Over 25% of the entire U.S. population currently utilizes co-branded credit cards to avail discounts and other benefits from their frequently used brands. However, the co-branded card industry is not without its challenges. Big names such as Uber, Starbucks, and Walmart have withdrawn from such initiatives after they did not yield the anticipated results. A startup named Cardless now claims to have discovered a way to enhance the efficiency of co-branded card systems by leveraging the power of embedded finance.
Cardless has recently announced that they have secured $30 million in funding to expand their business. The funding round was led by Activant Capital, a previous investor, along with Mischief (a fund co-founded by Plaid’s Zach Perret), Industry Ventures, Thayer Ventures, Assurant, and strategic backer Amex Ventures.
While the company has not disclosed its current valuation, it’s important to note that when they last raised funds amounting to $40 million in 2021, their valuation was slightly above $350 million.
In the meantime, the San Francisco-based startup has seen significant growth. Cardless, which offers Visa, Mastercard, and American Express card options, reported a five-fold increase in revenues over the past year, matching the growth rate of the previous year. Their primary market is the U.S., with no immediate plans for international expansion. They collaborate with global companies and a mix of large and smaller U.S.-based brands to reach end users. Their recent clientele includes Qatar Airways and Alibaba, with the latter targeting services at small and medium U.S. businesses that use Alibaba for procurement.
Cardless differentiates itself from other companies that help build co-branded cards by offering a more efficient platform. Brands can create more personalized card experiences, build rewards, and manage the performance of these products.
Michael Spelfogel, president and co-founder of Cardless, believes that while the credit card industry is widespread from a consumer perspective, there is potential for disruption from a brand’s view. Currently, 11 banks operate the majority of co-branded credit cards in a $77 billion industry.
Cardless’s platform includes features such as setting up card applications within existing apps and integrating card management into those apps. It also allows rewards and other marketing strategies to be integrated and modified through a dashboard. The platform incorporates fraud detection and security features and provides usage analytics to help product managers understand what works and what doesn’t.
Spelfogel anticipates that most of Cardless’s business will come from companies that have never offered cards before. However, over time, they aim to persuade existing co-branded card companies to switch from their current providers to Cardless.
Investors are betting that Cardless will be successful. Andrew Steele, who led the funding round for Activant, believes that the co-branded card market is vast and that legacy companies cannot offer the type of service that Cardless can.
