Carriers Hate Credit Cards

Starting today, if you are a T-Mobile customer, you must pay with an ACH or debit card to earn your autopay discount of $5 per line. Previously, credit card payments were eligible for the same discount. AT&T will make a similar but less dramatic change on October 2nd when AT&T will reduce the autopay discount by $10 to $5 for credit card autopay. Verizon was the first major carrier to go in this direction, requiring debit or ACH (or the Verizon Visa Card!) to earn an autopay discount.

Why do carriers hate credit cards?

Interchange is the answer.

MoneyLion says the average cell phone bill is $127.27 this year. Suppose carriers get average merchant discount rates (they don’t, they negotiate better ones) and pay 2.95% plus $0.30 for a transaction. That means the acquiring cost is under $5. So if they give you $5, that’s a $10 hit. On the plus side, your bill will likely get paid on time and more likely to clear than a debit card or ACH. On the downside, it is more expensive.

You know I love credit cards. I was pleased with my T-Mobile setup. I used my Apple Card to pay the bill, earning 3% cash back (my cell bill is a bit higher at approximately $190 between my family and all our devices), earning $5.70 in Apple Cash Back, plus $25 in discounts for autopay. (The $5 includes my accessory lines like iPads and Apple Watches.)

With great reluctance, I switched to my debit card. The math is simple: Saving $25 on autopay is better than $6 in rewards. I was sad, though.

I frequently write about card acceptance and interchange. The carriers' move may not be one I like, but it shows that Visa and Mastercard are not forcing merchants to accept credit the same way as debit or other payment forms. Each merchant can make up their mind about card acceptance and its costs. (No money movement is free, especially at the enterprise level.) This change by the carriers is another example of why we do not need Congress to regulate interchange. The market can handle this one.

Brex’s Big PR Push

I recently highlighted a piece I co-wrote at This Week in Fintech: Signals on corporate cards, including on Brex. Lately, Brex is everywhere. Who is their PR agency? Someone give them a raise:

• This Payments Company Is Winning Big After SVB Collapse

• This $12 Billion Startup Nearly Imploded. When the Founders Revealed Their Wild Plan to Save It, Their Team Was Like, 'Whaaat?'

• Brex’s Second Act (ok, this is a paid placement)

  

I want to know what’s behind the full-court press. (I also want to know what’s behind that terrible headline with “Whaaat?”)

Good job, Brex PR!

Credit Cards for Children

Greenlight, a debit card provider for parents and their children, launched a new credit card product. The new card helps to establish credit file information for children before they turn 18 and earns rewards.

The rewards headline figure is misleading. It says “up to 3%” cash back, but you need to spend $4,000 per billing cycle to earn that.

The fine print: “Earn 3% when you spend at least $4,000 in a billing cycle, 2% when you spend at least $1,000 but less than $4,000 in a billing cycle, and 1% when you spend <$1,000 in a billing cycle.”

Come on.

Very few cards in the market earn more when you spend more. A few have floors like you must make at least five transactions or spend at least $500, but $4,000? On the card, you share with your children? The average credit limit for prime cards is about $7,500. Spending $4,000 monthly is quite steep, especially when the average income is barely higher!

I will always be grateful to my dad, who helped me to earn credit by also getting me an authorized credit card before I turned 18. He signed up for the card; added me; didn’t tell me about the card; and used it regularly. Violà: credit reporting data with no risk. Also, I guarantee he didn’t spend $4,000 per month or pay any fees on the card.

I wrote about the Apple Card’s family features back in 2021. That’s a great card with no annual fee and good child controls. I’m not planning to switch. That’s not to say that you can’t build credit for your children through authorized user setups today–this method still works.

Rent Cards are Hot

In 2021, Bilt launched its rent rewards card (see CardsFTW #31). This week I learned about the new Piñata Pay card, which launched as a credit-building debit card. In discussing this recently, a few folks pointed me to Stake and RentPlus. These are debit cards, so they do not directly compete with Bilt.

The entire credit-building debit card space is challenging. Is it a loan? Is it not a loan? Building credit through rent payments has been around as a concept for approximately twenty years, and Experian has an offering in this space, but I’m unclear if it has critical mass.

I’ll watch the space closely; more cards are coming.

CardsFTW

Thanks for reading CardsFTW, a debit and credit newsletter by Matthew Goldman. Matthew is the founder of Totavi, LLC, which provides GSD Product Consulting with real operational value. Visit totavi.com to learn more and engage us.

* Indicates a company with whom Matthew Goldman or Totavi, LLC has a financial relationship.