Another Year of Money20/20 Wrapped

We’re wrapping up our Money20/20 visit this morning. The conference seemed smaller than last year, with fewer late-night parties (or perhaps I didn’t hear about them). The conference remains one of the best places to meet people in person, and I was thrilled to say hello to so many, including readers.

One big announcement that caught my eye was Highnote’s entry into consumer credit. More analysis of the news will be in an upcoming issue.

It’s hard to summarize the last 72 hours in Las Vegas on the fly, but key trends of frequent discussion included:

• The challenge high interest rates pose, especially to lending products
• Opportunities for vertical software-as-a-service companies to embed accounts and cards into their experiences
• The total lack of excitement about crypto, especially as compared to last year
• Companies facing funding crunches heading into the fourth quarter
• Challenges with sponsor banks: who will survive, who is next in the regulators’ cross-hairs, and what fintech companies should do to reverse diligence their banking partners

Next month, I’ll try to dig into some of these topics in CardsFTW.

Conference Season Isn’t Over

Next on my itinerary is a much smaller, more focused show: CardCon Expo. Coming up November 8th and 9th in Nashville, CardCon brings credit card issuers, affiliate marketers, and finance journalists together. Totavi’s Ellen Perl will be moderating a panel on Thursday, November 9th, featuring companies that build asset-backed secured credit card products, including Pesto*, Yendo, Vie, and Mastercard.

It’s not too late to register. Use code “cardsftw” for a discount.

Mastercard’s Musk

The New York Times reports that Mastercard hired an expert to create a signature scent. To quote both the designer, Dora Baghriche, and me, “Why?”

I get the logic here: Scent has a strong relationship to memory. If you can create a unique scent, people will always think, “Mastercard.” Raja Rajamannar, chief marketing officer at Mastercard, commissioned Baghriche to create a dual set of complementary fragrances inspired by the interlocking red and orange circles from Mastercard’s logo and the abstract prompts “passion” and “optimism.”

I wasn't aware that red and orange symbolized passion and optimism. I like it. That’s how I feel about cards: passionate and optimistic.

I am frequently asked about the near-term future of cards, especially for credit cards. With interest rates on their current trajectory and rising defaults (at the fastest pace since the 2008 crisis), it is easy to have some pessimism about the market. We continue to see fintech companies flounder, selling, going out of business, and rumors abound of more to come.

Building a company from the ground up as a fintech startup is hard, and the current environment isn’t making it any easier. However, I am an eternal optimist (aren’t most entrepreneurs by nature and necessity?) I believe in the soft landing. We have big problems to solve in the U.S. economy and bigger problems to solve globally, but new technology is driving productivity, which is driving wages, jobs, and more. (Did I mention I have an economics degree?)

Cards are perhaps the best way to make a payment. They are nearly ubiquitous, have real-time authorizations and dispute procedures, support various account types (credit, debit, prepaid, etc.), and are easy to use. That smells like optimism to me.

Lithic Launches Commercial Charge

Lithic, which started life as the privacy.com debit card before pivoting into a debit card processor and program manager, announced its first full-stack credit card product with commercial charge cards this week. Venturing into commercial charge capabilities before consumer credit is a common path. Fellow banking-as-a-service provider Unit similarly ventured from debit to commercial credit and has publicly stated its plans to launch consumer credit. Even industry titan Marqeta followed this path, acquiring Power Finance to build its consumer credit card capabilities.

Why commercial charge?

Charge cards, in which balances must be paid in full each month, are far simpler to manage than revolving credit cards: no interest calculations, lower capital requirements, no payment calculations, etc. Commercial cards are not as heavily regulated as consumer products. The cards provide more flexibility than a prepaid or debit product and provide higher interchange than debit products.

Lithic continues to differentiate as a processing platform (bring your own program management features, banking partners, etc.) and offers an integrated program management service with Lithic’s issuing partners.

Fintech Sponsor MCB Fined $30M

Popular fintech sponsor bank Metropolitan Commerical Bank was fined a total of $30M last week by the Federal Reserve and its state regulator, the New York Department of Finance Services. MCB was fined over its involvement in the MovoCash prepaid platform, which “allowed bad actors to abuse the financial system,” according to New York’s superintendent of financial services.

Managing fintech risk is about knowing your customers and preventing money laundering. Far too often, fintech companies take shortcuts, and, as explored in depth by many others, the explosion of fintech companies has left sponsor banks too far removed from the programs to do excellent compliance. Issuing is risky precisely because of these reasons, and the idea that you can easily issue a program with little risk for $5,000 a month isn’t realistic. Companies looking to embed financial programs need to understand that a full-time, fully qualified risk and compliance lead is required at a minimum. That’s a lot more than $5,000 per month.

Companies dependent on MCB will need backup plans and can expect substantially more friction to manage and build programs with the bank.

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Hilton Cards Receive Update

American Express and Hilton Hotels announced a major update to their co-brand card program. Recycled plastic cards have become increasingly popular; I've mentioned them three times in as many months. You can now get recycled or metal cards! Neither is probably truly environmentally friendly, but it sounds great!

I've never been particularly fond of Hilton cards. Hilton points are worth very little, so the mental gymnastics are pretty high to determine if 4, 6, 8, or 10x points are a good deal. It’s much easier when a point is worth about a penny, but that confusion is part of what Hilton is banking on here. The cards now carry higher fees, and less attractive benefits were added. I would like to see more free night stays or annual renewal points than cash credits. I’ll continue to stay away from the cards.

Navan and Citi Partner

Travel agency turned card issuing company Navan and Citibank, a behemoth in purchasing cards, announced a partnership, bringing Navan’s modern expense management platform to Citibank cardholders. Citibank has 25,000 commercial card clients and 7 million cardholders worldwide, representing a substantial market for Navan to tap into. Scaling credit is challenging for non-banks due to the high cost of capital, and the deal could bring billions of dollars in spending into Navan’s ecosystem.

CardsFTW

CardsFTW is a weekly newsletter, released most Wednesdays that offers insights and analysis on new products in the credit and debit card industry for both consumers and providers. CardsFTW is authored and published by Matthew Goldman and Ellen Perl of Totavi, LLC. Totavi is a boutique consulting firm specializing in fintech. We bring real operational experience that varies from the earliest days of a startup to high-growth phases and public company leadership. Visit www.totavi.com to learn more.

*Indicates a company where Totavi, LLC has a business relationship.