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CardsFTW #81: NerdWallet Launches a Credit Builder
Plus, A More Thoughtful Money20/20 Summary and Curve Credit
NerdWallet’s New Credit Builder Card
Immediately following fintech’s largest show, at which NerdWallet has no presence, the company launched one of the most significant fintech card products in 2023: NerdUp by NerdWallet, a secured charge card.
I found this announcement intriguing on several levels. The card brings NerdWallet into direct competition with its major customers. The six largest issuers in the country each offer some sort of credit builder (e.g., Chase’s Freedom Rise) or secured card product (e.g., Discover it Secured, Citi® Secured Mastercard®, or Capital One’s Platinum Secured Credit Card, among others).
The NerdWallet announcement emphasized that “NerdWallet identified a major gap in the market that needed to be addressed: Too many Americans are denied access to build and improve their credit, often because of typical secured card terms, such as annual fees, high minimum deposits, and hard credit checks.” While there are a lot of mediocre secured cards out there with high fees, including those on NerdWallet’s own secured card listing page, I can’t agree that there is a significant gap here.
Let’s break down the terms NerdWallet highlights:
High Annual Fees
Neither Discover, Citi, nor Capital One charge annual fees on their cards. Of the seven cards on the NerdWallet listing page, only two charge an annual fee.
High Minimum Deposits
Capital One’s starts at $49. Many programs start at $200. Getting a card with a $49 limit will not help your credit score much, as your utilization will go up rapidly, but that’s pretty low. (Credit utilization is about 30% of your credit score.)
Hard Credit Checks
First, I haven’t been able to get anyone at a credit bureau to clearly explain to me why some products require hard credit checks and others do not. Traditionally, if you were going to make a firm offer of credit to a user, you were required to perform a hard check. The idea behind a soft check is for monitoring, ongoing checks, and pre-qualification or pre-approval processes. The lines here are increasingly blurred as bureaus seek revenue from any type of check, and many credit builder products have soft checks.
All-in, the NerdUp card is a very competitive credit builder offering. The NerdUp card, much like offerings from Chime and Varo, offers a line based on the attached deposit account and allows the deposit account to be drawn on to ensure there are no negative payments. Such a process doesn’t produce any meaningful behavioral training for cardholders nor signals for other issuers.
If a cardholder cannot default because the product doesn’t allow it, then the card does not produce any data on whether the user pays their bill on time. Without this data, there is no value to the payment reporting. Traditional secured cards do not automatically draw monthly payments from the security. The deposit is there if the user defaults after having not paid on time for 30-90 days. With this construct, the payment data does show behavior because on-time payments are only reported if the payments are made on time. Is it consumer-friendly to make the card only work on autopilot so it has no real value in building credit? It won’t be hard for other issuers to exclude Nerdwallet cards from their own performance valuation. Credit bureaus have to be evaluating whether or not they can continue to accept and report data like this–it devalues their core product.
There are some exciting products in the market trying to address the security deposit challenge: if you have very little money and bad credit, where will you find the spare cash to make the deposit? Next week, at CardCon, we’ll be at a panel featuring several start-ups using alternative collateral for security deposits, such as Yendo (with auto titles) and Pesto* (with valuable goods like jewelry).
None of this is to say that NerdUp is a flawed offering or not consumer-friendly. It’s a good product and fits squarely in the fintech world. The card is issued by beleaguered fintech sponsor bank Evolve Bank & Trust, which has had more than its fair share of negative news lately. The card’s program manager is Bond, which was acquired for an amount rumored to be $0 by FIS earlier this year (excluding retention packages).
Other companies are stepping on each other’s toes. Credit Karma and Credit Sesame both offer debit card-based accounts with credit-building features. Industry giant Experian launched a similar product using its Boost credit building product. The line between account provider, marketplace, and credit bureau is very blurry at this point. Given NerdWallet’s reach and brand, I predict there will be robust adoption of the card. I’m impressed at the company’s boldness to launch the product. When I was Chief Product Officer at Bankrate Credit Cards, I wouldn’t have dared to compete so directly with the issuers that provided my revenue.
What do you think? If you led strategy at NerdWallet, would you jump in your customers’ lane like this?
Last week, I wrote a quick summary of themes at Money20/20 this year, including:
The challenge high interest rates pose, especially to lending products
Opportunities for vertical software-as-a-service companies to embed accounts and cards into their experiences
The total lack of excitement about crypto, especially as compared to last year
Companies facing funding crunches heading into the fourth quarter
Challenges with sponsor banks: who will survive, who is next in the regulators’ cross-hairs, and what fintech companies should do to reverse diligence their banking partners
There’s a lot more here than fits in one newsletter, so I will dig into “Companies facing funding crunches heading into the fourth quarter” before we get too far into the quarter. Many (most) of my conversations with startup CEOs at Money20/20 focused on funding challenges, their upcoming meetings with investors at the show, and their focus on fundraising.
I frequently heard the number of months in a company’s runway from CEOs. As a founder who has run out of funding on a few occasions (but pulled off some form of an exit!), I feel for these folks. Building a company is hard and lonely, and the crush of responsibility to employees, customers, and investors is immense.
Eighteen months ago, everyone assumed even modest growth could drive to another funding round. Today, everyone is aware, especially in consumer offerings, that investors’ appetites are small. Already this year, some companies have gone out of business, sold for pennies on the dollar, or taken massive hits via recapitalization. Unfortunately, the cycle will continue this way for some time, and we will see more companies fold.
However, the turmoil represents an opportunity for hard pivots, attractive acquisitions, and new companies just starting. Early-stage venture funds continue to need to deploy capital, and there are a lot of interesting and promising ideas out there. The attendee list will look quite different at the show next year. I couldn’t help but recall that last year: I worked at Apto Payments, we had more than 50 employees, and we hosted a very successful lunch event.
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Curve launched a new Curve Credit product last week. Curve started as a smart, over-the-top wallet card, much like my original idea for Wallaby. The UK-based company faced similar challenges to Wallaby in that networks prevented it from providing consumer-focused steering, and certain networks prohibited its participation at all (e.g., American Express). The company has found a way to grow with useful features, such as card-linked offers, the ability to switch already-completed payments from one card to another, and the ability to fall back to a secondary card if the primary one is not authorized. According to the company, the new card has additional consumer protections and the ability to split payments over time.
Curve was briefly available in the United States (I have one), but they are not currently promoting the card here.
CardsFTW is a weekly newsletter released most Wednesdays that offers insights and analysis on new products in the credit and debit card industry for both consumers and providers. CardsFTW is authored and published by Matthew Goldman and Ellen Perl of Totavi, LLC. Totavi is a boutique consulting firm specializing in fintech. We bring real operational experience that varies from the earliest days of a startup to high-growth phases and public company leadership. Visit www.totavi.com to learn more.
*Indicates a company where Totavi, LLC has a business relationship.