Thank you to everyone who wrote me comments on CardsFTW #43: The Coming Decade of Credit. It was encouraging to hear that many folks agree on the direction of these trends and share my excitement for new products that lie ahead. Thank you to those who share CardsFTW by email, Twitter, and more. It is an honor to be in your inbox and see the mailing list grow.

Sometimes, You Have Debt

Over the past 15 months or since I started writing this newsletter, I’ve covered card applications and consumer debt shifts a few times. The pandemic has created many frankly strange effects on consumer behavior and how people accumulate and pay down debt.

With the sudden, massive, and scary surge of the Omicron variant of COVID-19, it often feels like it is already tremendously out of date by the time you have data to review. Leaving the uncertainty aside, recent reporting of the past week has shown a sort of (temporary?) return to more traditional US consumer behavior, affecting credit and debit card choices.

The November consumer credit report from the Federal Reserve Bank showed that consumer credit is back, with a seasonally adjusted annual rate increase of 11% and a stunning 23.4% in revolving credit. In 2020 consumer revolving credit declined by 11.2%, seeing the turn-around. Since 2019, the total revolving credit has returned to more than $1 trillion for the first time.

At the same time, the Wall Street Journal reported that lenders are extending additional credit to subprime consumers. The Journal quotes credit bureau Transunion reporting that an estimated 29.2 million credit cards were issued to consumers with scores below 660 in 2021, up from 20.4 million in 2020 (a 43% increase!) and up 11% from 2019’s pre-pandemic total of 26.3 million. That is a lot of subprime issuing.

Conventional wisdom at the start of the pandemic held that many consumers would default, but thanks to government stimulus and other programs, many consumers saved money and improved their scores. At the same time, interest rates continued to be held down by the Federal Reserve. As a result, credit card balances dropped, interest rates on cards stayed in a tight 16-17% average APR range.

The appetite for growth by issuers shows up in new products and success for those products: all the better for product innovation.

Sometimes, You Have Cash

The growth of neobanks (digital-first banking experiences provided by non-bank technology companies) is not new. Under a different name, Green Dot and NetSpend pioneered this concept through networks of retailers like Walgreens, Rite Aid, and check cashing stores. Now, many tens of millions of US consumers use neobanks like Chime, Current, and SoFi to conduct their daily financial business.

These products are modern and friendly in a way that traditional banking deposit account products are not. At the same time, they are often missing key features, especially early in their life cycle, like bill pay, wires, checks, and cash deposits.

Many users don’t need these features. Most neobanking customers do very well with card-to-card payments and digital payments like ACH transfers. As neobanking matures, we will need to see more complete feature sets to grab the remaining users. I’ll admit to using a traditional bank account. My financial needs include check writing and wires (sometimes you’re forced to do things by your recipients!).

A frequent thread in online fintech communities is searching for a neobank to accommodate these features. Some are close. MaxMyInterest, an automated savings account management tool, offers MaxChecking, including wires. We are also seeing neobanks continue to build out product capabilities. Chime, the largest US neobank, announced in December that it had struck a deal with Walgreens to accept cash at Walgreens locations.

Accepting cash at a retail location is a trick Green Dot learned early on. Consumers can load cash to Green Dot cards (and other cards using the Green Dot Network) close to 100,000 retail locations. The network has been operating since the early 2000s. Chime Founder and CEO Chris Britt is a former Green Dot executive.

The unique part of this deal is that the cash load is free for Chime users. Green Dot users typically pay a $3.00-5.00 fee to load cards (depending on the retailer). Managing cash deposits is an expensive and risky business for Walgreens, with money transmitter agent requirements, notices, cash handling, fraud risk, and more. On the flip side, if you’re walking into Walgreens with cash to load your Chime card, maybe you’ll buy something else (or simply move your prescription to your new favorite depository).

Cash isn’t going away, even if it is shrinking. Neobanks will need to have more than a debit card to compete.

Sometimes, You Want Metal

Speaking of form factors, card manufacturer CompoSecure CEO Jon Wilk recently told Yahoo Finance that metal cards continue to grow. Today, many card manufacturers make metal cards, such as CompoSecure, Idemia, CPI Card Group, Oberthur, and Tag Systems. While many consumers report that cards matter less as they use mobile wallets more, they still desire metal cards.

As I talk to startups, requests for metal cards remain on the top of many lists, despite the cost of the cards often being up to ten times as much per unit, even with scale. Metal cards have a premium feel, and consumers desire luxury. Even cards targeted at less affluent demographics are being manufactured in metal, with startups making six-figure commitments to print production before a product is in the market.

I’ll admit to enjoying my metal cards, but recognizing they’re not really worth it all of the time. You can do a lot of great treatments with plastic printing, and with eco-friendly printing solutions finally coming online, there are a lot of good arguments for recycled plastic instead of metal. I can’t help but ask, what’s in your wallet?

Sometimes, You Need a Car

Finally, this week in car card news, Goldman Sachs launched their new co-brand card product with General Motors. GM announced the shift to Goldman Sachs from Capital One for their cards last year. Consumers can now apply for these new cards.

I don’t get car-brand co-brands. You would have to love your car and spend a fortune to earn enough points to make a meaningful dent in a new car purchase. (The average new card costs $46,000 according to Consumer Reports, by the way).

The new GM cards, available in various designs to match your favorite GM brand, include 7 points for every dollar spent at GM and 4 points for every dollar spent on everything else. Don’t be fooled; these points are not worth much unless you use the points towards a GM car. You can use up to 100,000 points per year towards a used car (that’s $1,000 in value), but if you use points for gift cards, they are only worth one-quarter of that value (again with a redemption limit). There are no limits on points usage towards a new car. The terms aren’t 100% clear to me, but it looks like, in this case, the value holds.

If you’re a big spender and want a fancy pickup, this card might be right for you. Appropriately used, the card has a stunning 4% rate on the “all other spend” category, beating other cards in the market. However, the fact you have to save up towards a new car purchase and that New Vehicle Redemption Eligibility comes with this massive legal warning would steer me away from this ride:

Points are those reflected as of date indicated and are subject to additional purchases, returns and redemptions. Points may not be used with GM Fleet vehicle incentive programs, some other offers, the GM Employee Discount Program, GM Company-Owned Vehicle Discount or GM Supplier Discount Program. Other exclusions may apply. Please see Program Rules that are applicable to your account for terms, conditions, exclusions and limitations.

Work with Me!

Apto Payments is on a huge growth streak, and we are dramatically expanding our team. We have roles in Growth, Engineering, and Product. I am building a world-class payments product team in my new role as Chief Product Officer. Please take a look at our roles and join me to help brands issue cards and embed finance in their products.

CardsFTW

Thanks for reading CardsFTW, a weekly-ish newsletter about all things debit and credit. CardsFTW is written and curated by Matthew Goldman, Chief Product Officer 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.