Do you remember the search engine that rolled out in the late 1990s iWon.com?
Their special sauce, and they literally called it that, was that they were going to have a raffle for all the folks who did searches every month.
If that sounds insane, it was, but they got funding, because ……… Internet.
Well now, Wells Fargo just lost its shirt on an equally bonkers concept, a a rewards credit card that people can use to pay the rent.
As you may be aware, landlords generally do not take credit cards, because they have no interest in paying credit card fees.
The trick that Wells Fargo bought into, proposed by fintech startup Bilt Technologies, is that they eat the various interchange fees, and frequently charge the card and send the landlord a check.
They offered rewards on the card as well, in order to lure in consumers.
They figured that people would keep large balances on their cards, and they would make money from the interest payments.
It turns out that people don't want to go into debt to pay the rent:
Bilt CEO Ankur Jain two years ago helped launch the Bilt credit card issued by Wells Fargo. Photo: Jared Siskin/Patrick McMullan/Getty Images
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When Charlie Scharf took over as CEO of Wells Fargo, one of his priorities was to expand the bank’s credit-card business. Now, a flashy partnership with a startup is complicating a high-profile part of that strategy.
In 2022, Wells launched a credit card with Bilt Technologies, a fintech startup with big-name backers including Blackstone and Mastercard. The co-branded card came with a rare perk: Users can pay for rent with it without incurring fees from their landlords while also earning rewards points. More than one million accounts were activated in the first 18 months, many by young adults.
But Wells is losing as much as $10 million every month on the program as savvy customers flock to the card, according to current and former employees. Executives made internal projections on key revenue drivers, such as the likelihood that cardholders would carry balances, that turned out to be inaccurate.
The credit-card program helped catapult Bilt’s valuation to $3.1 billion in a January fundraising round, up from $1.5 billion in late 2022. Ken Chenault, the former longtime American Express chief executive officer, joined Bilt’s board this year. Wells itself has invested at least $20 million in Bilt, according to people familiar with the matter, an unusual arrangement in the world of credit cards.
The partnership has helped lift 34-year-old Bilt CEO Ankur Jain to billionaire status.
Of course Mr. Jain came out of this with over a billion dollars.
People are buying his bullsh%$.
………
About six months after the credit card was launched, Wells began paying Bilt a fee of about 0.80% of each rent transaction, even though the bank isn’t collecting interchange fees from landlords.
So Wells Fargo was paying Bilt to lose them money.
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Some Wells employees thought the proposition was crazy, but the bank needed a win and figured Bilt would garner buzz and help attract younger customers. A deal also presented mortgage cross-selling opportunities. Bilt’s cardholders will ultimately want to become homeowners, the thought process at Wells went, and the bank would be well-positioned to give them mortgages.
That hasn’t come to pass, and at any rate, Wells has pulled back from mortgage lending.
Few projections that Wells had for the card have panned out. The bank assumed around 65% of card-purchase volume would be nonrent, generating interchange-fee revenue. The reality is inverted.
Wells expected that around half to three-fourths of dollars charged to the card would carry over from month to month, generating interest charges. The reality ranges between around 15% and 25%.
Many customers would pay their rent off within a few days of charging it to their cards, weeks before their statements arrived—a strategy savvy cardholders use just to earn points.
Gee, no one could have predicted that!
Also, fraud and money laundering, because that's an integral feature of most fintech:
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The program has also been hit by fraud. Random account numbers and expiration dates are generated when new cards are given to customers, but the process for the Bilt card wasn’t so random, which opened the door to swindlers. Last summer, they created fake Bilt card accounts and went shopping with them, leading to losses for Wells.
The partnership also poses money-laundering risk, which the companies have worked to address. When consumers charge rent to their cards, a third-party company sends a check for that amount to the person or entity the cardholder says is the landlord.
Of course they did. Fintech ignores the centuries of experience, because, "It's different this time!"
It's never different.
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