Get access to Protocol
Shopify wants businesses to use its warehouses. Venmo wants to embed itself in everyday life. Razer wants to use its diehard fanbase to grow even more.
Those are among the justifications that tech companies described to Protocol for trying to fill a coveted spot in your wallet with credit and debit cards. All are working to the same end: To make more money per user while also growing those ranks. But as they do so, they're also embarking on a line of business that stands to reshape the banking sector as we know it.
After Apple kicked off this trend with its titanium Apple Card last year, a flood of other companies have followed suit. Venmo and Razer recently launched cards, and Samsung and Shopify are set to release theirs later this year. EBay told Protocol it's considering something similar, and Google is also rumored to be making its own plans.
For these tech companies, payments are a "means to an end," said Jorn Lambert, Mastercard's chief digital officer. At the heart of it, he says, is consumer fickleness toward digital platforms: While people may swap apps or phones all the time, they tend to be much more loyal to their financial institutions. When a tech company introduces a card or bank account, Lambert said, they get "much more stickiness" with their customers.
"There's something about being able to build a financial relationship with the customer that allows you to streamline the … transactional activity that you have on the customer," Marqeta Chief Product Officer Kevin Doerr said. "Once you've been able to secure that," he added, "the ability to stack products on that, to stack services on that … just becomes easier and easier."
Lambert pointed to the cash back that Apple offers when you buy Apple devices with an Apple Card as one example of that. And Tui Allen, a senior product leader working on Shopify's Balance account and card, explained that its card will come with a rewards program that matches the way merchants spend. That program can encourage further use of the Shopify platform: For instance, it will reward merchants when they spend on Shopify's Fulfillment Network, or use its marketing services. Looking further ahead, Allen suggested that Balance could expand into other services, offering accounting and payroll management tools. "We really want to bring that all together, where the Shopify platform becomes the foundation for operating [a merchant's] business," she said.
Alongside loyalty, companies also have an eye on ubiquity. Venmo SVP Darrell Esch said that the aspiration for the company's new credit card is for it to "become an everyday part of our customers financial lives." To do that, a physical card is a necessity. "The reality is, you still need a physical card at many places," Esch said. Despite the pandemic hurrying along the shift to contactless payments, physical cards are still essential for some transactions — especially in the U.S., where contactless adoption still lags behind much of Europe and Asia.
There are other benefits to physical cards, too. "There is a little bit of an element of having a business card," Allen said, that "gives you that level of feeling proud." A well-designed physical card can help customers feel "connected" to a brand in a way that's harder to achieve on a screen, Allen said. The current trend for challenger banks to launch metal cards, with intense brand loyalty driving adoption, is testament to that. Razer, which is about to launch a prepaid card that lights up, is leaning into that status symbol idea. "Many people say, 'I want the card because I want to look cool,'" Razer Fintech CEO LiMeng Lee said, comparing the new card to the sought-after American Express Black Card. He expects the eye-catching design to drive adoption, too, serving as a cheap way of acquiring new users.
Esch said early reactions to the Venmo card had "been of amazement" at its QR-code emblazoned design. That QR code enables new features that would be harder to achieve without a physical card, too: If you're out for dinner with your friends, you can pay the check and your friends can scan your card to pay you back. That's one of many ways in which tech companies are actually improving the card experience, which, managed through traditional finance apps, can be clunky. Here, tech's UX experience can make a big difference. Razer and Samsung are both offering rewards programs with their cards, and Apple makes a big deal of the simplicity of its app. In some ways, tech companies can offer a genuinely better product than the incumbents.
And unlike challenger banks, it's very cheap for tech companies to get their customers to try these products: They already have a giant user base to sell to. "Our user acquisition costs tend to be lower than most other startups," Lee said, citing the 100 million-strong Razer fanbase. Even converting 10% of those users to the company's fintech business, he said, ends up being a lot of people.
When faced with an obvious list of potential gains from launching cards, the question for tech companies becomes: Why shouldn't we? For a long time, entering the world of finance was difficult and expensive. In recent years, the barriers have shrunk.
The explosion of activity in fintech has created a proliferation of companies, Marqeta among them, that can help other tech companies launch banking products quickly and easily. As Victor Orlovski, a managing partner at Fort Ross Ventures, sees it, financial services have effectively become commodities. He said the cost and time of developing fintech products has significantly fallen in recent years, and expects it to fall further still in the coming years.
That change has been driven by the launch of banking-as-a-service companies, Orlovski said, such as Marqeta, Solarisbank and Cross River. Those companies deal with the licensing and regulatory side of things, providing APIs that other companies can plug into. By reducing development costs, that in turn encourages front-end innovation, providing tech-branded end products to consumers.
Doerr compared the current situation to the development of the mobile ecosystem. "First, there were devices. And then there was a platform, and then there were SDKs," he said. "Once you get to the SDKs, you're no longer constrained."
Having seen the success of those middlemen fintechs, big banks are starting to fill similar roles. The Apple Card, for instance, is issued by Goldman Sachs; Google's upcoming banking suite involves a partnership with six traditional financial institutions. That hints at a broader change in the banking industry.
"If [banks] want to still keep a consumer within [their] framework, [they] would need to play on the UI/UX field," Orlovski said — an area where they have "no competitive advantage" compared to tech companies. Instead, then, they might have to become "API-driven banks, where they provide the infrastructure to other players." Wells Fargo, in other words, might no longer be a consumer-facing bank, but a bank that lurks behind Amazon's consumer-facing bank. Doerr said that from his conversations, banks seem more attracted to the latter. "The banks see this as much more of a partnership opportunity," he said.
Of course, there's always a risk that the tech companies will one day ditch the banks and do everything themselves. But the experts Protocol spoke to suggested that was an unlikely outcome. "They're generally very reluctant to move into the financial institution space," Lambert said, "because, frankly, it's a hard business … which has very heavy regulation." Orlovski agreed, saying "none of them want to acquire a license" and adding "I am definitely sure that Amazon is not going to buy a bank."
But don't take that to mean disruption isn't coming. As banking-as-a-service provider companies proliferate, prices are falling. "The bargaining power of [tech] companies is becoming bigger, and the bargaining power of banks is declining," Orlovski said. Banks might continue to exist — but as in so many other industries, tech will try to get its piece of the pie.