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How Fintech Is Disrupting the Traditional Credit Cards Market

The rapid growth of the fintech sector is reshaping how we bank, invest, and even look at traditional banks. These companies are also shifting how we perceive – and use – credit cards in our daily lives. But what changes are these companies really offering? Here is how the fintech revolution is disrupting the traditional credit cards market.

A (Very) Brief History of Fintech

Fintech companies (short for financial technology) are not a new phenomenon. The roots of fintech lie in the 1950s and the introduction of the first credit cards. The industry saw further evolution in the 1960s, introducing ATMs and electronic stock trading in the 1970s. However, what is commonly considered fintech is more closely associated with the digital boom and rise of the World Wide Web in the 1990s and 2000s.

Where fintech in the 1950s introduced credit cards, the most recent trend in financial technology is disrupting the credit card status quo.

According to experts, banking and finance are two industries that are especially susceptible to disruption – and credit cards issued by fintech banks certainly fit this bill. Fintech (and neobank) credit cards are unique products that seek to change how consumers view – and use – credit card products in everyday life.

Apple Card: An Excellent Example of the Changing Face of Credit Cards

The Apple Card is probably the most recognizable addition to the fintech credit card lineup. The Apple Card is a joint venture between Apple and Goldman Sachs. Apple’s main selling points are the easy application process (through the Apple Wallet on a user’s iPhone), the simplicity of having a digital credit card that works seamlessly with Apple Pay, and a slick titanium card for in-store purchases.

The card is more than a cool design, however. The genius of the Apple Card is how it closely monitors a user’s spending. Individual transactions are broken down by category, highlighting the cardholder’s spending patterns. Beyond quickly categorizing, however, the Apple Card also maps purchases, so users can see where they’re spending money and easily track any suspicious activity.

How Fintech Is Shaping the Future of Credit Cards

This monitoring and digital technology emphasis are two key ways in which fintech companies are changing traditional credit card norms. These tools provide a streamlined, safer environment for users that also meshes with the modern consumer’s digital lifestyle. Fintech credit cards, however, are more than just software. They alter the credit card industry by offering better rewards for everyday use and for cleaner credit profiles.

Attracting a Younger, Less Credit-Savvy Crowd

As fintech sector authority Fintechtris notes, most non-cash transactions for Millennials and Gen Z occur via debit cards. This reliance on debit over credit is traceable to various factors, including the Great Recession of 2008, the current COVID-19 pandemic, and an overall lower credit profile for these groups.

Financial technology companies are taking a unique approach to these trends. Instead of casting younger users with lower credit scores, fintech companies and neobanks are expanding credit cards’ reach by providing higher rewards, increasing credit building opportunities, and combining the best of debit and credit in one package (such as with the new SoFi Credit Card).

Two of the best examples of this credit-building outreach are the Petal 1 Visa and the Deserve EDU Mastercard. Both cards offer the ability to boost credit without the need for an annual fee. The Deserve card is especially useful in this aspect. It features a non-traditional approval and credit vetting process, making applications much easier for those without a good credit score or credit history.

Bigger, Broader Rewards

Neobanks and fintech companies are also reshaping how credit cards offer rewards. Consumers are increasingly using their credit cards for more than the traditional reward categories of dining and travel.

Financial technology companies are opening credit card points and cash back in ways increasingly popular with the broader public. The most common of these rewards is cash back, with nearly every fintech card offering a base earning rate of 1% cash back. Many of these cards also provide enhanced rewards rates based on spending, referrals, or even on-time payments.

Rewards categories are also shifting, emphasizing everyday spending areas like groceries, streaming services, rideshares, and delivery services. The coronavirus pandemic is showcasing this shift. More issuers, like American Express, are opting to move towards “at home” benefits that mirror the offerings of more digital-oriented credit cards, like Apple Card, Petal 2, and others.

Reshaping How Credit Works Across the Spectrum

While fintech startups offer exciting new opportunities for those with no credit history, that’s not to say that this is the only consumer sector benefiting from the neobank and fintech credit card revolution. Companies like consumer and small business lender, Upgrade, are also changing how individuals pay down debt.

The Upgrade Card, launched in 2017, is a widely popular low APR credit card that offers exceptional interest rates and the ability to pay down balances in installments. Since launch, more than 10 million consumers have applied for the card, with over $3.5 billion in credit issued.

The Brex Business Credit Card offers another new approach to credit. Brex targets its card towards small businesses, startups, and entrepreneurs, with the major selling points being significantly larger credit limits and rewards than other small business credit cards.

Conclusion

While the fintech credit card boom has some of the trappings of a fad, the reality is that many of the innovations of the neobank credit card revolution are here to stay. American Express is already set to maintain many of the new “at home” consumer perks it offers due to the COVID-19 pandemic, and many other issuers look to be following suit.

The changes, however, owe as much to fintech as they do the novel coronavirus. These digital banking, lending, and investment firms play a critical role in shaping how credit cards are marketed and whom they are targeted to. Is there room for industry titans, like the Platinum Card and the Chase Sapphire Reserve? Of course. But, for the everyday consumer looking for a streamlined way to save, track, and spend, the disruptions caused by fintech are a welcome change of scenery to the landscape.

Related Article: Upgrade Card Now Offers Cash Back Rewards

Featured photo by Sarah Pflug / Burst
About: Cory
Cory Santos

Cory is BestCards.com's "Jack of all trades" and resident rewards expert, covering all facets of the points game – especially travel, hotels, and airlines. In addition to credit cards, Cory finds that jogging, cats, and memes are essential parts of a balanced day.