How challenger credit cards are shaking up the traditional market

On day 2 of the AltFi Festival of Finance, some of our panellists came together to discuss overcoming the challenges of challenger credit cards.

Zopa's chief commercial officer Tim Waterman,Chetwood Financial’s chief product officer Julia McColl,Tymit’s CEO and co-founder Martin Magnone and GDS Link’s managing director of fraud solutions Brian Kinch all shared their thoughts.

In the last few years, there has been a real surge in challenger credit cards, and Waterman kicked off the discussion by speaking as to why that is.

“It’s always been a really attractive market for lenders, and it’s one of the biggest unsecured credit markets in the UK,” he said.

“Margins are really good for lenders and the consumers are really poorly served by the incumbents. So the products and the experiences they offer just don’t meet the expectations of modern, digital consumers. So we just saw a really great opportunity to disrupt this space and really provide products that meet the key needs of the consumers.”

Within the space of about 18 months, Zopa has originated more than a quarter of a million credit cards and become a top seven issuer in the UK based on new volumes, according to Waterman. 

This is something that has evolved from the digital bank’s ability to offer “slick, digital products” that remove the issues that exist with incumbents, he explained.

Zopa exclusively revealed its transition from peer-peer-to lending to concentrating banking to AltFi at the end of last year, and the success of this shift in focus is clear from the numbers. 

On whether neobanks or incumbents are likely to be coming out with cards that could rival the likes of Zopa or other digital banks, Waterman suggested that incumbents are currently more focused on overdrafts and BNPL right now, and that it will be a while before we see them bringing those products to market.

In an interview with AltFi, he addressed the issue that faces incumbents that can be overcome through open banking for companies like Zopa.

“There’s a real problem in the UK that if you don’t already have an established credit file, it can be really difficult to get credit,” he said.

This was something he experienced personally after graduating, and a rising issue given the current cost of living crisis.

“You pay this property premium, both in terms of the cost of accessing credit, but in terms of utilities as well. Particularly given the cost of living crisis we’re in at the moment, it’s really important that we find additional ways to underwrite consumers. The data we can get from open banking enables us to make better lending decisions and lend to people we otherwise wouldn’t be able to lend to,” he said.

Tymit’s Magnone explained that while there is a huge market of more than 30 million people in the UK using credit cards, he thinks the experience is broken for customers. 

“You’re probably ok if you pay your credit cards in full, but if you need more time to pay back, the experience is pretty bad,” he said.

“If you spoke to some credit card users and if you manage to get them to be really open about credit cards, they will tell you that the experience is pretty awful. 

“We all teach our kids not to use credit cards, we’re all afraid of them, we all fear they are expensive, hard to control and promote bad behaviours.”

Tymit saw this as unsustainable, he explained, saying that the given the existing tools and technologies out there, this is the time to innovate and solve some of these issues facing customers.

For Chetwood Financial, speaking to customers about its Wave product showed that there is still a “huge amount of volume out there” for the product and there is no question that consumers still want credit cards, with many even adamant about wanting physical card in addition to a digital one.

“It still holds that credit cards are a product that consumers want to use,” she said. 

“What we’re trying to do is make it better than the others out there on the market.”