The recent report that Venmo is planning to launch a new credit card got my attention. Details have not been announced, but it will be interesting to see how the card stacks up against credit cards by other tech giants such as Apple and Uber, and Venmo owner PayPal.
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Last week’s report that Venmo is planning to launch a new credit card got my attention.
Details have not yet been announced, but I think this could be a good one. Venmo’s parent company, PayPal, already offers the PayPal Cash Back Mastercard, which is a solid card that doesn’t get a lot of attention. That no-annual-fee card gives 2 percent cash back on all spending.
The catch is that rewards must be deposited into a PayPal account. You can transfer them to a bank account after that, or use the cash back to offset some (or all) of your monthly credit card bill, but it’s a little more complicated process than the typical cash back card.
There isn’t a sign-up bonus, similar to other 2 percent flat rate cash back cards like the Citi Double Cash Card (1% when you buy and 1% as you pay) and the Fidelity Rewards Visa Signature card. The PayPal card’s APR ranges from 22.24 percent to 29.24 percent, which is higher than average, but like any rewards card, you should strive to pay your bills in full and avoid interest.
With the PayPal Cash Back Mastercard as a backdrop, what might the Venmo credit card look like? I think 2 percent cash back on everything would be a good starting point. It’s not all that unique, though, so what if Venmo tilts in the direction of a particular category, especially one that would appeal to its young customer base? How about 3 percent cash back on dining and 2 percent on everything else? Or 3 percent on online shopping and 2 percent on everything else?
Something like that would be really compelling and would differentiate the Venmo credit card from the competition. Another option, of course, would be a notable sign-up bonus. I wouldn’t count on that, though. Issuers have grown tired of the sign-up bonus arms race and are shifting to incentives that encourage ongoing loyalty.
Tech companies pushing into credit cards
Venmo will be the latest in a series of technology companies to enter the crowded credit card market. I like the Uber Visa Card because it gives 4 percent cash back on dining, 3 percent on most forms of travel and 2 percent on online purchases, all with no annual fee. I also think it’s smart that the card appeals to everyone, not just frequent Uber users.
Apple Card didn’t wow me, but it was certainly an attention grabber. There’s an aspect of Apple’s credit card strategy that has a lot in common with Venmo and the PayPal Cash Back Mastercard. In fact, all iPhone users have access to this feature. It’s in the Wallet app, and it’s called Apple Pay Cash. You can use this platform to easily send and receive money.
In that sense, it’s a peer-to-peer payments service like Venmo and Zelle. But there’s more. iPhone users who also sign up for Apple Card will accumulate Daily Cash on their purchases (3 percent when they buy from Apple, 2 percent when they use Apple Pay and 1 percent when they use their physical Apple Card). This cash back can stay in the Apple ecosystem if you send it to a friend or family member through Apple Pay Cash. You can even pay many merchants directly through Apple Pay Cash.
This is starting to sound a little bit like what we’re seeing in China, where tech companies such as Alibaba and Tencent operate extremely popular payment apps (AliPay and WeChat Pay) that primarily operate outside of the traditional financial system. That’s key. To date, in the U.S., mobile payments are simply a different way to access traditional credit and debit cards. They essentially process through the traditional rails (Visa, Mastercard, American Express, Discover) using cards issued by traditional banks (Chase, Bank of America, Citi, etc.).
What could lie ahead
If Apple and others are able to circumvent the old way of doing things, that would cause a seismic shift in the financial industry. The existing Venmo debit card is another example. This is a way for Venmo users to spend their Venmo balances at retail locations without first transferring the funds to a bank account. Square Card is doing the same thing for businesses. In both examples, the tech company is cutting out the middle man.
So far, U.S.-based tech companies are taking baby steps into financial services. China, on the other hand, is much closer to the mythical cashless society. It’s a distant future in the U.S., in large part because there are a lot more regulatory hurdles here. Still, it’s significant that companies such as Venmo, Apple and Square are starting to own more of the transaction process (as Alibaba and Tencent are doing in China).
Tech companies are starting to move beyond mobile payments, where they’re merely facilitators, and into a world where they have much more ownership over how, when and who we pay. This trend, if it continues, could upend the business models of Visa, Mastercard, American Express and other credit industry titans.