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Beginning in 2020, a wave of credit cards offering non-traditional rewards and perks started hitting the market. Rather than focusing on traditional miles, points or cash back, the young financial technology companies (aka "fintechs") behind these cards started leaning in to unique rewards — from crypto and wine to fitness and environmental benefits — to offer a more personalized experience.
It seemed like a rewards evolution might be underway. Until it wasn't.
As of mid-2023, many of those new cards have shuttered:
The wine-centric Grand Reserve World Mastercard? Put a cork in it; it's done.
The fitness-forward Paceline Card ran its last race in February 2023. (Paceline does plan to relaunch the card, but currently there's just a waitlist for the revised product, with few other details.)
The green-conscious Aspiration Zero card, which promised to plant a tree for every purchase? Uprooted from the marketplace in May.
And that's to say nothing of the various crypto credit card casualties that have been piling up since last year.
So for smaller credit card startups, are novelty lifestyle benefits simply not enough to lure consumers away from major credit card issuers offering known-quantity rewards? Based on some of the newer cards that have found success, it may depend on what niche they're targeting.
Huge costs make it 'hard to stand out in the noise'
Fintechs use one of two approaches to take a new credit card from idea to market: Start from scratch, or partner with a company that has an established back-end financial system.
The first option gives the startup ownership of the card's infrastructure, meaning it's more easily customized — but it requires building out systems like licensing, transaction processing, customer service and fraud management, according to Matthew Goldman, CEO of Totavi, a consulting firm in Pasadena, California, specializing in financial technology product development. In other words, it's time- and resource-intensive.
“If a company builds the infrastructure itself, they are looking at a minimum of $4 million to $5 million in development costs,” says Goldman, who was interviewed by phone and email. Goldman says this process can take years, followed by a potentially even longer period of losses while the card tries to grab market share. All told, the required investment can grow to more than $100 million to get a new card off the ground.
“It’s tough to compete with the Chases of the world,” Goldman says. “For startups, the cost of capital is two or three times higher than established issuers. It’s hard to stand out in the noise."
Even if you defray costs, timing also matters
The other option for startup card companies is to partner with a credit-card-as-a-service, or CCaaS, provider. These companies have the financial and back-end systems already set up. A startup simply brings an idea to the CCaaS, which helps curate a card to their existing platform. If capital is already raised, a CCaaS can get a new product to market in about a year, though it can sometimes be much quicker.
“Lending, compliance and customer service are all covered," Goldman says. "This allows the brand to really focus on rewards and a consumer-first experience."
Rewards and experiences were Goldman’s focus when he partnered with a CCaaS as CEO of the Grand Reserve World Mastercard, which launched in 2020. Goldman says partnering with a CCaaS allowed him to issue the card with about $1 million in development costs.
But Goldman ran into poor timing with the Grand Reserve card, which partnered with hundreds of wineries across the country and was released in 2020, at a time when many of those partners had closed their doors to the public due to the COVID-19 pandemic. The card itself was shuttered about 18 months after launching.
Market trends and other external factors can also play a role. Crypto lender BlockFi, for example, was among the first companies to launch a crypto-earning credit card — but that product became a casualty of the FTX bankruptcy in late 2022.
Lessons from successful credit cards
Despite the growing pains, a few fintechs are having success with niche rewards programs. M1, a fintech headquartered in Chicago, began offering a credit card in mid-2021 that allows users to redeem cash-back rewards directly to an investment account. The card is powered by Deserve, the same CCaaS previously used by Goldman and the Grand Reserve card.
Ben Reid — general manager of M1 Spend, an account that works in concert with the card — said in an email that M1's credit card is designed to strengthen relationships with existing customers by enhancing the value proposition of the company's investment platform. M1 requires all cardholders to have an existing investment account before applying, which drives growth across business segments within the company.
“Even the richest of rewards programs can't compete with megabank card marketing budgets when it comes to breaking out and generating widespread awareness,” Reid said. He believes M1's growing cardholder base is already attuned to the M1 ecosystem, so using that ecosystem to bolster awareness also helps generate new cardholders.
Then there’s the credit card from a company called Bilt, also launched in mid-2021, which allows users to earn rewards while paying rent directly through an app. (A check or ACH payment is sent directly to the landlord.) Cardholders can redeem rewards for traditional travel options, yes — but also toward a future home down payment, fitness classes, or home decor and curated art.
“Bilt had a very smart way of growth by partnering with large landlords and addressing an issue on both the landlord and tenant side,” Goldman says. The tenants want an easy way to make monthly payments and earn rewards, and the landlords just want to be paid on time.
What does the consumer really want?
Michael Gomez, a photographer and Bilt user from Southern California, said in an email that he appreciates credit cards that dovetail with his financial goals, and he believes fintech disruptors drive more established lenders to innovate.
“The new players usually have a much better front-end experience. They have nicer apps, cooler features and perks that are generally easier to understand and use,” Gomez says. “I like to experience what newcomers have to offer, since they tend to do things differently.”
Goldman believes that not everyone wants points or airline miles, and that long-term winners in this space will target rewards and perks in areas where people are passionate, using examples like investing, wine, golf and fitness. To his point — and despite the fate of predecessors like the original Paceline Card — new wellness-focused credit cards from smaller companies keep coming to market.
Such unique rewards systems, Goldman says, tie into underlying consumer psychology.
“It’s the permissioning of spending money that you wouldn’t spend otherwise," he says. "If I have $500 in points that I can only spend on [certain] things, it creates a more unique experience.”