Millennial financial savvy on display as partners confront challenges
BILT Rewards is an unmitigated success story.
Launched in April 2022, Bilt began as the first platform enabling U.S. consumers to earn valuable rewards on their largest monthly expenditure – rent. The platform enables rewards at any residential rental property in the United States and has accelerated their growth through the creation of the Bilt Rewards Alliance, a partnership with the country's leading residential real estate companies, now encompassing almost four million households, committing to Bilt as their payments and rewards platform.
When The Wise Marketer interviewed BILT SVP, Head of Loyalty & Partnerships Dave Canty earlier this year, he shared that “BILT was created to address a major problem in the United States, which was how to keep the dream of home ownership alive for a younger generation – and to help make that dream a reality.” Dave went on to say “Rent is the largest outgoing expense for most people and after many years, people are no closer to owning a home. We wanted to see if there was a way to reward good behavior on rent and at the same time introduce a reward system that allows people to get something back. In the process, we wanted to learn what renters are passionate about, especially this younger generation, one of which is travel. That is why we built a partner ecosystem that allows you to travel the world just by paying your rent.”
The growth of BILT in just two short years was punctuated by an announcement in January 2024 of a $200 million equity investment, led by General Catalyst, with significant contributions by Eldridge, alongside existing investors Left Lane Capital, Camber Creek and Prosus Ventures. The company valuation was equivalent to $3.1 billion with that news.
In conjunction with the investment announcement, Bilt announced that Ken Chenault joined the company as Chairman of its Board of Directors. Chenault is Chairman and Managing Director of General Catalyst, and the former Chairman and CEO of American Express. Joining the storied credit card executive on the Board is Roger Goodell, the Commissioner of the NFL, who takes on the role of Independent Director. That is serious boardroom firepower.
The BILT Rewards Card
As part of the program evolution, BILT reached an agreement with Wells Fargo in 2022 to create a co-brand credit card product on the Mastercard platform. The card has a unique benefit set.
Cardholders can earn 1X points anytime they pay rent with the card without incurring a transaction fee. For a person with a $2,000 monthly rental rate, that’s a savings of $60 each month. The card makes the experience of paying rent easier as payments made through the Bilt Rewards app can be converted into a check for those ancient landlords that still only accept payment via check. Other benefits include 1X points on all other purchases with accelerators for travel (2X) and dining (3X). The card landing page says that cardholders must use the card 5 times each statement period to earn points.
Wells announces challenges
The Wall Street Journal reported that more than one million accounts were activated in the first 18 months, with the audience coming from the young end of the Millennials targeted by BILT Rewards. Just this week, the WSJ also reported that Wells is losing as much as $10 million every month on the program and now the struggle to reach a “V2” of the issuer/partner co-brand relationship is in public view.
The WSJ article stated, “Wells has told Bilt that it doesn’t intend to renew the contract, which is scheduled to end in 2029, unless economics are changed in its favor.” The article went on to say, “The San Francisco bank has stopped bidding on new co-branded credit-card programs.” Before you jump to conclusions, coverage from PYMNTS.com said that “representatives for both companies denied the relationship is in doubt when reached for comment by PYMNTS.”
Cobrand credit cards are a mainstay of bank credit card portfolios and a profit driver for their merchant partners, who normally enjoy signing bonuses, card issuance incentives, and revenue sharing of interchange and interest income as part of their package.
In well-run programs, the economics can be significant. In 2022, the largest US credit card issuer received $28.1 Billion in interchange income and paid out $22.2 Billion to partners, either directly or indirectly (in the form of cardholder rewards). Merchants realize more profitable relationships with their base who become cardholders. These people are proven to shop more frequently, have higher average ticket sizes, and are less likely to run to the competition.
There are friction points however, as bank approval policies can suppress card issuance, with lower than expected penetration of the merchant “file” the result. In some cases, the customer experience can fall short if the card product doesn’t deliver the expected benefits.
According to the 2023 State of Credit Report published by Marqeta, 62% of U.S. consumers who own a co-branded credit card consider themselves a customer of the brand or store vs. the bank that issues and manages it, so it is common for the lines to blur on which party is responsible for the overall satisfaction of the card experience.
Root Causes and Future Prospects
The aspects of the card agreement- as reported by the WSJ - contributing to the current results include:
- Wells pays Bilt a fee of about 0.80% of each rent transaction, even though the bank isn’t collecting interchange fees from landlords.
- Wells pays Bilt $200 each time a new card account is issued.
- Wells had hoped for mortgage cross-selling opportunities with cardholders, which to date have not materialized.
- The bank assumed around 65% of card-purchase volume would be non-rent, generating interchange-fee revenue, though results to date are “inverted”.
- Wells expected that 50-75% card charges would carry over from month to month, generating interest charges, while results to date are between 15% and 25%.
Card issuers have always made their money from a combination of fees, interchange and interest income on revolving balances. In conversations we have had over the years with card issuers, the party line was to say that interchange and interchange alone was allocated to fund rewards cards. Fees and Interest Income are added to the card product profitability, but interchange and rewards have always been inextricably linked.
The WSJ portrays Wells as an issuer that relied heavily on customers to carry balances and use the card for everyday purchases.
- The miss on the distribution of card changes between rent and everyday purchases may have been a misreading of consumer interest in the card itself. Millennials are savvy shoppers and are the consumer group who grew up seeing their parents suffer with credit card and mortgage debt. For this group to be highly calculating in the use of rewards cards is not a huge surprise.
- Reliance on revolving balances by issuers for profitability is the dirty secret of the co-brand rewards card model. A US study showed that consumers with revolving balances were charged more in interest and fees than they earned in rewards during 2022. Consumers who identify this nasty math may churn out to other forms of payment products and seek out price and discount offers in preference over card rewards.
If in fact there is a dispute in negotiation between BILT Rewards and Wells Fargo, it seems that underestimating the financial savvy of the intended Millennial audience is the core miscalculation. Maybe the aggressive features of the partner relationship diminished the profit potential from the deal for Wells as well. What we do know is that the “engine” of this relationship, BILT Rewards is powerful enough to make a cobranded payment product valuable to its audience and to its partners. We will be watching this negotiation unfold and hope that the parties find a successful resolution to the current challenges.
