Why Debit Card Won’t Solve All Your Problems


If the fintech startup has built significant trust with its user base, recommendations and third-party offers can be a scalable monetization strategy. Credit Karma is a great example of this.

Or maybe it would. Let us find out. But before we do, kindly note that the world of fintech is not just hot right now, it is fast becoming a force to reckon with. Investment dollars are flowing in at an alarming rate.

Several fintech startups are attracting foreign investments like never before. One bank is doling out $40,000 to two Fintech startups. Another is funding some Fintech focusing on artificial intelligence.

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However, Zach Pettet the vice president of Fintech strategy at NBKC Bank, a community bank in Kansas City, Missouri, and Managing Director of NBKC’s accelerator, Fountain City Fintech in a report said that Fintech companies are competing to have their debit cards to be consumers’ No. 1 choice, even if it sometimes doesn’t make sense for the company to provide this service.

Many Nigerian banks are doing the same thing. You would have noticed that ahead of the expiration of your debit, your bank would send you a message asking you to click yes so that a new debit card can be personalised in your name. Some banks are hell-bent on issuing you a debit even when you do not need one. It is all in the transaction fee, isn’t it? It tallies.

The same thing applies in America according to Pettet. He said that to lock up that block page rate, the charge that covers the handling and risk of card transactions, Fintechs are targeting younger consumers. 73% of customers 18-34 said they would be willing to try a card from a tech firm they already use.

This information from customers fits the business model, and legitimately adds value to the customer. Offering a debit card is a valid strategy. The revenue associated with the interchange (every time a card is swiped, that fintech earns a portion) can be significant for a fintech startup.

But with the recent influx of cards — it’s essential to do something unique. “Just another card” is not going to penetrate the zeitgeist. Take a look at Acorns, a six-year-old investing, and savings company. For every purchase with the Acorns card, the partner retailer will deposit a reward into the consumer’s account. With recent backing from Comcast Ventures, NBCUniversal, and Bain Capital Ventures, Acorns’ valuation skyrocketed to $860 million.

But that also highlights the scary thing that’s being whispered around Sand Hill Road. There is irrational exuberance from venture capitalists pushing their fintech startups toward debit cards and that oh-so-beautiful interchange rate.

These debit cards are not based on real-use ones. Funding for fintech startups hit $11.89 billion in 2018, the highest in five years. The monetary flood is inflating valuations too soon in startup growth cycles.

Again, if fintech startups wish to embrace the debit card strategy, they need to put some more profound thought behind the offering.  Digit, the popular money-saving app, took a lot of heat in 2017 when the company announced it would implement a $2.99 monthly fee. Added features did little to solve angry customers, many of whom said they’d pull their funds.

A year later, CEO Ethan Bloch said Digit had helped clients set aside more than $1 billion. Digit made a decision that dramatically shifted the economics and significantly increased sustainability. If a product indeed provides value, consumers will pay for it.

If the fintech startup has built significant trust with its user base, recommendations and third-party offers can be a scalable monetization strategy. Credit Karma is a great example of this. Users trust Credit Karma to provide an up-to-date, accurate credit score.

This relationship is a perfect platform to suggest credit cards, loans, etc., that all flow from the quality of the user’s credit score. Every card and loan is monetized. Value for the user. Revenue for Credit Karma. Mutual alignment.

Find a partner that adds value to your platform, and integrating for a charge is an excellent example of this. Often dependent on free software to run their books, freelancers and solopreneurs generally don’t withhold enough on their taxes. Integrating with a company such as Track could provide a path to additional revenue.

Portrait of young afro woman using credit card

Track, one of the first cohorts of NBC’s partner accelerator Fountain City Fintech, uses machine learning to analyze freelancer earnings, differentiate between W-2 income, and withhold taxes. Integrating Track’s application programming interface and charging an additional tax withholding and remittance fee would be a lucrative strategy.

The “pay what’s fair” model has picked up steam as Aspiration, and many others have brought the standard to the world of fintech. Aspiration’s product is free; consumers decide how much they would like to tip. The information is not public, but according to folks close to Aspiration, the numbers are to what similar companies make per customer.

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Many dynamics determine which card consumers choose to use for purchases. On average, Americans have 2.6 credit cards. And credit cards generally come with much more significant rewards than debit cards. Consumers are incentivized to use the card that benefits them the most. The likelihood that a fintech startup’s card will have staying power is low.

Consumers are fickle. Businesses are hard to build for the long term. The need for fintech startups to develop business models with diverse revenue streams is paramount. #

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