Podcast Summary
Credit card rent payments: Historically, merchants, including landlords, faced fees for processing credit card transactions for rent payments, making it challenging for payments companies to enable such transactions and earn fees.
Despite the excitement of earning credit card rewards, using a credit card to pay rent has historically been a challenge due to the fees merchants, including landlords, face for processing credit card transactions. This has made it difficult for payments companies to enable rent payments via credit cards and earn fees from the transactions. However, a few years ago, a company called Build claimed to have found a solution by allowing renters to pay rent with a credit card without landlords incurring any fees. This development raised questions about the economics of the credit card model and left many skeptical. The success of this program and its economic viability remains a topic of discussion in the industry.
Rent Payment Market: Credit card companies miss out on transactions and revenue in the rent payment market due to high number of landlords and their unwillingness to pay fees. Built aims to change this by partnering with large landlords to allow renters to pay rent without fees and offering points for payments.
There's a missed opportunity for credit card companies and renters in the rent payment market. Although credit card partnerships with airlines, retailers, and other brands are common and popular, there hasn't been a significant push for rent payments due to the large number of landlords and the unwillingness to pay transaction fees. Built, a company founded in 2019, aims to change this by partnering with large landlords to allow renters to pay their rent using the platform without any fees for either party. Renters even receive points for their payments, and if a landlord doesn't accept credit cards, a check is sent instead. This innovative solution not only benefits renters by making the payment process more convenient but also offers credit card companies an opportunity to increase the volume of transactions and revenue.
Fintech-Traditional Institution Partnerships: Partnerships between fintech companies and traditional financial institutions can lead to significant growth opportunities, innovative solutions, and profitable business arrangements.
Partnerships between fintech companies and traditional financial institutions can lead to significant growth opportunities for both parties. In the case of Built and Wells Fargo, Built lacked the resources and reach to expand its credit card business on its own, while Wells Fargo sought to enhance its credit card offerings and attract younger, high-earning customers. The partnership was mutually beneficial, with Wells Fargo investing in Built and providing a larger customer base, and Built offering a new demographic for Wells Fargo's mortgage business. The deal was also financially advantageous, with Wells Fargo agreeing to pay Built $200 every time a new card was opened, a generous incentive typically reserved for established credit cards. This partnership serves as an example of how collaboration between fintech companies and traditional financial institutions can lead to innovative solutions and profitable business arrangements.
Wells Fargo Built Credit Card for renters: Wells Fargo's Built Credit Card for renters eliminates fees for renters, resulting in over a million account activations and a $3.1 billion valuation, while creating a new 0% interchange category.
Built Credit Card, launched by Wells Fargo in 2022, allows renters to pay their rent without incurring any fees, with Wells Fargo paying a built-in fee instead. This innovative arrangement has led to significant buzz around the card, resulting in over a million account activations and a $3.1 billion valuation for the company. Despite its popularity, questions remain about why Wells Fargo agreed to shoulder the costs and the potential future plans for the company, including the possibility of an IPO. The card's renter users are earning substantial points for their monthly rent payments, which was previously an unearnable expense. The arrangement created a new 0% interchange category, which was not common in recent history. The card's success has been notable, with a viral social media presence and high-profile backers, making it a standout in the credit card market.
Customer behavior assumptions: Assumptions about customer behavior can impact business strategies significantly. Accurately understanding customer behavior is crucial for effective monetization.
Assumptions about customer behavior can significantly impact business strategies. In the case of Wells Fargo and their partnership with Built, the bank assumed that most cardholders would carry balances and pay interest, generating a steady income stream. However, many cardholders instead used the card solely to pay rent and then paid off their balances in full, maximizing points without incurring interest charges. This behavior led to lower-than-expected revenue for Wells Fargo from both interest and transaction fees. The lesson here is that businesses must accurately understand their customers' behavior to effectively monetize their products or services.
Wells Fargo fintech partnership costs: Wells Fargo's partnership with fintech company, build, has resulted in unexpected monthly losses of up to $10 million due to inaccurate internal assumptions and lack of precedent for the specific type of card.
The partnership between Wells Fargo and fintech company, build, has been costing Wells Fargo significantly more than anticipated, with monthly losses reaching up to $10 million. This unexpected financial strain is due to a lack of precedent for this specific type of card and inaccurate internal assumptions made by Wells Fargo. The contract, which runs until 2029, is currently being renegotiated, and Wells Fargo has stated that they will not renew it unless the economics improve. Additionally, the partnership has faced other challenges, including a fraud incident last summer, which further complicated the financial situation. Overall, the partnership has presented unexpected financial challenges for Wells Fargo, leading to ongoing negotiations and potential restructuring.
Credit Card Rent Payments, Fraud: Fraudsters have exploited the ability to pay rent with credit cards through services like Bilt, leading to significant losses for Wells Fargo. Consumers should ensure they make legitimate transactions to avoid potential risks.
While the ability to pay rent with a credit card through services like Bilt may seem like a convenient and rewarding option for consumers, it also comes with potential risks. In this case, fraudsters have exploited the system by creating fake accounts and making fake transactions, leading to significant losses for Wells Fargo. This raises concerns about the verification process for these transactions and the potential for money laundering. Despite these issues, Wells Fargo has stated that they have not experienced any significant money laundering issues with the Bilt card. Ultimately, consumers need to be aware of the potential risks and ensure that they are making legitimate transactions. For now, it appears that the consumer benefits of the Bilt card outweigh the risks for the company, but this could change as fraudsters continue to find ways to exploit the system.
Credit card industry upfront expenses: Launching a credit card is a long-term investment for companies, taking years to recoup initial costs, but they remain committed to delivering value to customers
Launching a credit card is a long-term investment for a company, and it can take several years before the initial costs are recouped. Despite this, the company expressed its commitment to collaborating with Bill to create a valuable product for customers. This information was shared during a recent discussion about the partnership between the company and Bill Hader's new credit card venture. The company also acknowledged that additional reporting on the topic was provided by Gina Heen. Overall, the message conveyed was that while the credit card industry can involve significant upfront expenses, the companies involved remain dedicated to delivering value to their customers.