Venmo's bringing a new level of personalization to payment cards

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Based on credit card offerings out there, Venmo’s recent announcement of plans to launch its own credit card needs to break through the noise. On the surface, one must ask “Why does the world need another credit card offering?”

The way Venmo is going about this seems like a highly controlled experiment, because Venmo can control which customers will be offered the card, and how many cards are offered until the economics of its personalized rewards scheme are properly understood.

Venmo is breaking into an area of consumerism that has been very slow to embrace personalization. While other verticals, such as retail, travel, hospitality have been investing in personalized shopping and loyalty rewards experiences, credit card companies are still launching credit card products with the same sign-up bonuses and ongoing rewards scheme for all cardholders.

It’s about time somebody launched a new card product with a more tailored customer-centric approach to rewards. Expect to see other credit card companies join the race to customize rewards to customers to maximize appeal and customer lifetime value. Venmo has a leg up in that it has a young user base with tons of data that can inform its credit card offering. The next phase of personalized credit card products has officially begun.

Certainly, it’s a logical move for Venmo, one of the trailblazing alternative payments and fintech companies in the last decade. It’s no secret that there’s likely more money in a credit card than there is in facilitating free peer-to-peer ACH payments or charging a small fee for immediate reimbursements.

There are many reviews online about this new credit card that lay out the objective facts associated with the offering and how it compares to other credit cards in the marketplace. Based on all the comparisons available, there is only one potential difference that could make this card appealing to customers who shirk annual fees and look for the highest cash-back percentage.

There are lots of card offerings that offer 3% cash-back, so Venmo isn’t novel there. Its innovation is focused on how to help customers maximize the 3% by tailoring it to higher-spend categories on a customer-specific basis. This goes beyond the typical 3% on groceries and restaurants, 2% on gas, and 1% on everything else type marketing malaise.

Venmo is blazing a trail that’s rarely, if ever, been pursued in credit cards. That path is a more personalized rewards scheme for customers, varied by each customer’s spending patterns. Venmo would apply the 3% tier to a customer’s biggest spend category. That theoretically means one customer might get 3% on gas, whereas another customer might get 3% on groceries, and another might get 3% on travel. Simply put, you’ll get 3% on whichever category you spend the most in. Venmo’s new offering is one that would be incredibly disruptive in the industry.

In order to offer such an unpredictable and highly customized reward structure, Venmo must need to have confidence to either be able to sustain the potentially higher program costs on average across the customer base or it will need to pare back rewards on a customer’s lower priority spending categories. For example, if Venmo plans to offer similar tiered cash-back incentives to other cards plus focusing 3% cash-back on the biggest spend category, Venmo will likely lose money without an annual fee. If Venmo chooses to focus the offering on 3% cash-back wherever a customer spends the most, and then offers 1% on everything else, skipping the 2% tiers, perhaps the economics will work out the same but provide Venmo with a better value proposition and marketing hook for new cardholders.

Furthermore, Venmo can control the economics by determining who they allow into the program. The company announced they will begin offering the card product to eligible app users over the coming months. That leaves a lot to interpretation. For example, Venmo might analyze customer app data and select customers who are likely to have the highest spending in categories with optimal economics for Venmo.

Some categories are more lucrative than others based on what those merchants agree to pay the credit card companies. The higher the per-transaction fee, the more revenue the credit card companies can afford to share back with consumers. Sometimes, consumers demand more generous rewards in categories that are less lucrative for credit card companies, such as grocery for example, and the credit card companies hope they make up for the lower margin on higher sales volumes or lower rewards percentages on higher-margin merchant categories. Simply put, they hope it will all average out in the end.

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Credit cards Venmo Loyalty and rewards Digital payments