Lending Briefing: Deserve’s new credit card platform, credit inclusion and collateral crypto

But white label commercial lending is blooming as well, aiming to help companies serve other businesses by giving them easy access to capital. 

The latest to come to market with such a solution is Deserve, which just launched its Commercial Credit Card Platform, designed to create credit and charge cards for any company’s business customers. This is available on either a white-label basis, or by fully embedding into partners’ digital capabilities through APIs and SDKs. 

The platform allows for custom reward schemes to be added to credit cards, and also provides enterprise-level controls, making it easy for CFOs to track, manage, and understand expenses. And with the power of technology, cards can be issued instantly and be added to digital wallets, ready to be used within minutes. 

We spoke to Deserve about this new product – here are five questions with the fintech’s co-founder and CEO Kalpesh Kapadia.

How do embedded commercial credit cards fit into Deserve’s wider expansion of services strategy? 

Deserve’s platform is designed to be full stack (i.e. end-to-end platform for card issuing, with key services like credit and customer services wrapped into the platform). With the launch of BlockFi, we demonstrated the value and product-market fit, with consumer cards as the initial focus. It is only natural to extend that same value proposition to commercial cards, initially focused on SMB. The SMB commercial card industry is underserved, as big banks provide credit but do not focus on SMB’s other core needs around expense management. 

Many of our consumer card modules will extend to commercial cards (eg application fraud, card issuing and processing, rewards). Some modules will need enhancement compared to consumer card platform features - e.g. credit bureau integration to commercial, underwriting for businesses with beneficial owners, etc. But we have built these extensions and will soon be launching multiple commercial card products through our partners this year.

How does Deserve’s new platform tackle the issue of credit fraud without compromising smooth customer onboarding?

We have an approach to origination that is mobile-first, and with this, we are able to drive lower fraud while providing the end user a great customer experience. We have strong identity check methods, using the applicant’s driver license verification in real time. We have fraud models that use data and filters garnered through a number of third-party integrations (e.g. including Socure, SecureID, etc) to monitor for first and third-party fraud, and synthetic fraud based on a number of vectors including device, location, identity parameters,etc. All of this happens in real-time, in the background, so that applicants who pass the fraud checks, and are successfully underwritten, can receive and activate a card in their digital wallet in a matter of minutes. All these are available as APIs and SDKs too, so that our partners can embed them into an origination flow within their app or website. 

What should financial companies look for when choosing an embedded lending service provider?

The industry is full of providers who deliver a portion of the services that anyone looking to issue cards actually needs. Digital card issuer processors provide card issuing but then require companies to stitch together commercials, contracts and technical integrations with a number of other providers for services like compliance management, customer service, underwriting, credit and fraud management. Traditional program managers provide white-labeled capabilities but are anchored on technical capabilities that drive poor customer experience and program outcomes, and low flexibility and speed to market. 

The best embedded provider would have the full stack of capabilities (platform and services), provide guaranteed speed to market, deliver through a single contract, API driven platform to enable seamless embedding, and commercials that are low on fixed costs (upfront or ongoing). 

What defines a successful B2B partnership between a fintech such as Deserve offering platform services and the business partner using that platform?

We have successful examples of such partnerships, enabled by a few things. From the business partner’s side, they bring clear and tested product constructs to build on the platform, have good relationships with their target customers, have the ability to successfully market and acquire customers, and are savvy and agile to embed Deserve APIs (or use our white label) into their core businesses. 

On Deserve’s side, other than our full-stack platform with its APIs, our commercial construct is designed to help us win only if our partner is successful. Therefore, we embed a lot of critical services in our platform – from underwriting to credit line management to customer acquisition to fraud management. To be successful partners, we leverage our platform capabilities but also our organizational agility and service oriented mindset. 

What do you see happening next in the digital embedded lending space? 

In the credit card industry, the first wave of embedding was in the traditional co-brand model. This wave saw successful issuing of cards to tens of millions, and has been successful in driving payment volumes, customer loyalty and great customer experiences. However, this space was accessible only to the largest banks and their large partners. 

The second wave was with digital issuer processors who worked with agile, fast growing tech platforms to embed card issuing for purposes like enabling deliverers to pay for the food they are picking up at the restaurant. 

The third wave is nascent, and it is being built by the disaggregation (and restacking) of all services required for lending: underwriting as a service, customer support as a service, credit operations as a service, etc. 

In other words, we see that lending (including card issuing) will be driven by an increasing number of platforms/businesses who could never find it feasible or attractive to originate or lend before, but now can, where they drive great customer loyalty and increase revenues from lending, and increase loyalty to their core business (which is not in lending). 

There is an increasing number of origination services, underwriting services with an integrated marketplace of balance sheet providers, growth of origination aggregators/marketplaces and digital affiliate channels, asset or cash-flow based underwriting, web3 lending pools, stablecoin payments, innovative rewards (beyond traditional cashback and points) and similar trends which will continue to evolve and define this space. 

Chart of the week

More than 45 million consumers are considered to be either credit unserved or underserved in the United States, according to a new TransUnion study.

The underserved represent credit visible consumers who have up to two credit accounts or have two or more years of credit history. While they have accessed traditional credit products, these consumers are not nearly as experienced or active in credit participation as the rest of credit-visible consumers who have multiple credit products in their wallets.

Meanwhile, the unserved are consumers who have never had an open traditional credit product and are invisible on the credit file. 

Source: TransUnion 

However, the study found that nearly a quarter of consumers who started as credit underserved have migrated to becoming credit active in a two-year window prior to the pandemic. 

During the height of the pandemic, this percentage of consumers becoming more active decreased slightly to 22% from 25%, with the profile of those consumers skewing younger than the pre-pandemic sample.

Food for thought

Crypto and finance are getting more and more intertwined with each other. 

Huntington Valley Bank, a 151-year-old community bank in the suburbs of Philadelphia, is collaborating with MakerDAO, a decentralized organization built on ethereum that allows lending and borrowing of cryptocurrencies, to accept its loans as collateral for cryptocurrency.

This type of relationship is advantageous for smaller banks, as regulatory requirements force them to sell portions of their loans to competitors in order to spread around the risk. But that won’t necessarily be the case anymore if one can sell the loans to a crypto trust and convert the cryptocurrency in fiat dollars to continue writing more loans. 

“So instead of having to go out there and say, ‘Hey you, other small bank, who didn’t do any work in originating this loan, come and take a piece of my economics’, they say, ‘Hey Maker, who I know will never compete with me because it’s software, why don’t you take a piece of this loan?’” Gregory Di Prisco, former head of business development at the Maker Foundation, said of the proposed transaction framework.

Di Prisco founded RWA Co., a company that connects institutional borrowers and decentralized finance. When asked if there were other banks looking to follow a similar path to collateralize loans with Maker, he said: “You betcha.”

What we’re reading 

• US banks back ID verification service (Finextra)
• CFPB finds credit card companies charged $12 billion in late fee penalties in 2020 (CFPB)
• New bill would give CFPB regulatory authority over small business lenders (deBanked)
• Alchemy’s lending tech has come to the small business lending market (deBanked)

What we’re writing

• “My experience gave me the idea of a problem I can fix”: A day in the life of Kristy Kim, founder and CEO of TomoCredit
• The Acquire Podcast Ep. 6: Ice cream, puppies, and financial ease with Intuit Mint’s latest brand campaign
• Wall Street is running out of time for bold climate action
• Payments Briefing: Meeting the growing demand for digital payments in the public sector