Upgrade has announced a new type of card – a “secured credit card,” the Secured OneCard, that aims to support individuals who struggle to get credit or underbanked individuals.
In a company statement, Upgrade said the new product will incorporate a savings account that will offer a 5.07% APY (currently) while providing up to 3% cashback for consumers who have no credit history or very little.
The Secured OneCard provides the same features as the Upgrade OneCard, including a buy now, pay later (BNPL) option, but has smaller credit lines that are secured by cash that is held in the savings account. A minimum first deposit of $200 is required, but after that, there is no minimum, and funds may be withdrawn at any time. The Secured OneCard does not have any annual fees for its users.
Founder and CEO Renaud Laplanche commented on the new product, explaining the card is ideal for the millions of consumers who have yet to build a credit history, which is vital in receiving loans or other credit products.
CI connected with Laplanche to inquire how Upgrade’s customers are responding to the higher interest rate environment – a reality that cuts both ways – better for savers but not as good for borrowers.
Laplanche said that all else being equal, the higher rate environment has slowed the overall growth of the marketplace. Laplanche said there is “less demand for loans from consumers and less appetite from loan buyers who can earn high yields on alternative investments.
“Fortunately all is not equal, and we have launched several new “Point of Sale” financing products this year (home improvement financing, auto and travel BNPL through the acquisition of Uplift) that are fueling our growth.”
So how is Upgrade driving new users for their Fintech products with tighter credit? And has consumer interest slowed? Laplanche said they have tightened credit “a lot” but have ramped up mobile banking at the same time, which is less sensitive to credit cycles. Simultaneously, they have launched new products with higher approval rates, such as the new Secured OneCard, to ensure they continue to deliver value to as many consumers as possible.
In the past, CI has asked Laplanche if he would consider acquiring a bank charter – either by acquisition or going through the (very long) process.
Laplanche said this is “more accurate than ever” that he does not want to pursue a federal bank charter, preferring to operate as a neobank, partnering with a chartered firm.
“We are very happy with the current business model, which helps us focus on product innovation, brand and user experience, and allows us to remain nimble and capital light by outsourcing much of the balance sheet to banks, credit unions, and asset managers.”
The digital banking market (pure-play chartered digital banks) continues to be a bit choppy. Recently, Goldman Sachs (NYSE:GS) effectively announced a full-scale retreat from their once ambitious consumer banking aspirations (Marcus) in the digital banking sector. What was once described as a big part of their future – is no more. We asked Laplanche if this was unique to Goldman or emblematic of the entire digital banking sector.
“I think Goldman mostly suffered from an unfortunate timing, entering the market and getting to scale in a particularly turbulent economic environment,” said Laplanche. “I am very optimistic about the growth of digital banking in the US over the next few years. Digital banking Fintech leaders are increasingly reaching a mainstream audience in countries like Brazil and South Korea, where NuBank and Kakao Bank have already equaled or surpassed the Main Street banks, and I believe this will be the case in the US in the next few years.”
So what will Upgrade be focusing on next year? Will 2024 bring a portfolio of new services beyond credit and savings?
“We have launched a lot of new products in 2023 and now have robust product offerings in mobile banking, credit cards, loans, and most major point-of-sale financing categories (home improvement, auto and travel). We do not expect to launch that many new products in 2024, but rather focus on building up the ecosystem and making sure we deliver as much value as possible to our customers. We might also launch a new product or two 🙂 …”
Launched in 2017, Upgrade reports having originated $26 billion in credit via loans and cards.