When Charlie Scharf became CEO of Wells Fargo & Co (NYSE:WFC), one of his key priorities was to expand the bank's credit card business. However, a high-profile partnership with Bilt Technologies is reportedly complicating this strategy.
In 2022, Wells Fargo launched a credit card with Bilt Technologies, a fintech startup backed by big names such as Blackstone Inc (NYSE:BX) and Mastercard Inc (NYSE:MA).
This co-branded card allowed users to pay rent without incurring landlord fees and earn rewards points, resulting in over one million accounts being activated within 18 months, predominantly by young adults.
Despite its popularity, the card is costing Wells Fargo up to $10 million monthly, as internal projections about cardholder behavior proved inaccurate, according to a report by The Wall Street Journal.
Bilt's structure avoids charging landlords fees, with Wells Fargo absorbing most of the costs. However, this arrangement hasn't yielded the expected profitability for Wells, leading to changes in its marketing strategies and operational challenges, including fraud and potential money-laundering risks.
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Customers were expected to carry balances and use the card for non-rent purchases, but the reality has been different. This led Wells to halt bidding on new co-branded credit card programs, with the Wells-Expedia card set to be its last launch for now.
The financial losses triggered a renegotiation of the program, which has been ongoing for months. The Wall Street Journal noted that Wells Fargo has informed Bilt that it will not renew the contract, which will expire in 2029 unless more favorable terms are negotiated.
Citing a Wells spokesperson, the WSJ noted co-branded cards as a "modest piece" of the bank's strategy, highlighting the long-term nature of card launches.
A Bilt spokesperson countered, claiming the reporting misrepresents the partnership, emphasizing a commitment to a long-term relationship with Wells Fargo.
The credit card initiative significantly boosted Bilt's valuation, raising it to $3.1 billion in a January fundraising round.
Ken Chenault, former CEO of American Express, joined Bilt's board, further solidifying its market presence. Wells Fargo has invested over $20 million in Bilt, a rare move in the credit card sector.
Wells Fargo hoped the partnership with Bilt would attract younger customers and provide mortgage cross-selling opportunities, but these expectations were unmet.
Projections about the card's usage were overly optimistic. Most transactions were rent payments rather than everyday purchases, undermining revenue from interchange fees and interest charges.
Price Action: WFC shares closed at $57.40 on Friday.
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