What are you Bilt-ing over there?
#bilt #fintech #fundraising #businessmodel
Happy 2024! I paused Substack since I’ve been heads down building Gestalt - more on that later.
Lately the crowd seems interested in what I wrote on Bilt. After all, Bilt bucked the recent fundraising trend of flat/down rounds and actually doubled its valuation.
So here’s Chloe’s Take on Bilt by popular demand. Below I provide my updated view after the recent funding announcement, and I’m also sharing the archive post from 2021. Interestingly, my view has been quite consistent on this one.
It’s a credit card! It’s a loyalty program! It’s Bilt!
In a traditional card loyalty program, a card issuer-let’s say Chase-runs a rewards marketplace behind a Chase log-in. A Chase cardholder logs onto the Chase rewards market place, clicks on an offer (e.g. “10% off at Nike” or “10x points at Nike”), and is taken to the Nike website with a digital coupon (simplifying here). Merchants (Nike in this case) are willing to offer a discount to Chase because presumably the exposure through Chase’s marketplace leads to more GMV for Nike.
In this traditional setup, all three parties involved benefit: the consumer gets to enjoy a discount, the card issuer gets to process more payments on its cards and earns more revenue, and the merchants makes more sales.
When all parties to a deal can benefit sustainably from the deal, all parties tend to stay and cooperate.
Now let’s examine the Bilt loyalty program.
Similar to a traditional loyalty program, Bilt offers its members and cardholders deals and discounts from merchants that have signed up to Bilt’s ecosystem.
Different from a traditional loyalty program, Bilt also offers rewards points when Bilt members-not necessarily Bilt cardholders-pay rent at participating buildings. The difference between members and cardholders is that members pay rent via ACH for free and have to pay a standard credit card processing fee to pay rent via the Bilt card; in comparison, Bilt cardholders can pay rent via both ACH and the credit card for free. Of course, the member’s card processing fee is paid for somehow-presumably shared between Bilt and Bilt’s sponsor bank, Wells Fargo.
In Bilt’s model, the benefit to consumer is the only thing clear about this model-get rewarded for the largest recurring expenses in their lives.
The benefit to landlords is somewhat clear: presumably landlords take a cut on Bilt’s customer acquisition and enjoys a nice little new revenue stream. But unlike merchants who accept credit cards in hope of more sales, landlords are unlikely to see the same lift, as the national housing market is still a supplier’s market. Given the limited upside, landlords are limited in their willingness to fund marketplace offers, thus limiting the attractiveness of the landlord-based rewards program.
The benefit to the card issuer comes with a steep price: indeed the card issuer (in Bilt’s case, Wells Fargo) will welcome more payments volume and processing revenue, but it opens itself up to high-dollar delinquencies. Even worse, the cohort of consumers who sign up for a Bilt credit card to pay for rent are more credit-marginal than those who just pay rent the ACH way.
The benefit to Bilt, viewed from the lens of growth, is clear, because the program design heavily favors customer acquisition.
Bottom line: consumers love this offer for as long as it will be around 🙂🙃
From the archive: below is what I wrote in July 2021
Bilt, a NYC based credit card fintech that allows cardholders to use its card to pay rent with $0 processing fees and earn rewards, just came out of stealth in June. Major residential landlords in the country have signed up to accept the Bilt card. Bilt is part of the Kairos portfolio, which also includes Rhino and Cera.
Business model:
Revenue: similar to up market credit cards, Bilt doesn't charge an annual fee, but charges interest (14.99%-23.74%), collects interchange (MasterCard rail), and possibly charges late fees.
Cost: besides typical cost of running a credit card program, Bilt incurs two additional types of cost. For one, Bilt pays for at least part of the CC processing fees, so that its cardholders enjoy a no-fee payment experience. For another, if a cardholder's landlord doesn't (yet) accept credit card payments, Bilt will manually fulfill the payment via an old fashioned check
Cost of rewards: Bilt has designed a neat tier system to encourage spend; for the basic tier, only rental payments are eligible to earn points, and the earn rate goes up based on non-rental spend on the Bilt card. Earn rate starts at 0.5% and goes up to 2%, with a cap of 4,000 points/mon.
Capabilities and "secret sauce"
How hard is it to pull off something like this? In my view, not too hard on the tech side, but harder on the partnership side. Of note, Bilt uses Finicity's bank account connection to automatically pay down the rental expense every month, if Bilt/ cardholder chooses to. Also of note, Bilt rewards points can be applied toward a down payment, thanks to Bilt's partnership with Fannie Mae.
What's next:
1) Path to profitability
Per my estimate, the forward contribution margin is anywhere between -5% and -25%, even with generous assumptions.
What's a viable path to profitability? Would love to hear your thoughts!
2) Product extension - rent to own?
Would love to see Bilt deepening its partnership with landlords and creating a consumer-friendly, and capital-light rent-to-own product.