In 2022, Wells Fargo (WFC) made a unique investment in a credit card with startup company Bilt Technologies that allowed customers to use it to pay rent without the burden of facing landlord fees and to earn rewards that can be spent on travel, merchandise, etc., while doing so. Now, the bank giant is reportedly having second thoughts after it initially miscalculated the behavior of the card’s users, causing the company to lose millions of dollars a month, according to a recent report from The Wall Street Journal.
Wells Fargo reportedly envisioned that the card would attract young adults who would use it to pay rent, make other purchases, and carry balances, allowing the bank to profit from interest charges and interchange fees.
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However the card’s users turned out to be wiser with their spending than expected. Many customers reportedly paid off their rent within a few days after charging it to their cards, allowing them to rack up rewards points. According to the Journal, only 15% to 25% of money that was charged to the card carried over month to month.
Also, not enough customers were using the card for discretionary spending. This was a big miscalculation from Wells Fargo which projected that 65% of the purchases made with the card would be non-rent.
The card also reportedly attracted fraud and money laundering risks which both Wells Fargo and Bilt are attempting to resolve. Wells Fargo is allegedly losing $10 million a month, and is currently renegotiating the program with Bilt, according to the Journal. The bank also allegedly warned Bilt that it does not plan on renewing its contract with the company, which expires in 2029, unless it starts to see favorable results with the card.
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In response to the Journal’s report, Bilt CEO Ankur Jain said in a tweet on social media platform X that Wells Fargo went on the record to tell the Journal that “there has been no conversation among decision makers to exit the BILT agreement. To suggest otherwise is false."
He also claimed that the card attracts “highly valuable” customers as 70% of them are new, and they all have an average age of 31 years old and have a FICO score of 760.
“We are only 18 months into the cobrand partnership with lots of opportunity to drive even more everyday spend behavior,” wrote Jain in the tweet. “And are committed to making this a win-win together.”
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Americans are addicted to their credit cards
Credit card usage has become more popular amid rising inflation, which had a rate of 3.3% in May. According to a recent survey from Varo Bank, 65% of Americans that were polled said that everyday expenses such as groceries and utilities have caused them to increase their credit card usage, while 55% said that the costs of living such as rent and transportation have led them to use credit cards more.
Also, according to 2022 data from the Federal Reserve, Americans between the ages of 45 and 54 are most likely to obtain credit card debt while those who are 75 or older are least likely to have credit card debt.
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