Conference Season!

Next week, I will be at Fintech Meetup, along with Ellen Dearborn. Check out our list of side events or catch me on the panel “Are institutions losing balance in an open banking world?” on Monday, March 30, at 12:30 p.m.

(CardsFTW will be off due to Fintech Meetup.)

After that, Jessica Marquez and I will attend CardCon. She will be moderating the panel “The Rise of HELOC Cards: With Refinancing Off the Table, a New Credit Product Emerges” on Thursday, April 23, at 10:45 a.m. You can save 10% on conference registration with the code “totavi10”.

Upgrade Loves a Boost

Upgrade is launching Boost Money (not to be confused with a Boost Mobile prepaid card product called Boost Money that existed long ago during my tenure at Green Dot, now called OmniMoney and no longer on Green Dot). The new Boost Money is a mobile banking product for small-dollar checking accounts and savings accounts with 10% APY!

Beyoncé Knowles

Positioned for low- to middle-income customers and issued through Cross River Bank, these accounts provide both a Spending account (Boost Money Spend), a secured credit-builder card (Boost Money Card), interest-free cash advance options (BoostCash - no space on this one), and a high-yield savings account (Boost Money Save). There is a $ 10-per-month subscription with a 10% APY on up to $1,000, cash advances up to $500, and other benefits.

The $500 cash advance is not arbitrary. For more than a decade, that’s been the magic number that would cause most Americans to go into debt. This $500 figure has been researched numerous times in the last decade. An offering like this is an excellent way to bring new customers into the Upgrade fold for further lending and card products. Let’s just hope they find a new word, as they definitely used “boost” enough.

Marqeta Webinar Replay

Last week, I joined Ahmed Siddiqui from Branch and Rachel Huber from Marqeta to talk about the growing pains of fintech. We discussed research by Totavi on how scaled companies manage infrastructure decisions, including key takeaways and a practical vendor evaluation framework.

Watch the Webinar

How Fintech Credit Card Programs Get Their Capital

Fintech credit card programs differ meaningfully from traditional bank-issued programs. In a traditional co-brand program, such as the Nordstrom credit card issued by TD Bank or the American Airlines card issued by Citibank, there are four major entities in the stack.

The brand that markets the card: Nordstrom.
The network on which the card runs: Visa
The issuing bank: TD Bank
An issuer processor.

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While most issuing banks use an external provider as their issuer processor (most platforms are owned by Fiserv and FIS today), some very large issuers, like Chase or Capital One, use proprietary software or an offshoot (a “fork” as the technical saying goes) of a processing platform but license it to run in-house.

In this scenario, the issuing bank runs the program as the program manager, conducts underwriting, handles customer care, manages collections and disputes, and provides the capital lent to cardholders. The bank issues credit card loans to users, and users repay them.

In large-scale programs, issuing banks use capital markets to offload some of these loans by securitizing credit card receivables. In most cases, however, the bank is lending directly to the cardholder.

The Fintech Stack

In contrast, on the fintech stack, while you still have the brand and the network, you also often have a program management platform (PMP). (Some brands become their own program managers.) Companies such as Cardless, Imprint, and Stripe are examples of PMPs. (You can learn more about PMPs with our market analysis in the Totavi Pro subscription.)

In U.S. fintech programs, you also still need an issuing bank. In most cases, these banks do not put capital at risk. They are simply originating that loan. (A reminder here that credit cards are open-ended, revolving loan products.) Banks are overseeing the program for regulatory reasons, but they're not really taking long-term risk because they originate the loan and then they immediately turn around and sell it. Since the bank isn’t lending, the next provider in the stack is the capital provider, which is sometimes also known as the warehouse lender. These are companies like Victory Park Capital, Keystone, Trinity, and others.

In the fintech world, it is unlikely that the brands (companies like Coinbase, Bilt, or other startups like my startup, Vertical Finance) have large amounts of capital to lend. While the consumer may view these brands as lenders, and the brand is responsible for buying the receivables from the bank, it does not have the capital to do so as it grows.

To set a glossary for the rest of this post:

The Brand (e.g., Super Great Fintech's Example Card)
The PMP (e.g., Cardless, Stripe, or Highnote)
The Issuer (e.g., Celtic Bank, Cross River Bank)
The Lender or Warehouse Provider (e.g., Victory Park or Trinity)

Why Capital Gets Consumed So Fast

Credit card capital gets consumed very, very rapidly because it's a scale game. If you think about 1,000 users onboarding in a month and issuing each of them a $10,000 limit, they're not going to all spend that much ($10MM in aggregate), but they might spend half of that ($5MM, which is still a lot). As you scale the program, a lot of money is outstanding in the monthly credit cycle. Even if those users are paying back the money in full each month, because of the dynamics of a credit card, that capital is floated out to them for some time.

Let's look at two examples.