How challenger credit cards are disrupting the traditional market

Digital bank

Panelists from across the industry weighed in on what sets challenger credit cards apart from those offered by traditional banks.

Image source: Pexels.

On day two of the AltFi Festival of Finance, some of our panelists came together to discuss how to overcome challenger credit card challenges.

Zopa Chief Commercial Officer Tim Waterman, Chetwood Financial Chief Product Officer Julia McColl, Tymit CEO and Co-Founder Martin Magnone, and GDS Link Anti-Fraud Solutions Managing Director Brian Kinch all shared their thoughts.

Over the past few years, there has been a real rise in challenger credit cards, and Waterman kicked off the discussion by explaining why.

“It’s always been a very attractive market for lenders, and it’s one of the biggest unsecured credit markets in the UK,” he said.

“Margins are really good for lenders and consumers are really poorly served by incumbents. So the products and experiences they deliver simply don’t meet the expectations of modern digital consumers. So we just saw a really great opportunity to disrupt that space and really deliver products that meet key consumer needs.

In about 18 months, Zopa issued more than a quarter of a million credit cards and became one of the top seven issuers in the UK based on new volumes, according to Waterman.

It’s something that evolved from digital banking‘s ability to offer “smart digital products” that eliminate the problems that exist with incumbents, he explained.

Zopa has exclusively revealed its transition from peer-to-peer lending to concentrating banking services at AltFi at the end of last year, and the success of this shift in focus is evident in the numbers.

As to whether neobanks or cardholders are likely to offer cards that could compete with Zopa or other digital banks, Waterman suggested that cardholders are currently focusing more on overdrafts and BNPL at this time, and that it will be some time before we see that they bring these products to market.

In an interview with AltFihe addressed the problem faced by incumbents that can be overcome through open banking for companies like Zopa.

‘There is a real problem in the UK that if you don’t already have an established credit history it can be very difficult to get credit,’ he said.

It’s something he experienced personally after graduating, and a growing problem given the current cost of living crisis.

“You are paying this real estate premium, both in terms of the cost of accessing credit, but also in terms of utilities. Especially given the cost of living crisis we currently find ourselves in, it is really important that we find additional ways to insure consumers. The data we can get from open banking allows us to make better lending decisions and lend to people we otherwise couldn’t lend to,” he said.

Tymit’s Magnone explained that although there is a huge market of over 30 million people in the UK using credit cards, he believes the experience is broken for customers.

“You’re probably okay if you pay off your credit cards in full, but if you need more time to pay off, it’s a pretty bad experience,” he said.

“If you talk to some credit card users and can get them to be really open about credit cards, they’ll tell you the experience is pretty awful.

“We all teach our kids not to use credit cards, we’re all afraid of them, we’re all worried that they’re expensive, hard to control and encourage bad behavior.”

Tymit saw this as unsustainable, he explained, saying that given the existing tools and technologies, it was time to innovate and solve some of these problems faced by customers.

For Chetwood Financial, talking to customers about its Flex product showed that there is still “tremendous volume” for the product and there is no doubt that consumers still want credit cards, many of them being even adamant about wanting an extra physical card. to a digital one.

“The fact remains that credit cards are a product that consumers want to use,” she said.

“What we’re trying to do is make it better than others on the market.”

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