FinTechs are using secured cards to close the consumer credit gap

The road to building a full-service bank in the digital age is long and winding.

And for FinTechs striving to do so, the challenge is to achieve critical mass, with an installed base of consumers sticky enough to adopt a wide range of products and services.

After all, customer acquisition costs can be significant, cash burn can’t last forever, and VC/PE/Wall Street funding is getting harder and harder to come by. It is essential to strike a balance between continued customer growth and rising costs. In the meantime, many of these companies are building out their platforms and offerings with a few initial use cases and then growing from there.

We see evidence of these pressures in place, with recent results from companies like Klarna, as has been highlighted recently in this space. The giant BNPL said its revenue rose 24% year-on-year, but net losses tripled thanks to its continued expansion efforts.

And elsewhere, FinTechs are looking to back more of their loans with deposits to attract institutional investors in a tougher funding climate. These FinTechs are under some pressure on their own wallets as individual consumers make late payments.

Also read: FinTech lenders scramble for investors as more loans are secured by deposits

Consumers interested in digital cards

Meanwhile, the jockeys between digital players are getting more and more intense. At the end of last year, the British company Revolut extended its credit products to several markets internationally. PYMNTS’ own data revealed that up to 28 million consumers without digital cards would be interested in them. Currently, many FinTechs offer checking accounts and debit cards – but will need to diversify beyond these limits to keep customers in the fold and attract new ones.

With respect to secured credit cards, which are backed by individuals’ deposits with the issuer, we note that there may be a positive ripple effect to the extent that consumers are effectively leveraging two products at once : the savings account and the card itself. Cross-pollination is automatic, in a sense. There are a number of players offering secure cards (such as Varo and Chime), which help consumers credit themselves when payment data is transmitted to major bureaus. The secured card also offers FinTech a lower-risk way to extend that credit in the first place.

The pressure to offer secure credit cards is growing. Last month, Bond, the banking-as-a-service platform, announced the availability of the Credit Builder Card which makes it easier for FinTechs and other businesses to introduce a secured credit card to their customers. In terms of mechanics, the effort is powered by the Mastercard network and issued by Bond sponsor bank Evolve Bank & Trust.

In an interview with Karen Webster, Bond CEO and co-founder Roy Ng said nearly 35% of Americans have subprime credit scores — between 580 and 669 — or thin or no credit records. The population here is significantly younger, as 40% of subprime mortgage scores are held by millennials.


About: Results from PYMNTS’ new study, “The Super App Shift: How Consumers Want To Save, Shop And Spend In The Connected Economy,” a collaboration with PayPal, analyzed responses from 9,904 consumers in Australia, Germany, UK and USA. and showed strong demand for one super multi-functional app rather than using dozens of individual apps.

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