Credit Cards are important for buying life’s necessities (and indulgences) without the constant fear of dropping below zero in the ‘personal net worth’ metric.
But they are also popular because of the rewards system. Crotchety old financial advisors telling people they need to “build up credit to buy a home” is much less effective than, “if you use this card and pay it off, one day you will get a free trip to the Maldives”.
Over half of all Singaporeans use their primary credit card in order to reap the benefit of cashback rewards, said a J.D. Power Singapore Credit Card Satisfaction Study released at the end of October. However, these people are less satisfied with their provider and 20 per cent of cardholders said rewards systems are unattractive.
One problem with cashback and rewards systems is how people use credit cards. The average person uses their card to buy groceries, nights out and clothes for their children. A ‘large’ purchase might be a family vacation that takes a year of saving.
This can make credit card rewards seem far away or nearly impossible to obtain.
This reason for this usage pattern is in part because of restrictions about what people can buy via credit. Rent, mortgages, school fees and car payments traditionally existed in the realm of bank transfer or cash payments, which eliminates a host of large payments that could help people rack up credit card rewards more quickly.
In Singapore, a startup named CardUp is on a mission to solve this problem, allowing people to pay for large bills through their credit card.
“Basically our vision is to get people rewards and benefits for all their expenses they make today. So if you think about the fact that the majority of our big monthly expenses are paid by cheque or bank transfer…so we are forking-out over half our spending value on these big payments and getting absolutely nothing back in return,” said Nicki Ramsay, the Founder and CEO of CardUp in an interview with e27.
CardUp makes money by taking a percentage from each transaction and Ramsay said for consumers it is structured so that the rewards far outweigh the fees.
Selected as one of 20 finalists participating in the Hackcelerator at this year’s Singapore Fintech Festival, CardUp just recently launched the full product to the public. It also is an alumni of the FinLab accelerator programme that concluded this summer.
Ramsay points to participation in the Hackcelerator and the FinLab as validation that the community seems to understand the value CardUp brings to the landscape.
CardUp, which has six employees, has raised a pre-seed round of financing and plans to pursue a seed round in 2017.
At the moment, the company is focussed on getting its roots down in Singapore, but Ramsay did say the company has set its sights on expanding into two regional markets in the future.
The advantage of credit
Additionally, the startup lets people take advantage of the nature of credit, which ideally can help alleviate one the pains of massive annual or bi-annual payments.
Instead of parting with a few thousand dollars before the next paycheck, CardUp would let people pay it off through their credit card bill — allowing people to wait a week or two until pay day.
Ramsay pointed to this particular feature being especially useful for school payments as they can sometimes require payments of S$20,000 (US$14,000) per semester.
The disadvantage of credit
While credit and rewards are nice, for many people, credit cards create serious problems with personal debt. Would paying for these large installments lead to large credit card bills that the person may struggle to pay off?
“We definitely are not encouraging that behaviour and we do not touch the credit piece. The credit limit that is assigned by the banks to that customer is enforced. The banks make that assessment and assign the credit,” said Ramsay when asked about that risk.
Ultimately, people can not put the transaction through if they do not have the credit limit or have other bills that are lowering the available credit on the card.
But what about the people getting paid?
Unless the user tells them they were using CardUp, people like landlords, school officials or car dealers would not be able to tell the difference as CardUp pays out the fees using bank transfers.
“Whereas with other payment gateways, both the recipients need to have an account. With us, we don’t require the school or landlord to have a CardUp account. From that perspective, they just get the money into the bank and there is a payment reference against that transaction,” Ramsay explained.
The result is CardUp needs to put effort into developing partnerships with banks and it uses Singapore’s GIRO network (a way for locals to pay for bills) to facilitate the process.
Anand Nirgudkar, the CTO of CardUP, explained the consumer will engage with a typical e-commerce payment portal, it is the necessity to work with banks that lead to some interesting tech on the back end.
“We are pushing in data, we are going through payment processors, we are going through banks to ensure that all the payments are passed through, so that’s where all of our magic happens on the back-end,” he said.
Besides getting people to use the service, security is absolutely crucial for the success of CardUp moving forward.
It uses a VISA credit card processing company called Cybersource to take in the information, which has bank-level security and SSL encryption.
CardUp uses a one-time password to make sure, when the credit card is being entered, it is the real cardholder on the other end. The company does not store credit card information and everything is tokenised on the backend. So, if the company got hacked, there would not be any data to grab.
Looking ahead, CardUp is planning on opening more channels for people to use the service. While rent is used to explain how the service works, Ramsay said they are looking into mortgages, income tax payments, insurance premiums and other sectors that hopefully will be live in the coming year.
Ramsay is also looking towards new benefits for customers in the loyalty and consumer lending space to provide diversity for customers who do not care as much about the rewards system.