Credit card affiliate sites are an interesting niche in U.S. credit cards. Top issuers often use firms in this space to increase their new bookings. These third-party firms fill an essential niche for leading credit card issuers. Issuers generally rely on their techniques to garner accounts, such as direct mail, digital and social media, and branch referrals. While there is no hard data on the importance of credit card affiliate sites, Mercator’s educated view of the market suggests that credit card affiliate sites account for between 20% and 25% of new account volume.
In a market with more than 500 million active credit cards and typical new account volume running at a pace of 150 million accounts, credit card affiliate sites account for 30-35 million new accounts per year.
What is a Credit Card Affiliate site anyway?
A credit card affiliate site is a third party that sources accounts. Typically, the firm has a series of financial education models to educate consumers; then, the firm helps direct the consumer toward a specific credit card. The affiliate site makes a bounty for booked accounts or, in some cases, just an application. This affiliate industry site suggests that the market will grow to $107 billion in fee revenue by 2026 and links to American Express, Capital One, and Chase programs. There are even affiliate sites for affiliate sites, such as Credit Karma and Credit Sesame, as the site indicates.
The business is simple, with low barriers to entry. You refer a credit card for Issuer “X” and generate a fee, often between $25 to $300.
It might sound like small potatoes, but it is big business for the top firms, like NerdWallet, which IPO’d in 2021. We covered Intuit’s $7 billion acquisition of Credit Karma in a rags-to-riches story about the person who built the business.
Intuit is an exciting company, and Credit Karma is not their first business. Everyone knows QuickBooks, and many have used MailChimp. Current estimates, according to the firm’s most recent public filings, Intuit’s Credit Karma will deliver $1.8 billion in revenue. That is a lot of affiliate fees.
So, why does the FTC Care?
The FTC Website says they took “action to stop Credit Karma from tricking consumers with Allegedly False “Pre-Approved” offers.” The full text can be found here, though some data is redacted to conceal proprietary information. The essence of the action can be found on page 3, items 12 and 13.
12. Despite the preapproval claims in Respondent’s emails and other marketing materials, financial product companies have not already approved the consumers to whom Credit Karma sent these offers. As one of these companies explained: “The Company does not preapprove, prequalify, or preselect consumers to whom to offer the [Company’s credit card] via Credit Karma.”
13. for many of these offers, almost a third of consumers who received and applied for “pre-approved” offers were subsequently denied based on the financial product companies’ underwriting review, i.e., the actual process by which they made approval determinations. Additionally, in some instances, roughly a quarter of consumers were denied approval because of disqualifying financial and credit characteristics, like insufficient credit histories, account charge-offs, and bankruptcies.
Lucky for Credit Karma, they are not a financial institution, or it would likely face the CFPB. There we’d find a list of bank-related standards like Reg B, Reg E, and Reg Z.
Truth in Lending matters.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group.
