CardsFTW #38: A Year of CardsFTW

I started writing CardsFTW just over one year ago. My friend Peter suggested I start CardsFTW as an outlet for my extensive Slack posts about credit cards. The last month excluded, I’ve exceeded my own goals for writing on a routine basis, hardly missing a week. (Then, missing the previous four weeks in a row.) It’s been a great joy to have so many readers and meet many new people through this newsletter.

Thank you for reading. Thank you for sharing. I’m looking forward to year two (and to getting back on schedule).

Car Equity Credit

One of the attack angles for innovation in consumer revolving credit is to change underwriting through different collateral. If a user has poor quality credit but has an asset that can secure the card, it is easier to give access to a revolving credit card. Traditionally, secured cards used a cash deposit (at the credit card issuing bank). Using cash is straightforward for the issuer to collect on if the debt goes bad.

We’re starting to see some very interesting approaches in this space. Aven is a startup with a credit card backed by your home and issued by Coastal Community Bank. The card is marketed as a home equity line of credit, enabling better decisions, lower rates (3.49 - 10.99% APR), and quality cashback (1.5%). Banks have provided cash access cards to home equity lines of credit in the past, but this card-first pitch is a bit different.

Last week another startup entered the space: Otto is a credit card secured by your vehicle. The company pledges not to check your credit but rather to issue you a line based on your card and its value. Credit lines will vary from $500 to $10,000. The card will operate as a standard revolving card, and they indicate they won’t repossess your card for your first missed payment (although they might later).

I couldn’t find details on the issuer, status, or card terms yet, so I have many questions about what cardholders are signing up for in this scenario. That aside, it’s exciting to see continued attempts to innovate in the path-to-credit space. I am concerned about this card as I would be with any auto title loan, which can lead to consumers losing their car and their ability to make money as they cannot get to work.

According to the TechCrunch article on Otto, the goal is to repossess the car as a last resort. The current COVID-19-induced car market notwithstanding, used cars are typically a depreciating asset and, therefore, not a good item from which to withdraw equity (as compared to your house, which typically appreciates over time).

Square’s Fifth Network

As mentioned, I’m a bit behind on writing, but Square announced the ability for Cash App users to make in-store payments. The new feature allows consumers to scan a QR code or press a button to activate a purchase transaction directly between their Square Cash App wallet and the merchant’s account, bypassing the card networks. Before this change, consumers would swipe a Square Cash App card (issued by Sutton Bank and processed by Marqeta), and Square would route the payment via Visa.

Building these direct networks between the merchant and consumer is extremely powerful, enabling deep data integration (tying the purchase transaction to the merchant-level SKU data) and avoiding intermediaries and fees.

Square has millions of merchants using its software and millions of customers. In an instant, Square started a fifth payments network. It reminds me of Discover’s origins, which came out of Sears at a time when every town had a Sears as an essential merchant location. Today, Discover has similar coverage to Visa or Mastercard and has long since disentangled itself from Sears (good thing, since Sears is a rotten shell of its former self).

Square needs to be careful not to run afoul of network rules or standards as there are still more merchants for its Cash App users to shop at via the Visa network and more consumers without Cash App accounts who want to shop at Square stores. It’s a huge start in a continued battle for payment connectivity and may open a flank for an alternative network that costs merchants less than Visa or Mastercard.

Others have made attempts here, such as PayPal’s in-store programs from last decade (which ran over the Discover Network). None of these have stuck. Discover is the most recent new network, and it launched in the 1980s.

I have been waiting to see an easier Square on-us network option for years and am excited to see this. However, I am unlikely to shift my banking or spend to Cash App (wrong demographic, by far) and wouldn’t give up my rewards cards (yet). If Square can deliver a better experience through technology, there may be something huge here yet to come.

Apple Pay and Apple Card

Apple Card released an exciting new security feature in a changing security code (the CVV/CVC/those three numbers on the back of your card) for users of Apple Card and iOS 15. Cardholders can enable this new feature with a simple setting in the Apple Wallet app (“Advanced Fraud Protection = on”). With this change, Apple will rotate the code without changing the entire card number, enabling an additional layer of protection.

Changing security code technology has been around for a few years but is not well-implemented. Code rotation is also possible on physical cards (Apple does not print the number on their cards). Ellipse offers a physical module that card manufacturers can embed to enable the rotation of the security code in the network and on the card itself (displayed in e-ink). I’m a big fan of Ellipse and their CEO Cyril Lalo but haven’t been lucky enough to have a card with this feature.

According to the Wall Street Journal, while Apple continues to innovate on their card, their fees for Apple Pay transactions (an incremental ~15bps per transaction) are coming under fire. Banks do not like paying this extra fee, and it’s unclear what they are paying for anymore. When Apple Pay first rolled out, there was a promise of incremental security through the NFC payment process when the country was still primarily swiping old school magnetic stripes. Today, most card transactions are online or use the more secure EMV chip. I love Apple Pay, but it’s doubtful the fee is justifiable. We know merchants generally feel the same way about the banks’ interchange fees, so perhaps issuers should be careful what arguments are made!

Quick Notes

Visa announced new built-in benefits for its U.S. consumer credit cards, including Shipt memberships (highly valuable, especially for Visa Infinite cardholders), Skillshare access, and Sofar Sounds presales.

U.S. Bank introduced new secured card versions of its Altitude Go travel card and its Cash+ cashback cards. Most secured cards do not have rewards, with a few exceptions at Capital One and Discover. The new offerings from U.S. Bank add a quality issuer to the space with rewards and credit building. While the cards don’t have annual fees, they do carry 25.99% APRs!

Chase launched its first business card in its Hyatt co-brand portfolio. The cards look pretty standard, although the press release made my eyes glaze over, so take my review with that in mind.

Money20/20

With the obvious exception of last year, I’ve attended every Money20/20 conference since its inception. It is the most valuable show in the fintech world, and I am excited (and perhaps a bit nervous) to be returning to Las Vegas later this month for the show. I hope to see you there. I want to invite you to join the rest of the Apto Payments team and me for a kick-off lunch on Monday. Please check it out and RSVP today!

CardsFTW

Thanks for reading CardsFTW, a weekly-ish newsletter about all things debit and credit. CardsFTW is written and curated by Matthew Goldman, VP, Sales & Marketing at Apto Payments. 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.