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Credit where it’s due

Rafa Plantier

Sep 4, 2024

5 min

Credit inclusivity is the bedrock of a healthy economy. With access to credit, people can invest in their future, whether that's buying a car, paying for higher education or planning for the unexpected. But when lenders tighten their belts, it is much harder for everyone - especially young people, minorities and anyone with any negative credit history, no matter how small - to get ahead. 

As credit rejection rates soar, neobanks like Chime, Varo and Nubank are doing their bit to close the gap by catering to underserved customers. Key to their success are secured credit cards, which offer customers a risk-free way to boost their credit score and allow the banks to onboard a broader demographic. 

But in a crowded market, persuading customers to opt for your card can be a challenge, unless you have a truly compelling angle that resonates with your target audience. 

Finding the angle

Pushing a secured credit card after a credit denial is a hard sell. Ultimately, the customer came for one thing and you’re offering them another. Most people will continue their search elsewhere or abandon it entirely. Attracting customers that are actively searching for secured cards is equally difficult when the competition is steep. To succeed, neobanks must offer something competitors don’t. 

This is familiar territory for neobanks. Most already provide a range of value-added services to attract customers from incumbents and grow profits. 

Monzo, which recently added fraud prevention, investments, and travel insurance to its growing product stack, attributes an 88% surge in customer deposits last financial year to its product expansion strategy. Revolut, which offers a host of ancillary services including a loyalty program, travel discounts and crypto exchange, continues to expand its customer base at warp speed, while Chime has leveraged early paycheck access, cashback, and fee-free overdrafts to become the primary checking account for almost half of its 23 million users 

The lesson is clear: if you offer customers real value, they’ll bank with you - even if a substantial part of that value lies beyond core banking services. 

One value-added service that complements credit building particularly well, yet remains largely untapped, is phone plans. Bundling credit building with connectivity is a smart move for several reasons: 

  1. Acquisition and retention: Recent legislative changes and rising living costs have made wireless more expensive, particularly in the US and the UK. By providing a great deal on their phone plan in addition to credit building, neobanks can offer their customers two life essentials in one, significantly increasing attach rates and reducing churn.

  2. Credit signaling: Regular mobile bill payments act as a credit signal, providing crucial insights that improve credit assessment accuracy, which could lead to more credit approvals in the long term.

  3. LTV growth: Phone plans will generate recurring revenue for the neobank, significantly increasing customers’ lifetime value (LTV). Many credit models compare an expectation of future revenues against an expectation of losses and costs. So, when LTV goes up, millions of customers who were marginally below the expected profitability threshold will suddenly rise above it. 

In other words, the bank can attract and approve more customers for credit in one move. 

Banking and telecom: A powerful duo 

Together, banking and telecom make a formidable pairing. Both are sticky products with universal relevance that drive LTV, which is why we’ve seen several players, including Nubank and Revolut, launch their own travel eSIM offerings this year.  

Like banking, telecom has long been dominated by a handful of traditional providers that struggle with low customer satisfaction rates. With their track record of transforming mundane services into customer favorites, evidenced by their high net promoter scores, neobanks are well positioned to win in this space. 

In the past, operational and regulatory complexities kept telecom a closed industry, but just as banking APIs enable thousands of businesses to tap into financial services revenue, modern telecom APIs now allow companies to seamlessly integrate phone plans into their product. 

Rather than spending months negotiating with carriers and Mobile Virtual Network Enablers (MVNEs) and building market-and-carrier specific software from scratch, neobanks can access multiple networks through a single integration and launch a fully embedded wireless service on a global scale in a matter of days. 

By leveraging modern telecom APIs and marketing to their existing user base, neobanks can keep both CAC and Cost-to-Serve to a minimum and pass on those savings to customers, beating traditional networks on price.  

A fair deal

With high interest rates slowing the flow of credit and the cost of wireless going up, neobanks are uniquely positioned to offer customers a better deal on both fronts. By bundling financial services with phone plans, they can encourage more customers to invest in their financial future while broadening access to essential digital services.  

Neobanks have already won hearts and minds by cutting fees and making banking more accessible and flexible for users. By embracing the convergence of banking and wireless, they can make both services more equitable, earning the loyalty of their customers and cementing their position as the world’s most loved banking apps. 

Rafa Plantier

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