Co-branded rewards programs like Amex’s longrunning Delta partnership are a major factor in consumers’ credit card decisions. According to a GigaPoints/Ipsos poll, over half of Americans say that earning points makes them want to use their credit card more often. In a separate survey (conducted by Finder), close to a third of respondents said that they’ve used a credit card solely to rack up rewards points.
But building these programs can be challenging from a brand perspective. If chargeoffs (i.e., debt unlikely to be collected) rise, the programs — particularly if operating on tight margins — can become financially strained. Questions typically also crop up around whether the programs should be jointly managed (e.g., by the issuer and brand) and how profit sharing arrangements are to be structured.
To address some of the challenges around credit card co-branding, Dan Duncan, the cofounder of credit card issuers Mercury Financial, launched Concerto, a startup that develops credit card programs for brands using “advanced data analytics.” While acknowledging that credit card issuing and loyalty programs are certainly not new, Duncan claims that Concerto’s approach is unique in that it applies technologies including machine learning to measure and predict risk.
Concerto today announced that it has raised $21.2 million in a funding round led by Matrix Partners with participation from PayPal Ventures and GoldenTree Asset Management. GoldenTree also said that it would form a joint venture with Concerto to fund a minimum of $2 billion in credit card receivables.
“Credit cards represent one of the greatest customer acquisition and satisfaction tools available to brands, but even if they get past hurdles often imposed by banks, designing and executing an effective card program requires significant time, resources, and expertise,” Duncan told TechCrunch via email. “For that reason, cards remain one of the largest untapped opportunities … The Concerto platform disrupts all of this to give businesses the tools and the credit they need, along with the power to easily create and deploy highly customized, remarkably innovative loyalty programs people will love.”
To take a step back, co-branded credit cards — which aren’t to be confused with private label store cards — are sponsored by several parties: a brand, like a retailer, and a bank or card network such as Visa, Discover, or Mastercard. A brand must partner with a financial institution to issue a co-branded card, which often ends up being the institution that already processes credit or debit card payments on the brand’s behalf.
Consumers generally like co-branded cards. Nearly 53% of all U.S. cardholders had a card in 2014 that was associated with a hotel, airline, or other type of merchant or group, up from 46.4% in 2010, according to Simmons National Consumer Survey data. But Duncan says that the programs can be a headache for brands.
“Some businesses don’t have access to the financial tools or credit that larger companies enjoy — tools that would help them better compete in a modern economy,” Duncan said. “[L]oyalty and co-brand programs run by banks have not been optimized for the partner. Large banks routinely put their needs ahead of any partners’ through narrow credit acceptance. This, in turn, prevents a lot of businesses from being able to leverage credit to help fund company growth, stilling them unnecessarily.”
Expanding access
Duncan’s first venture after leaving Citicorp and Chase, where he was head of risk management for the credit card business, was Austin Logistics — a firm that developed analytics software for financial institutions. Decades later, he started CreditShop (later rebranded to Mercury Financial), which extends loans and credit cards to customers with traditionally lower credit scores.
With Concerto, Duncan aims to beat back against banks which he claims have a reluctance to promote a partner brand above their own. “The industry at large simply hasn’t innovated to serve the needs of businesses or consumers through cards effectively,” Duncan said. “The technology now exists to do so in very smart ways, if you have the motivation to apply it strategically.”
To that end, Concerto doesn’t replace a brand’s relationship with a bank or card network. But the company works with these institutions to create credit approval models using “multiple millions” of credit bureau and application data points. (Research has shown that these types of models are susceptible to biases, particularly against minorities with less data in their credit histories, but Concerto didn’t respond to a question about steps it might’ve taken to mitigate bias.) Beyond this, Concerto makes liberal use of APIs, allowing the “card experience” and rewards features to exist inside of brand’s apps and websites.
There’s evidently demand — Concerto says that it’s actively signing co-brand credit card partners across “a range of industries,” initially Major League Baseball (MLB) baseball teams. Duncan says that the Texas Rangers, Los Angeles Angels, Baltimore Orioles, and the Cincinnati Reds will roll out Mastercard-issued cards and programs in the near future with access to “exclusive experiences and memorabilia” and “periodic contests and surprises.” Very optimistically, he sees Concerto on a run rate to add 500,000 customers by the end of 2022.
“Our initial baseball team partners are establishing the foundation for future programs. The baseball team programs have allowed us to develop and deploy forward-thinking application experiences. For example, fans in the ballpark can go from seeing a QR code on the jumbotron to a card in their digital wallet to use at the concession stand in a matter of seconds,” Duncan said. “There has been tremendous interest in what we are doing so far, and we want to fully capitalize. Our funding allows us to ramp accordingly.”
Concerto competitors, Kard and Cardless, has adopted similar customer acquisitions model with success. Cardless — which handles the program creation and card underwriting for brands, as well as lending, issuance, and customer service — has launched programs with a number of sports organizations, including the Cleveland Cavaliers, British soccer team Manchester United, and the Miami Marlins.
Concerto is behind Cardless is total capital raised ($21.2 million versus $50 million). But Duncan says the goal is to “really scale up” and secure additional partners with haste.
“We also have several new features, partnerships and programs on the way, some of which will be disclosed in the coming weeks,” Duncan added. “Companies want to incentivize and reward people to get out and do more — and people are ready. After enduring the pandemic for so long, we want to help people enjoy a wealth of new experiences.
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