Bilt Rewards CEO Ankur Jain appeared on the Wall Street Journal‘s Bold Names podcast and walked through some of the economics of their business, some of what are broadly perceived as challenges, and how they’re planning to grow – including some hints about what’s behind recent surveys for a refresh of their credit card.

Last year the Journal covered why Wells Fargo is losing money on the Bilt credit card. People don’t get big enough credit lines to put much more than their rent of the card. They pay their rent off every month, and don’t wind up with enough other charges on the card. The deal Wells signed was expensive. (Although everyone forgets that Wells is also an investor in Bilt.)

Yet as Jain reminds, of course the product loses money up front. All card acquisition loses money up front. Normally initial bonus offers might cost a bank $500 – $1,000 per cardmember and they’re paying marketing costs to put the card into consumers’ hands, too. The Bilt card doesn’t have those same expenses, but it’s still what you’d expect.

Customers weren’t spending and revolving on the card like Wells had hoped. They need to better segment customers better. Jain uses the example of Amex Green, Gold and Platinum. So we see Bilt surveying different card value propositions at different annual fee price points.

A one-size fits all card, he says, doesn’t work for something so broad-based. (Jain doesn’t say it, but comparing card performance to an ex ante model used to justify the deal with Bilt doesn’t make sense – the intention was always to lose money on the deal as the bank got into co-brand, won business and established itself in that space – a strategy they’ve since walked away from, making overpaying for this and other products seem less wise but only in light of their more recent strategy shift.)

What Bilt has done is found a way to solve the distribution problem. Card companies pay airlines billions of dollars for help finding customers. Bilt spun up from scratch, created a brand and pipeline for finding customers that partners are interested in reaching. They want to earn Bilt’s points and benefits. And that is worth billions of dollars.

With cards or any financial product, there’s a higher acquisition cost that gets paid off over time. That’s number one. But the hardest part was, can you actually build a new product that didn’t exist and see that people actually are excited to sign up, which was exciting, which we’ve now proven through our distribution.

They did this in a number of ways, but fundamentally they:

• solved landlord billing and marketing problems (and in the process disrupting property management systems), giving them access to renters

  [T]hink of it as Toast for housing, payment processing for the housing. On top of that, we built a leasing solution so that property managers who are spending tens of billions of dollars a year on incentives to sign leases, renew leases. So if you rent ever, in San Francisco, for example, you might be familiar with sign a 12-month lease, get a month free. Or get a $500 gift card when you refer a friend, that kind of model. We’ve now turned that into a … They issue their incentives through Bilt.

  …when we went to property owners and managers, we said, “Hey, here’s a new payments’ platform. For the same price, we will, A, give some of the margin we make back to the customer in the form of rewards.” And in doing so, we are able to build a broader customer based ecosystem where, now, when you’re issuing a month of free rent, let’s say, and you do that through Bilt, we’ll offer you, Tim, a month of rent, as you sign a lease. Or you can choose to get 250,000 miles, plus $50 of dining credit a month in your neighborhood, plus a complimentary Lyft ride to and from your home every month to the office. And you can choose what type of incentive you want, which helps them close leases faster. And when you choose a rewards option, part of that is merchant co-funded on our side. And so we can actually save the property manager 5%, 10%, while creating more value for the tenant.

• solved renter problems, giving them rewards for their biggest expenses – in a way nobody else was doing

  At its core, we started Bilt to reward people on their biggest monthly expense, which is rent. And it’s funny because it’s one of those things where people have totally taken it for granted. But you spend 30%, 40%, in some cities 50% of your income on housing costs every single month, and, yet it’s the one category that hadn’t really been modernized to the way that the rest of the payments ecosystem has evolved. I mean, if you’re under 35, the only reason you probably have a checkbook still is for rent. So can you digitize that, and can you do what other payment worlds have done, and bring rewards into the experience?

Once Bilt has these customers, has their attention, has their purchase intention (and data) they can market to the customer. And, like airlines, they can monetize that through offers to the customer. That’s why Bilt is valuable to Lyft, Walgreens, and neighborhood restaurants they partner with. And they can continue to bolt on partnerships, and expand their member base by moving into mortgages the way they’ve done with rent.

And that doesn’t just mean ‘get rewards for paying your mortgage with our co-brand card’. Ankur Jain says that they’re going to be taking over payment processing for large mortgage servicers, the way that they’ve done for residential buildings.

Again, this year we will be rolling out for a significant part of American mortgages where, just like when you move into an apartment building, one of the first things you’ll see is they say, “Hey, go create your Bilt account to pay your rent.” That’s how you pay. It’s the only way to pay your rent, these properties. And you get rewards for it and you get benefits for it. We call it neighborhood benefits.

Same concept with mortgage. There are a lot of these mortgage servicers who have been using legacy payment systems, and how can we say when you use Bilt to make your mortgage payment on time, you get rewarded, you get access to neighborhood benefits, you get value as a customer. And by the way, your mortgage servicer is also now generating new value out of what was historically just a cost center for them.

Co-brand cards are a bigger business than Rewards Network dining, but their value to a card partner is only growing as their membership and data grows – and they’re offering access to (1) high disposable income customers (2) early in their life as consumers.

(HT: @crucker)