- Key insight: A fintech called Frontlands is launching a credit card this summer that will use mineral rights as collateral.
- Supporting data: About 12.5 million Americans own stakes in oil and gas resources.
- Expert quote: The card is "very similar to a home equity line of credit, except the underlying collateral is your mineral rights," said Brandon Cotter, Frontlands' CEO.
To get a line of credit, a borrower might put up their house as collateral. But for a new credit card being developed, the collateral is underneath the house.
A fintech company called Frontlands is launching a credit card backed by mineral rights — stakes in oil, gas and other resources, often found right on the homeowner's property. The card is set to launch in June, and Frontlands says it's the first of its kind.
"It's very similar to a home equity line of credit, except the underlying collateral is your mineral rights," Brandon Cotter, Frontlands' CEO, told American Banker.
About 12.5 million Americans own oil and gas mineral rights, according to the
It's a market that Brian Riley, director of credit advisory services at the consulting firm Javelin Strategy & Research, called an "interesting opportunity."
"While this is not a mass-market play, it illustrates how credit cards can be used to tap into cash flows held by a select group of people," Riley told American Banker. "For the issuer, it presents a low-risk lending opportunity. For the borrower, it creates a channel to smooth out royalty payments and avoid leveraging their assets."
The target interest rate for the card is between 14% and 18%, Cotter said, below the national credit card average of about 24%, according to
Frontlands sees the card as a way to "unlock" value that's usually hard to tap into, for multiple reasons. On a practical level, the royalty checks from a stake in an oil well are often small, and accessing the asset's full worth requires selling it.
Then there's a psychological barrier: Many mineral rights are passed down from generation to generation, and families train their children never to give them up.
"There's a stigma around selling. It's like selling the family jewels," Cotter said. "They're getting letters all the time from potential acquirers, but these folks have heard their whole life, 'Never sell.'"
Frontlands' approach, he said, is different.
"We come along and say essentially the opposite: Keep your mineral rights, but you're able to get some of that liquidity," Cotter said.
At the end of March, Frontlands announced that it had secured a $50 million credit facility from Star Mesa Capital, a Denver-based investment firm. Separately, the fintech has raised $5.5 million in equity from a handful of venture capital firms.
Issuing Frontlands' credit card will be TransPecos Banks, a community bank based in Pecos, Texas, with $968.3 million of assets.
"We've banked mineral owners for decades, so this program made a lot of sense to us," Doug Hogan, TransPecos' president, said in a
Riley saw few downsides to the business model, but he speculated that verifying the ownership of mineral rights could prove tricky in some cases. And if a stake has multiple owners — for example, if a family bequeathed it to a set of siblings — that could cause "legal complications."
"If you and I have inherited these rights, you might not be able to encumber them without my approval," Riley said.
Overall, however, Riley said the credit card involved "very little risk." From the borrower's perspective, he said, a stake in an energy source seems like a safer form of collateral than one's house. And on the lender side, a delinquent customer's mineral rights could be foreclosed on — though Cotter said this would be an absolute "last resort."
In the future, Frontlands hopes to move beyond fossil fuels. By 2027, Cotter said, the company hopes to begin collateralizing stakes in solar, wind and even nuclear power, though he's not sure yet which one will come first.
"We believe that there are opportunities outside of just oil and gas," Cotter said. "Our gut is that solar is next, but we're also really curious about uranium. … We'll let the market push us as we get customer demand for different things."
