SAN FRANCISCO–A partnership with a credit card start-up that offered renters away to earn rewards points for rent payments without landlords incurring fees has turned into a financial headache for Wells Fargo, according to a new report.
In 2022, Wells launched a credit card with those features in conjunction with Bilt Technologies, a fintech startup with big-name backers including Blackstone and Mastercard. More than one million accounts were activated in the first 18 months, many by young adults, according to the Wall Street Journal.
But Wells Fargo is losing as much as $10 million every month on the program as savvy customers flock to the card, current and former employees told the Journal.
“Executives made internal projections on key revenue drivers, such as the likelihood that cardholders would carry balances, that turned out to be inaccurate,” the Journal reported.
Renegotiation Under Way
The financial losses have triggered a renegotiation of the program that has been under way for months, with Wells telling Bilt it doesn’t intend to renew the contract, which is scheduled to end in 2029, unless economics are changed in its favor, according to the Journal.
A Wells spokeswoman told the Journal co-branded cards are a “modest piece” of the bank’s credit-card strategy.
“As with all new card launches, it takes multiple years for the initial launch to pay off,” the spokeswoman said. “We look forward to continuing to work together to…make sure it’s a win for both Bilt and Wells Fargo.”
Reporting is ‘Inaccurate’
A Bilt spokesperson, however, told the Journal its reporting “is an inaccurate representation” of the partnership and that the company is “committed to a long term partnership with Wells Fargo that benefits all parties.”
Wells Fargo itself has invested at least $20 million in Bilt, the Journal reported, citing people familiar with the matter.
“There is a reason why credit cards hadn’t gained traction in the rent sector until Bilt came along,” the Journal reported. “Most landlords didn’t accept them because they refuse to pay card fees that get pocketed by the banks issuing them and often run between 2% and 3%. Bilt structured the card so landlords won’t incur the fees. Wells instead eats much of that.
“About six months after the credit card was launched, Wells began paying Bilt a fee of about 0.80% of each rent transaction, even though the bank isn’t collecting interchange fees from landlords,” the report added.
Other Costly Moves
Instead, Wells is earning interchange fees every time people use the card to pay for anything but rent and splits those fees with Bilt, the Journal reported.
In addition, Wells Fargo also pays Bilt $200 each time a new card account is issued.
The Journal reported the bank had expected that around half to three-fourths of dollars charged to the card would carry over from month to month, generating interest charges, but the reality ranges between around 15% and 25%.
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