Nibbles, The Pet Insurance Card - CardsFTW #143

EMV Didn’t Reduce Fraud, but it Did Reallocate it

Fumiko Hayahsi, a senior researcher at the Federal Reserve Bank of Kansas City, published a fascinating piece of research last week, “Did Card-Present Fraud Rates Decline in the United States After the Migration to Chip Cards?” in which she answers quite clearly that, in most cases, the answer is “no.”

Hayashi finds that since the implementation of the EMV fraud liability shift in 2015 (which penalizes merchants without chip-compatible terminals with additional fraud liability), the share of credit and non-prepaid debit cards with EMV chips has grown to nearly 90% by 2022 in the U.S. However, using data from the Federal Reserve’s payment reports, the paper noted that counterfeit fraud on dual-message (e.g., Visa, Mastercard networks, vs. single-message or PIN-debit networks, Star, Pulse, or NYCE) was 9.1 bps in 2021 vs. 5.6 in 2011.

The research also demonstrates that the lost-or-stolen fraud rate of non-prepaid debit cards on dual-message networks tripled from 1.6 bps in 2015 to 4.5 bps in 2021.

Single-message networks and prepaid debit cards are not affected in the same way. First, single-message networks require a PIN, which further secures the card. Second, prepaid debit cards are a low-value target as most of these cards have limited funds available.

I am very surprised to read that the overall card-present fraud rate has increased (from 8.8bps in 2011 to 14.9 in 2021) while we (payments people) expected EMV chips to reduce card-present fraud. 

The EMV chip is an encrypted representation of the card and was designed to frustrate skimming or copying, wherein the unencrypted primary account number (PAN) on a card was encoded on the magnetic stripe. You are not supposed to be able to copy cards. However, card-present fraud includes identity theft and other types of fraud that have exploded in recent years.

Perhaps most relevant for everyday consumers, Hiyashi finds that the liability shift didn’t shift liability to issuers once merchants installed chip readers; instead, it moved from issuers to merchants and cardholders themselves.

Readers from other countries may wonder why we implemented chip-and-signature (in which the card itself is typically the only real authentication device) vs. chip-and-PIN. In security parlance, chip-and-PIN is multi-factor authentication combining something you have (the EMV chip on your card) with something you know (your personal identification number). Are Americans ready to use PINs, like they do in Europe and other global regions? It seems unlikely today, but if cardholder fraud responsibility continues to grow, I am guessing they will learn to be.

Cash App’s Tortoiseshell Card

In last week’s CardsFTW #142 on card design, I used Cash App’s mood card with a custom EMV chip as an example of a fun design. Just after publication, the Cash App team let me know about their latest card that dropped last week, a collaboration with Shaboozey for a tortoiseshell card. Who is Shaboozey? I don’t know. I’m a credit card nerd. The card itself is pretty cool, though!

BNPL + Debit

Wait, is BNPL + debit just a credit card? I don’t know anymore. Affirm, which launched the first Visa Flex card with Marqeta last year, just announced a deal with legacy fintech behemoth FIS. The deal enables FIS traditional bank clients to integrate Affirm’s pay-over-time solution directly into their existing debit card program. So, is it a credit card with worse interchange? I still don’t get all this mixing. Is this because the small banks don’t have credit card programs? Is it because people prefer fixed installments vs. revolving cards’ compounding interest (if so, that is smart)? The deal does speak to an interesting alignment of the old and new guard, but I imagine it will be a slow rollout in traditional banking.

Nibbles - The Pet Insurance Card

Folks, I have a problem. I can’t stop applying for credit cards. I acquired two new ones last weekend, including the Nibbles Mastercard. I first wrote of Nibbles during their pre-launch state in CardsFTW #110, back in June. Nibbles is a Mastercard credit card paired with a pet insurance program that perfectly hits on the ongoing trend towards increasing spend by Americans on pets.

Nibbles stands out to me for two reasons compared to other pet cards we’ve covered, like the Petco Card. First, the card includes bundled pet insurance, creating a new set of benefits (and revenues). Second, the small team of ~15 built an entire insurance agent platform and credit card platform from scratch in record time.

I had a chance to catch up with Nibbles co-founder Rafael Lopez last week after I noticed in a semi-routine check of their site that the card had launched (apparently back in December) and is available for applications. After a false start with a credit card program management platform, Nibbles developed its platform in partnership with CoreCard and Lead Bank as their issuer. Lead is a fintech infrastructure bank brought to you by some ex-Square folks and this marks a beachhead in their consumer credit card issuance market.

Pet insurance has a mixed reputation, in part due to very high costs. I’ve been insuring my dog with insuretech Lemonade, which has been…fine. Nibbles offers me a card with 3x on pet stores and pet care (effective 3% cashback), plus insurance at a base rate less than my Lemonade insurance. (They do offer some insurance upsells, which I have to admit I went for.) Like other fintech cards, the company pitches a very consumer-friendly approach, allowing cardholders to request rewards on pet merchants that may be misclassified. This point is a big one for me. I spent a lot of time on rewards systems, and I know that my number one pet expense is doggy day care (something I never thought I would say, but working from home makes the barking dog a problem). My dog goes to a merchant that isn’t in a pet MCC (I missed some Chase Freedom rewards as a result!). Rafael assured me I could get those points!

All of the above is great fintech card work. The best part, however, is how the Nibbles team has integrated insurance into the card. If you have the Nibbles card and pay for your pet care at your vet with the card, Nibbles will automatically initiate claim processing, including reaching out to your vet to acquire the necessary paperwork. Claims are typically processed in 48 hours and paid as a statement credit within 30 days (most pet insurance requires delayed after-the-fact reimbursement).

So, I am getting a card that will:

1. Earn me incremental rewards on a major spending category
2. Save me money on pet insurance
3. Make pet claim reimbursement easier

What a treat.

CardsFTW

CardsFTW, released weekly on Wednesdays, offers insights and analysis on new credit and debit card industry products for consumers and providers. CardsFTW is authored and published by Matthew Goldman and the team at Totavi, a boutique consulting firm specializing in fintech product management & marketing. 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.

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