How Cardless Could Revolutionize The Credit Card Industry

Cardless could revolutionize the credit card industry, making co-brand credit cards accessible both to more businesses and consumers.

For those who are into credit card rewards, there’s an exciting new issuer to keep an eye on, that has the potential to disrupt the space. In this post I wanted to talk about how Cardless could revolutionize the credit card industry, and help all kinds of smaller brands launch co-branded credit cards.

The credit card industry hasn’t seen much innovation

The credit card industry fundamentally hasn’t seen much innovation in the past couple of decades. On the surface that might sound counterintuitive, because at least cash back and travel rewards credit cards have become significantly more rewarding in the past decade. Sign-up bonuses, bonus categories for spending, and perks are all vastly improved. However, the same hasn’t been true for co-brand cards in most other industries, like department store cards, gas station cards, etc.

While the credit card industry is extremely competitive, what hasn’t fundamentally changed is how card issuers operate. Just to give a few examples of the areas where we haven’t seen much change:

• While new card products have been introduced, we haven’t seen a major new credit card issuer in the United States in over 25 years (Capital One was the last one back in 1994)
• The credit card issuers that do exist all have high costs, and aren’t exactly lean operations
• For consumers, the requirements to get approved for credit cards haven’t changed all that much; if your credit score isn’t Very Good to Excellent, chances are you’ll struggle to get approved for a credit card with the major issuers
• For companies looking to partner with an issuer to create a co-brand card, this has been limited mostly to agreements that would generate billions of dollars in annual spending; in other words, smaller businesses haven’t been able to partner with a card issuer to develop a co-brand credit card

The reasons for all of these things are quite simple — there hasn’t been much of an incentive to innovate in these areas, as the major card issuers all have similar policies. In the same way that the major airlines don’t want to rock the boat, this is true with major credit card issuers as well.

Why Cardless is unlike anything we’ve seen before

Cardless is a new credit card issuer that’s taking a different approach to issuing credit cards than what we’ve ever seen before. Cardless is essentially trying to help more brands launch credit cards for their most important customers, and they’re doing that by reimagining how the whole process works. 

This is a win-win for both smaller brands and for consumers, and that’s something to be excited about.

I recently had the chance to speak with Michael Spelfogel, who is the co-founder of Cardless. He’s a huge miles & points geek, he applied for his first credit card when he was 18, and he has applied for well over 100 credit cards himself. It’s kind of awesome to see someone with that kind of experience and passion applying what they’ve learned to develop new concepts.

I wanted to share some of the things that I learned about Cardless from Michael, and why there’s reason to be excited.

Cardless is taking a different approach to financing

Cardless is taking a different approach to funding transactions. The major credit card issuers in the United States mostly fund their own transactions, and they’ve historically been very conservative in going about that. This has largely meant that only those with ideal credit profiles have access to credit cards, locking out a huge portion of the population.

Of course here at OMAAT we talk about all the ways to keep a great credit score all while taking advantage of great credit card deals, though that’s not necessarily knowledge that the average consumer has.

Cardless is taking a different approach than others — the company plans to assemble a consortium of lenders that are willing to finance different segments of the market. Cardless, working with a bank issuer, wants to facilitate its programs having the highest percentage of card approvals, and ideally wants to facilitate the approval of more people for credit cards, even those who don’t have perfect credit.

Opening up rewards credit cards to a wider consumer base is awesome — not only does it allow more people to build their credit, but it also allows them to be rewarded in ways that wouldn’t be possible if paying for purchases with debit cards or cash.

Cardless can create endless co-brand cards

While the major card issuers have co-brand credit card agreements (for example, Amex working with Delta, Chase working with United, Citi working with American, etc.):

• Typically they’ve only been established if there’s the potential for the portfolio to be worth 10 figures in annual spending
• Actually creating a new card product is a process that takes a very long time, typically over a year; sometimes brands spend years coming up with a co-brand credit card concept, only for it to never actually launch

This is another area where Cardless is taking a very different approach.

Cardless can launch credit cards in about a month, and the economics work for Cardless to launch co-brand agreements for much smaller brands, which creates endless opportunities. Cardless could work with everything from local restaurant groups, to entertainment venues, to nonprofits, to build co-brand credit cards.

We’ve never really seen the concept of launching a credit card be as accessible and easy as with Cardless, so that’s pretty exciting.

For what it’s worth, up until now Cardless has launched cards in the professional sports team space — specifically, Cardless has cards for the Cleveland Cavaliers and Manchester United. This makes perfect sense, as these teams have loyal followings, though historically probably haven’t had a big enough fan base for a co-brand agreement to be worthwhile to one of the other major issuers.

Cardless plans to expand its portfolio to all kinds of other industries, including the travel space (which is probably what interests the OMAAT community most)..

Cardless can offer unique, valuable rewards

Ultimately there are limits to how rewarding credit cards can be in terms of the rewards for spending, and in many ways this is an area where existing card issuers are already doing a good job. However, it’s also an area where Cardless has a lot of potential:

• Cardless should have a lower cost structure than most traditional issuers, and therefore can invest more in rewards
• Nowadays credit card value propositions go way beyond return on spending, and include things like perks for being a cardmember and other one-of-a-kind experiences; by potentially having all kinds of partnerships, the possibilities here are endless
• Down the road, Cardless is even hoping to make it so that once you’re approved for a Cardless product you can swap it for virtually any other Cardless card, and perhaps even do so multiple times (this would be significantly more generous than the current product change policies we see with other issuers)

Just to give a further example of this, I’m sure I’m not alone in having several cards with a Global Entry or TSA PreCheck fee credit, and I could never use as many of these credits as I have. This is a great perk with wide appeal, and I get why card issuers currently do this, because they often have to take a “one size fits all” approach for benefits on a particular card. Cardless has the potential to offer much more customized rewards.

Similarly, say Cardless got a co-brand agreement with an airline. Most cards offer the same perks regardless of whether you have elite status or not. Imagine if we saw Cardless offer customized perks based on your status or relationship with that airline. This is all stuff that Cardless could do much more easily than other issuers, thanks to the nimble approach that Cardless takes.

Cardless has a technology focus

While a lot of companies claim that technology is a focus, Cardless actually backs it up. Cardless has an iOS app (an Android app is coming soon), and through the app you can apply for cards and manage your account.

As soon as you’re approved you’ll be issued an instant virtual card number, so you can start making purchases right away. To me, the Cardless user experience and technology focus seems most comparable to the Apple Card.

Why companies should want a co-branded credit card

We know how much loyalty programs have changed the course of the airline industry, and this could happen similarly for smaller companies as well with co-brand credit card agreements. The potential is endless:

• Co-brand partners could make money through the partnership as such, based on how many people get the card and how much money they spend on it
• Beyond that, those who have a co-brand credit card are better customers for that brand — on average they spend more money and are more engaged
• It’s easier for smaller brands to offer special perks and experiences that can make cards worth getting and worth keeping
• Thanks to Cardless’ flexible approach, perks could be even more customizable than what we’ve otherwise seen in the industry up until now

I’ve written in the past about how loyalty programs make consumers often act irrationally, so what business wouldn’t want that? 😉 

Bottom line

Cardless is a new credit card issuer that has the potential to disrupt the consumer credit card space. The company wants to help smaller brands launch credit cards, all while approving more people than traditional card issuers have in the past. Cardless is essentially reverse-engineering the process of building a credit card company. 

For consumers this is something to be excited about, as we could see dozens of new credit cards launched for all kinds of smaller brands, with awesome rewards structures. Arguably this is even more exciting for smaller businesses where the concept of co-brand cards was previously unattainable. Launching a credit card opens a world of possibilities, both to generate revenue and to increase brand loyalty.