According to the Federal Reserve Bank of San Francisco, cards are now the most-used payment option in the United States.
To be precise, debit, credit, and charge cards now account for more than 57% of all US payments by volume—and that number continues to rise.
That’s just one of the reasons that leading tech companies (e.g., Uber, DoorDash, Square) have started making branded payment cards available to their customers.
Cards are a convenient way to spend money, and they often generate rewards. In the case of credit and charge cards, they enable access to funds your customers don’t currently have in their bank accounts. Finally, businesses can manage corporate cards as a way to control spend.
But cards aren’t just valuable for your customers. They generate game-changing, new revenue streams in the form of interchange fees. They also drive engagement and retention, while generating valuable insights into customer cash flow and spending patterns.
If you’re a leader at a tech company who’s thinking about whether offering branded cards makes sense and how to offer them, this guide is for you. In it, we’ll cover:
Your customers are going to spend money. So why not help them do it in a way that’s convenient and rewarding for them—and also valuable for you?
To illustrate, let’s use an example. Say you’re the VP of Product at Kabin, a marketplace for vacation rentals. One of your hosts uses their Kabin Balance debit card to purchase $200 worth of painting supplies at the Home Depot.
For starters, you’ll earn $3 of interchange revenue from that transaction. At the same time, you’ll gain valuable insights into your host’s cash flow and spending patterns. Finally, you’re more likely to retain them, as they’re using your platform to store and spend their money.
When your customers spend money with your cards, they generate:
It’s worth noting that people actually spend more when they pay with cards vs. cash. The average value of a cash transaction in the United States is $22—but that number rises to $43 for debit cards and $96 for credit cards. These are meaningful differences, especially when you consider the interchange revenue that cards generate for companies that offer them.
Broadly speaking, there are three types of payment cards: debit cards, charge cards, and credit cards. Which you choose to offer will depend on your customers and your goals.
Cards are one of the most valuable financial products you can offer; they provide a powerful way for customers to make purchases and access funds, while providing you revenue.
But, when combined with other financial products, they can be a force multiplier that produces even better financial solutions and outcomes for your business. For example, they can enable you to offer instant payouts or free invoice factoring.
In this section, we’ll explore some of the ways innovative tech companies are combining cards with other financial products to generate engagement, retention, and revenue.
Who’s doing it: Square, Invoice2go
How it works: The most basic use case for debit cards. You earn interchange revenue when your customers make card purchases.
Benefits for your platform: You earn interchange revenue when your customers make card purchases.
Who’s doing it: DoorDash, Veryable
How it works: When you know your customers are getting paid, enable them to access their funds right away.
Benefits for your platform: Many end-customers will switch platforms to get paid faster—and you may be able to charge a fee for the convenience.
Who’s doing it: Amazon, eBay
How it works: The most basic use case for credit and charge cards. Your customers can make purchases with a line of credit.
Benefits for your platform: Credit and charge cards generate higher interchange than debit cards.
Who’s doing it: Chime, Nav
How it works: Credit and/or charge cards can help your customers build a credit history.
Benefits for your platform: Credit-builder cards can help you acquire new customers. Once their scores have improved, you're in a prime position to offer them other banking and lending products.
Who’s doing it: Ramp, Highbeam
How it works: Enable your customers to set programmatic limits governing card spend (e.g., amounts, merchant categories).
Benefits for your platform: Interchange rates on corporate cards are significantly higher than consumer cards.
Who’s doing it: Outgo, Creative Juice
How it works: Leverage interchange revenue to lower the cost of invoice factoring for your customers.
In this case, whether you choose debit, credit, or charge cards will influence both the functionality of your product and the factoring rates you can offer.
For example, you could choose to subsidize factoring fees from debit card purchases or provide free factoring from charge card purchases. Also, with a credit or charge card, your customers don’t need to wait for an invoice to be factored before they start spending.
Benefits for your platform: Affordable factoring sets you apart from competitors—driving acquisition, engagement, and retention.
Who’s doing it: Paypal, Bluedot
How it works: Leverage interchange revenue to reward your customers for buying the things that matter to them.
Benefits for your platform: Targeted rewards set you apart from competitors—driving acquisition, engagement, and retention.
One of the most important differences between card types is whether they require underwriting and operational capital.
Because debit cards draw funds from your customers’ bank accounts, they don’t require either.
By contrast, credit and charge cards draw funds from money lent to your customers. As such, they require underwriting. That means determining whether and how much credit to extend each customer.
Funding your credit- and/or charge-card program will require sourcing the necessary operational capital (Unit can help with this). It typically comes from one of three places:
Unit is a modern financial infrastructure platform that helps tech companies build accounts, cards, payments, and lending into their products.
That means we help platforms like yours launch payment cards (among other things). To date, nearly 200 leading platforms and marketplaces have trusted us to help them build and scale their card programs.
For example, Unit helped AngelList add bank accounts and debit cards to their platform, thereby becoming a “financial mission control” for their customers.
If you’re ready to launch your card program, we can help with the following:
July 27, 2023