Consumer Card Constructs

Fintech companies are bringing innovative new financial products and services to consumers and expanding what card programs can be.

This guide will define, explain, and help differentiate the various types of consumer card constructs fintech companies can launch.

Consumer card constructs TL;DR

• The 5 main types of consumer card products are debit, prepaid, unsecured credit, charge, and secured credit. Each has its own considerations and launch requirements.
• Launching a credit card product takes more time because of greater legal and compliance obligations and might require the involvement of more vendors.
• When deciding which consumer card type to launch, consider your company’s primary customer value propositions, desired speed, and ideal time to market.
• Credit cards allow cardholders to access revolving credit and accumulate interest on unpaid amounts. Charge cards require cardholders to pay in full at the end of each statement cycle.
• Don’t underestimate the value of having a program manager. Particularly in the case of a credit card program, a program manager can help you get to market faster and bring domain expertise that your team may not have.

Different types of consumer cards defined

What is a Debit Card?

Debit cards are payment cards issued on debit BINs by banks to cardholders and are associated, in almost all cases, with a demand deposit account (DDA). As a result, when a cardholder is issued a debit card with a primary account number (PAN), they are also provided with a depository checking account and associated ACH account and routing number. Together, a cardholder can receive, transfer, and spend deposits.

Banks like Bank of America, Wells Fargo, and Evolve Bank issue debit cards. Non-bank entities, including large consumer brands and fintechs like Chime or Cash App, can also issue debit cards, but these cards are typically issued in partnership with an underlying issuing bank. For example, Chime is sponsored by Stride and The Bancorp Bank while Cash App is sponsored by Sutton.

What is a Prepaid Card?

Prepaid cards are similar to traditional debit cards in that they too are payment cards issued by banks on prepaid debit BINs. However, they’re not necessarily associated with a depository checking account. There are two kinds of prepaid cards: reloadable and non-reloadable.

Reloadable prepaid cards are generally used in similar ways to debit cards and may come with an associated account, ACH account, and routing number to let the cardholder set up direct deposit straight to their prepaid card.

Financial institutions like Bancorp Bank, Amex (under their Bluebird brand), and Greendot Bank issue reloadable prepaid cards. Non-reloadable cards are typically used in gift card type use cases and for some B2B payments.

What is an Unsecured Credit Card?

Unsecured, revolving credit cards have a number of unique characteristics that make them “unsecured,” “revolving,” and “credit.” Unsecured means they aren’t backed by assets like an associated checking account. And revolving refers to a users ability to keep re-using the credit. Typically, these types of cards are what people refer to as a traditional credit card.

Unlike debit cards, credit cards are issued on credit BINs and incur interest charges. They allow cardholders to spend on credit, carry a balance, and change their credit scores, for better or for worse. Banks like Capital One, Wells Fargo, and Celtic Bank issue unsecured, revolving credit cards.

What is a Charge Card?

A charge card is similar to a credit card because it’s unsecured (although there are examples of secured charge cards where a deposit account acts as collateral) and revolving. But it does not allow cardholders to rollover a balance and accumulate interest. That is, charge cards must be paid in full at the end of the statement cycle.

If a cardholder does not pay the full balance on a charge card when due, they will incur a late payment fee. With a revolving credit card, a late payment fee would only be incurred if the cardholder does not pay the “minimum balance.” Banks like Amex (under their Gold and Platinum brands) and Capital One issue charge cards.

What is a Secured Credit Card?

Secured credit cards require a cardholder to have deposited collateral (a security deposit) with the issuing bank in order to use the card. This type of card is commonly issued to those who may not qualify for an unsecured credit card because they are high credit risk. Typically, the size of the security deposit becomes the cardholder’s credit limit. Banks like Discover, Capital One, and Wells Fargo issue secured credit cards.

Why would you launch one consumer card over another?

You may choose to build one type of card over the other based on your company’s mission, goals, and structure. But two themes often dictate which type of card product to build, at least initially.

Engagement

If one of your company’s primary goals is to drive significant, recurring engagement, you should consider debit and credit cards because they engage users in different ways. On the debit side, particularly with regard to a traditional debit card that is paired with a checking account, you are trying to become a user’s primary banking relationship. This sort of relationship is difficult to achieve, but if done right, can lead to sustained and lucrative engagement.

With credit cards you’re not acquiring a user’s primary banking relationship — you’re getting engagement through a different set of primary user actions, such as swipes, payments, and other custom features you might build. And the extension of credit increases engagement since people want to smooth their cash flow.

Speed

Beyond engagement, speed is a major consideration, both for the MVP build and on an ongoing basis. The primitives of building a debit card are somewhat more commoditized than credit and overall less complex. As a result, launching a debit card will likely require less time and effort. It’s also easier to layer on additional debit card functionality over time since users are spending their own money. There’s no credit involved and the debit programs are generally more lightly regulated than credit ones. With all credit card types, there are more compliance restrictions and oversight from the issuing bank (or program manager on the bank’s behalf).

What are the primary, defining differentiators between each consumer card type?

Let’s break down defining aspects of each card type to understand how to navigate the playing field and see where the leverage is.

Debit Card

• Debit cards are issued on debit BINs, which are provisioned to issuing banks by the major card networks. Not all banks have debit BINs, so confirm if a particular bank can work with your desired card program.
• It’s relatively quick to launch a debit card product and the feature roadmap of primitives required for launch are clearer than for credit cards.
• There are often fewer partners required to launch a debit card product than for credit and many, if not all, can be handled by a single program manager. Partners debit cards might not need, but credit cards do, include a lender of record, a loan servicer, a third-party debt capital provider. The card constructs stack table below illustrates the partners needed for each construct.
• Offering the most compelling debit card product via rewards, budgeting, spending insights, and other perks can be a way of getting the cardholder to turn their associated deposit account into their primary deposit account.
• Debit card spend generates interchange revenue for the issuing bank that is typically passed on to your company as the end client. However, the interchange generated from debit is lower than that of credit. We’ve written more about this in our interchange guide.
• Since the core features required to launch debit and checking products are essentially the same, fintech companies will often address a niche audience and build custom features on top of the debit card for that specific audience.

Prepaid Card

• Unlike traditional debit, you don’t need to build or maintain a checking account product for your end users to launch a prepaid card.
• Instead of depositing money into a depository account and then spending from that account with their card, cardholders “load” money onto their card.
• Prepaid cards are common for use cases where your company is not attempting to acquire the user’s primary banking relationship. A gas card is an example.

Unsecured Credit Card

• Issued on a credit BIN, unsecured credit cards earn higher interchange revenue than debit card products. The precise amount varies by network (i.e., Visa vs. Mastercard), network tier (i.e., traditional vs. signature) and spend category (i.e., restaurants vs. travel). We delve deeper into this in our interchange blog post.
• Overall, an unsecured credit card is the most difficult type of card product to launch. This is primarily due to a complex compliance framework and a wide variety of required partners. See the “stack” section below for more details.
• Unlike any other card type, unsecured credit cards require you to ledger statements, interest, and fees. This is highly complex and few companies actually provide this functionality. Since charge cards do not accrue interest, there’s no need to ledger interest accrual — it doesn’t exist.
• A set of credit-specific servicing functionality, like a collections program, disputes, and compliant customer support, is required.
• Potential revenue streams include interchange, interest, fees (i.e., international transaction fees, late payment fees), and annual fees. It is also possible to bundle the card’s profit and loss into a larger product — the cross-sell opportunity your card product creates for your overall solution will offset costs.
• With an unsecured credit card, you will likely need to acquire a debit facility or warehouse line of credit and underwrite the credit risk. Either takes time and effort to get off the ground but will provide significant leverage if done correctly.
• Unlike debit card products, this type of card has a large set of requirements around procuring capital, managing risk, and maintaining compliance.

Charge Card

• Like traditional credit cards, charge cards are also issued on credit BINs and generate higher interchange revenue than debit cards.
• Traditional credit cardholders can revolve, or carry over, balances to the following month and accrue interest. Because each month charge card cardholders must pay off their balances to avoid late fees, charge cards do not revolve balances or accrue interest. No interest means no need for an interest ledger, potentially speeding up launch.
• Charge cards are commonly designed for an upmarket audience who don’t need to revolve a balance beyond their statement cycle. As an example, Amex has a number of charge card products targeting wealthy individuals. Meanwhile, Capital One specializes in traditional credit cards for the downmarket audience.

Secured Credit Card

• Like all credit card types, secured credit cards are issued on credit BINs and generate significant interchange.
• Typically, secured credit cards are designed for high credit risk individuals and address a downmarket audience.
• Applicants must have enough liquidity to deposit money into an account as collateral for their credit limit. As a result, it is common for secured credit cards to have lower credit limits.
• Like a charge card, there typically is no interest accumulation with a secured credit card, enabling a potentially quicker launch.

What does the card stack look like for each consumer card type?

With all the parts needed to build and launch card products, it’s common for companies to use a program manager to handle some pieces while the company handles some themselves. Different program managers specialize in different portions of the stack. It’s common for a program manager to take on the following for clients, either directly or by contracting a 3rd party:

• Issuance & processing
• Underwriting, KYC, and fraud
• Servicing (particular for credit)
• Customer support
• Transaction enrichment
• Card manufacturing, fulfillment, and packaging

To learn more about how program manager’s function and the value they can provide, check out our article about managed program vs. processor only.

If you’re interested in learning more about launching a consumer card product, contact us.