In the world of miles and points, almost all of us are familiar with the Bilt Mastercard (issued in partnership with Wells Fargo), which is one of the most innovative products we’ve seen launched in recent years. Bilt Rewards is a transferable points currency, and the Bilt Mastercard is one of the most lucrative no annual fee cards.
The best part about the Bilt Mastercard is that you can earn points for paying your rent for free, even when your landlord doesn’t accept credit cards. This is great because rent is one of the biggest expenses for many people.
I have long wondered about the economics of Bilt. I mean, it’s great for consumers, but who exactly is funding all these rewards? As is the case with many startups, I assumed that the priority was to show growth and that profitability would come later (maybe). However, there’s a bit more to this, as it appears Bilt isn’t even the party taking most of the losses.
If you’re curious about how the Bilt economy works, now we have some ideas…
Wells Fargo would lose $10 million per month on Bilt
The Wall Street Journal has learned how Wells Fargo allegedly made a very bad bet with Bilt and is losing $10 million every month thanks to the partnership.
As a reminder, in 2022, Wells Fargo had a new CEO and one of his priorities was to grow the credit card business. At the same time, Bilt was launching and looking for a bank to partner with because it couldn’t lend or guarantee on its own. Chase apparently wasn’t interested, but Wells Fargo was.
Wells Fago executives felt they needed a credit card and believed a partnership with Bilt would generate buzz and attract younger customers. It was also thought that these young renter customers would then come to Wells Fargo for mortgages, but that’s a business the company has since exited.
What allegedly happened was that Wells Fargo made internal projections about the key revenue drivers of the partnership, and they ultimately turned out to be completely wrong.
As a result, Wells Fargo reportedly attempted to renegotiate its contract with Bilt last month, saying current consumer behavior was not conducive to profitability. Wells Fargo also told Bilt that it does not intend to renew the contract between the two companies in 2029 unless the economic situation changes.
Here’s how the current economic situation would work:
- Wells Fargo pays Bilt a 0.8% fee on all rent transactions, even though Wells Fargo does not collect any interchange fees from landlords (Wells Fargo pays Bilt since Bilt rewards members for these transactions)
- Wells Fargo pays Bilt $200 each time a new card account is issued, which is similar to what you’ll find for co-branding deals with airlines and hotels.
- Wells Fargo had projected that approximately 65% of purchase volume on the Bilt Mastercard would be non-rent expenses, generating interchange fee revenue; reality is reversed
- Wells Fargo predicted that about 50% to 75% of purchases charged to the card would be carried over from month to month, generating interest charges, when the reality is more like 15% to 25%.
As a result, Wells Fargo has stopped bidding on new co-branded credit card programs and is instead focusing on launching credit cards that do not include partners. Wells Fargo has even reportedly removed some of its Bilt marketing materials from bank branches.
In the interest of presenting both sides, a Bilt spokesperson told the Wall Street Journal that the information “is an inaccurate representation” of the partnership and that the company is “committed to a long-term partnership with Wells Fargo that benefits all parties.” No further details were provided.
I can’t say it’s terribly surprising
Bilt is now valued at $3.1 billion and its founder Ankur Jain, 34, became a billionaire thanks to him. Former American Express CEO Ken Chenault is even on Bilt’s board of directors and has personally invested at least $20 million in the company.
Look, I’ve always said Bilt was fantastic for consumers, and in many ways it was too good to be true. Who doesn’t want to earn points for renting without paying fees? They say “there’s no such thing as a free lunch,” but… it’s basically a free lunch!
There was an interesting interview on CNBC earlier this year with Jain and Chenault, during which some interesting questions were asked about the economics of the business. The interview didn’t really clarify much about who pays what, but I guess now we know.
Bilt has fewer revenue streams than other card types, and many more expenses:
- The Bilt Mastercard has no annual fee, and many card issuers make money through annual fees.
- The Bilt Mastercard distributes rewards for paying rent, without earning any revenue from them (well, more precisely, Bilt receives revenue from Wells Fargo, but it essentially only covers the cost of issuing the rewards)
- Most Bilt Mastercard holders are savvy miles and points consumers who don’t carry balances, so earnings aren’t as high as Wells Fargo expected.
Essentially, it appears that Bilt has an astonishing deal with Wells Fargo, because Wells Fargo clearly expected completely different consumer behavior. I also can’t help but wonder what Wells Fargo was basing its projections on, because expecting 50-75% of purchases to generate interest charges seems very optimistic.
Of course, it is normal for it to take some time before a card portfolio becomes profitable. So it’s no surprise that money is lost early on in terms of acquisition costs etc.
But there is one thing here that is very difficult to overcome. Wells Fargo was hoping that about 65% of purchase volume would be non-rent expenses, but it’s actually the opposite, about 35%. This is a major problem because it is a portion of revenue on which Wells Fargo is making a loss. Add to that the lack of people carrying sales, and one has to wonder where the advantage lies for Wells Fargo.
So what can be done to ensure that a higher percentage of purchase volume is non-rent spending and/or so that people have sales? It is not so easy…
Obviously, Bilt has been able to show incredible growth, and for good reason, as the product is very lucrative for consumers. In reality, however, making this profitable in a sustainable way for all parties is a challenge.
I know that part of Bilt’s business model is also to attract large rental companies in the United States to its platform. While this may improve Bilt’s bottom line, it doesn’t help those at the bank underwriting all of this.
Conclusion
The Bilt Mastercard is issued in partnership with Wells Fargo and is an incredibly lucrative product that awards rental points, with no fees. I recommended anyone eligible to get this product, since you are essentially getting something for nothing.
If you’re curious about who’s paying for these rewards, we now know, at least according to sources cited by the Wall Street Journal. The economics of the Bilt partnership haven’t worked out as Wells Fargo had hoped, because the majority of purchasing volume goes toward rent, where consumers get something for nothing. In addition, few consumers carry a balance.
I’m curious to see how this evolves. Will Bilt and Wells Fargo be able to renegotiate their contract, or how will this play out in 2029?
What do you think of the Bilt economy?