When it comes to the U.S. credit card market, it's time for a change and that change is happening right now.
The humble credit card market is about to be disrupted and the tech companies are leading the charge. The barbarians are at the gate and the citadel is about to be stormed.
The fact that change is long overdue is understood by us all. The credit card industry knows it, the brands know it and so do the consumers. But it has taken the fintech challengers to pick up the gauntlet and take on the challenge. How the established industry reacts remains to be seen, but one thing is for certain, it will never be the same again.
The backdrop to the change is the ongoing march for financial inclusivity. In so many areas of financial services the fintechs have torn up the rulebook. Their objective is simple, to allow more people to have access to the benefit of a truly rounded and fair financial services offering. For too long such things as simple checking and savings accounts have held an almost country clublike status, allowing only established and acceptable customers through their doors.
Fintechs like a level playing field and they like as many people as possible to enjoy the benefits of a liberating system and, not least, access to credit.
And brands in the U.S. feel the same. They want to offer their customers credit, but the problem is plain for all to see: Launching a credit card is bewilderingly complex and no simple turnkey solutions exist today.
And cobranded programs, where the brand links with a bank to create a credit card as a joint operation, is so difficult to achieve, is so arcane and expensive, that only the very brave have tried. And the reason for this is simple. It's because building credit card infrastructure to launch one credit card is like building a sneaker factory to launch one sneaker.
I will go further. Launching a credit card is the financial services equivalent of getting a doctorate in molecular biophysics, while studying for the bar, training for a decathlon and learning Russian simultaneously. In short, it’s not easy.
And I believe that the complexity behind cobrands, plus the high cost of launching credit cards, has resulted in innovation being stifled and high barriers to entry to all but the largest of traditional financial companies.
What’s more, because credit card programs require massive infrastructure investment, it was clear that the market needed its own version of AWS. And this is where the tech companies excel —
in the cloud and not tied down to archaic, non-digital, or at the very best, digitized systems still used by the traditional players. The cloud has one superb benefit over the physically based systems: It dramatically brings down costs.
The new buzz term is now credit-as-a-service (CaaS), which is aimed at fintech and brand customers in the U.S. And it's best to view CaaS as the key which to unlocking the U.S. credit card market that alone sees $3.8 trillion in spending via over 40 billion transactions annually. CaaS is the conduit for better things to happen, allowing a high volume of innovative fintech and brand programs to reach the market at high speed and low cost.
CaaS has at its core all the elements needed to build a successful card program: bank sponsorship, processing, program management, credit line and a legal compliance framework, all delivered turnkey. And all this with rapid time to market. It does all the heavy lifting and at a fraction of the cost.
The green light is most definitely switched on and the U.S. credit card market is set to experience one of the biggest reforms since its inception. It will be most interesting to see who rides the rocket on this one.
