June 26, 2024 • 30 mins
Ever wondered how credit card loyalty programs actually work and why some stand out more than others? Join us as we unravel the secrets behind these fascinating systems! Our episode kicks off with Maya Bittner and Sam Maul taking you on a nostalgic journey through the origins of loyalty programs. We highlight milestones from American Airlines' pioneering efforts in 1981 to Sam's amusing memories of Piggly Wiggly stamps. Maya passionately argues why the Chase Sapphire Reserve card is a game-changer in today's market, focusing on its Visa Infinite classification and higher interchange fees. Together, we navigate the complexities of how loyalty programs are implemented, right down to the nitty-gritty details of rewards calculations and the essential data elements involved.
As we transition to the deeper layers of transaction data, you'll get a comprehensive look at how credit card companies categorize each purchase you make, from merchant category codes to the elusive SKU-level data. We also dissect the profound impact these loyalty programs have on consumer behavior and financial models, spotlighting examples like Costco's transition from Amex to Citi. Lastly, we delve into Visa's strategic push to capture rent payments and discuss Built's innovative, though financially demanding, rewards program for rent payments via Wells Fargo. Tune in to understand the broader implications and strategic maneuvers behind these ubiquitous yet intricate loyalty programs.
Hosts: Sam Maule & Maia Bittner
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Maia Bittner (00:04):
Hey, hey, welcome back to another episode of
Artificially Intelligent.
You know I'm Maia Bittner.
Typically, I'm here as yourFinTech intern.
I love learning new things,gobbling up as much as I can as
fast as possible, but today, meand my co-host, S sam Maule, we
(00:25):
are turning the tables.
Today, the interns are going tobe the teachers and we are
talking about credit cardloyalty programs and giving you
the rundown of everything.
This is inspired by a recentWall Street Journal article
talking about the builtpartnership that Wells Fargo has
, so we will touch on that, butfirst I think we're going to
(00:48):
kind of start at the top.
I don't know, S sam, you readyto have fun?
Sam Maule (00:53):
Yeah, I love topics like this.
I was thinking about it and youknow I was going back in my own
history.
So I actually started workingwith credit cards and loyalty
programs back in 2004 when Ijoined TESUS so both here in the
US and then moved to Europe anddid a bunch over there too.
Maia Bittner (01:13):
So I have officially- I was in high school
.
Sam Maule (01:17):
Yes, and that was a show everybody, thank you.
Yeah, I mean it's been 20 yearsnow.
Um, yeah, I mean it's been 20years now um, crazy enough, and
seeing different programs comeup and you know um how loyalty
programs have worked inconjunction with technology and
mobile, I think is fascinating,and I really do.
(01:37):
I think that because, God, ifwe don't have trivia it's not
fun.
Everybody.
So, Sam, all in trivia, God,the dad thing.
Do you know what is consideredthe first loyalty program?
How do you like that?
What was considered the firstloyalty program?
Maia Bittner (01:53):
Ooh, the first loyalty program.
I don't Normally, I got to saynormally with the trivia
questions have got a dateinvolved and I want to go you
didn't ask, but I want to go 80sfor the first loyalty program
and I don't know who had it orwhat it was.
Sam Maule (02:10):
That is beyond frustrating, because you got it
right.
Dang it.
I believe it was 1981, americanAirlines.
Maia Bittner (02:16):
Yeah, not surprised.
Sam Maule (02:18):
Yeah.
So there you go, which I don'tthink is a shock for most of us,
because I don't know anybodythat flies that doesn't use the
loyalty programs.
I don't think there's anairline that exists that I don't
have points with, but yeah,they were the first one to
really introduce it from a car'sperspective, points perspective
back then, which I'm kind ofsurprised there wasn't.
(02:38):
I mean, there was stuff beforethen.
I'm really going to show my age.
If you're in the South, you knowwhat piggly wiggly is.
Um, if you're out west, you'relaughing at that name.
But piggly wiggly would be ourgrocery store down here in the
south and you used to get pigglywiggly stamps and as you
shopped you got physical rewardstamps that you then put in
booklets and I used to go tomovies for free using piggly
(03:00):
wiggly stamps.
That was a thing, and actuallyaround 1790s I think there was
there was an american merchantin I believe it was new
hampshire that used to givecopper tokens to try to get
people to come back and theycould use those as rewards for
checking in and that's, I thinkthat's.
Uh, it was called likeshrewberry.
(03:21):
It was in new ham Hampshire.
There you go, dad trivia.
That was considered the firstreal merchant loyalty program.
Maia Bittner (03:28):
We're not going to go that far back everybody.
Sam Maule (03:30):
Oh, my God.
Maia Bittner (03:30):
We already went back 20 years.
Sam Maule (03:32):
I don't think we want to go back more than that.
I mean, maya, in your opinion,what do you think are some of
the best loyalty programs in theUS, and why would that be?
Maia Bittner (03:48):
I'm really curious .
I think the best loyaltyprogram is the Chase Sapphire
Reserve card.
Sam Maule (03:50):
Yeah, it's kind of hard to argue with that, I would
agree.
Maia Bittner (03:53):
Yeah, and why that is.
Here's why that is ChaseSapphire Reserve.
So we talked about a little bitof this with the interchange
episode.
Right, there's different sortof classes of cards.
So visa has their visa normalcard, their visa signature card.
The chase safari reserve is aclass of card called the visa
infinite card, and all of thisvaries by purchase size and mcc
(04:19):
code and lots of other factors.
Uh, often charges merchants ahigher interchange fee than even
an Amex, which is, you know,american Express, famously has
the highest interchange fees formerchants, but the Visa
Infinite is often even higherthan that.
So that's how these loyaltyprograms work they charge
(04:42):
merchants to take the cards andthen they give a portion of that
back to the cardholder in termsof the reward.
Sam Maule (04:53):
I don't think some of our listeners will really
understand how complex theseloyalty programs can be when I
moved back from the UK to the USaround 2010 and moved to
Atlanta and was working forTESUS Loyalty at that time, so
their loyalty and prepaid officewas based out of Atlanta and I
ran the group that would do theimplementations around the
loyalty programs.
(05:14):
The complexity that went intothat when you were converting a
loyalty program over from acards perspective and how points
were calculated, how they wereredeemed Really complicated oh
my God.
It is complex the mapping thatyou do on your spend and
redemption, and I mean it will.
Maia Bittner (05:38):
I had a lot of headaches.
So part of this I understandreally well.
Part of it I have somequestions for you about.
So the part I understand reallywell right is the rewards
calculation right?
So credit cards they definewhich transactions earn what
type of rewards and the onlythings they can use to do that
are the data elements that theyget in the auth stream, right?
(05:59):
So we know it's stuff like MCCcode.
Sam Maule (06:02):
Oh, let's geek just a little bit.
I'm excited I think we'vetalked about level one, level
two, level three, data beforehaven't we transaction?
Maia Bittner (06:10):
we should really talk about it now, though, yes,
because you've mentioned amexfor example.
Sam Maule (06:14):
But do you mind talking a little bit about what
are the difference between levelone, level two and level three
data on a transaction, and I'lladd in my two cents.
I love this topic.
Maia Bittner (06:32):
It's kind of how rich is the data that the card
networks have about thattransaction?
And so level one data is thingslike merchant category code,
which there's a finite number ofcodes.
All transactions are slottedinto one of them.
So there's one and it's alittle bit random and kind of
reminiscent of the time thatmerchant category codes were
them.
So there's one and it's alittle bit random and kind of
reminiscent of the time thatmerchant category codes were
created.
So, for example, americanAirlines you mentioned they have
their own MCC code.
(06:53):
Automated fuel dispensers, sothe gas pumps, there's one for
that, and then it's a differentone if you pay for your gas
inside at the station.
Sam Maule (07:03):
That's a big deal.
By the way, when that wascoming out right, how did you
pay at the actual pump ascompared to going inside?
And Lord, let's make it evenmore complicated.
What if you're using tap to pay?
Or I mean, there's justcomplications, everybody, on the
handover of data and how youverify it.
Maia Bittner (07:23):
Did you verify with a signature or with a pin?
Lots of data elements, levelthree transaction data people
are very excited about becausethat includes what did you
actually buy?
So not just attributes aboutthe store, but what did you know
, like what did you purchase?
So you might've seen?
You can sometimes see likepieces of that level three data
(07:46):
creeping in.
Most famously, when you buyairline tickets, they usually
include your departure airportand your destination airport and
some other pieces about, likewhat actually- Multiple legs.
Sam Maule (08:00):
Yeah, if you're renting a car, where are you
renting it from?
Where are you dropping it offat?
Maia Bittner (08:06):
All of that detail shows up in the auth stream.
It's not just $200 at DeltaAirlines.
Sam Maule (08:12):
Because, I mean, the ultimate dream is to have
SKU-level data.
Maia Bittner (08:17):
So now we're talking about.
Sam Maule (08:18):
Think about what the merchants have right when we're
talking barcodes, for example.
Sku level data is the dream.
Maia Bittner (08:25):
But in general credit cards don't have it.
Sam Maule (08:28):
Exactly.
Maia Bittner (08:29):
And that's why, when you see rewards right, the
rewards are usually like oh, wewill give you 3x rewards on
travel and dining.
They're trying to tie it asclose as they can to the SKUs
(08:50):
that you're actually buying,because that's what makes most
sense to people.
But they actually have to usethese merchant category codes in
most situations and they can'tsay you know, you get three X
rewards on pretzels versus Oreos, where you only get one X
rewards, because they don't knowif you bought pretzels or Oreos
, they just know that you'regoing to the grocery store.
Sam Maule (09:02):
Yeah, and that's I mean when you think about it.
When we first started talkingabout this, we talked about
American Airlines.
Believe it or not, prior to theeighties, something like 95% of
tickets that were bought weredone through a travel agent.
The airlines didn't knowanything about you, right?
And now you jump forward to youknow.
(09:22):
I remember I think it was theWall Street Journal or the
Financial Times did an analysisof United's mileage program.
They valued it at $22 billion,which is hilarious because
United's market cap was only$10.6 billion.
So think about that.
Their loyalty program, thatcard program, was 2x what the
(09:43):
entire airline's market cap was.
This is a massive, highly oh myGod, highly competitive space
when it comes to banking and whoyou partner with when it comes
to loyalty and reward points.
Maia Bittner (09:58):
So, Sam, my question for you I've never
actually made a loyalty programmyself.
Like I said, I understand thetechnical details behind it and
how you might craft it together,but when I think about coming
up with a model for this, afinancial model on how this is
going to make sense, the biggestquestion I have is if you
(10:19):
introduce a loyalty program, howdoes that change consumer
behavior?
Right, because you can look atthe behavior of your cardholders
and say how much do they spendat each of these different
places and in each of thesedifferent ways.
But if you start rewarding themfor that, that's going to
change.
Do credit card companies?
Are they able to model that andpredict how spend is going to
(10:42):
shift if they reward differentcategories?
Or how do they even understandthat?
Sam Maule (10:51):
Because they have to include that in order to
understand if they're going tomake money on it.
That is a massive componentwhen it comes to the bidding for
these programs when they comeup.
And I'll give an example ofthis.
If you recall Costco which, bythe way, their membership
program is Costco members areincredibly loyal to everybody.
One of the reasons this isfunny because Maia and I were
(11:11):
talking about companies that arefantastic around loyalty from
their members and everything,and Costco members are
incredibly loyal to that companyA lot to do with the return
policy and how they do theirgoods and everything.
But the hilarious part aboutCostco in 2023, 72% of its total
income came from theirmembership program.
Maia Bittner (11:37):
I heard, all their profit is the membership and
that they just sell everythingat cost.
Sam Maule (11:44):
You got it that.
And hot dogs because it's only,I think, $1.25 or $1.50.
Got to love a Costco dog,everybody.
That's the Detroit screamingout of Sam.
Don't judge me, not even akosher dog, don't even care.
A good dog.
But yeah, when Costco actuallyput their membership program up
for bid for RFP, it was massivebecause they had been with Amex.
Maia Bittner (12:08):
They had been with Amex for years For years and
Citi won that program.
Sam Maule (12:13):
And, funny enough, guess who was part of that
conversion?
Sam.
All in that 20 years when hewas a consultant, I worked with
Citi on the conversion from Amexto Citi the equivalent of their
thank you program and all thedata mapping that went in there
and I can 100% tell you, Maia,one of the key metrics went back
(12:34):
to customer spend, customerloyalty and how do you frame up
that program that?
Maia Bittner (12:39):
is huge.
Sam Maule (12:40):
Yeah, it is a massive component.
Maia Bittner (12:42):
Thinking about it, you talk about it 100%.
Sam Maule (12:45):
Every bank will have their own algorithm on how
they're coming up with thosenumbers, but they go under a not
even a microscope, an electrontube, nuclear powered particle
collider microscope to cut thosenumbers every which way.
I remember, yeah, but it ishuge because it gets back to,
(13:07):
does it?
The whole purpose is driving upcustomer spend, customer
loyalty.
Will they return?
I mean, you go back to thatinitial story I was telling you.
You know, in the 1700s in NewHampshire, where you know the
storekeeper was handing outcopper tokens, the whole idea of
the exchange was you're goingto come back, these are useless
anywhere else, you can't usethem.
So it's that repeat behavior ofgetting in prepaid.
(13:30):
The equivalent was do youreload the card?
So in prepaid, that's greatthat you got a card, but that's
not where the money is.
The money is when you do areload and reuse In loyalty.
It is when do you come backinto my store?
When are you spending it there?
So it's that behavior.
Maia Bittner (13:48):
Well, and very specifically every single.
So with these rewards programsand credit cards, every single
transaction has basically adifferent margin for the credit
card company, right?
So they get the interchangerevenue for the transaction the
issuer does and then they payyou out some rewards and the
difference, right, is theirmargin.
(14:08):
And so for some transactionsand you know Chase Sapphire
Reserve it pays out the higheston travel and dining.
That's actually pretty easy forthem to do because travel and
dining pay the highestinterchange rates and so they're
making lots of revenue.
They got high cost.
It kind of works out.
And then you look at stuff likegroceries.
So most grocery stores haveextremely low interchange rates,
(14:33):
so it's really hard to payrewards on groceries and there's
different variables like that.
What credit cards really wantis they want you to use them for
the categories that they havethe highest revenue on, but that
they don't have to pay outthose high rewards on right.
And so they want you I mean,really they want you to use
(14:53):
their card without thinkingabout it so that they scoop up
some of those really high margintransactions and you're just
using that card for everything.
Sam Maule (15:03):
And politely higher spend right.
Maia Bittner (15:06):
Yeah, just more spend.
Sam Maule (15:09):
I mean.
This comes to simple math rightthe more you spend, the more
likely it's going to be a whilebefore you pay it off.
Because what's the averagenumber of credit cards for
Americans?
Seven, eight in a wallet.
When we talk about top ofwallet, we love credit cards
here.
Maia Bittner (15:24):
We also have loyalty programs.
$5,000 in debt or somethinglike that on average, I think.
Sam Maule (15:30):
But we also love to game the system.
I mean the points guy.
I love that guy.
How many times have I seen thatseven foot six?
I don't know how tall he is.
Everyone's tall to me exceptI'm five seven.
That dude is.
I love him, I love seeing himon stage, I love reading his
newsletters.
He makes me laugh.
(15:51):
And so it's this concept of howdo you game the system to make
it work which makes the WellsFargo story with Bilt even more
interesting.
Maia Bittner (15:54):
We teased with that at the opening of the show.
It's so juicy.
Sam Maule (15:59):
Oh well, get into the juice.
Maia, talk to us what happenedhere.
Maia Bittner (16:06):
Okay, built is a company that offers a couple of
different products, right.
So they offer a rent payproduct that they sell to
landlords to help facilitaterent payments in lots of ways,
but one of, I think, the mostthing they're most known for
amongst consumers is the builtcredit card, which gives you
rewards on rent.
Now I started a company in therent pay space, pinch.
(16:29):
You earned a credit for payingyour rent.
It was reported to the creditbureaus and so everyone told me
you know what I really want?
I really want rewards on payingmy rent.
And I was like not possible.
And then Bill started andeverybody was like Maia see,
like now I'll show you like itwas such a great idea to earn
(16:51):
rewards on rent.
And I was like man, I reallydon't get how this works, and
here's why I don't get how itworks.
So historically, you haven'treally been able to use a credit
card most of the time to payyour rent.
The most common way that rentis paid in the United States is.
Well, for a long time it waslike check, it was cash, it was
(17:12):
money order.
It's not just not your creditcard, but it was very analog
systems.
People use Zelle bank transfersIncreasingly there is more
acceptance of credit and debitcards, and here's why Visa and
MasterCard, but really Visa.
Visa wants the most transactionspossible going over the Visa
(17:33):
network.
Anything they do to make thathappen is a success for them.
Anytime you're moving money,visa wants it to be happening
over Visa-owned rails, even ifit's not a high margin
transaction for them.
And so rent is a huge categorythat is not going over the Visa
rails, and so Visa did what theyhad to do to get it over their
(17:55):
rails, which is they said hey,if you guys will accept credit
and debit cards for rentpayments, if you guys will
accept credit and debit cardsfor rent payments, we are going
to charge you extremely lowinterchange rates.
We're going to make itbasically free to encourage
landlords and property managersto accept cards.
Now, often in the portals andstuff like that, I'll still
(18:25):
charge them like a 3% fee.
Right, so that it's not.
But often if you're not payinga fee, it's because that
landlord is not paying very muchto Visa and that means that the
card issuers make almost nomoney on these rent transactions
because the interchange is solow.
It's a deal that Visa cutbecause they want more volume
over their network.
They get paid a fee pertransaction.
So they just want as manytransactions as possible.
They're scooping up rent,they're scooping up groceries,
(18:47):
they're scooping up anythingthat historically has it.
People haven't wanted to usecredit or debit cards on and
yeah, so that's rent.
So I always said it's notpossible to get rewards on rent.
The interchange, if any, likeusually you're paying that 3%
fee.
If you don't even have to pay afee, the interchange by the
issuer is so low they can'tafford to pay your rewards.
(19:08):
And then Built is like a $3billion company off of the idea
that I've been saying is notpossible to work for years and
I've been looking like a realidiot.
Sam Maule (19:17):
I believe it's, and I mean I could be wrong, but I
thought this was something likea 10-year deal with Wells Fargo
that built it and, interestinglyenough, the Wall Street Journal
I think it was last weekreported that Wells Fargo is
losing about $10 million a monthto sustain the program.
Maia Bittner (19:34):
I believe it.
Wells Fargo said, hey, we'regoing to give you rewards even
though we're not makinginterchange on this specific
transaction.
And they said, hey, we'll makeit up on all of the rest of the
card spend.
Sam Maule (19:45):
Well, that was the bet right.
That's the bet, Because whatthe journal's reporting is what
they really thought was.
That's great.
You got the card.
You'll use it for rent.
Maia Bittner (19:54):
It's a loss, but you'll use it for others.
Sam Maule (19:56):
Right, we'll use it for other transactions.
But the journal reported thatonly 15 to 25% of the dollars
people spend on their card arebeing carried month to month,
which means there's no interestfee revenue, which means that
model that somebody had come upwith.
There's a key cell in thatExcel spreadsheet that has a
zero in it, which impactsnumbers.
(20:22):
Again, the journal said Wellshad anticipated that 65% of the
credit card purchase volumewould be from expenses other
than rent and they're not seeingit.
Maia Bittner (20:33):
Yep, you do have to do five transactions per
month in order to get rewards onyour rent, in order to qualify
you see that occasionally.
To qualify you see thatoccasionally I don't know my
local credit union if you do 10debit card transactions per
month, I think you qualify for ahigher interest rate on your
checking account.
So right, because they want youto be top of wallet.
They're like you gotta beswiping that card and even if
(20:55):
you're not top of wallet, theyneed some interchange revenue
coming in to subsidize it.
They thought that five would beenough and, to be honest, that
was the measly answer that I got.
So when people were like, howdoes built make it work?
So first of all I was like thisdoesn't make any goddamn sense
to me.
But if I really stretch and seehow can built make it work?
(21:16):
How can they pay?
It must be this fivetransactions thing that if you
require someone to do fivetransactions on their card, they
end up just using it by defaultfor everything, and that Wells
Fargo is getting tons ofinterchange revenue from all of
these different transactionssuch that they can afford to pay
the rewards on rent, and reallyit's a great customer
acquisition tool.
That was the only way that Iwas able to explain it.
Sam Maule (21:39):
Yeah, I mean it's interesting, I mean from the
built standpoint.
I'm like you know, good jobfolks, Um, I don't know what
else to say.
There it's they, they targeted,I believe they call them
Henry's which are not basicallynot Sam all.
So if you look up Henry's andthen you look me up, it's the
opposite of me.
So, young, um, you know, highlyeducated um, have a good income
(22:05):
.
But even the partners uh, thepoint partners that built one
after they were like Alaskaairline, Virgin Atlantic, Hyatt,
SoulCycle I mean that kind oftells you, right, Um, what, what
they were looking at when theywere, when they were putting
this program together, and youknow, if I'm not mistaken,
wasn't it a zero interest whenthey came out with this thing?
It's just amazing.
I mean, it's just that, again,there's when you build out a
(22:32):
loyalty program you brought thisup earlier it's the ecosystem
that you build out.
That's what's so important,right?
How do you get customers to onewant to spend and want to use
the card?
I mean, I'll tell you, yeah,who want to do?
I mean, honest to God, thisgets overused so many times.
But Starbucks, just, well done,right.
I mean, keep it simple, simple,you know, load it up for you.
(22:55):
We're making it easy for you.
Just 25 bucks, push the buttonand we'll do the load.
Thank you for the float and, ohmy god, the amount of money
that Starbucks makes, and notonly thank you for the float
because of right, interchangehas a fixed fee component in
addition to a variable fee thatdepends on the purchase amount.
Maia Bittner (23:14):
If they drive up that average order value, um
from like five dollar latte totwenty five dollars at a time,
they're paying less overall.
And interchange to the cartnetworks um on a ratio.
So, like all their othernumbers are looking a bit good,
accountants, happy, excel,spreadsheets, good again.
Sam Maule (23:32):
Uh, starbucks think you got over 40 million users.
You, you know, and I think theformula that you mentioned
earlier and I was a number thatcan't have McKenzie they'll tell
you when you're doing a goodloyalty program, you're going to
boost annual revenue by about15 to 25%.
You know, for Starbucks, it'sridiculous.
Think about Amazon.
I mean, we're moving past cards.
Now we're talking about peoplethat own an ecosystem that put
(23:54):
incredibly clever programstogether, starbucks being one,
amazon being the other.
When they introduced Prime, Ithink it was back in 2005.
I mean, we've got almost 200million Americans, I think, on
Prime.
Now, I mean it is a powerhouse.
I understand why fintechs lookat these programs and go how do
I tap into this?
Maia Bittner (24:15):
Right, and we've been talking about how they're
looking to drive loyalty,looking to drive retention.
But it's actually right.
It's not just that.
We think about the ChaseSapphire Reserve, we think about
Amazon Prime and we thinkparticularly about the built
credit card with Wells Fargo.
It's about driving new customeracquisition as well, and that's
why I also think it's hard tounderstand.
It's about driving new customeracquisition as well, and that's
(24:35):
why I also think it's hard tounderstand.
It's like, okay as Wells Fargolosing $10 million a year.
Well, how much would they havepaid to acquire these customers?
Right, Because you've got tolook at it comprehensively.
It's not just the deal itself.
Customer acquisition costs arereally juicy.
Sam Maule (24:52):
Oh my God, CAC is.
Maia Bittner (24:54):
We're talking like $500 for these, henry, these
high earners not yet rich.
Well, you say this all the time.
Sam Maule (25:01):
Maia, when you look at a company, we do this all the
time here.
Maia Bittner (25:05):
Chase is paying a lot of money for a Chase
Sapphire Reserve customer.
Sam Maule (25:09):
I hear you ask this constantly when we're talking to
startup founders.
It's what's your revenue model?
Right, and that's great.
How are you making money?
But then also Kac, how are youacquiring customers and what's
that cost for you?
Maia Bittner (25:22):
I think they're assuming that they're just going
to get customers in the doorand that is the biggest cost for
all these companies and they'relooking at their rewards
program.
For how well does it sell right?
Does it sell new customers?
Do people sign up?
And you got to say the BuiltWell's Fargo card got people to
sign up right?
Sure, did.
They did incredibly well.
(25:42):
Cash back on rent boom.
Yep, people want it.
Yeah, I mean their numbers.
Sam Maule (25:46):
their first year numbers were fantastic.
I always do find that funnybecause of that geography bubble
effect, and what I mean by thatis when I first got going in
FinTech I was in.
London.
So I was in London in 2008.
So you know if you go on thetube, all you're seeing are
FinTech adverts.
That's all you see.
But New York, san Francisco,pretty much the same.
(26:08):
But how do you stretch thosewhen you're talking about
customer acquisition andmarketing and everything else to
?
You know, cedar Falls, iowa, toTexas, to Dallas, there's no
mass transit, by the way,everybody let me help you out
it's America.
We drive cars and trucks andGod knows what else, but that is
a massive component tied backto your success metrics.
(26:30):
Right is customer acquisition,and so I agree with you when it
comes to these loyalty programsand how they put them together.
Just a huge, huge part of this,and that's why we've talked
about this.
That's why I'm bullish on likea Walmart, because the reality
is they control the point ofsale, they control the till,
they control the line and youknow what they can put in front
(26:50):
of you.
They did that with AMX andBluebird for signage.
They did that with well, I'mblanking out Green Dot and their
partnership there right on theprepaid side, and you could do
the same on loyalty.
When you control this, amazondoes it, but in a virtual space.
So when you're online, you knowthe same with buy now, pay
later when you go to spend.
Can we split these payments up?
(27:10):
Apple, good Lord, right thepartnership.
Maia Bittner (27:13):
They just did with the firm.
Sam Maule (27:14):
It's everything.
It's everything which gets backto pinch.
Maia and can you make money onrent?
Maia Bittner (27:21):
Damn.
Okay, Sam.
So you know what I wish I haddone, now that we're talking
about it Looking back.
So everyone was like I reallywant rewards on rent.
And I was like not possible,because I knew too many things.
I wish I had not known that theinterchange rate was, whatever
all this.
I just like tangled myself up.
I was like not possible.
Okay, here's what a good founderwould do.
(27:43):
And somebody who's really intouch with customers, right,
they would say hey, everybody istelling me that they want
rewards on rent.
Right, there's so much organicconsumer demand for this and
that is so valuable.
How can I come up with a way togive people rewards on rent?
These guys I mean Billnegotiated a hell of a deal with
(28:05):
Wells Fargo.
But even if they didn't, evenif they were losing money
through a way, right, it's likeboom, that's your way of
acquiring customers.
You might be losing money on therent rewards, but that's money
that you're saving not having tobuy ads on the tube in London,
right?
Because people are organicallythinking of this idea.
That means they're probablyorganically Googling how do I
earn rewards on my rent?
(28:25):
They're talking to each otherabout it.
If they get rewards on theirrent, they tell their friends
hey, man, you gotta get in onthis, you got to get in on this,
like if people are excitedabout it, that means you've got
much cheaper customeracquisition, and that is such a
huge component of building asuccessful business.
I wish I had approached it thatway and said, hey, there's
clearly a ton of demand for this, just make it work right.
Like the first idea of how todo it.
(28:48):
On the face of it, like theeconomics aren't great.
But figure it out Like what ifyour customer acquisition cost
is zero?
What if you're top of wallet?
What if you get them to dothese other transactions on
their cards?
What if you use this to selllandlords into your SaaS
platform?
You know, figure it out.
Sam Maule (29:03):
Yeah, it's gonna and it's morphing.
Let's look out a couple ofyears.
This is going to morph to.
You talked about top of wallet.
It's going to.
This is going to morph into howdoes your AI talk to my AI?
Going to.
This is going to morph into howdoes your AI talk to my AI?
Yes, how does it figure out?
How do I maximize my spend?
I got to spend the money.
Where am I spending it, who amI spending it with and how am I
doing that?
And I think built has kind ofproven that, that that group of
(29:26):
customers that they went afterare pretty savvy right.
And and actually yeah, they'resavvy and the reality is they
don't want to carry too muchdebt because of you know what
has occurred in their lifetime,and I think that's going to
become more and more of thebehavior, which is you know, how
do I maximize the dollars Ihave to spend?
How do I get the most out of mybook?
(29:48):
That's nothing new.
That goes back to copper tokensin 17,.
Whatever, it was New Hampshireright.
We're just doing it now withphones.
And you know somebody inScarlett Johansson's voice.
Maia Bittner (29:58):
But on that note on that note.
Sam Maule (30:01):
We can wrap up, because unfortunately, you and I
could do this all day.
I love this topic, god.
I love this topic.
It is way too much fun.
Maia Bittner (30:08):
I just feel so much better knowing that
somebody is losing money on thisbuilt deal.
I knew it wasn't a goodbusiness.
Sam Maule (30:16):
That's a t-shirt.
Everybody Everybody thanks forlistening this week.
Go out and give us a review.
We'd appreciate it.
Reach out to Maia and I youknow how to reach out to us by
now, I hope.
Reach out to us.
Give us ideas for a show.
We want to thank you forlistening.
We want to thank Money 2020.
Maia Bittner (30:36):
It's always fun being part of their network and
everybody.
We will talk to you next week.
See you next week.
Hey, hey, welcome back to another episode of
Artificially Intelligent.
You know I'm Maia Bittner.
Typically, I'm here as yourFinTech intern.
I love learning new things,gobbling up as much as I can as
fast as possible, but today, meand my co-host, S sam Maule, we
(00:25):
are turning the tables.
Today, the interns are going tobe the teachers and we are
talking about credit cardloyalty programs and giving you
the rundown of everything.
This is inspired by a recentWall Street Journal article
talking about the builtpartnership that Wells Fargo has
, so we will touch on that, butfirst I think we're going to
(00:48):
kind of start at the top.
I don't know, S sam, you readyto have fun?
Sam Maule (00:53):
Yeah, I love topics like this.
I was thinking about it and youknow I was going back in my own
history.
So I actually started workingwith credit cards and loyalty
programs back in 2004 when Ijoined TESUS so both here in the
US and then moved to Europe anddid a bunch over there too.
Maia Bittner (01:13):
So I have officially- I was in high school
.
Sam Maule (01:17):
Yes, and that was a show everybody, thank you.
Yeah, I mean it's been 20 yearsnow.
Um, yeah, I mean it's been 20years now um, crazy enough, and
seeing different programs comeup and you know um how loyalty
programs have worked inconjunction with technology and
mobile, I think is fascinating,and I really do.
(01:37):
I think that because, God, ifwe don't have trivia it's not
fun.
Everybody.
So, Sam, all in trivia, God,the dad thing.
Do you know what is consideredthe first loyalty program?
How do you like that?
What was considered the firstloyalty program?
Maia Bittner (01:53):
Ooh, the first loyalty program.
I don't Normally, I got to saynormally with the trivia
questions have got a dateinvolved and I want to go you
didn't ask, but I want to go 80sfor the first loyalty program
and I don't know who had it orwhat it was.
Sam Maule (02:10):
That is beyond frustrating, because you got it
right.
Dang it.
I believe it was 1981, americanAirlines.
Maia Bittner (02:16):
Yeah, not surprised.
Sam Maule (02:18):
Yeah.
So there you go, which I don'tthink is a shock for most of us,
because I don't know anybodythat flies that doesn't use the
loyalty programs.
I don't think there's anairline that exists that I don't
have points with, but yeah,they were the first one to
really introduce it from a car'sperspective, points perspective
back then, which I'm kind ofsurprised there wasn't.
(02:38):
I mean, there was stuff beforethen.
I'm really going to show my age.
If you're in the South, you knowwhat piggly wiggly is.
Um, if you're out west, you'relaughing at that name.
But piggly wiggly would be ourgrocery store down here in the
south and you used to get pigglywiggly stamps and as you
shopped you got physical rewardstamps that you then put in
booklets and I used to go tomovies for free using piggly
(03:00):
wiggly stamps.
That was a thing, and actuallyaround 1790s I think there was
there was an american merchantin I believe it was new
hampshire that used to givecopper tokens to try to get
people to come back and theycould use those as rewards for
checking in and that's, I thinkthat's.
Uh, it was called likeshrewberry.
(03:21):
It was in new ham Hampshire.
There you go, dad trivia.
That was considered the firstreal merchant loyalty program.
Maia Bittner (03:28):
We're not going to go that far back everybody.
Sam Maule (03:30):
Oh, my God.
Maia Bittner (03:30):
We already went back 20 years.
Sam Maule (03:32):
I don't think we want to go back more than that.
I mean, maya, in your opinion,what do you think are some of
the best loyalty programs in theUS, and why would that be?
Maia Bittner (03:48):
I'm really curious .
I think the best loyaltyprogram is the Chase Sapphire
Reserve card.
Sam Maule (03:50):
Yeah, it's kind of hard to argue with that, I would
agree.
Maia Bittner (03:53):
Yeah, and why that is.
Here's why that is ChaseSapphire Reserve.
So we talked about a little bitof this with the interchange
episode.
Right, there's different sortof classes of cards.
So visa has their visa normalcard, their visa signature card.
The chase safari reserve is aclass of card called the visa
infinite card, and all of thisvaries by purchase size and mcc
(04:19):
code and lots of other factors.
Uh, often charges merchants ahigher interchange fee than even
an Amex, which is, you know,american Express, famously has
the highest interchange fees formerchants, but the Visa
Infinite is often even higherthan that.
So that's how these loyaltyprograms work they charge
(04:42):
merchants to take the cards andthen they give a portion of that
back to the cardholder in termsof the reward.
Sam Maule (04:53):
I don't think some of our listeners will really
understand how complex theseloyalty programs can be when I
moved back from the UK to the USaround 2010 and moved to
Atlanta and was working forTESUS Loyalty at that time, so
their loyalty and prepaid officewas based out of Atlanta and I
ran the group that would do theimplementations around the
loyalty programs.
(05:14):
The complexity that went intothat when you were converting a
loyalty program over from acards perspective and how points
were calculated, how they wereredeemed Really complicated oh
my God.
It is complex the mapping thatyou do on your spend and
redemption, and I mean it will.
Maia Bittner (05:38):
I had a lot of headaches.
So part of this I understandreally well.
Part of it I have somequestions for you about.
So the part I understand reallywell right is the rewards
calculation right?
So credit cards they definewhich transactions earn what
type of rewards and the onlythings they can use to do that
are the data elements that theyget in the auth stream, right?
(05:59):
So we know it's stuff like MCCcode.
Sam Maule (06:02):
Oh, let's geek just a little bit.
I'm excited I think we'vetalked about level one, level
two, level three, data beforehaven't we transaction?
Maia Bittner (06:10):
we should really talk about it now, though, yes,
because you've mentioned amexfor example.
Sam Maule (06:14):
But do you mind talking a little bit about what
are the difference between levelone, level two and level three
data on a transaction, and I'lladd in my two cents.
I love this topic.
Maia Bittner (06:32):
It's kind of how rich is the data that the card
networks have about thattransaction?
And so level one data is thingslike merchant category code,
which there's a finite number ofcodes.
All transactions are slottedinto one of them.
So there's one and it's alittle bit random and kind of
reminiscent of the time thatmerchant category codes were
them.
So there's one and it's alittle bit random and kind of
reminiscent of the time thatmerchant category codes were
created.
So, for example, americanAirlines you mentioned they have
their own MCC code.
(06:53):
Automated fuel dispensers, sothe gas pumps, there's one for
that, and then it's a differentone if you pay for your gas
inside at the station.
Sam Maule (07:03):
That's a big deal.
By the way, when that wascoming out right, how did you
pay at the actual pump ascompared to going inside?
And Lord, let's make it evenmore complicated.
What if you're using tap to pay?
Or I mean, there's justcomplications, everybody, on the
handover of data and how youverify it.
Maia Bittner (07:23):
Did you verify with a signature or with a pin?
Lots of data elements, levelthree transaction data people
are very excited about becausethat includes what did you
actually buy?
So not just attributes aboutthe store, but what did you know
, like what did you purchase?
So you might've seen?
You can sometimes see likepieces of that level three data
(07:46):
creeping in.
Most famously, when you buyairline tickets, they usually
include your departure airportand your destination airport and
some other pieces about, likewhat actually- Multiple legs.
Sam Maule (08:00):
Yeah, if you're renting a car, where are you
renting it from?
Where are you dropping it offat?
Maia Bittner (08:06):
All of that detail shows up in the auth stream.
It's not just $200 at DeltaAirlines.
Sam Maule (08:12):
Because, I mean, the ultimate dream is to have
SKU-level data.
Maia Bittner (08:17):
So now we're talking about.
Sam Maule (08:18):
Think about what the merchants have right when we're
talking barcodes, for example.
Sku level data is the dream.
Maia Bittner (08:25):
But in general credit cards don't have it.
Sam Maule (08:28):
Exactly.
Maia Bittner (08:29):
And that's why, when you see rewards right, the
rewards are usually like oh, wewill give you 3x rewards on
travel and dining.
They're trying to tie it asclose as they can to the SKUs
(08:50):
that you're actually buying,because that's what makes most
sense to people.
But they actually have to usethese merchant category codes in
most situations and they can'tsay you know, you get three X
rewards on pretzels versus Oreos, where you only get one X
rewards, because they don't knowif you bought pretzels or Oreos
, they just know that you'regoing to the grocery store.
Sam Maule (09:02):
Yeah, and that's I mean when you think about it.
When we first started talkingabout this, we talked about
American Airlines.
Believe it or not, prior to theeighties, something like 95% of
tickets that were bought weredone through a travel agent.
The airlines didn't knowanything about you, right?
And now you jump forward to youknow.
(09:22):
I remember I think it was theWall Street Journal or the
Financial Times did an analysisof United's mileage program.
They valued it at $22 billion,which is hilarious because
United's market cap was only$10.6 billion.
So think about that.
Their loyalty program, thatcard program, was 2x what the
(09:43):
entire airline's market cap was.
This is a massive, highly oh myGod, highly competitive space
when it comes to banking and whoyou partner with when it comes
to loyalty and reward points.
Maia Bittner (09:58):
So, Sam, my question for you I've never
actually made a loyalty programmyself.
Like I said, I understand thetechnical details behind it and
how you might craft it together,but when I think about coming
up with a model for this, afinancial model on how this is
going to make sense, the biggestquestion I have is if you
(10:19):
introduce a loyalty program, howdoes that change consumer
behavior?
Right, because you can look atthe behavior of your cardholders
and say how much do they spendat each of these different
places and in each of thesedifferent ways.
But if you start rewarding themfor that, that's going to
change.
Do credit card companies?
Are they able to model that andpredict how spend is going to
(10:42):
shift if they reward differentcategories?
Or how do they even understandthat?
Sam Maule (10:51):
Because they have to include that in order to
understand if they're going tomake money on it.
That is a massive componentwhen it comes to the bidding for
these programs when they comeup.
And I'll give an example ofthis.
If you recall Costco which, bythe way, their membership
program is Costco members areincredibly loyal to everybody.
One of the reasons this isfunny because Maia and I were
(11:11):
talking about companies that arefantastic around loyalty from
their members and everything,and Costco members are
incredibly loyal to that companyA lot to do with the return
policy and how they do theirgoods and everything.
But the hilarious part aboutCostco in 2023, 72% of its total
income came from theirmembership program.
Maia Bittner (11:37):
I heard, all their profit is the membership and
that they just sell everythingat cost.
Sam Maule (11:44):
You got it that.
And hot dogs because it's only,I think, $1.25 or $1.50.
Got to love a Costco dog,everybody.
That's the Detroit screamingout of Sam.
Don't judge me, not even akosher dog, don't even care.
A good dog.
But yeah, when Costco actuallyput their membership program up
for bid for RFP, it was massivebecause they had been with Amex.
Maia Bittner (12:08):
They had been with Amex for years For years and
Citi won that program.
Sam Maule (12:13):
And, funny enough, guess who was part of that
conversion?
Sam.
All in that 20 years when hewas a consultant, I worked with
Citi on the conversion from Amexto Citi the equivalent of their
thank you program and all thedata mapping that went in there
and I can 100% tell you, Maia,one of the key metrics went back
(12:34):
to customer spend, customerloyalty and how do you frame up
that program that?
Maia Bittner (12:39):
is huge.
Sam Maule (12:40):
Yeah, it is a massive component.
Maia Bittner (12:42):
Thinking about it, you talk about it 100%.
Sam Maule (12:45):
Every bank will have their own algorithm on how
they're coming up with thosenumbers, but they go under a not
even a microscope, an electrontube, nuclear powered particle
collider microscope to cut thosenumbers every which way.
I remember, yeah, but it ishuge because it gets back to,
(13:07):
does it?
The whole purpose is driving upcustomer spend, customer
loyalty.
Will they return?
I mean, you go back to thatinitial story I was telling you.
You know, in the 1700s in NewHampshire, where you know the
storekeeper was handing outcopper tokens, the whole idea of
the exchange was you're goingto come back, these are useless
anywhere else, you can't usethem.
So it's that repeat behavior ofgetting in prepaid.
(13:30):
The equivalent was do youreload the card?
So in prepaid, that's greatthat you got a card, but that's
not where the money is.
The money is when you do areload and reuse In loyalty.
It is when do you come backinto my store?
When are you spending it there?
So it's that behavior.
Maia Bittner (13:48):
Well, and very specifically every single.
So with these rewards programsand credit cards, every single
transaction has basically adifferent margin for the credit
card company, right?
So they get the interchangerevenue for the transaction the
issuer does and then they payyou out some rewards and the
difference, right, is theirmargin.
(14:08):
And so for some transactionsand you know Chase Sapphire
Reserve it pays out the higheston travel and dining.
That's actually pretty easy forthem to do because travel and
dining pay the highestinterchange rates and so they're
making lots of revenue.
They got high cost.
It kind of works out.
And then you look at stuff likegroceries.
So most grocery stores haveextremely low interchange rates,
(14:33):
so it's really hard to payrewards on groceries and there's
different variables like that.
What credit cards really wantis they want you to use them for
the categories that they havethe highest revenue on, but that
they don't have to pay outthose high rewards on right.
And so they want you I mean,really they want you to use
(14:53):
their card without thinkingabout it so that they scoop up
some of those really high margintransactions and you're just
using that card for everything.
Sam Maule (15:03):
And politely higher spend right.
Maia Bittner (15:06):
Yeah, just more spend.
Sam Maule (15:09):
I mean.
This comes to simple math rightthe more you spend, the more
likely it's going to be a whilebefore you pay it off.
Because what's the averagenumber of credit cards for
Americans?
Seven, eight in a wallet.
When we talk about top ofwallet, we love credit cards
here.
Maia Bittner (15:24):
We also have loyalty programs.
$5,000 in debt or somethinglike that on average, I think.
Sam Maule (15:30):
But we also love to game the system.
I mean the points guy.
I love that guy.
How many times have I seen thatseven foot six?
I don't know how tall he is.
Everyone's tall to me exceptI'm five seven.
That dude is.
I love him, I love seeing himon stage, I love reading his
newsletters.
He makes me laugh.
(15:51):
And so it's this concept of howdo you game the system to make
it work which makes the WellsFargo story with Bilt even more
interesting.
Maia Bittner (15:54):
We teased with that at the opening of the show.
It's so juicy.
Sam Maule (15:59):
Oh well, get into the juice.
Maia, talk to us what happenedhere.
Maia Bittner (16:06):
Okay, built is a company that offers a couple of
different products, right.
So they offer a rent payproduct that they sell to
landlords to help facilitaterent payments in lots of ways,
but one of, I think, the mostthing they're most known for
amongst consumers is the builtcredit card, which gives you
rewards on rent.
Now I started a company in therent pay space, pinch.
(16:29):
You earned a credit for payingyour rent.
It was reported to the creditbureaus and so everyone told me
you know what I really want?
I really want rewards on payingmy rent.
And I was like not possible.
And then Bill started andeverybody was like Maia see,
like now I'll show you like itwas such a great idea to earn
(16:51):
rewards on rent.
And I was like man, I reallydon't get how this works, and
here's why I don't get how itworks.
So historically, you haven'treally been able to use a credit
card most of the time to payyour rent.
The most common way that rentis paid in the United States is.
Well, for a long time it waslike check, it was cash, it was
(17:12):
money order.
It's not just not your creditcard, but it was very analog
systems.
People use Zelle bank transfersIncreasingly there is more
acceptance of credit and debitcards, and here's why Visa and
MasterCard, but really Visa.
Visa wants the most transactionspossible going over the Visa
(17:33):
network.
Anything they do to make thathappen is a success for them.
Anytime you're moving money,visa wants it to be happening
over Visa-owned rails, even ifit's not a high margin
transaction for them.
And so rent is a huge categorythat is not going over the Visa
rails, and so Visa did what theyhad to do to get it over their
(17:55):
rails, which is they said hey,if you guys will accept credit
and debit cards for rentpayments, if you guys will
accept credit and debit cardsfor rent payments, we are going
to charge you extremely lowinterchange rates.
We're going to make itbasically free to encourage
landlords and property managersto accept cards.
Now, often in the portals andstuff like that, I'll still
(18:25):
charge them like a 3% fee.
Right, so that it's not.
But often if you're not payinga fee, it's because that
landlord is not paying very muchto Visa and that means that the
card issuers make almost nomoney on these rent transactions
because the interchange is solow.
It's a deal that Visa cutbecause they want more volume
over their network.
They get paid a fee pertransaction.
So they just want as manytransactions as possible.
They're scooping up rent,they're scooping up groceries,
(18:47):
they're scooping up anythingthat historically has it.
People haven't wanted to usecredit or debit cards on and
yeah, so that's rent.
So I always said it's notpossible to get rewards on rent.
The interchange, if any, likeusually you're paying that 3%
fee.
If you don't even have to pay afee, the interchange by the
issuer is so low they can'tafford to pay your rewards.
(19:08):
And then Built is like a $3billion company off of the idea
that I've been saying is notpossible to work for years and
I've been looking like a realidiot.
Sam Maule (19:17):
I believe it's, and I mean I could be wrong, but I
thought this was something likea 10-year deal with Wells Fargo
that built it and, interestinglyenough, the Wall Street Journal
I think it was last weekreported that Wells Fargo is
losing about $10 million a monthto sustain the program.
Maia Bittner (19:34):
I believe it.
Wells Fargo said, hey, we'regoing to give you rewards even
though we're not makinginterchange on this specific
transaction.
And they said, hey, we'll makeit up on all of the rest of the
card spend.
Sam Maule (19:45):
Well, that was the bet right.
That's the bet, Because whatthe journal's reporting is what
they really thought was.
That's great.
You got the card.
You'll use it for rent.
Maia Bittner (19:54):
It's a loss, but you'll use it for others.
Sam Maule (19:56):
Right, we'll use it for other transactions.
But the journal reported thatonly 15 to 25% of the dollars
people spend on their card arebeing carried month to month,
which means there's no interestfee revenue, which means that
model that somebody had come upwith.
There's a key cell in thatExcel spreadsheet that has a
zero in it, which impactsnumbers.
(20:22):
Again, the journal said Wellshad anticipated that 65% of the
credit card purchase volumewould be from expenses other
than rent and they're not seeingit.
Maia Bittner (20:33):
Yep, you do have to do five transactions per
month in order to get rewards onyour rent, in order to qualify
you see that occasionally.
To qualify you see thatoccasionally I don't know my
local credit union if you do 10debit card transactions per
month, I think you qualify for ahigher interest rate on your
checking account.
So right, because they want youto be top of wallet.
They're like you gotta beswiping that card and even if
(20:55):
you're not top of wallet, theyneed some interchange revenue
coming in to subsidize it.
They thought that five would beenough and, to be honest, that
was the measly answer that I got.
So when people were like, howdoes built make it work?
So first of all I was like thisdoesn't make any goddamn sense
to me.
But if I really stretch and seehow can built make it work?
(21:16):
How can they pay?
It must be this fivetransactions thing that if you
require someone to do fivetransactions on their card, they
end up just using it by defaultfor everything, and that Wells
Fargo is getting tons ofinterchange revenue from all of
these different transactionssuch that they can afford to pay
the rewards on rent, and reallyit's a great customer
acquisition tool.
That was the only way that Iwas able to explain it.
Sam Maule (21:39):
Yeah, I mean it's interesting, I mean from the
built standpoint.
I'm like you know, good jobfolks, Um, I don't know what
else to say.
There it's they, they targeted,I believe they call them
Henry's which are not basicallynot Sam all.
So if you look up Henry's andthen you look me up, it's the
opposite of me.
So, young, um, you know, highlyeducated um, have a good income
(22:05):
.
But even the partners uh, thepoint partners that built one
after they were like Alaskaairline, Virgin Atlantic, Hyatt,
SoulCycle I mean that kind oftells you, right, Um, what, what
they were looking at when theywere, when they were putting
this program together, and youknow, if I'm not mistaken,
wasn't it a zero interest whenthey came out with this thing?
It's just amazing.
I mean, it's just that, again,there's when you build out a
(22:32):
loyalty program you brought thisup earlier it's the ecosystem
that you build out.
That's what's so important,right?
How do you get customers to onewant to spend and want to use
the card?
I mean, I'll tell you, yeah,who want to do?
I mean, honest to God, thisgets overused so many times.
But Starbucks, just, well done,right.
I mean, keep it simple, simple,you know, load it up for you.
(22:55):
We're making it easy for you.
Just 25 bucks, push the buttonand we'll do the load.
Thank you for the float and, ohmy god, the amount of money
that Starbucks makes, and notonly thank you for the float
because of right, interchangehas a fixed fee component in
addition to a variable fee thatdepends on the purchase amount.
Maia Bittner (23:14):
If they drive up that average order value, um
from like five dollar latte totwenty five dollars at a time,
they're paying less overall.
And interchange to the cartnetworks um on a ratio.
So, like all their othernumbers are looking a bit good,
accountants, happy, excel,spreadsheets, good again.
Sam Maule (23:32):
Uh, starbucks think you got over 40 million users.
You, you know, and I think theformula that you mentioned
earlier and I was a number thatcan't have McKenzie they'll tell
you when you're doing a goodloyalty program, you're going to
boost annual revenue by about15 to 25%.
You know, for Starbucks, it'sridiculous.
Think about Amazon.
I mean, we're moving past cards.
Now we're talking about peoplethat own an ecosystem that put
(23:54):
incredibly clever programstogether, starbucks being one,
amazon being the other.
When they introduced Prime, Ithink it was back in 2005.
I mean, we've got almost 200million Americans, I think, on
Prime.
Now, I mean it is a powerhouse.
I understand why fintechs lookat these programs and go how do
I tap into this?
Maia Bittner (24:15):
Right, and we've been talking about how they're
looking to drive loyalty,looking to drive retention.
But it's actually right.
It's not just that.
We think about the ChaseSapphire Reserve, we think about
Amazon Prime and we thinkparticularly about the built
credit card with Wells Fargo.
It's about driving new customeracquisition as well, and that's
why I also think it's hard tounderstand.
It's about driving new customeracquisition as well, and that's
(24:35):
why I also think it's hard tounderstand.
It's like, okay as Wells Fargolosing $10 million a year.
Well, how much would they havepaid to acquire these customers?
Right, Because you've got tolook at it comprehensively.
It's not just the deal itself.
Customer acquisition costs arereally juicy.
Sam Maule (24:52):
Oh my God, CAC is.
Maia Bittner (24:54):
We're talking like $500 for these, henry, these
high earners not yet rich.
Well, you say this all the time.
Sam Maule (25:01):
Maia, when you look at a company, we do this all the
time here.
Maia Bittner (25:05):
Chase is paying a lot of money for a Chase
Sapphire Reserve customer.
Sam Maule (25:09):
I hear you ask this constantly when we're talking to
startup founders.
It's what's your revenue model?
Right, and that's great.
How are you making money?
But then also Kac, how are youacquiring customers and what's
that cost for you?
Maia Bittner (25:22):
I think they're assuming that they're just going
to get customers in the doorand that is the biggest cost for
all these companies and they'relooking at their rewards
program.
For how well does it sell right?
Does it sell new customers?
Do people sign up?
And you got to say the BuiltWell's Fargo card got people to
sign up right?
Sure, did.
They did incredibly well.
(25:42):
Cash back on rent boom.
Yep, people want it.
Yeah, I mean their numbers.
Sam Maule (25:46):
their first year numbers were fantastic.
I always do find that funnybecause of that geography bubble
effect, and what I mean by thatis when I first got going in
FinTech I was in.
London.
So I was in London in 2008.
So you know if you go on thetube, all you're seeing are
FinTech adverts.
That's all you see.
But New York, san Francisco,pretty much the same.
(26:08):
But how do you stretch thosewhen you're talking about
customer acquisition andmarketing and everything else to
?
You know, cedar Falls, iowa, toTexas, to Dallas, there's no
mass transit, by the way,everybody let me help you out
it's America.
We drive cars and trucks andGod knows what else, but that is
a massive component tied backto your success metrics.
(26:30):
Right is customer acquisition,and so I agree with you when it
comes to these loyalty programsand how they put them together.
Just a huge, huge part of this,and that's why we've talked
about this.
That's why I'm bullish on likea Walmart, because the reality
is they control the point ofsale, they control the till,
they control the line and youknow what they can put in front
(26:50):
of you.
They did that with AMX andBluebird for signage.
They did that with well, I'mblanking out Green Dot and their
partnership there right on theprepaid side, and you could do
the same on loyalty.
When you control this, amazondoes it, but in a virtual space.
So when you're online, you knowthe same with buy now, pay
later when you go to spend.
Can we split these payments up?
(27:10):
Apple, good Lord, right thepartnership.
Maia Bittner (27:13):
They just did with the firm.
Sam Maule (27:14):
It's everything.
It's everything which gets backto pinch.
Maia and can you make money onrent?
Maia Bittner (27:21):
Damn.
Okay, Sam.
So you know what I wish I haddone, now that we're talking
about it Looking back.
So everyone was like I reallywant rewards on rent.
And I was like not possible,because I knew too many things.
I wish I had not known that theinterchange rate was, whatever
all this.
I just like tangled myself up.
I was like not possible.
Okay, here's what a good founderwould do.
(27:43):
And somebody who's really intouch with customers, right,
they would say hey, everybody istelling me that they want
rewards on rent.
Right, there's so much organicconsumer demand for this and
that is so valuable.
How can I come up with a way togive people rewards on rent?
These guys I mean Billnegotiated a hell of a deal with
(28:05):
Wells Fargo.
But even if they didn't, evenif they were losing money
through a way, right, it's likeboom, that's your way of
acquiring customers.
You might be losing money on therent rewards, but that's money
that you're saving not having tobuy ads on the tube in London,
right?
Because people are organicallythinking of this idea.
That means they're probablyorganically Googling how do I
earn rewards on my rent?
(28:25):
They're talking to each otherabout it.
If they get rewards on theirrent, they tell their friends
hey, man, you gotta get in onthis, you got to get in on this,
like if people are excitedabout it, that means you've got
much cheaper customeracquisition, and that is such a
huge component of building asuccessful business.
I wish I had approached it thatway and said, hey, there's
clearly a ton of demand for this, just make it work right.
Like the first idea of how todo it.
(28:48):
On the face of it, like theeconomics aren't great.
But figure it out Like what ifyour customer acquisition cost
is zero?
What if you're top of wallet?
What if you get them to dothese other transactions on
their cards?
What if you use this to selllandlords into your SaaS
platform?
You know, figure it out.
Sam Maule (29:03):
Yeah, it's gonna and it's morphing.
Let's look out a couple ofyears.
This is going to morph to.
You talked about top of wallet.
It's going to.
This is going to morph into howdoes your AI talk to my AI?
Going to.
This is going to morph into howdoes your AI talk to my AI?
Yes, how does it figure out?
How do I maximize my spend?
I got to spend the money.
Where am I spending it, who amI spending it with and how am I
doing that?
And I think built has kind ofproven that, that that group of
(29:26):
customers that they went afterare pretty savvy right.
And and actually yeah, they'resavvy and the reality is they
don't want to carry too muchdebt because of you know what
has occurred in their lifetime,and I think that's going to
become more and more of thebehavior, which is you know, how
do I maximize the dollars Ihave to spend?
How do I get the most out of mybook?
(29:48):
That's nothing new.
That goes back to copper tokensin 17,.
Whatever, it was New Hampshireright.
We're just doing it now withphones.
And you know somebody inScarlett Johansson's voice.
Maia Bittner (29:58):
But on that note on that note.
Sam Maule (30:01):
We can wrap up, because unfortunately, you and I
could do this all day.
I love this topic, god.
I love this topic.
It is way too much fun.
Maia Bittner (30:08):
I just feel so much better knowing that
somebody is losing money on thisbuilt deal.
I knew it wasn't a goodbusiness.
Sam Maule (30:16):
That's a t-shirt.
Everybody Everybody thanks forlistening this week.
Go out and give us a review.
We'd appreciate it.
Reach out to Maia and I youknow how to reach out to us by
now, I hope.
Reach out to us.
Give us ideas for a show.
We want to thank you forlistening.
We want to thank Money 2020.
Maia Bittner (30:36):
It's always fun being part of their network and
everybody.
We will talk to you next week.
See you next week.
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