquisition.
Late last year, the Federal Reserve Bank of New York reported in their SCE Credit Access Survey that the percentage of households applying for a new credit card in the past 12 months dropped to 15.7% in October 2020, from 27.2% a year prior (a 43% decrease). At the same time, the rejection rate rose 26% from 16.9% to 21.3%. For further context, survey data started in 2013, and the last time the rejection rate was this high was October 2014.
Now we see a turn-around. Checking WalletHub's Best Credit Card Signup Bonus list revealed four offers with more than 100,000 signup bonus points, traditionally a high watermark. In addition, recent offers (some now expired), including 60,000 American Airlines AAdvantage miles on the Barclays Aviator Red Card after simply making your first purchase and paying the $99 annual fee in full, both within the first 90 days (usually some minimum spend is required). Another prominent example is 100,000 Marriott points with the Chase Bonvoy Boundless card ($3,000 spend). A final highlight is a targeted 75,000 Membership Rewards points bonus after you spend $5,000 for upgrades to the Platinum American Express card from another card (hat tip: Doctor of Credit).
I don't usually write about bonus offers because it's impossible to keep up with, but the trend is interesting. It's very challenging to convince an affluent consumer to apply for a new card. It's even more difficult during a time of general economic uncertainty. These signup offers (and likely corresponding higher marketing spending) are indicators of bank behavior after last year's halt in issuing for some banks and a reduction in credit lines.
Challenger Cards Expand Through COVID-19
As highlighted in a great article from NerdWallet, as major issuers temporarily stepped out of issuing new cards last year, startups increased their lending. The highlighted issuers such as Chime, Grow, and Tomo (as well as others such as Deserve, Petal, Jasper, and others) use secured cards, low credit lines, cashflows, and other data to do new underwriting and provide access.
The complex financial circumstances for many people through the pandemic will lead to a larger-than-usual need for products for people with bad or limited credit information. It's exciting to see these financial inclusion products have the room to grow and become large forces in the broader lending space.
Cryptocurrency Credit Cards
Credit cards with bitcoin rewards are going to be big in 2021 and beyond. In addition to BlockFi's announced card with Deserve, Gemini announced details about their forthcoming card. Mastercard will be the network with WebBank serving as the issuer. The card is promising some other exciting features:
A 3/2/1 accelerated earnings structure for dining, groceries, and everything else, with the cashback being in the form of any of 30 supported cryptocurrencies
Automatic real-time rewards deposited into cardholders' Gemini accounts
No annual fee
No card number on the card (like Apple Card)
The Gemini card puts up a solid competitor to the BlockFi card, with differentiated rewards.
Bank of America Card Design and Names
Join me to ponder the latest cosmetic changes at Bank of America credit cards. The company recently released redesigned cards, which continue the bank's long history of attempting to make the Bank of America logo as central as possible. There were also reports on the web that they are renaming their workhorse Bank of America Cash Rewards card to the Customized Cash Rewards card. No change otherwise to the card or its rewards. I'm not sure "Customized" adds much here (you can choose from one of six categories for the top-tier 3% cashback category, so it is technically accurate), but with a new design and a new name, it does freshen up this card!
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.