The Advantages of a Startup Card Program

2021 will see an influx of new companies launch debit, credit, and prepaid card programs in the U.S. and globally, fueled by card processing platforms and Banking-as-a-Service providers that have made it easier than ever to launch cards and other banking products. And other players, such as banks and credit unions, card networks, and card manufacturers, recognize an opportunity to support or partner with these new entrants to the card space. Although legacy banks and credit unions may not see an immediate impact to their cardholder base, these startup card programs have many advantages in the market:

  • Ability to launch with an innovative product on day one: Fintech card issuers do not have legacy card systems to update or upgrade, allowing them to build many innovations into their program before or soon after launch.
  • Greater flexibility to innovate: Similar to the item above, new programs can be designed with a better idea of how technology may change down the road. Older card programs could not have predicted today’s leading technologies, meaning that new functionality and innovations must be retrofitted, so to speak, to work with a legacy card program.
  • Younger consumers are OK with a digital-only experience: Younger consumers are the customer base of the future and an attractive group to target. While many younger consumers will bank like their parents and open an account with a traditional bank, a growing number will be interested in opening the latest and coolest online-only bank account.
  • The COVID-19 pandemic has driven everyone online: Online purchases, digital self-service, and other digital conveniences have grown significantly since March 2020 and continue to grow. As consumers become more familiar and more comfortable conducting business in an online environment, they may become less reliant on branch banking and telephone support, which has been a historical advantage for legacy card issuers.
  • Willingness to challenge the rules: While there are many examples of fintech companies that get into regulatory hot water for breaking rules, they are more willing to question and challenge accepted business processes. For example, using alternative credit indicators to approve credit or ignoring past checking account issues when opening an account can help fintech issuers attract consumers that may be turned down by traditional financial institutions. Additionally, many regulators are paying attention to and adjusting the guidelines to make it easier for fintech organizations to launch products and conduct business.
  • No customer base to convert: When legacy banks or credit unions upgrade or change platforms to integrate new technology or features, they affect their customers. Startup card programs have no customers to convert between systems or platforms, so they can launch without interrupting their customer base.

Of course, launching a startup card program is neither easy nor guaranteed to succeed. Many hurdles exist, and legacy issuers have multiple advantages over new card issuers, such as internal expertise, bank licenses, and branch networks. But while the impact to legacy banks and credit unions may not be noticeable in the near term, it may become more obvious over time as these startups expand their product mix and learn how to attract and retain cardholders without a branch network (think USAA).

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