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CardsFTW #77: Taylor, Travis, and Transactions
Plus, Interchange News, FedNow, Open Banking, and More!
Experian Launches the Smart Money Debit Card
Unless you’ve been under a rock, you probably saw the big news about Travis Kelce this past week. I think it had something to do with Taylor Swift, but I’m more interested in the financial services ads than celebrity gossip. While Swift has been in Capital One commercials for some time, and Kelce has been in ads for almost everything (yes, he was famous before TSwift), the one that caught my eye on this week’s Monday Night Football was this ad about Experian’s new Smart Money credit-building debit card.
Experian Smart Money is “a digital checking account that helps you build credit.” I’ve written about this quite a bit before. One of the underlying questions was, why do the bureaus allow this? Well, now we have a bureau with its own branded program, which is issued by fintech sponsor bank, Community Federal Savings Bank. (See them and more on our open-source list of sponsor banks.)
The Smart Money card works differently than other competitors, such as Extra or Grow Credit. Those programs use innovative methods to create a loan attached to a debit card and report that behavior to a bureau (typically Experian and Equifax, but not TransUnion, which has been more selective). The Smart Money card utilizes the process behind Experian Boost, which reports ongoing payments like rent and utilities that don’t typically generate reportable behavior.
Readers of the fine print will note that not all lenders use a version of the Experian report and score that includes the Boost data. Boost works by using account data aggregation (more on this in the next item). Data aggregation isn’t free. Depending on the number of accounts, costs can easily add up to $1.00 or more per user per month. Boost is free (although Experian is a master of the upsell/cross-sell).
The Smart Money card, in contrast, should generate revenue. While the product has no monthly fee, user transactions on the card will generate interchange revenue for the issuer and program manager. Experian can drive deposits and volume onto the card by using the transactional information from the card to drive Boost data.
The approach of this card is entirely different than we’ve seen in the credit building debit card space and represents something that only a credit bureau can effectively do. Given the marketing budget size (a Travis Kelce spot on prime-time football cannot be cheap), I expect Experian could do well with this offering.
Coming Soon: Totavi’s Credit-Cards-as-a-Service Report
My team here at Totavi has been hard at work on our first research report: a comprehensive look at the credit-cards-as-a-service (CCaaS) space in the United States. This report provides a snapshot of the industry, compares various CCaaS providers, and offers guidance on when to buy or build. Paid subscribers of CardsFTW will receive a compelling discount if you’re subscribed by October 15th. Upgrade today!
Mastercard Responds to Interchange Reports
In CardsFTW #73, I covered reports that Mastercard and Visa planned to increase their interchange rates in the coming year. Mastercard wrote an official letter (PDF) of response unequivocally denying the reports. Further, Mastercard makes a series of important claims:
Mastercard is not increasing US interchange rates this fall.
Mastercard is not raising network fees in the US required for the processing of transactions this fall.
The payments industry has never been more competitive.
Electronic payments empower consumers, allow merchants of all sizes to thrive, and strengthen the American economy.
Mastercard's technology protects consumers from fraud and keeps them safe.
Obviously, I am biased, but Mastercard’s points ring true for me. Today, merchants accept payments with PayPal, Zelle, CashApp, and Venmo, alongside Mastercard, Visa, ACH, and checks. FedNow RTP and offerings from The Clearing House are continuing to come to market. There are more ways to pay than ever before, and the growth of digital payment apps is astounding. That’s competition. Merchants who don’t want to accept cards don’t have to (if they ever did).
Interchange covers fraud management, acts as insurance for credit card disputes (Zero Liability isn’t free), and much more. As I like to say, merchants will always complain about interchange, regardless. The whole story appears to be a lot of noise over nothing if there isn’t a change coming (at least from Mastercard; we haven’t heard from Visa yet).
Open Banking That Isn’t Open
Financial account data aggregation has been in development and use for almost a quarter of a century since Yodlee was founded in 1999(!). Account aggregation is a core part of open banking, enabling users to permit their financial data from their banking institution to a third party, such as a personal finance app. The industry took off in the past decade with mobile apps and new entrants (that became market leaders) such as Plaid.
Jason Mikula of Fintech Business Weekly does an excellent, in-depth job of covering recent changes from Fidelity, PNC Financial, and Akoya, a bank-owned data aggregator that is turning open banking on its head. As is often the case, these institutions are hiding behind security as a way to manipulate the market. Akoya, which was spun out of Fidelity to compete with companies like Plaid, has almost no market presence and does not have the capabilities and developer-centric approach of Plaid and similar companies like Finicity and MX. The result is that associated institutions force their customers to find complex workarounds.
Your bank should work for you; you shouldn’t work for your bank. I hope these institutions will change their approach and help their consumers use their financial data to improve their lives rather than trying to force them to stay in a walled garden.
A couple of other news items that caught my eye this week:
ReadyLife, “a black-owned fintech platform, enabling the generation and preservation of wealth for those who aren’t adequately served by the current system.” joins the list of fintech companies that want to buy a bank.
The Atlantic brings us another look at the weird fact that most airlines are effectively loyalty and credit card programs that happen to fly planes (on the heels of news that Delta’s co-brand card moves about 1% of U.S. GDP each year).
FedNow's new legal terms may open a tsunami of opportunities for digital wallets and payment apps to move money in real-time without the traditional card networks (see above; Mastercard has a point).
I recently joined Jason Mikula of Fintech Business Weekly and Alex Johnson of Fintech Takes on their monthly podcast, Fintech Recap. We delved into many topics, from the latest developments in banking-as-a-service to Mastercard's stance on rate hike reports. I highly recommend tuning in to understand the industry's nuances and where it's headed.
Don’t forget that Money20/20, the biggest show in the fintech and payments industry, is coming later this month. Totavi will be there. If you want to set up a time, send me a note (reply to this email), or we’ll see you at a party.
Thanks for reading CardsFTW, a weekly debit and credit newsletter by Matthew Goldman. Matthew is the founder of Totavi, LLC, which provides GSD Product Consulting with real operational value. Visit totavi.com to learn more and engage us.
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