New accounts are the lifeblood of a credit card business. Issuers must constantly book accounts to fuel growth and cover account attrition. Top banks, like BoA, Chase, and Citi, must source 25 million or so new accounts to cover those customers that leave voluntarily or due to collection issues; that is just 5% of the 500 million active credit card accounts in the U.S. And do not forget business growth requirements. Tack on another 7% for a robust year, and it is easy to see why issuers scramble to capture new accounts.
It takes rewards, digital engagement, and persistence. With mail response rates measured in basis points, not percentage points, it is no wonder that credit card issuers spend millions just to design the envelopes used in direct mail. This recent report by MediaLogic calls out Capital One’s constant envelope testing, and American Express’ sensory strategy to keep you interested enough to look inside.
All this, just so credit card issuers can give you 2% cashback when you use their card.
Enter the credit card aggregators. PaymentsJournal first covered this space in 2018 when we looked at Credit Karma and noted: “Credit Karma is one of the large ones; can you believe $4 billion valuation and $680 million in referral fees from lenders?” Later, Intuit acquired Credit Karma for $7 billion.
Credit Karma was a storybook American success story: “Kenneth moved to Las Vegas with his family from China at age four, where his mother was a casino dealer, and his father was a cook. Years later, at Boston University, where he double majored in economics and math, he worked his way through school parking cars at a night club.”
Now comes NerdWallet, a competitor, that filed an IPO in late September. Here is the S1, filed October 8, 2021. While you might not like the 150 pages of detail, the takeaway is that the IPO will create a $5 billion valuation.
And another success story. According to CNBC:
[Tim] Chen, 35, says he got the idea for NerdWallet “sitting around twiddling my thumbs,” while out of work.
He had received an email from his sister, who was living in Australia, with a question about finding a credit card with lower foreign transaction fees.
“My first inclination was, ‘Let me Google that for you and I’ll get back to you in three minutes,’ Chen says. “And I was shocked I couldn’t find anything on Google that wasn’t basically marketing [or] promotional material.”
So, working out of his Manhattan apartment, he used $800 of his own money to cover start-up costs like web hosting and domain fees and software and started NerdWallet.
Talk about a better mousetrap…
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group