In the miles & points world, we’re almost all familiar with the Bilt Mastercard (issued in partnership with Wells Fargo), which is one of the most innovative products that we’ve seen launch in recent years. Bilt Rewards is a transferable points currency, and the Bilt Mastercard is one of the most lucrative no annual fee cards out there.
The coolest aspect of the Bilt Mastecard is that you can earn points for paying rent at no cost, even when your landlord doesn’t accept credit cards. This is awesome, since rent is one of the biggest expenses for many people.
I’ve long wondered about the economics of Bilt. I mean, it’s great for consumers, but who exactly is funding all these rewards? As is the case with many startups, I’ve assumed that the priority is showing growth, and that profitability will come later (maybe). However, there’s a bit more to this, as it seems that Bilt isn’t even the party incurring many of the losses.
If you’ve been curious about how the economics of Bilt work, we now have some insights…
In this post:
Wells Fargo reportedly losing $10 million per month on Bilt
The Wall Street Journal has the scoop on how Wells Fargo reportedly made a very bad bet with Bilt, and is losing $10 million every month on the partnership.
For some background, back in 2022, Wells Fargo got a new CEO, and one of his priorities was expanding the credit card business. At the same time, Bilt was launching, and was looking for a bank to partner with, since it couldn’t lend or underwrite on its own. Chase reportedly wasn’t interested, but Wells Fargo was.
Wells Fago executives felt that they needed a credit card win, and figured that a Bilt partnership would generate buzz and attract younger customers. It was also thought that these young customers who are renting would then come to Wells Fargo for mortgages, but that’s a business that the company has since pulled back from.
What reportedly happened is that Wells Fargo made internal projections on key revenue drivers with the partnership, and they ended up being completely wrong.
As a result, Wells Fargo has reportedly been trying to renegotiate its contract with Bilt in recent month, stating that the current consumer behavior doesn’t provide a path to profitability. Wells Fargo has also told Bilt that it doesn’t intend to renew the contract the two companies have in 2029, unless economics change.
Here’s how the current economics reportedly work:
- Wells Fargo pays Bilt a 0.8% fee on all rent transactions, even though Wells Fargo isn’t collecting any interchange fees from landlords (Wells Fargo is paying Bilt since Bilt issues rewards to members for these transactions)
- Wells Fargo pays Bilt $200 each time that a new card account is issued, which is similar to what you’ll find for co-brand agreements with airlines and hotels
- Wells Fargo had projected that around 65% of purchase volume on the Bilt Mastercard would be non-rent expenses, generating interchange fee revenue; the reality is inverted
- Wells Fargo projected that around 50-75% of purchases charged to the card would carry over month-to-month, generating interest charges, while the reality is instead 15-25%
As a result of this, Wells Fargo has stopped bidding on new co-branded credit card programs, and is instead focused on launching credit cards that don’t include partners. Wells Fargo has reportedly even taken some of its Bilt marketing materials out of bank branches.
In the interest of presenting both sides, a Bilt spokesperson told The Wall Street Journal that the reporting “is an inaccurate representation” of the partnership, and that the company is “committed to a long term partnership with Wells Fargo that benefits all parties.” No further details were provided.
I can’t say this is terribly surprising
Bilt is now valued at $3.1 billion, and 34-year-old founder Ankur Jain has become a billionaire thanks to it. Former American Express CEO Ken Chenault is even on Bilt’s board, and has personally invested at least $20 million in the company.
Look, all along I’ve said that Bilt is fantastic for consumers, and in many ways, it’s too good to be true. Who doesn’t want to earn points for rent without paying a fee? They say “there’s no such thing as a free lunch,” but… that’s basically a free lunch!
There was an interesting CNBC interview earlier this year with both Jain and Chenault, where some interesting questions were asked about the economics of the company. The interview didn’t exactly clarify a whole lot about who pays for what, but I guess now we know.
Bilt has fewer revenue streams than other kinds of cards, and a lot more expenses:
- The Bilt Mastercard has no annual fee, and a lot of card issuers make money through annual fees
- The Bilt Mastercard gives out rewards for paying rent, without getting any revenue from it (well, more accurately, Bilt is getting some revenue from Wells Fargo, but it basically only covers the cost of issuing rewards)
- Many of the people with the Bilt Mastercard are savvy miles & points consumers, who don’t carry balances, so the revenue there isn’t as high as Wells Fargo had projected
Essentially it seems that Bilt has an amazing arrangement with Wells Fargo, as clearly Wells Fargo was expecting completely different consumer behavior. I also can’t help but wonder what Wells Fargo was basing its projections on, as expecting 50-75% of purchases to generate interest charges seems highly optimistic.
Of course it’s normal for it to take some time before a card portfolio becomes profitable, so it’s not surprising that money would be lost early on in terms of acquisition costs, etc.
But there’s one thing here that’s very hard to overcome. Wells Fargo was hoping that around 65% of purchase volume would be non-rent expenses, but instead it’s the inverse, so somewhere around 35%. That’s a major issue, since that’s a portion of revenue on which Wells Fargo takes a loss. Add in the lack of people carrying balances, and one has to wonder where the upside is for Wells Fargo.
So what can be done so that a higher percentage of the purchase volume is non-rent expenses, and/or so that people carry balances? That’s not so easy…
Obviously Bilt has been able to show amazing growth, and for good reason, because the product is very lucrative for consumers. Actually making this sustainably profitable for all parties is a challenge, though.
I know that part of Bilt’s business model is also getting the big rental companies in the United States onto its platform. While that might help Bilt’s bottom line, it doesn’t help the bottom line of the bank that’s underwriting all of this.
Bottom line
The Bilt Mastercard is issued in partnership with Wells Fargo, and is an incredibly lucrative product that awards points for rent, without any sort of fees. I’ve recommended that anyone who is eligible pick up this product, given that you’re basically getting something for nothing.
If you’ve been curious about who is paying for these rewards though, now we know, at least according to sources quoted by The Wall Street Journal. The economics of the Bilt partnership haven’t worked out the way that Wells Fargo had hoped, as a majority of purchase volume is for rent, where consumers are earning something for nothing. On top of that, not many consumers are carrying balances.
I’m curious to see how this evolves. Will Bilt and Wells Fargo be able to renegotiate their contract, or how does this play out in 2029?
What do you make of the economics of Bilt?
I'm assuming the leak of these details is likely just a negotiating tactic by Wells. They misjudged the projections and want a better deal. It would be interesting to see if the math is really as bad as this article indicates.
Will there be a rejoinder article from Bilt?
If Wells eventually bails, does another bank step in, and how would the new deal look?
Interesting article.
"Wells Fargo projected that around 50-75% of purchases charged to the card would carry over month-to-month, generating interest charges, while the reality is instead 15-25%."
Yup, there's your problem. Those freeloading card-holders are settling their bills in full every month, instead of paying the scandalously high interest rates charged on oustanding balances, this depriving Wells-Fargo of the income to which they are obviously entitled.
The nerve!
As someone who looks at credit card utilization daily, for Wells Fargo to think they would have even 50% of purchases revolve is ludicrous. Subprime purchasers barely 50% of purchases on lines of less than $500. To expect customers in the prime or even near prime space to revolve that much is pure fantasy.
I don't get all the hate.
I use the bilt card, I get my points and move on with life.
Why all the drama ?
Is it because people don't like wells fargo.... ok, they are losing $10 million a month on the card.
People wonder where did WF came up with those unrealistic numbers.
It's a bunch of millennial VPs with MBAs overpaying millennial from McKinsey with MBAs.
Most of the other major programs like Amex, Chase, etc are internal within the organization and have multiple cards attached to their rewards currency.
Risk of transfer partners being pulled without notice? Would hate for those points to become just cash back or some other low value currency
Bilt is the Starwood/SPG of the credit brands. And WF has never deserved anything good. They certainly didn't deserve Wachovia, even after First Union.
"So what can be done so that a higher percentage of the purchase volume is non-rent expenses, and/or so that people carry balances?"
If I was running the company, I would add some incentive for users to also use this card on their everyday spending. For example, I might add cash back in Restaurants, Grocery Stores, or Convenience Stores, or something else. But not everything. This is because while I am a savvy points and...
"So what can be done so that a higher percentage of the purchase volume is non-rent expenses, and/or so that people carry balances?"
If I was running the company, I would add some incentive for users to also use this card on their everyday spending. For example, I might add cash back in Restaurants, Grocery Stores, or Convenience Stores, or something else. But not everything. This is because while I am a savvy points and miles user, most people are not. And they don't like how complicated the rewards structures are for some cards. As a result, they prefer to use one card for everything. However, the Bilt card is so easy to maximize value and come out ahead because you basically only need to use it for rent, and then you can keep your card in the drawer of your desk. However, if Bilt adds an incentive for users to have the card in their wallet to use it for everyday spend (just a few categories), many people would use that card for everything. Take the AMEX Platinum for example. Living in Brickell in Miami, I cannot tell you the amount of high earning people I have seen use their Platinum card at restaurants! They are only getting 1x point per dollar spent, yet they use their Platinum card for everything! And these are people who dine out every day! AMEX is making a ton of money on those people. That is what Wells Fargo needs to do. No need for a premium card. Just something that incentives a good amount of everyday spend. And that will cause a good amount of the American population with credit cards to use that card for everything!
This is a good post. And I agree. if they had been smart, they would’ve aimed for at least a 1.25X on all transactions. That would at least put you in the same ballpark as the capital one venture one card with no annual fee.
Why would Bilt add an incentive on everyday spend? That would cost a lot of money, and they are profitable. They have a deal through 2029 that works for them. WF can't change the rewards structure, because it's controlled by Bilt.
Bilt is a scam. Terrible customer service. Paying Paul to pay Peter. Ponzi scheme. Flashy CEO with a history of disappointing his VC backers. Get out asap.
You cannot earn points on rent any other way. I would agree to be careful using the card more generally.
Wells Fargo thought that up to 75% of card holders would carry a balance? That's much higher than the national average of 47%! They are probably used to their predatory practices generating more fees on unsuspecting clients. Now they have a well informed client pool maximizing their personal value. I better jump on one of these cards quickly before they go away!
Has to be either misreporting or that's the upper bound of an very wide interval estimate.
“Has to be either word salad misreporting or that's the word salad upper bound of a very wide word salad interval estimate word salad word salad.”
I use the card slightly more than the min required transactions per month but for low dollar amount purchases. I have predominately Chase cards though so I've starting taking this one with me when travelling as I have had too many Chase issues.
Good place to recycle...
After yet another over at VFTW peddling Bilt piece back in January '24, I wrote the following:
to which commenter Hornet had retorted...
Good place to recycle...
After yet another over at VFTW peddling Bilt piece back in January '24, I wrote the following:
to which commenter Hornet had retorted...
...not realizing that they were putting the finger exactly on the problem: Bilt was too good to be true because while everyone seemed to be benefiting, no one appeared to be footing the bill. Now we know: Wells Fargo was the butt of the Ponzi scheme from which the 34-year-old who founded Built has become a billionaire...à la FTX's crypto wiz kid, SBF,...leaving Wells Fargo holding the bag!
The big difference is that Wells Fargo used their own wacky input parameters to come up with value which wasn't there given reasonably forseeable behaviour.
Bilt facilitated transfer of value from WF to cardholders while taking a handsome cut.
No deception.
SBF, and most of crypto, is driven by sell-side, and late joiners are being deceived.
That is not a Ponzi scheme. A Ponzi scheme involves fraudulently paying off early investors with money from more recent investors. Bilt is a profitable company that has an apparently one-sided deal with WF. The profitability seems to be largely driven by the deal. Just because a business model is not sustainable does not make it a Ponzi scheme. If you read between the lines, WF's hope was to convert Bilt customers into homeowners with...
That is not a Ponzi scheme. A Ponzi scheme involves fraudulently paying off early investors with money from more recent investors. Bilt is a profitable company that has an apparently one-sided deal with WF. The profitability seems to be largely driven by the deal. Just because a business model is not sustainable does not make it a Ponzi scheme. If you read between the lines, WF's hope was to convert Bilt customers into homeowners with mortgages issued by WF. WF makes money on the mortgage, and the credit card stops being a money loser, since WF is no longer eating the fees for rent. The mortgage market hasn't cooperated. SBF was lying and breaking the law. WF misjudged market conditions and ended up holding the bag. It happens all the time. It doesn't mean Bilt committed fraud.
Look, anyone who understands the core co-brand economics knows they fundamentally rely on interchange, which in turn requires sustained spending month to month. Bilt targets a demographic whose largest spend (ie rent) doesn’t attract any interchange while simultaneously reduces their disposable income for other core and discretionary spend, which is likely going on other card(s) anyway with savvy cardholders. Expect the CEO will try and IPO or get acquired to cash out equity ASAP since...
Look, anyone who understands the core co-brand economics knows they fundamentally rely on interchange, which in turn requires sustained spending month to month. Bilt targets a demographic whose largest spend (ie rent) doesn’t attract any interchange while simultaneously reduces their disposable income for other core and discretionary spend, which is likely going on other card(s) anyway with savvy cardholders. Expect the CEO will try and IPO or get acquired to cash out equity ASAP since no other bank is going to pick up this portfolio on anything like the current deal terms at renewal
IPOing out of a bag of turds pretty much describes most tech business of the past 10+ years.
But this time the fools with bags of money ran for cover.
In general, any time you see the word "innovation" being used in a financial context, your default position should be short (related: whatever lender is the fastest growing, especially if they haven't weathered a full credit cycle, is probably a decent short candidate).
All of this suggests that you're generally better off using a different strategy for Bilt points than the other transferrable points: where you would keep Amex/Chase/Citi/Cap1 points until you have a firm...
In general, any time you see the word "innovation" being used in a financial context, your default position should be short (related: whatever lender is the fastest growing, especially if they haven't weathered a full credit cycle, is probably a decent short candidate).
All of this suggests that you're generally better off using a different strategy for Bilt points than the other transferrable points: where you would keep Amex/Chase/Citi/Cap1 points until you have a firm redemption idea (preserving optionality), the somewhat greater probability of Bilt shuttering the program or dropping useful partners on short notice (effectively a surprise massive devaluation (possibly to zero)) means frequent speculative transfers to whichever program you think is most likely to provide a good redemption in the future. Major programs like Flying Blue are almost surely safer than Bilt.
This strategy difference probably means a Bilt point can't realistically be valued at more than 1.3 cpp. I also recognize that this strategy is reflexive: the viability of the program depends on people not having this strategy.
I too question the long term business plan but your advice is silly.
The contract goes until 2029. And Bilt has tons of funding. They're not going belly up anytime soon.
And Bilt has offered occasional insane transfer bonuses. At least wait for another one of those before speculatively transferring out.
Transfer partners can end early if Bilt doesn’t want to pay. We don’t know how long those agreements last (American ended for example)
Rent day has turned into vapor ware.
It’s good advice to transfer out more aggressively with Bilt
It will probably crash and burn soon, but until then free Hyatt points are free Hyatt points.
They could easily fix this by changing the 5 monthly spending requirement to the same amount as the person's rent. Basically an extra point for spending up to the rent amount.
Then no one would use this product, because other cards reward expenses other than rent so much more richly than 1x.
Another ZIRP-era scam to hook consumers onto products with negative gross margin to pick up market share and, idk, eventually somehow become profitable. Enjoy the free money while it lasts (I certainly do).
Minor correction, Charlie Scharf, the current Wells CEO, was hired in 2019.
Part of this failure has to do w/ demographic.
Median income for homeowners is over $86,000 compared to $42,500 for renters. Without a SUB, homeowners have no interest in opening up this card at all. Renters are only putting at best half of the spend that homeowners can.
Enjoy those Bilt cards while you still can!
Those benefits are being gutted by 2029 at the latest!
They've already been gutted
Matt is correct. Last year I earned Gold status. Then they revamped the tier earning model and I will never qualify as such again because they pay 1x per dollar spent and every other card in my wallet is the smarter choice except at restaurants. So their reward system literally blocks me from using their card for most purchases. They need to ramp UP their gas, groceries, and all other rewards points because like it...
Matt is correct. Last year I earned Gold status. Then they revamped the tier earning model and I will never qualify as such again because they pay 1x per dollar spent and every other card in my wallet is the smarter choice except at restaurants. So their reward system literally blocks me from using their card for most purchases. They need to ramp UP their gas, groceries, and all other rewards points because like it or not, I have Venture X in my pocket that I pay for, and I will not accept 1x on anything when I could choose 2x by using a better card. Self defeating.
What's going to happen to the Bilt cards issued by the original issuing bank?
It depends on who owns the portfolio rights - and whether any other bank is willing to pick up the portfolio at the valuation when the contract renews. Otherwise WF could flip them to a bank branded product.
In Wall Street parlance, Wells is the “dumb money”. That former AmEx chairman/CEO isn’t too smart either (just look at how AmEx created all those manufactured spending opportunities under his watch).
Wells is dumb. To think the conversion rate on rent paying cardholders to mortgage holders would be substantial, is hilarious. And also to think that Bilt cardholders would be using the card for other things outside of rent purchases is also laughable. Wells is probably trying to torch their partnership asap. The math ain't mathin.
You will be surprised this card could pay off in time but it’s definitely risky. They must have known that they would lose significant money on this before they saw any type of benefit. I do think it can pay of eventually though. But many things have to change but props to the CEO of Bilt. He is definitely the winner here
Absolutely, if the Bilt CEO and their employees can cash in on their equity, they're the only winners here.
No chance of going public, and basically no chance of a strategic buyer taking over this turd.
To be fair on mortgage Chase used similar gymnastics for Sapphire Reserrve launch bonuses