CardsFTW #36: Capital One’s New Cards

New Cards from Capital One

Last week Capital One announced new cards in both its student and small business segments.

Student cards have typically come in one of two flavors:

1. a no-rewards, just-be-glad-you-were-issued-a-card-at-all style; or
2. a card that looks and acts similar to the mainline product but with a much smaller credit line

The new Capital One cards fall into the latter category. The SavorOne Rewards for Students and Quicksilver Rewards for Students credit cards are near copies of the mainline SavorOne and Quicksilver cards.

The SavorOne card is dining-focused and earns 3% cashback on dining, entertainment, streaming, and groceries, plus 1% cashback everywhere else. The card has a high APR (25.99%) and no signup bonus compared to the standard version of the card. Nothing too exciting here.

The same analysis applies to the new Quicksilver card for students. Quicksilver is a flat-rate card earning 1.5% cashback on all purchases, but again with no signup bonus and a very high APR as key differentiators for these unproven borrowers.

Credit access is good, but this card doesn’t stack up well. Discover’s student product has a more reasonable APR (12.99 - 21.99%) and includes a student-specific bonus for good grades! Sallie Mae’s Ignite card has a signup bonus, 1% cashback, a cosigner option, and a more reasonable APR range (12.99 to 24.99%).

On the business side, the new Spark Cash Plus card replaces the Spark Cash card and is a charge card, not a credit card. The charge card designation means there is no credit limit and that cardholders must pay the balance in full each month. Traditional American Express cards are charge cards versus most consumer cards which are credit cards. The card is a flat 2% cashback card with a $150 annual fee. In addition, there is a $200 bonus every year in which you spend more than $200,000, which sounds nice, but also a bit random, since it’s not something like an additional 1% back, but just 0.1%.

The second new business card is Spark Cash Select, which has no annual fee and earns 1.5% cashback on all purchases. Businesses can choose between a lucrative signup offer or an introductory 0% APR for one year. Savvy companies will know they need to spend at least $30,000 per year to justify the fee for the extra cashback. Many, I suspect, will refuse to get a card with an annual fee out of principle.

In all, it’s a good bit of change for a major issuer, but none of the new cards are that innovative or exciting. They will likely be successful as they fit it into the well-known card constructs.

Credit Keeps Humming Along

I’ve previously touched on the challenges credit cards face from merchants who don’t want to pay interchange; from buy-now, pay-later solutions (BNPL), which are easier to understand; from consumers, who prefer debit and are scared of credit, and other challenges.

Those challenges continue, with J.D. Power reporting that customers across the board are more disappointed in their cards, especially at midsize issuers. What don’t customers like about cards? People don’t like the same things about most products: long wait times, changes to products, delays with problem resolutions, etc. Most of this is the same for credit card companies and cable companies. The survey also reveals that 46% of shoppers use BNPL to avoid card interest fees and debt.

The Wall Street Journal printed another article about merchants charging consumers to use a credit card. Laws and regulations have changed over the years, making it easier for merchants to charge consumers to use a card. Businesses that go this way talk about the size of the savings, but it’s clear some consumers avoid cash or debit-only businesses. Not surprisingly, I think it’s crazy to charge consumers to give you money, and that card fees are reasonable given the risks and costs of cash or checks. Yes, it costs money to process payments, but everything costs money. Businesses probably don’t have free checking accounts either, and if they do, they are subsidized by card fees.

Despite all of these challenges, credit cards are profitable and growing. According to Mercator/Payments Journal, credit card issuers reported record-level profits and low delinquency rates. Will this continue into 2022? I’m going to go with yes.

People Like Debit Cards, Too!

It’s not just credit cards that are doing well; debit cards have performed well through the pandemic. Pulse, a debit card network owned by Discover, announced its 2021 debit issuer study, done in partnership with consulting firm Oliver Wyman. Consumers made fewer individual debit card transactions (by 2.5%) but increased the total volume to $3.66 trillion, demonstrating a shift to higher-value transactions, with the average amount increasing more than 10% to $44.80. As expected, due to the pandemic, the big growth was in card-not-present transactions (up 26% in count, 21% in volume), and physically present categories like restaurants shrunk.

Credit cards have been around a lot longer than debit, but 2020 marked the year when debit volume (both standard and prepaid debit) in the United States was larger than total credit card spend volume for the first time.

In addition to the challenges with credit cards covered above, the growth in new debit card programs is astounding. Fintech companies are launching innovative new offers like crypto-backed debit cards, credit-builder cards, decoupled debit programs, and more. Debit cards are easier to develop and launch than new credit programs, and this is a trend that will continue.

American Express being AMEX-y

AMEX launched an art collaboration with a Rem Koolhaas and a Kehinde Wiley Centurion Card. Why? Because.

Changes to Physical Cards

While contactless and digital card volume has grown tremendously in the past eighteen months of the pandemic, physical cards remain in use, and changes are afoot.

First, everyone was very excited that Mastercard is going to do away with magnetic stripes eventually. These are the least secure part of your credit card and are used less and less. The phase-out is planned to take nine years, starting in 2024. The timeline should be OK. (As usual, gas stations complained.)

Second, HSBC announced a new card design with accessibility in mind. It’s also vertical, which is quite on-trend these days, but the notch at the bottom and increased contrast for numbers is a win.

CardsFTW

Thanks for reading CardsFTW, a weekly-ish 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.