Everyone Uses Credit Cards

A disclosure: I am an (elder) millennial.

In the almost twenty years I have been working in payments and fintech, I have been bombarded (as recently as this week) about how millennials don’t work that hard, or we’re going to be behind on affluence and wealth, or we just hate credit cards.

That’s all a myth.

First, we have an extensive article in The Atlantic from generational researcher Jean Twinge that “Millenials Are Doing Just Fine.” I’m looking forward to reading her new book for more financial insights, but this quote might be all you need to know:

By 2019, households headed by Millennials were making considerably more money than those headed by Boomers and Gen Xers at the same age.

In a related way, there has been much hand-wringing about whether the age of credit cards was passing by as millennials used debit cards as their primary daily financial tool. PYMNTS and Elan (see next section) released a research report last week that noted that Generation Z and Millenials use cards 30% more than the average cardholder (who must be a combination of Generation X and Baby Boomers). In addition, the study notes that 43% of Gen Z and Millennials are shifting their spending to their credit cards.

While these stories oppose conventional wisdom, they track my experiences. A decade ago, when I started Wallaby Financial, I was frequently questioned about this trend, but with most millennials in their twenties at the time, they wouldn’t have had access to great credit products. Since then, Chase launched its millennial-attracting Chase Sapphire Reserve, and we have witnessed a unique era of low interest rates and high growth.

Generational comparisons can get old, but my big takeaways here are:

1. The American economy continues to grow, and standards of living are not on an exclusively downward trend

2. Americans love their credit cards

   Subscribe

Elan Powers Your Local Bank and Also Has Travel Cards

Elan is the original credit-cards-as-a-service provider. The unit of U.S. Bancorp issues credit cards for more than 1,200 independent financial institutions across the U.S. If you are getting a credit card marketed by your local small bank or credit union, there is a high chance it is an Elan product.

Elan announced two new travel cards in its standard lineup. The premium Visa® Travel Rewards+ Credit Card includes 4x points on travel, entertainment, recreation, gas, and EV charging, plus 1.5x points everywhere else. The super-premium Visa® Reserve Rewards+ Credit Card is a Chase Sapphire Reserve competitor with 6X Points on travel booked through Elan’s Rewards Center and 2X Points on all other purchases. (Plus, the $100 in statement credits for the TSA PreCheck® and Global Entry® application fee.)

First, let’s all stop using the word “reserve” (yes, I know I am guilty of this myself).

Second, there is no way these points are as valuable as Chase or American Express points, as Elan doesn’t have all of the travel redemption partners and points transfer systems. That seems like a misleading 6X—I’m not clear what they are worth.

Being a smaller financial institution in the credit card space is challenging. These smaller financial institutions want something to offer their consumers across product types. Still, the reality is that they need help to compete with the big six issuers (Chase, Bank of America, Capital One, American Express, Citibank, and Discover).

If Elan wants to stand out, they need to do something different, not something remarkably similar, but not quite as good.

Petal Grows Up and Splits Up

Petal is one of the early and surviving challenger credit cards. Designed for consumers with limited or no credit history, Petal innovated on underwriting models and aimed to be the first credit card for many younger Americans (see the earlier article about Millenials!). Last week the company announced a formal split between Petal, the card company, and Prism, the company’s underwriting platform.

It’s a long-running joke in fintech that most direct-to-consumer fintech startups pivot into infrastructure. (Why? Because marketing is hard!). Other examples include Deserve, which initially had a similar focus to Petal, but pivoted to credit-cards-as-a-service and no longer appears to be marketing its namesake card.

According to the company, Prism has signed more than a dozen clients and partners, including with some of the country’s largest banks. I’m skeptical that a startup can outdo a data expert like Capital One in underwriting. Still, it’s clear that traditional FICO-score-based underwriting leaves a segment of the market inaccessible. If Prism can help consumers with access, I’m all for it.

The other interesting note in the release was that Petal shared that they have approved almost 400,000 consumers in their history, including more than 100,000 last year alone. Scaling a consumer card program is hard, and these numbers represent significant success in acquisition.

A Neobank for the Retiree Crowd

The past decade has seen dozens (if not hundreds) of neobanks launch. Some are generalists, like behemoth Chime. Others have been very targeted, including based on people’s inherent traits like race or sexuality. (I am not a fan of this, but that’s for another post.)

Charlie launched last week and announced a sizable funding round. Charlie is a neobank focused on Americans aged 62, especially those primarily dependent on social security payments. I’m excited about this and the features the team has put together like:

• Early social security (up to 4 weeks vs. two days)
• Free ATMs at pharmacies
• Earnings on deposits at 3% APY
• U.S.-based support

Knowing your customer is critical, and this product looks like an innovative financial product for a vulnerable population segment.

Who Says It’s a “Niche” Anyway?

NerdWallet published an article today titled “Niche Credit Card Rewards Were Having a Moment — What Happened?” I received quite a few quotes (thanks, NerdWallet!), and I think the author, Craig Joseph, did a great job articulating some successes and challenges in the challenger credit card space.

I’ve talked to many folks about “niche” and mainstream cards. What is a niche? Dictionary.com says it’s a “distinct segment of a market.” When people say, “That’s a niche product,” they are typically making a derogatory statement about how few people might want that particular product. However, by definition, travel cards are niche cards targeted at people who want to travel. We all know that is a huge segment.

I remain optimistic about the future of challenger credit cards. Any successful challenger will have to have a clear vision and target market. By definition, they will be niche, but I mean this in the best way.

Dave is Going to Build a Credit Card

Always remember: you can learn a lot from job postings! Dave, which made its name a short-term lending app but has since launched a sizable neobanking debit card product, is looking at launching a credit card based on this role for a Senior Product Manager. Hey Dave folks, I can help you with this; drop me a line!

CardsFTW

Thanks for reading CardsFTW, a debit and credit newsletter by Matthew Goldman. Matthew is the founder of Totavi, LLC. Totavi is GSD Product Consulting, helping to bring real, operational experience that varies from the earliest days of a startup, high-growth phases, and public company leadership. Visit totavi.com to learn more and engage us.

* Indicates a company with whom Matthew Goldman or Totavi, LLC has a financial relationship.
† Books included in this post use an affiliate link to Bookshop.org.