Weekly reading – 8th April 2023

What I wrote last week

10 ways credit card issuers optimize profitability

Business lessons from Apple. Patience & Perseverance


A CEO’s tactical guide to driving profitable growth. A handy list for companies that want to fine-tune the operations and optimize for profitability.

The Five Waves of Fintech. A very good 30,000-foot overview of the fintech landscape.

Silicon Valley Bank’s risk model flashed red. The executives changed it. It’s just mind-blowing to see the extent to which Silicon Valley Bank’s executives mis-managed their company in order to please Wall Street. The risk model indicated that their cash flows would drop by 27% after a 2% drop in interest rates. In the past 12 months, the interest rates went up by 400-500 basis points! And of course, the management changed the model to stop the red flags. Worse, the guy that orchestrated the move was credited and awarded for that. These people deserve jail time.

Google to cut down on employee laptops, services and staplers for ‘multi-year’ savings. Expense management is a real business need, even for the likes of Google. There is nothing wrong with cutting unnecessary fat on the company’s books. Be more selective about who will get a Mac and replace it with cheaper Chromebooks? That’s fine by me. Require higher authorization for certain expenses? Makes sense. Close some facilities on sites when employees are not there? I don’t see anything wrong with that. What I find amusing is the stapler episode. Come on now, how much could they save by being that petty and taking away staplers at print stations? Most of the time, I don’t even use the print stations at my company. And I would like to remind everybody that Google made $60 billion in net profit in 2022. $60 billion.

($) Apple Wants to Solve One of Music’s Biggest Problems. “Everyone who listens to Beethoven as much as they jam to Beyoncé knows it is basically impossible to find the perfect recording of your favorite violinist playing in the best concert hall with the ideal conductor. The world’s richest company released a sleek new product this week that was years in the making and had to meet its exacting standards before it was ready to be used by millions of people. But it wasn’t a phone, a gadget or an AI chatbot. The latest innovation from Apple was a better way of listening to classical music.” This is classic Apple. Identify an area where they can make a difference and solve a problem. Then either build capability in-house or acquire a small startup and diligently work on the problem. Iterate. Repeat. No bold claims about changing the world. No nonsense.

Spotify shows how the live audio boom has gone bust. It’s fair to say that making a business or investment decision based on what is trending likely leads to mistakes and failure. Spotify is another example of that.

Inside Amazon Studios: Big Swings Hampered by Confusion and Frustration. A super interesting piece looking at the inner workings of Amazon Studios. The launch of Thursday Night Football produced “the biggest three hours for U.S. Prime sign ups ever in the history of Amazon.”, but the company had to compensate advertisers because of the shortfall in viewership. The article detailed how the confusion over priorities, direction and organization at the Studios made collaboration with talent difficult.

Other stuff I find interesting

(S) How Disney Dodged Ron DeSantis and Kept Control of Its Florida Land. I have to say that while I don’t support a company having too much power, I took pleasure in reading that Disney’s executives pulled a fast one over DeSantis. Keeping corporations in check is the right thing to do, but it’s troubling to enact laws for revenge and retaliation.

Mental liquidity. “Visa founder Dee Hock had a great saying: “A belief is not dangerous until it turns absolute.” That’s when you start ignoring information that might require you to update your beliefs. It might sound crazy, but I think a good rule of thumb is that your strongest convictions have the highest chance of being wrong or incomplete, if only because they are the hardest beliefs to challenge, update, and abandon when necessary.

The Finnish Secret to Happiness? Knowing When You Have Enough. Happiness has more to do with being content than a massive financial success. We all know it. We just struggle to put it to work.

($) America Has Too Much Parking. Really. My wife and I are constantly baffled at how much space we give away for parking here in the US. The amount of land reserved for parking at a strip mall would rarely ever be found in Ho Chi Minh City, Vietnam, where I come from. I get the need to accommodate the culture of driving here in the US, but how often is a parking area full? Or does it mostly sit unoccupied?

How tiny, cheap smart speakers unlocked the rise of digital payments in India. Fintech companies come up with a way to accommodate the need of some merchants in India and to make money. They provide devices that read out loud receipts. Merchants that can’t read nor write will know what is being sold without ignoring current customers. The subscriptions from these sound boxes help fintech startups, infamous for their inability to make money, generate more margin. I love reading articles about this.


The average American drove 4% fewer miles in 2022 than in 2019

The Rings of Power had a 37 percent domestic completion rate (customers who watched the entire series)

Six biggest credit card issuers in the US spent $68 billion on rewards and related costs in 2022, up 43% from 2019

10 Ways Credit Card Issuers Optimize Profitability

Because my daily job is related to credit card, today I will pull back the curtain a bit and talk about 10 areas where a credit card issuer can do to either maximize revenue or reduce expenses. This list is by no means complete. Rather, it includes the main tactics that I have come to know or worked on myself. If you’re curious about some insider knowledge, read on!

APR Optimization

A credit card is an unsecured loan. For every one dollar in past-due balance, the higher APR, the more revenue an issuer makes. A go-to APR usually consists of a Prime rate and a margin rate. When interest rates stay elevated like they are now, they increase the Prime rate and as a result, the go-to APR.

Some credit card portfolios use fixed pricing, offering the same APR to every customer regardless of the risk profile. Other portfolios opt for variable pricing that adjusts APR based on a customer’s credit history. In an inflationary environment like what we are experiencing now, variable pricing is the better option for revenue management.

Though increasing APR can help grow the top line, issuers need to be mindful that high APRs can turn off customers.

BT Fee

A common tactic in the credit card industry is to allow customers to transfer outstanding balance from another issuer at 0% APR for a certain period of time. Though interest-free, these Balance Transfer (BT) offers carry a fee of 3% – 5% of the BT volume. An increase of 1% in BT fee can result in a significant lift in revenue. Again, issuers must be mindful that increasing the BT fee rate too much can make their card less competitive in this fragmented market.

Reduce The Size Of Direct Mail

Direct Mail is still the primary acquisition channel for a lot of issuers. At high volume, this channel presents an area primed for expense optimization. Even a reduction of one page from the mail package can mean thousands of dollars in savings, if an issuer mails like 20 million pieces a month, a figure that is not uncommon in this industry. Hence, Marketing can work with Compliance and see what can be cut from a mail package while staying compliant with all regulations.

Many Direct Mail prospects apply online. In other words, after retrieving the piece from their mailbox, these prospects go to an issuer’s website, key in the access code and apply. The begs the question: is it necessary to include a paper application and a pre-paid envelope? Removing such elements means a reduction in postage and paper expenses. However, issuers must try to avoid disregarding senior prospects who may appreciate the option of a paper application.

Paperless Statements

Issuers can persuade customers to opt for e-statements instead of paper statements. Fewer papers mean lower expenses.

Interchange Optimization

Before we talk about interchange optimization, if you need a refresher on interchange, click here. Major card networks like Visa or Mastercard have multiple plastic tiers (it’s actually BIN tiers, but I call it plastic tiers so that I won’t confuse anyone) for both consumer and commercial accounts. Higher tiers come with higher interchange rates which bring in more interchange revenue for issuers. For instance, the same $100 purchase may produce $1.8 in interchange for Visa Classic, but for Visa Signature, it may bring in $2 in interchange. The difference is small, but if a portfolio generates billions of dollars in spend, interchange optimization can result in a serious lift in revenue.

Instant Issues

In some cases, customers can receive functional credit cards instantaneously after approval. We call them instant issues. Instant issues usually happen at a bank branch (like a Bank of America or Chase branch) or a partner’s store (such as a Target or Best Buy). To an issuer, an instant issue costs less than an ordinary plastic that needs to be printed and sent via the post office. Therefore, instant issues can save an issuer some Embossing expenses.

Informed Delivery

Informed Delivery sends us a notification in our email on what mails we are going to get every day. To improve the feature, USPS works with ferocious mailers like credit card issuers and courts their support in exchange for a discount on postage. As of this writing, I do know that the discount is still going on. From an issuer point of view, informed delivery doesn’t increase response rates in a direct mail campaign, but it does help reduce the postage expense.

Plastic Management

Depending on materials and design, the production cost can vary from one card to another. For instance, a metal card is more expensive than a plastic one. A complex design costs more than a monochromatic version. Some issuers even let customers design their own cards (DYC); which can lead to higher expenses to accommodate customized requests. Halting the DYC program or curbing on complex designs can help lower expenses.

Increase Deposits

Credit card issuers have to borrow money from the Federal Reserve in order to lend to consumers. The cost of borrowing that money is called Cost of Funds (COF). The higher the interest rates, the higher the COF. To minimize that expense, issuers must raise as much money on their own and borrow as little as possible. That’s why you see that in this environment, banks race to accumulate as many deposits as they can, even if they have to pay consumers higher interests than they usually do. It’ll still be cheaper than borrowing from the Fed.

Reactivate Dormant Accounts

Issuers want their accounts to be as active as possible. When an account spends, its issuer receives interchange revenue. When an account revolves, its issuer generates interest income and late fees. Hence, issuers run trigger campaigns once in a while to reactivate accounts that don’t register any activity for a while. Also, the old adage that it’s cheaper to retain a customer than to acquire a new one still rings true in this case.

An example of a Limited-Time Offer (LTO) to reactive accounts. Source: Visa

X1+, A Credit Card For When Things Go Wrong On Travel

There is a new credit card on the market for when things go wrong on travel.

X1 introduced a new iteration of its credit card portfolio, the X1+ card. Here are a few headline attributes:

$75 annual fee card.

Worldwide Lounge Access for Flight Delays: X1+ will be the first U.S. Visa credit card to offer complimentary lounge passes worldwide for members and up to 4 additional passengers if a flight is delayed by one hour or more.

On-Demand Lounge Access: X1+ will be the only credit card to enable on-demand lounge pass purchases, so cardholders can access more than 1,000 Priority Lounges.

Smart Baggage Protection and Enhanced Coverage: If baggage is delayed, cardholders get $100 per day in protection for 3 days. If baggage is lost, cardholders get $3,000 in protection per trip. Trip cancellation coverage is up to $5,000 per person per trip, and the card acts as the primary insurance for domestic and international car rentals. The card also comes with enhanced purchase protection at $10,000/occurrence, including Porch Piracy, with a limit of $50,000 per cardholder.


  • 2X points on every purchase regardless of category
  • 3X points every time you spend $1,000 in a month
  • 4X points on Expedia, Hotels.com and VRBO
  • 4X, 5X and even 10X points for every referral who gets a card
  • Up to 10X points at leading online stores such as Apple, Nike and Sephora when cardholders shop in the X1 App

Let’s analyze these benefits and see if it’s worth paying $75 a year.

2x points on every purchase is similar to set-and-forget cash back credit cards with no annual fee on the market. Examples include PayPal Mastercard Credit Card, Apple Card on Apple Pay, Synchrony Premier World Mastercard, FNBO Evergreen and Wells Fargo Active Cash Card. Because these cards don’t require any annual fee, the 2x cash back on every purchase becomes table stakes, not what consumers should pay $75 a year for. Additionally, some of the aforementioned cards such as FNBO Evergreen or Active Cash Card also has an intro and a bonus offer. To compete, X1+ must bring something else to the table.

3X points every time a customer spends $1,000 a month is an intriguing benefit. The fine print on rewards terms stipulates that the higher rewards earn rate only applies for spend between $1,001 and $7,500 in a calendar month. Any dollar beyond the $7,500 mark will earn 2 points. Here is a concrete example. If you spend $1,000 within the first month of Jan 2023, you’ll earn 2x points on that amount. Between the 6th and 25th of January, you spend another $6,500 which will accrue 3x points. For the last 6 days of the month, you spend another $500 which earns 2x, instead of 3x, points.

Based on those terms, if a customer wants the extra 1 point per dollar to pay for the annual fee, they will have to spend at least $750 a month for 10 months. The math is that $750 (the amount after the first $1,000) x 1 (the additional rewards earn rate) x 0.01 (100 points are worth $1) x 10 (number of months) = $75. Let’s say that a customer narrows down his or her next credit card to one between X1+ and one 2% cash back with a $200 bonus and no annual fee. Choosing X1+ would mean potentially losing $275. How can they make that up with the extra point from X1+? By spending at least $3,750 a month. In that case, after 10 months, they will recoup that investment ($2,750 x 1 x 0.01 x 10 = $275).

As a result, consumers who plan to spend between $1,750 and $3,750 on a credit card for the better part of a year will find the 3x points benefit of X1+ worth paying $75 in annual fee for.

Reading the press release, I suspect that access to lounges is the leading selling point of this credit card. Although the press release doesn’t mention which lounges X1+ cardholders may have access to, NerdWallet reports that it’s none other than Priority Pass Lounges. Here are a couple of things about these lounges:

  • If you reside in the US, it costs $99 a year to join the Priority Pass community and a further $35 for each visit to a lounge. Pay $329 a year and you can get 10 complimentary lounge visits. $469 a year will get you unlimited free lounge visits
  • Priority Pass Lounges are located at major airports in the US and numerous locations in the world
Priority Pass Lounge Map. Source: loveswah
Priority Pass Fees. Source: Priority Pass

Based on how Priority Pass Lounge access is priced, a couple of visits are already worth the annual fee, especially if you don’t fancy joining the Priority Pass network every year. The catch here is that complimentary access only comes when your flight delay lasts more than an hour. In other words, you have to rely on things going wrong to enjoy this benefit. According to the Bureau of Transportation, 20% of the domestic flights in US between January and October 2022 had at least a 15-minute delay. Once data for the holiday comes in, I suspect the share of delayed flights will increase due to unprecedented delays and cancellations that airlines had to make. It’s safe to assume that a consumer has like 5-10% of having a flight delayed for more than an hour.

As a result, X1+ cardholders that don’t travel frequently may not have a chance to use this benefit that the card offers. But compared to the high annual fee that other premium travel credit card like Amex Platinum command, it’s a reasonable trade-off: a low annual fee with no guaranteed lounge access for a high annual fee with guaranteed access. X1+ is clearly positioned as an alternative for the premium credit cards already on the market.

Other benefits such as baggage delay or trip cancellation insurance is at best another table stakes and not differentiated from competition. Plus, these benefits only kick in when customer trips hit speed bumps, reducing their appeal to customers who likely prefer smooth travel.

In short, X1+ has some pretty unique selling points such as access to lounges or 3x rewards. The card, in my opinion, appeals most to high-spending folks that can spend at least $1,750/month for most of a calendar year. Another group that may find this card attractive is frequent travelers that want peace of mind yelt balk at paying a high annual fee upfront. If X1 manages to add more names to the list of 4x rewards merchants, the card will become more attractive. I suspect that the 4x merchants subsidize rewards expenses in exchange for additional sales. Once X1+ grows to a certain point, it will be easier to sign up more vendors.

What We Know About Goldman Sachs Credit Card Portfolio – Apple Card

Traditionally known as an investment bank, Goldman Sachs did not usually count consumers among its clientele. The effort to venture into consumer banking started with its proprietary platform called Marcus. Then, in August 2019, GS launched its first ever credit card, Apple Card, in collaboration with Apple. In 2021, the bank announced that it was going to acquire the General Motors credit card portfolio from Capital One. The acquisition was only completed in February 2022, but it had some effect on Goldman Sachs’ balance sheet a few quarters prior to the completion (more on this later). Along with the GM portfolio, GS also added a platform for home improvement consumer loan originations in GreenSky.

It’s interesting to study the performance of Goldman Sachs’ consumer banking arm for two reasons. First, it will help us understand more how difficult and expensive it is to build and sell consumer banking products from scratch. Second, it is also a proxy of how the Apple Card has been doing, given the notorious secrecy of the Palo-Alto-based tech giant.

Housekeeping facts

  • Between Q3 2019 and Q3 2021, we can be sure that all credit card balance on GS’ balance sheet came from Apple Card. I confirmed it to a member of the bank’s Investor Relations team (see below)
  • The GM portfolio and the acquisition of Green Sky were both closed in Q1 2022. It’s safe to say that the bank only included the additional loan balance on its books by then. Said another way, all credit card balance through Q4 2021 was from Apple Card
  • Between Q1 2021 and Q4 2021, the bank’s lending commitments included their estimate of the GM portfolio’s balance of $2 billion. The exact language is: “Credit card commitments also includes approximately $2.0 billion relating to the firm’s commitment to acquire a credit card portfolio in connection with its agreement, in January 2021, to form a co-branded credit card relationship with General Motors. This amount represents the portfolio’s outstanding credit card loan balance as of September 2021. However, the final amount will depend on the outstanding balance of credit card loans at the closing of the acquisition, which is expected to occur by the first quarter of 2022.” (Source: Goldman Sachs Q3 2021 10Q)
  • The GM portfolio’s estimated balance of $2 billion as of September 2021 was down from the $3 billion figure reported in August 2020
  • Between Q1 and Q3 2022, GS credit card lending commitments (another term of the amount of credit lines extended by the bank to credit card customers) included $15 billion in credit lines from the GM portfolio. From Goldman Sachs Q3 2022 filing: “Credit card lines issued by the firm to consumers of $60.66 billion as of September 2022 and $33.97 billion as of December 2021. These credit card lines are cancellable by the firm. The increase in credit card lending commitments from December 2021 to September 2022 reflected approximately $15.0 billion relating to the firm’s acquisition of the General Motors co-branded credit card portfolio in February 2022.”
  • Because lending commitments from the GM portfolio didn’t change over the last 9 months, even after the move closed, it’s quite safe to assume that credit card balance stays stagnant at $2 billion, give or take

Apple Card

Using the figures reported by Goldman Sachs and the facts mentioned above, I estimate that as of September 2022, the Apple Card portfolio had $12 billion in balance and $46 billion in credit lines. Those figures were significantly up from $3 billion in balance and $19 billion in commitments as of September 2020. That’s tremendous growth in just 24 months. At $12 billion in outstandings, Apple Card still trails behind the Amazon Prime Card, which is rumored to have $20 billions in comparison. But if Apple and Goldman Sachs can maintain this growth rate, that gap should be closed soon.

Apple Card Loan Balance & Commitments
Apple Card Loan Balance & Commitments

Apple and Goldman Sachs give me a $6,000 line on my Apple Card. Assuming that is the average credit line for every Apple Card holder, it would indicate that there are approximately 7.7 million customers in the portfolio ($46 billion divided by $6,000). The figure passed a sniff test to me when news outlets reported the GM book had 3 million customers and there were almost 500 million credit cards in the US. Furthermore, given the popularity of Apple devices in the US, where there are 330 million people in population, the Apple Card portfolio has a lot of room for growth in the future.

In addition, because credit cards are unsecured loans, I’ll be remiss if I don’t talk about delinquency rates of the Apple Card. In Q1 2022, when Goldman Sachs first reported past due loan amount, the 30+ day delinquency rate of the Apple Card was 3.5%. As the issuer tightened its credit policy, coupled with loan deferral programs as well as three rounds of stimulus checks, the delinquency rate dropped to as low as 1.63% before rising back up to 1.9% in Q4 2021. Compared to the 30+ day delinquency rate of Bank of America or Chase, Apple Card’s rate was about 70 or 100 basis points higher as of Q4 2021. While the risk exposure is not as good as it can or should be for GS, remember that the bank has relatively little experience in the credit card industry that has been around for 70-80 years.

Then, the GM portfolio came. The 30+ day delinquency rate of Goldman Sachs’ credit card business shot up to 2.3% in Q1, 2.73% in Q2 and 3.08% in Q3 2022. Keep in mind that this portfolio was previously managed by Capital One. Capital One is more willing to book consumers with FICO less than 670 than its peers. As a consequence, Capital One credit card books tend to have higher delinquency rates. Case in point, the 30+ day delinquency rate of its domestic card was 2.97% as of September 2022. While I don’t doubt that the introduction of GM increased Goldman Sachs’ risk exposure, the tough environment in 2022 might have also caused more Apple Card customers to miss payments.

As a result, I believe that the Apple Card portfolio has higher delinquency rates that what some other issuers reported, and the acquisition of a portfolio from Capital One apparently didn’t help.

New changes at Goldman Sachs

On 1/12/2023, Goldman Sachs announced that they made changes to their business segments and how they would report results to investors. Specifically, the bank will combine Consumer Banking, which includes its credit card division, and Transaction Banking to form what they call Platform Solutions. In the same filing to the SEC, Goldman Sachs disclosed pre-tax earnings/losses of the new segments in the last three years. The Platform Solutions segment lost almost $800 million in 2020, a tad over a billion in $2021 and over $1.2 billion in the first 9 months of 2022. Some news outlets and folks on Twitter were quick to attribute these losses to the Apple Card. So let’s take a look

Source: Goldman Sachs

While we can safely distribute much of the provision to the Apple Card, given the size of the portfolio, Operating Expenses made up most of the losses. This fact and the lack of detailed disclosures make it impossible to know whether the Apple Card really drove such expenses. Remember that Platform Solutions now includes the bank’s digital platform Marcus, Green Sky, the GM portfolio and Transaction Banking. Any of these can have an outsized impact on expenses, especially when the bank invested in infrastructure for future growth. Working at a bank that has retail banking and credit card products, I can tell you that normal consumers don’t know how complex and intensive it is to run and sell these products. Here are a few teams I remember on top of my mind:

  • Finance to control the purse
  • Compliance to make sure everything is legal
  • Credit Risk to help set the underwriting policy
  • Operations to make sure everything runs smoothly (and Operations is an umbrella term for several teams like Marketing Engineering, Credit Ops, Rewards, Embossing, Customer Care)
  • Customer Management to handle campaigns post-acquisition
  • Client Management to take care of projects and communication with our partners
  • Acquisition team to run campaigns to book customers
  • Data Analytics to help the business leverage data to make decisions
  • IT
  • Cybersecurity

It’s a giant endeavor to run a Consumer Banking arm. So it’s not really surprising to me that Goldman Sachs is racking up losses at the moment. What I am not convinced of is that the Apple Card is highly unprofitable. Because we don’t have the data to back that up. At least, not yet.

What goes into Operating Expenses
What goes into Operating Expenses. Source: Goldman Sachs

Weekly reading – 12th November 2022

What I wrote last week

My review of the US Bank Shopper Cash Rewards Visa Signature Credit Card


($) What If Apple Made an E-Bike? On paper, the idea that Apple would change the e-bike/micromobility industry forever with its own product makes sense. The question is: how would an e-bike connect with the rest of the ecosystem? How would all devices complement one another? Apart from transporting a person from A to B, what utility would an e-bike provide?

The Russo Brothers Assemble: Inside AGBO, Their $1 Billion Studio, and When They Might Return to Marvel. Some insights into the entertainment industry

Why we’re leaving the cloud. I am not a fan of DHH, to say the least, but I appreciate his and his company’s perspective on this issue. Indeed, one of the biggest selling points of cloud providers is that you can save time and money renting their infrastructure. I am not saying that it’s impossible. But every buyer needs to do their homework and run a trial to see if that’s the case. My first-hand experience with our company’s transition to AWS is that we have a net positive, but you need to remember that most banks run on mainframes which are expensive to service in the first place.

($) Adobe Is Trying to Spend $20 Billion to Buy Back Its Swagger. I honestly don’t understand why people compared this to Facebook’s acquisition of Instagram. To me, because of the price tag, this deal looks similar to the $19 billion purchase of WhatsApp by Facebook. Nonetheless, I think there is a real chance that regulators would block this deal given the recent developments.

Stack Overflow CEO on how it became the world’s most popular programming site. A few stats on Stack Overflow: 50 million questions & answers, 100 million monthly visitors worldwide, 50 billion visits in the last 14 years, 15,000 organizations that use StackOverflow-for-Teams

Emergency SOS via satellite on iPhone 14 and iPhone 14 Pro lineups made possible by $450 million Apple investment in US infrastructure. There is innovation that doesn’t make headlines, yet improves lives. There is also innovation that grabs all sorts of attention, yet seems to be based on imagination than reality. Meterverse and this Emergency SOS, guess which one improves lives?

The global shipping industry is facing a new problem — too many containers. The demand for shipping dropped significantly, to the point that there are idle containers. I wonder if this is a sign that a recession is coming upon all of us.

Number One in Formula One. As much as I disliked Mercedes’ dominance in F1 the past decade, I have nothing but respect for their achievements because they were earned honestly. Toto Wolff is a magnificent team principal and his leadership lessons shared in this article are invaluable

Other stuff I find interesting

TSMC approaching 1 nm with 2D materials breakthrough. Any company or country still on chips bigger than 20nm is essentially years behind

US Traffic Safety Is Getting Worse, While Other Countries Improve. “The US underperformance in road safety is especially dramatical: 11.4 Americans per 100,000 died in crashes in 2020, a number that dwarfs countries including Spain (2.9), Israel (3.3) and New Zealand (6.3). And unlike most developed nations, US roadways have grown more deadly during the last two decades (including during the pandemic), especially for those outside of cars. Last year saw the most pedestrians killed in the US in 40 years, and deaths among those biking rose 44% from 2010 to 2020. That narrative is hogwash. For proof, look no further than Canada, an equally spacious and car-centric neighbor where the likelihood of dying in a crash is 60% lower.

The Car Safety Feature That Kills the Other Guy. Owning a truck is a waste of space & fuel and it increases risks of collision. For the lift of me, I never get used to sitting in my car next to a truck that is twice as big. “After decades of decline, U.S. road deaths flattened and then began rising about 20 years ago. Some 42,915 people died in crashes during 2021, a 16-year high. Notably, it was also 20 years ago that the American flirtation with SUVs and trucks became an all-out obsession. These vehicles first outsold cars in the U.S. in 2002; they have been gobbling up the market share ever since. SUVs and trucks may leave their occupants feeling safer, but they create grave dangers for everyone else on the street. A 2015 federal study found that an SUV is two to three times more likely to kill a pedestrian than a car is, and economist Justin Tyndall has tied the ascent of SUVs to an increase in pedestrian deaths, which hit a 40-year high in 2021. Cyclist deaths, meanwhile, rose 44 percent from 2010 to 2020.”

India has lost 70 million hectares of farmland since 2015. Climate irregularities which are likely caused by our carbon emissions severely impact India’s agriculture and food security. It could be a global theme one day in the near future


In highly polluted areas, or if plastic pollution continues to rise in the future, the whales could be eating 150m pieces a day

SEC obtained record $6.4b in monetary sanctions in past fiscal year

90% of electric vehicles sold in France in 2021 were two-wheelers

90% of new vehicles sold in Norway in 2021 were either electric or hybrid

With this credit card, you can earn more than $500 in the first year

US Bank recently announced a new exciting addition to their personal credit card line-up and it’s called US Bank Shopper Cash Rewards Visa Signature Credit Card. Here is what you will get with this card:

  • $250 bonus after spending $2,000 or more within the first 120 days of account opening
  • 6% cash back on your first $1,500 in combined eligible purchases each quarter with two retailers you choose. Every quarter, you’ll have to opt in and choose two retailers, up to 5 days before the quarter ends
  • 3% cash back on on your first $1,500 in eligible purchases on your choice of one everyday category (like wholesale clubs, gas and EV charging stations, bills and utilities)
  • 1.5% cash back on all other purchases. In the event that your spend exceeds the $1,500 threshold at the chosen retailers and accelerator categories above, any additional spend will earn $1.5%
  • $95 in annual fee with the first year’s fee waived
  • Ability to use Real-Time Rewards, which allows cardholders to turn purchases into rewards and redeem rewards on purchases in real time
  • Ability to use US Bank Extend Pay, which is the bank’s Buy Now Pay Later feature, for a monthly fee of around 1.6% of the balance
The list of eligible retailers. Source: US Bank

From a cardholder perspective, this is a seriously good card. The list of eligible retailers is impressive, featuring the most popular stores for the majority of people in America. For the sake of simplicity, let’s talk about what I think will be the most common scenario: groceries at Walmart. Spending $500 a month on groceries at Walmart is common for a family of four people. If a household’s children are all adults and everybody shares one card, it will be even easier to clear the threshold. At 6% cash back, cardholders can get back $90 on $1,500 spend every quarter or $360 every year. Even if you are a single user and spend around $1,000 on groceries at Walmart, it will still result in $240 in annual cash back. Either way, the rewards easily clear the annual fee of $95.

In addition, if you spend $200 on bills & utilities and $100 on gas every month, you can get back $9 a month or $108 a year in cash back. I drive a sedan and don’t rack up mileage, so I spend like $40/month on gas. But to truck drivers or SUV owners, this card presents a great saving opportunity. In short, with all the rewards combined with the $250 bonus offer, a cardholder can earn at least $500 in the first year with this credit card.

From a perspective of somebody who works in the credit card industry, I am excited about this new product and I would love to know how US Bank could make money from it. Let me explain. The 6% cash back category is surely a money loser for the issuer because there is no consumer interchange rate that exceeds even 3.5%. The magnitude of the loss depends on which merchants cardholders pick. Amazon and Walmart typically have an interchange rate of 0.7%, meaning that US Bank would lose $5.3 in rewards on every $100 transaction. Other retailers have high interchange rates, but they will be around 2-2.5% at the most. While EV Charging has an interchange rate of 3%+, meaning that US Bank will break even or generate some marginal revenue on this category, wholesale clubs, gas and utilities are all low-interchange categories. All other purchases that earn 1.5% in rewards should have, on average, negligible net revenue/loss for US Bank. Throw in the one-time $250 bonus offer and you can see why US Bank will definitely lose money on rewards.

The issuer hopes to negate some of the impact with the annual fee of $95, but like I explained above, it will not cover all the rewards if customers are savvy enough. The real driver of revenue and profit for US Bank will be the interest income on APR of up to 28.24%. In the credit card industry, we use the term “Transactors” to describe consumers that pay off their balance regularly and do not revolve. US Bank will get no luck from them. I suspect that the bank will try to acquire as many non-Transactors as possible, hoping that cardholders will appreciate the benefits and spend more than they can afford. To this end, there are three factors that will determine the success of this credit card:

  • Keep cardholders from churning before the first annual comes up. There will be a lot of gamers who sign up for rewards and bonus before leaving to avoid having to cough up $95 in annual fee
  • Educate cardholders on the benefits and how they can have a net gain despite the annual fee. That’s why there is a rewards calculator embedded on US Bank’s product page. But they should do more. Use influencers. Make the use of this credit card as relevant as possible to an average Joe. Explain to them why they should pay an annual fee to get this card instead of other cards with 5% cash back and no annual fee
  • Control charge-off

I already saw online comments saying that the $95 annual fee was a dealbreaker. I totally understand the sentiment, but from an issuer perspective, the annual fee is what brings this card from “impossible to make money” to “having a chance of profitability”. As a consumer, I probably won’t sign up for this card any time soon as I don’t have a big-item purchase lined up and because my spending profile will not benefit me. As somebody who works in the credit card industry, I am excited to see what unfolds next for this product. I haven’t seen anything like it on the market for a while. It’s refreshing and definitely gives us some thoughts on how to construct our portfolio.

How Does Direct Mail Credit Card Process Work?

Have you ever wondered how banks or credit unions can mail credit cards offers to you at your current address? How does the process work behind the scene? What impacts a campaign? Why do you receive the same offers from the same issuers but in different envelops? If you have such questions, I am here to pull back the curtain a bit by talking about the Direct Mail (DM) process in general, what impacts the success of a DM campaign and some less known details.

Direct Mail Process

Let’s go backwards from the moment you tear up a mail from an issuer. Whenever an issuer, whether it’s a bank or a credit union, sends you an offer, it must contain information on the offer as well as credit terms and conditions, as mandated by regulations. Inside a mail piece, some issuers include a postage-free envelop that customers can use to send back a filled paper application. Since each piece of paper is an expense, some elect not to send a paper application to save costs, especially during the times of supply chain constraints and inflation. In that case, customers can go directly to the issuer’s website, either by inputing the address manually on a browser or by scanning a QR code. They can also call customer care and apply on the phone.

Each mail piece carries an access code and a reservation code. These codes will be used to identify which offer is attached to an application. Normally, an issuer assigns a unique identifier to an offer for easy and transparent tracking. More on this later.

How do issuers know who you are and where you live? The answer is by working with credit bureaus. Credit bureaus like Experian, Equifax or Trans Union collect a lot of data on Americans. They have your latest address, your social security number, how many trades (mortgage, loans, credit cards…) that you have, how many with a balance that you own, so on and so forth. Issuers can work with these bureaus to pull the names of prospects for DM campaigns. The caveat is that in addition to a fee per name, issuers need to commit that they will send an offer to the names that they pull. Said another way, issuers can’t just call bureaus out of a blue and say: hey, I want to pull sensitive information of these people, but I don’t send them any offer.

Because of this requirement and the fact that each credit card is an unsecured loan that carries risks of losses, issuers must have a plan as to whom they want to send what. To answer these questions, issuers rely on their Credit Risk department, Marketing team and historical data. Credit Risk determines the risk parameters in which new acquisitions must fall. For instance, some banks are more comfortable with people who have little credit history than other banks. Some want to acquire folks with FICO less than 660 than others.

After Credit Risk defines the broad risk parameters, Marketing will work on the specific criteria and offers for a campaign. Each year, Marketing will conjure a campaign calendar that details how many pieces will be sent, when a campaign starts, which offers will be sent, how many applications and accounts can be expected. These details are determined with the help of historical data. Hence, the longer an issuer has been around, the more data it has to make informed decisions regarding DM campaigns.

What Impacts A Direct Mail Campaign?

The biggest factor is whether an issuer sends the right offer to the right audience. People have different preferences. Some don’t like complex rewards structures while others love to maximize rewards points. Some want to transfer balance to a card with a much lower interest rate while others just want to get a cash bonus for their activity. Issuers need to figure out who likes what and sends an appropriate offer. There is a big caveat. Credit cards are highly regulated in the US. Issuers can’t be caught being discriminatory towards any portion of the population. They can use certain behavioral traits as targeting attributes. What they can’t do is to use demographic elements. For instance, income, age, marital status, occupation or place of residence, just to name a few, are strictly forbidden.

Indicators from the bureaus such as how many trades a person has, the age of the oldest/latest trade, the total balance or how many delinquencies a person has can be used in a campaign. Issuers and bureaus themselves also try to use machine learning to build predictive models based on these legal attributes to gain an edge. The better the models are, the more efficient DM campaigns become.

Of course, offers with numerous benefits will excite prospects. As credit card is a fragmented business with a lot of competition, issuers cannot afford to come to prospects with bare bone offers. However, they must also think about their bottom line as rich products tend to be money-losers. Would you apply for a credit card with zero interest on balance transfer and purchase for 20 months, 2% cash back on everything and $400 bonus offer after spending $1,000 in the first 3 months? You likely would, but I can almost guarantee that the issuer of that card would not make a cent of profit. Hence, it’s all about finding that sweet spot between profitability and acquisition efficiency.

Additionally, mail design, paper quality, paper color and copywriting can contribute to the success of a campaign. I am sure you can recall seeing the same offer from the same company, but in different mail designs with different types of paper. Issuers conduct a lot of tests to see which paper or design can generate an extra basis point or two. Furthermore, the use of QR code can also help. USPS currently has a deal in which they will lower the postage expense if issuers use their Informed Delivery service. This is a numbers game. It’s all about finding those extra basis points in response rates.

Behind-The-Scene Details

Let’s start with promo/campaign codes. These codes are usually invisible to credit applicants. They are what issuers use internally to identify offers. In fact, each offer can have two promo codes: the parent code and the child code. The child promo code represents applicants that are upgraded or downgraded, depending on the setup of each campaign. For instance, anybody who applies for a Visa credit card and is awarded a credit line of more than $5,000 will receive a Signature card, instead of a Classic card. Signature cards carry more benefits and give more interchange revenue to issuers. The child promo codes for Visa campaigns are usually assigned to these “upgrades”. For Mastercard, the parent promo codes are given to the higher tier and the child codes are given to the “downgrades”.

What happens between bureaus and issuers? After an issuer finalizes a campaign’s strategy using criteria from a chosen bureau, the issuer will send the bureau such criteria and get back at least three files. The first file will go to the printing house and have some necessary information such as name, address, promo code or a unique identifier tagged to a mail piece called Solicitation ID. The file will not have people’s social security numbers. Nor will it have all the attributes that the bureau has at its disposal because the printing house doesn’t need to have such information.

The second file will go to the issuer and it has fields such as Solicitation ID, promo code and all the targeting attributes that the issuer and the bureau already agreed upon beforehand. These attributes will enable the issuer to analyze campaigns and see what can be the most predictive of success. Almost every issuer usually tasks its Machine Learning team to use multiple bureau attributes to come up with a predictive model so that it can use to generate more applications in future campaigns. Like the first, this second file will not have Social Security Numbers as Marketing or Machine Learning team does not need that kind of data.

The third file will also go to the issuer and be integrated into its decisioning engine. This file will have Social Security Number as Credit Risk and Operations will use it to make underwriting decisions. Of course, these teams don’t need all the targeting attributes as they are less relevant to them than to Marketing.

How do issuers deploy custom models? The answer is that issuers don’t “deploy” the models themselves. Credit bureaus do. After finalizing a model, an issuer will send the “formula” to its chosen credit bureau and the bureau will calculate the score based on such “formula”. The score will be appended to the appropriate files mentioned above and sent back to the issuer every campaign. The issuer will use the real performance data to validate the model and adjust, if necessary.

Every issuer must make sure that all models are in compliance with all lending regulations. Annually, the Office of the Controller of the Currency (OCC) conducts an audit to see if financial institutions comply with the regulations. Hence, every model must get approval from an issuer’s Compliance before deployment.

That’s all I have for today’s entry. I hope you find it useful. Drop me a line if you do or if you have questions.

Weekly reading – 8th January 2022

What I wrote last week

Amazon through charts

Amazon’s impact on U.S sellers during holiday seasons


Inside a Year at Peloton: From Pandemic Winner to HBO Punchline. The fact that Covid pulled forward demand isn’t as concerning to me as the management team’s inability to forecast and assess its business; which seems to be the case at Peloton.

No Permits, No Fabs. “From 1990-2020, the time required to build a new fab in the United States increased 38 percent, rising from an average of 665 days (1.8 years) during the 1990 to 2000 time period to 918 days (2.5 years) during the 2010-2020 time period. At the same time, the total number of new fab projects in the United States was halved, decreasing from 55 greenfield fab projects in the 1990-2000 time period to 22 greenfield fab projects between 2010 and 2020.”

Some great investment insights from Philip Fisher. “There are two approaches to accumulating wealth in the stock market. One is to time the market, buying stocks when they are cheap, and selling when they are expensive. The other is to find outstanding companies and hold them”

Chip Makers Contend for Talent as Industry Faces Labor Shortage. This labor shortage in one of the most critical and influential industries in the next few years makes you wonder why in the world lawmakers don’t open doors to welcome more hungry and talented immigrants. The tribal politics, fear-mongering and myopia are astoundingly disappointing and detrimental to the country

Hawaii Is Rethinking Tourism. Here’s What That Means for You. “For the first time, Hawaii’s tourism authority is majority-run by Hawaiian natives, rather than white mainlanders with hospitality degrees. With the input of locals, who range from farmers to hotel owners, each of Hawaii’s four counties has created a strategic plan that stretches into 2025 and focuses on sustainable destination management rather than marketing. The plan relies heavily on community involvement and visitor education. “In the past, visitors were spoon-fed what outsiders thought they wanted,” says Kainoa Horcajo, founder of the Mo’olelo Group, a Maui-based consultancy that helps hotels to reimagine their cultural experiences. “Now, it’s time to take a risk, challenge the visitor, and give them something real.”

How pioneering deep learning is reducing Amazon’s packaging waste. “Machine learning approaches helped Amazon drive change over the past six years, reducing per-shipment packaging weight by 36% and eliminating more than a million tons of packaging, equivalent to more than 2 billion shipping boxes.”

Turn podcast listeners into customers with CTA cards. Quite a big step by Spotify to improve their advertising platform.

Affirm Debit +: The Great Credit Card Unbuilding Is Underway

Other stuff that I found interesting

The Case Against Crypto. “The real world has fundamental constraints that make the technology unworkable, whenever it has to interact with the outside world the benefits of decentralization disappear and the solutions end up simply recreating slower and worse versions of processes and structures that already exist

A good article on China from an experienced journalist, who has spent a lot of time on the ground there. “Everything that can go wrong in urban design has gone wrong in Beijing. Each region has a different personality. The north is economically dysfunctional. Large parts of it suffer from resource dependency, environmental problems, and the population loss that results from these trends. Cities near Beijing showcase overcapacity in steel and coal, while Tianjin is well-known for having falsified its economic data. The northeast provinces nearby have seen a population decline of around 10% over the last decade, while the north as a whole has seen its share of the country’s GDP shrink from half in 1960 to a third today.

Your attention didn’t collapse. It was stolen. “For example, one study at the Carnegie Mellon University’s human computer interaction lab took 136 students and got them to sit a test. Some of them had to have their phones switched off, and others had their phones on and received intermittent text messages. The students who received messages performed, on average, 20% worse. It seems to me that almost all of us are currently losing that 20% of our brainpower, almost all the time. Miller told me that as a result we now live in “a perfect storm of cognitive degradation”. Individual abstinence is “not the solution, for the same reason that wearing a gas mask for two days a week outside isn’t the answer to pollution. It might, for a short period of time, keep certain effects at bay, but it’s not sustainable, and it doesn’t address the systemic issues.” He said that our attention is being deeply altered by huge invasive forces in wider society. Saying the solution was to just adjust your own habits – to pledge to break up with your phone, say – was just “pushing it back on to the individual” he said, when “it’s really the environmental changes that will really make the difference”.”

The Race to Make Vials for Coronavirus Vaccines. Fascinating


The average credit card balance in the U.S in 2021 was $5,525, according to Experian

2% of U.S menus feature chicken thighs while 42% list chicken wings

45% of surveyed Americans said they plan to shop 50% or more of their groceries online in the next 12 months

“PYMNTS’ research found that real-time disbursements accounted for 17% of all disbursements made in 2021, up from 5.7% last year”

Weekly reading – 25th September 2021

What I wrote last week

Is BNPL replacing credit cards?

My thoughts on Visa’s new benefits for U.S Signature/Infinite cardholders

Articles on Business

When to Buy Now, Pay Later, and When to Just Pay Now. “Affirm doesn’t report payments on its four biweekly payment zero-interest loans, it said, or when consumers are offered a three-month payment option with no interest. Afterpay doesn’t work with credit bureaus at all. Sezzle Up explicitly informs users that it will report on-time payments to Equifax and TransUnion. Affirm doesn’t charge late fees, but late or partial payments can hurt your credit score, and may prevent you from using the service in the future. Sezzle Up also reports delinquencies. Klarna and Afterpay revoke access to their platform until payment is made. Both companies also charge late fees, tacked onto your next payment. Afterpay charges $8, or 25%, of the purchase, whichever is less, while Klarna charges a maximum $7, or no more than 25%, of the past due amount. Klarna said it will contact users to collect payment before charging a late fee.

This delivery app went above and beyond for its workers. Then Uber took over. Cornershop’s original operating model was more beneficial and friendly towards workers. After the acquisition, life became more challenging for drivers. It remains to be seen whether the regulation in Chile will allow workers to unionize and force Uber to recognize drivers as full-time employees. This is a classic case of conflicting interests between gig companies and drivers as well as of the important role that governments play in this conversation.

Why the University of Florida gets a ~$20m cut of Gatorade profits every year. A fascinating story on a wildly popular drink.

The Most Important iPhone Ever. “What makes the iPhone and perhaps Apple special is that it seems to deliver things that nobody asks for but then everybody wants while eschewing overshooting a performance dimension that a few demand but most won’t use. The tragedy of overservice and disruption is that if you don’t shift the definition of performance eventually you run out of demand at the top of the performance curve. That opens you up to “good enough” competition from below. Instead you need to re-define the notion of performance: compete on a new basis, reset expectations. That the iPhone can find new dimensions of performance and hence demand is effectively a solution to the innovator’s dilemma.”

PayPal Introduces Customers to the Next Digital Payments Era with the New PayPal App. “The new PayPal app will introduce new features including PayPal Savings, a new high yield savings account provided by Synchrony Bank, alongside new in-app shopping tools that will enable customers to earn rewards redeemable for cash back or PayPal shopping credit and uncover deals with hundreds of merchants. Additionally, the new app offers PayPal customers a single place to manage their bill payments, get paid up to two days earlier with the new Direct Deposit feature provided through one of our bank partners, earn rewards and manage gift cards, send and receive money to friends, family and businesses, pay with QR codes for purchases and redeem rewards in-store, access and manage credit, Buy Now, Pay Later services, buy, hold and sell crypto, as well as support causes and charities they care about.”

Other stuff

The tangled history of mRNA vaccines

Stats that may interest you

“One in five consumers made a purchase using a “buy now, pay later” service within the last 12 months.

One in six consumers who made a buy now, pay later service purchase regret doing so, commonly citing high interest rates, a lack of options to build credit, or making unnecessary or unaffordable purchases.”

There have been 47 startup venture deals in Africa in 2021 so far with the average deal size of $21 million

CPC on Amazon ads is $1.27 in August 2021, up from 86 cents from a year ago, according to a survey

31% of online grocery shoppers use PayPal, according to a new study by ACI Worldwide and PYMNTS

Fuel Wasted Due to U.S. Traffic Congestion in 2020 Cut in Half from 2019 to 2020

14% of U.S consumers said they switched to an iPhone from another operating system in the last two years, a report said

Is BNPL replacing Credit Cards?

BNPL is a red-hot phenomenon now both in the financial and retail worlds. Because most BNPL transactions are funded using debit cards or checking accounts rather than credit cards, one of the main debates is whether it is replacing or will replace credit cards.

When asked about BNPL and its impact on credit card balance, the CFO of Discover, John Greene, had this to say:

What we’ve seen to date is consumer appeal has been on the lower credit quality folks. I think there will be a natural evolution that, that will come up the credit spectrum. We’ve also seen in terms of the firm, some higher credit quality customers actually electing to do a buy now pay later transaction, whether it’s paid in for or something else.

We haven’t seen any discernible impact whatsoever. So where I would likely see that is through new customer acquisition, and that’s — that activity has been very, very robust. The balance sheet on existing customers here, so loans, that’s been impacted by stimulus and kind of how they’ve allocated their dollars within their household. Nothing from the details we’ve looked at that would indicate that buy now pay later’s impacting the portfolio.

Discover Financial Services – Barclays Virtual Global Financial Services Conference

Echoing that sentiment, Brian Wenzel, CFO of Synchrony Bank, said there was no visible impact from BNPL on their credit card portfolio:

Yes. So first, we have studied buy now, pay later impact over the last couple of years as it really has grown, and we partnered with an outside firm to kind of do a deep analysis really on the — at the customer account level to kind of understand the behavior patterns it has. So when we see it and the data we’ve seen, I think, 75% of the buy now, pay later accounts are funded out of a debit account, right? So the view is that they are — you’re using cash and taking what would be a debit transaction through the buy now, pay later. We then looked — and really the impact of our business, and we looked at it and talked a little bit about it in Q&A last week about the impact on our business.

Are we seeing anything that says buy now, pay later is impacting credit? And so when you look at it versus a cohort population of our Mastercard as well as our Dual Cards, we see a low penetration, and we have not seen any changes certainly with how they use credit with us. In fact, they are more engaged with us than our average customer. They generate more revenue for us, but we have not seen any change. So as we look at it — when we look at applications come through, go over some of these products are offering, we have not seen any change, discernable changes.

So when you think about the impact to us in credit, we don’t really see it yet. We think that there is a shift that’s happening probably from cash as a tender type. And I think this is where the merchants and our partners are taking a step back. They are saying, “Yes, we understand your offer, consumers like it. But is this driving incrementality for us, true conversion?

Synchrony Financial – Barclays Virtual Global Financial Services Conference

One may argue that the main business of Discover and Synchrony is credit card so they had to put on a brave face. They might have. But since they are publicly traded companies; which often require them to be truthful to investors, I’ll give them the benefit of the doubt. More importantly, what they say seems to be in line with what Marqeta sees in their 2021 State of Credit report.

Recently, Marqeta released a 2021 State of Credit Report with some interesting insights into how consumers in the U.S, the U.K and Australia use BNPL and credit cards. The report is based on a survey of 3,500 people across three countries. Here are my take-aways regarding consumer preferences in the U.S:

  • 78% of respondents in the U.S use credit cards while 25% actively use BNPL
  • 50% of U.S consumers use credit cards because of rewards, something that is still a weakness of BNPL providers but they are working on it
  • “60% of U.S. 18-25-year-olds said they made more than five purchases on their credit card online each week, compared with 19% of 50-65-year-olds”
  • “79% of consumers surveyed who use BNPL reported having three or less BNPL plans open at a given time, with 45% of people reporting their average BNPL purchase at less than $100.”
  • “Older consumers however, were decidedly against, with survey respondents 51-65 years old voting overwhelmingly (63%) in favor of the credit card-first status quo.”
  • “Americans were again slightly worse off, with 30% responding that they’d struggled to meet payments”

3 out of 4 U.S consumers use credit cards. 60% of the younger segment use their cards regularly every week while the older and wealthier crowd want to keep the status quo. That, to me, is the sign that the credit card business is still healthy and well, at least for now. By no means do I insist that BNPL doesn’t have a chance to overtake credit cards. More and more issuers such as Citi, Amex or Chase introduced the ability to put qualified transactions on installment plans (BNPL). All the major retailers in the country allow shoppers to have a payment plan. Even Apple is reportedly working on their own version of BNPL. Who knows what the future holds? But for now, all signs point to a healthy credit card industry holding their ground.