After over three decades of co-branded credit card obsession, innovative companies and savvy consumers are both turning their attention to an oft ignored payment mechanism: white-label debit cards. Why is a supposedly antiquated payment method seeing a resurgence? To answer that question, we have to take a look back at the last 30 years to see how co-branded cards started, what’s changed, and where things are going.
How co-branded cards got started
A new loyalty program
In the early 1980’s, airlines began teaming up with banks to offer mileage reward credit cards. At the time, they were revolutionary – consumers could spend as they normally would, but would earn rewards for doing so. It was an exciting way to build customer loyalty, encourage more transactional volume, and improve engagement while opening an entirely new marketing channel.
After a couple years of keenly observing the rapid growth of the airline credit card market, other non-financial companies began to put their hats in the ring, offering their own co-branded credit cards. Suddenly, new credit cards started popping up everywhere: sports team cards, home improvement credit-cards, retail credit cards, you name it. If you spent money there, they probably had a branded credit card.
Competition brings compression and eventually consolidation
Over the years, the credit card space has become cutthroat and only a handful of giants have proven they can succeed long term. They’ve built large and extensive infrastructure that’s led to an incredibly strong hold on the market and continue to offer new products and new benefits to deepen their advantage. If you’re looking to get into the credit card game, your path is far from clear – getting into the credit card market means entering into bloody waters and being prepared to fight. A very expensive fight at that.
So why not offer a debit card instead? Well historically, debit cards weren’t a compelling candidate for co-branding – the interchange fees were lower, there were no steep interest rates to profit from, you couldn’t charge a steep annual fee, and they were more difficult to get up and running. Why would a company want to make less money and take longer to launch a product? They didn’t.
But in the last few years, three important things have happened.
Major Advancements in Banking as a Service
Major advancements in the “banking as a service” space have made it faster, easier, and more profitable than ever before to offer custom white-label bank accounts and debit cards. What was once a cost-center with no room to differentiate has become a blue ocean: a space rife with opportunity where companies now have the tools and business model they need to build brand-new, game-changing financial services.
Debit Cards Are at the Center of Users’ Financial Lives
Companies have started to realize that the humble bank account and debit card are far more relevant to the consumer’s financial life than their credit card – they are the center of the consumer’s financial life and bring with them seemingly infinite product possibilities (vs the now-commoditized ‘rewards card’ that co-branded credit cards have been reduced to).
Banking Brings a More Sustainable Business Model
Companies are realizing that consumers are sick of being in debt and in the long run, white-label debit cards bring a much more sustainable model. Not just for the issuer, but for the economy and for society as a whole.
Think about how each model makes its money: credit card companies make most of their revenue when people spend beyond their means and can’t afford to pay off balances.
On the other hand, the debit card model is one that is aligned with the consumer and is not geared toward perpetually indebting the customer with high interest rates. It’s a product consumers are increasingly embracing as many demographics in general have become much more credit-averse in the last decade.
Spending with a debit account is a safeguard – it is spending within one’s means.
What’s happening in the debit card space today?
Rapidly growing market
According to the Federal Reserve Payments Study, debit is the most used and fastest rising form of payment in the US today. While credit cards have seen much evolution over the years with the introduction of systems like points and rewards, debit cards have remained mostly unchanged, leaving vast room for innovative new players in the space to revolutionize the debit card product.
Dramatically improved infrastructure
An easy way to dip a toe into the clearer waters of the debit space is through partnership with existing platforms that are set up to navigate the banking world, and that afford flexible digital capabilities. With a platform like Cambr, for example, upstart and enterprise companies alike now have a competitive advantage over legacy players (i.e., new capabilities, lower costs, and a more flexible infrastructure).
New product possibilities
Using Cambr, you now have the ability to offer debit cards in a customized, white label fashion with innovative new features and tools like real-time data and programmatic controls. We can handle everything related to card issuing, production, delivery and processing, leaving room for you to focus on building an experience that’s designed specifically for your customer set’s unique needs.
With the infrastructure already built and accessible via clearly documented APIs, you can focus on building the most powerful product to acquire customers in a blue ocean.
These are tools that have never been available to product creators in the banking space, and we’re only just scratching the surface in terms of their possibilities.
So what’s next?
In summary, it’s a safe bet that innovations in debit will soon outstrip credit. Instead of competing on a commoditized product against giants that have been in the game for a long time, the debit model offers the opportunity to drop a hook in an open ocean with a product that brings new functionality to the user’s life.
Instead of struggling to stand out among a sea of consumer-unfriendly credit cards, you can issue a banking product that offers new capabilities that incumbent banks can’t, one that will help both customers and the financial health of society as a whole. It’s much more advantageous to offer a card that helps people manage their finances (debit) than one that shackles a consumer with crippling debt (credit).
Yesterday’s ‘old news’ is now tomorrow’s ‘future’.