I recently covered the Manchester United Credit Card from Cardless. It’s a surprisingly great no annual fee cash back card delivering 5x on rideshare and streaming services as well as at bars and restaurants on days that the team plays.

Now it has a $500 up front bonus offer to celebrate the end of the Manchester United season.

• Earn 50,000 points after $3000 spend within 90 days, running only through the end of season (later this month).
  
• Points are worth 1 cent apiece if you apply now, and you lock in that value as long as you have the card. That will drop to half a cent apiece for new applicants after the promotion ends.

The card is worthwhile even without the bonus, since you don’t get this kind of return in these categories from many cards, and you can stack it with a rebate of $5 on Peacock Premium streaming each month you put $500 spend on the card, effectively letting you earn as much as 6x if your spending is on ridesharing and streaming.

Since it’s so rare to see a big initial bonus offer on a no annual fee consumer card, and because Cardless is new and potentially disruptive to the rewards card industry, I was thrilled to get some time to interview their co-founder and President Michael Spelfogel to learn what’s going on behind the scenes.

Credit: Cardless

Frequent Flyer And Rewards Card Junkie Michael Spelfogel Decides To Become A Card Business

The folks running Air Canada’s frequent flyer program are mileage junkies, and say “the
inmates are running the asylum.” I got the same feeling from Spelfogel. He was up in the air using a JetBlue companion pass when we emailed to set up the time to talk.

Spelfogel shared that he applied for his first card the day he turned 18. Sheepishly he admitted it was a SkyMiles Gold Amex with a 25,000 point initial bonus offer. He used it for a free flight home from Stanford, where he was going to school, over Thanksgiving – roundtrip San Francisco – New York JFK.

Since that seemed to work out he applied for another card and then another. He was up to a dozen cards or more sophomore year.

He sent an email to Brian Kelly and interned at The Points Guy in the summer of 2016. His pitch was how well he’d done redeeming awards. He had booked a series of San Francisco – New York JFK flights on United before that airline pulled out of JFK. And he’d managed to get United’s call center in Germany to have United endorse the ticket over to American Airlines for full fare first class travel (rather than being moved over to Newark flights), and at the time there were big bonuses on American for these flights too. Here’s the archive of the pieces he wrote and I especially like his review of United’s “island hopper” service.

By the time Spelfogel graduated Stanford, he says, he had been approved for around 150 cards. He was mileage running to Panama City on American, using the Redbird and Bluebird cards, and racking up millions of miles along the way.

Why Haven’t We Seen Others Start New Card Issuers?

The last major consumer card issuer to launch was Capital One, 27 years ago. So I wondered what led Spelfogel to make this leap, and what he saw as the barriers that had kept others from doing it?

For his journey, it seems, there was his passion for rewards credit cards combined with the happenstance of being at Lyft while they were trying to launch a Mastercard three years ago.

Lyft nearly introduced a co-brand Mastercard with Synchrony Bank before scrapping the project. This experience made Spelfogel wonder why it was so hard to set up when, “airlines make more from credit cards than flying planes and there are about 200 brands with cobrand cards.”

And he couldn’t get this question out of his mind so “after 2 months thinking about it, I couldn’t think about my day job anymore.” He and co-founder Cardless CEO Scott Kazmierowicz, whom he knew from college at Stanford and had met in Beijing, quit their jobs in March 2019 to build a new credit card company.

But why hadn’t others quit their jobs and started issuing credit cards? We’ve seen more entrants into the business card space (like Brex, and TripActions) but not consumer.

There are a couple of reasons this hasn’t been done for consumer cards. Consumer is harder than corporate. The economics are different than corporate and the rules and regulations are more stringent.

There to four years ago there were no modern processors, but with new payment processors that are no longer on cobalt mainframes, startups no longer need to build the processing stack first – that makes the consumer space more disreputable.

It’s also hard for startups to take on credit risk.

We are lucky to work with a fantastic bank partner, First Electronic Bank. In addition, we are planning a new way to think about credit risk. We plan to take a new approach to how we fund receivables, how we underwrite and approve as many people as possible. It’s risky for startups to lend out their capital, so a real innovation is how we plan to fund receivables [partnering with different lenders who finance different types of customers] and get to industry-leading approvals, allowing more of the Brand's loyal customers to acquire a card.

I also thought his take on how important it is to be driven and confident and not take no for an answer was important, because it’s a lesson that’s transferable to a lot of entrepreneurs in different industries.

Early on there were industry experts who said it wasn’t possible, too capital intensive, there were a lot of naysayers. Our naivete was helpful – we didn’t believe them because it seemed simple. It wasn’t simple, but it turned out to be possible.

To make this work we have to simultaneously work with issuing banks, lenders who take on credit risk, processors and networks like Mastercard. Early-on establishing relationships was key. Now our focus is credit risk, proving to brands we can approve more customers than a traditional bank and offer a better product.

Becoming The Partner That Says Yes To Approvals

Getting to over 50% approval for a brand’s customers is important for both customers and for brands. The customer piece is obvious – we want to get the card we apply for.

The brand side is a little less obvious but very important, and not just because they increase their customers lifetime value when using their cards. When a loyal customer gets rejected that’s a problem for the brand. Think about a Marriott Ambassador spending over $20,000 a year, or a United Global Services member spending $50,000, but who can’t get their brand’s card in their wallet because of 5/24. That’s a huge turn-off and risks the customer relationship.

Spelfogel offers that “traditional issuers had a challenge underwriting because they have blind spots” and that Cardless is looking at more than just credit scores. One way they plan to approve more customers is by working with different lenders focused on different groups of customers with varying credit quality, but another is that they “plan to leverage brand data to underwrite [meaning] your relationships to a brand or a team we work with might allow us to approve credit when we wouldn’t otherwise be able to.”

If there’s a customer who is important to the brand, he says, “we should try to give them a card if we can, if it’s a credit risk, if there are other ways to get comfortable with that risk in a compliant manner, if the relationship with the brand is really important we can elevate them and try to get them a branded product.”

Where Are Rewards Cards Going?

I always like to pick the brains of people working on the inside, working with the data, and strategizing to build cards for their take on where rewards cards are going.

Co-brand travel cards have become really expensive. In my own view any business where new customers are projected to break even in 7 years (let alone 10!) aren’t ever really going to become profitable. By the time the numbers in the spreadsheet fail to pan out, it’ll be different people managing the portfolio.

And we’re not even getting enough value for the huge sums being spent to attract consumers, because cards aren’t well targeted enough in their spending to invest in things that any given consumer cares the most about.

It sounds like Spelfogel is of similar mind, offering that “at Cardless the focus on rewards is one differentiator. The first big one is a greater emphasis on experiential rewards, intangible things money can’t buy.”

A card issuer can’t really succeed by continually ramping up the percentage of cash back they offer you to give more than the competition. There’s a limit, so they need to spend the rewards money on things that are more meaningful, where the costs and benefits are asymmetric – where the issuer can leverage its relationships to deliver something that’s more meaningful to the customer than just what it costs to the brand.

One example, of how Cardless navigates this is how we work to give free Peacock NBC streaming to Manchester United fans. We’ll seek out more experiential partnerships. That will include auctions, raffles, and other experiences that people will want to have.

An example of a recent Cardless experience is one of our cardholders for the Cavs card, received tickets to a Skybox and brought friends to the suite at the recent game. He received this reward as a result of swiping his card when the Cavs won.

It’s a more powerful product if the brand facilitates giving the rewards to the customer, they know their superfans better than any bank. Cardholders can redeem for more experiences with the brand and that’ll bring more revenue. We want to kick off a shift to help brands realize credit card programs are most profitable when they invest in rewards for the customer.

Cardless Will Start Issuing Travel Rewards Cards, Too

The first two cards from Cardless – the Manchester United Credit Card and their Cleveland Cavaliers product – are cash back cards so I wondered if they saw themselves getting into travel rewards. And it turns out they even have a travel card in the pipeline already.

While they don’t see themselves issuing a “premium $500 travel credit card that goes head-to-head with American Express, some luxury brands have reached out to Cardless, including high profile brands and online travel partners where we will partner to build a card for their dedicated customer base the same way we partner with sports teams or FinTechs.”

Far from a model where the issuer is hoping a cardmember doesn’t use the benefits of their product too much, he sees a customer keeping all of their spend on his cards because of the rich rewards as “a good outcome, we’re not phased by rewards risk, we want to get as much of a customer’s credit card spending in wallet as possible.”

The Time To Get Your First Cardless Card Is Right Now

The time to apply for the Manchester United Credit Card is right now. There’s an incredible up front $500 offer. You still get 1 cent a point in value for the lifetime of your card-membership if you apply right now.

All that on a no annual fee card (there’s no reason not to get it) that delivers as much as 5x on category spend and rewards $500 a month in card spend with a rebate for NBC streaming.

Manchester United Credit Card