FinTechs Seek To Break Into The Big Bank Dominated Credit Card Market

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TORONTO – If you haven’t bought a credit card in a while, you might see some unfamiliar names in the offers.

Companies like Brim Financial, Float Inc., Caary Capital Ltd., Jeeves Inc., and Neo Financial are part of a growing crop of tech lenders looking to grab a share of the lucrative major credit card market. banks.

“We’ve never had more choice,” said Mikael Castaldo, general manager of day-to-day banking at Ratehub.ca.

On the personal credit card side, companies like Brim and Neo are trying to entice customers with promises of more transparent, app-based digital experiences, as well as creative rewards programs that partner with specific brands. and benefits such as no foreign transaction fees.

Startups have to get creative with rewards programs because they don’t have the scale to deliver the big signup bonuses of the big banks, Castaldo said.

“They’re just getting started, and it’s actually pretty hard to make that margin equation work sometimes for newer credit card providers. “

On corporate cards, companies like Jeeves, Float, and Caary are primarily targeting startups and small to midsize businesses, offering quick enrollment, plenty of digital cards, higher credit limits, and no personal guarantees, as well as easier integration into certain accounts and expenses. management software.

“There is a lot of room for improvement, given that 90 percent of this is still with local banks,” said Dileep Thazhmon, co-founder and CEO of Jeeves.

He said the company, which is based in New York but with operations in the Americas, had a smooth launch in Canada earlier this year and has become the company’s second largest market with more than 300 companies signed.

Jeeves directly monitors a client’s bank account and uses machine learning to assess risk, which Thazhmon says allows them to offer the highest credit limit and no personal guarantees.

“We trust our underwriting, we trust our risk engine.”

The fintech credit card space has grown in recent years, with significant growth in the United States. San Francisco-based Brex Inc. launched its first card in 2018 and was valued at US $ 7.4 billion in April, and New York-based Ramp Business Co. launched in 2020 and was valued for the last time at 3.9 billion US dollars. Both companies promise a more seamless registration experience and continue to add back-end functionality to help manage expenses.

Toronto startups are also looking to enter the space. Caary raised $ 4.1 million in June and Float secured $ 5 million seed funding in July, both based on the digital-first business card model.

The recent growth in the fintech credit card space is due in part to all of the fundamental work done in the digital finance landscape in recent years, Thazhmon said.

“A company like Jeeves, you couldn’t build that four years ago. You couldn’t build it at this scale, you couldn’t build it at this speed, because most of the hooks we connect to have only been built in the last three or four years.

The new competition for the big banks comes as the market is already feeling pressure. Credit card debt fell $ 16.6 billion in the first year of the pandemic as people pay off debts, especially those with poor credit, who typically pay higher interest. Banks also face increased competition from buy-it-now models, which some companies like Brim have incorporated into their products.

But even though new entrants may have innovative offerings, they still have a tough road ahead to break into the market, said Abhishek Sinha, who leads EY Canada’s banking technology consulting practice.

“It’s not that easy to break into the credit card space because you have a very mature and established market and it looks like the Canadian consumer… we are a little more risk averse, we are a little more risk averse. agree with the status quo as our cousins ​​in the south.

Banks also already cover “almost every type of card imaginable,” he said, leaving new entrants to have to find a meaningful value proposition to enter.

“I don’t think it’s fintechs choosing an underserved niche, I think it’s more fintechs choosing a niche where they think they can differentiate themselves.”

He said banks have also stepped up their market research, with more focus groups and joint product developments than just a few years ago.

Banks have already started to integrate buy-now options and have invested heavily in their digital apps and offerings.

Ratebub’s Castaldo said he sees banks putting in significant resources to maintain their dominant position in the market.

“They are putting all the weight of their track record and their brains into solving the problem for sure.”

This report by The Canadian Press was first published on October 24, 2021.

Ian Bickis, The Canadian Press


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