State of the Card Union: 2024 Trends, AI, and Secured Cards with Matthew Goldman

In this episode of Fintech Layer Cake, Reggie Young is joined by Matthew Goldman, founder of Totavi, to dive into the latest card trends of 2024 and look ahead at what's in store for 2025. As the first return guest, Matthew shares his insights on the evolving fintech landscape, including the rise of secured cards, the impact of AI in payments, the potential of stablecoins, and predictions for the future of payments. Plus, we explore the regulatory challenges fintechs may face in the coming years and the growing interest in open banking. Tune in for an in-depth discussion on the card industry’s biggest takeaways and where it's headed next.

Transcript

Reggie Young:

Welcome back to Fintech Layer Cake, where we uncover secret recipes and practical insights from fintech leaders and experts. I'm your host, Reggie Young, Chief of Staff at Lithic. On today's episode, I chat with Matthew Goldman, one of the foremost card experts in fintech. He's the founder of Totavi, a boutique tech product development consulting firm that specializes in fintech products and early start-ups. This is a special episode because Matthew is actually our first return guest. He was on last December to talk about card trends happening then, and it was such a well-received episode that I wanted to get him back on a year later for another State of the Card Union. Matthew and I cover top card takeaways from 2024, AI, why secured cards are seeing increased interest, predictions for 2025, and much more.

Fintech Layer Cake is powered by the card-issuing platform Lithic. We provide payments infrastructure that enables companies to offer their own card programs. Nothing in this podcast should be construed as legal or financial advice.

Matthew, welcome back on to Fintech Layer Cake. You now hold the esteemed place of being the first return guest ever on Fintech Layer Cake. So very excited for this episode, especially because I enjoyed our last conversation last year on fun card trends. So super excited to have you back on.

Matthew Goldman:

It's my pleasure to be here. I am truly honored to be your first repeat guest. So thank you.

Reggie Young:

We're recording this end of 2024, starting to think about 2025, doing a bunch of reflections of all the things that happened this year. Given where you sit, all the things you see, your expertise in cards, you know the card space so well, would love to hear what you think some of the biggest trends or things that happened in cards this past year in 2024 were.

Matthew Goldman:

I think it's been a pretty interesting year. I think everyone was pretty depressed about the state of fintech 12 months ago, and companies were disappearing or resetting. I had a lot of conversations in January about BaaS being a four-letter word that you shouldn't say anymore, and what is BaaS, and what are cards, and crypto is dying. And like, look at us now, Bitcoin, 100,000, right? If we recorded this a month ago with different political environments, then that would have been different. Now people are like, maybe there'll be less regulation. I heard right away after the election, people were like, oh my goodness, banks are returning my calls again. So I think there's a big feeling of optimism.

We survived, and we're probably better for some of the fallout. Unfortunately, some really terrible things happened, like with Synapse and all of their customers. That's a very painful lesson for the industry, and obviously much, much worse for the customers who are being very poorly treated by everyone. But I think it will ultimately make us stronger, and hopefully, we'll teach more start-ups and fintech companies that they can't really mess around with people's money.

Reggie Young:

Yeah, definitely. Great. Some lessons learned this year for sure. Are there card-specific things you saw happen this year, like certain types of rewards, certain types of cards? Kind of two lenses to look at. One is, what are the card trends you're seeing that founders want to bring to market or operators want to bring to market? And what's the actual demand where you've seen interests change?

Matthew Goldman:

I think there's maybe three interesting things I would touch on. One is Bilt for everything, the success of Bilt and even with people's concern about its long-term strategy and the Wells Fargo deal. It's kind of hard to remember that all those exposés were just earlier this year. But there's a lot of Bilts for X. That's not a bad thing. I mean, there were a lot of Ubers for X that worked, and there were some that didn't, like there was that Uber for laundry. Remember that one? That was funny, which your dry cleaner will already pick up your clothes.

But anyways, there's Mesa, and there's a couple other in the homeowner's face that Bilt is also maybe doing that. I know there are people looking at Bilt for other things like for auto and other items. And so I think there's this trend of how can we tie cards into things that aren't normally processed on cars and create new reward avenues. And that's really interesting. Bilt isn't just a travel card, right? The whole thing is reward points on rent that normally people aren't paying rent on a card. So that kind of marriage of cards and rewards and stuff is really interesting and I think speaks to the way cards are not just payment products anymore, right? They're kind of this whole loyalty system.

So that's one. The second, which I know you'll appreciate because you've done a podcast episode on this, is fleet cards. Never did I think so many people would tell me about their fleet cards. But it's super fascinating. Your episode on Coast was really great because there are these early, interesting, friendly fraud vectors and all this other stuff going on. I think it's a wake up call for traditional banks to think about their businesses being at risk, because if you're like a community bank, maybe you're like, yeah, I never really wanted 25-year-olds who got a Chime card anyways. But you probably really want that logistics company in town who just took out a $20 million loan. If they're going to go get their fleet card somewhere else, maybe they're going to leave you for better technologies. That's a really interesting trend.

And then the third thing, which I think has really accelerated the last three months, is stablecoin something. Obviously, Stripe acquiring Bridge, but in the card space, I have several people even just earlier saying, I want to figure out how to attach stablecoins to a card, and what does that mean, and will a bank accept that. And so there's just a lot of energy around it. I think stablecoins originally were operating in the backend more, right? People are using them for international transfer and maybe infrastructure, right? Like you're doing some international payroll and you're using them, but now people are thinking, how do I get that closer to the front end and closer to the consumer? I think that's going to be an acceleration next year.

Reggie Young:

Yeah, I love it. That fleet episode is one of my favorite episodes, Daniel Simon, fantastic, super smart guy. I think it's a really interesting example of how you can use cards creatively, to your point of, oh, cars aren't just necessarily payment vehicles. They're part of your broader workflows and fleet payments. Fascinating. When you start plugging in fleet card controls to smart devices in cars, I can tell you a bunch of data connected to the cloud now that can sync with your card authorization, there's a lot of potential there. Folks should check out that episode if they haven't. 

Yeah, stablecoins, I've been hearing more and more stablecoins. It always comes down to the question of, can you find a bank? Can you find a bank that will partner with this? I was talking to someone recently that over the next six months, we will probably see more banks getting more open to stablecoin-type use cases. There are a few that are doing it, but not a ton. Finding those banks will be the big problem there.

Matthew Goldman:

I think on the bank front, honestly, you can't talk about cards without someone to issue them. But there's this set of interesting factors. One, you have people who just straight up left, like got in trouble, and they're done. You have this group of people who maybe aren't in trouble, but now they're everyone's favorite. And so they're actually overworked, and they have no capacity, or they're doing something else. Like I talked to a sponsor, frankly, actually, we're going to re-core the bank. Therefore, no new projects for nine months, which makes sense, right? And then you're always going to have new entrants, right? We keep a huge database, which is on our website, of, oh, you think all the sponsor banks are. And I feel like every couple weeks, I'm like, oh, never heard of those guys before, add them to the list, right? So people are coming in.

I think what's going to be interesting is the people coming in, the new banks, you're going to have opportunities to focus on things in a little bit different way and maybe be able to say no, but still say yes to other things. Again, commercial is always easier. There's a lot of really interesting use cases. Maybe someone will come in and say, oh, I can understand stablecoin, or I'm going to be stablecoin adjacent. Is the stablecoin on the card? Is it not on the card? As the stablecoin people would tell you, it's not crypto, so does the bank understand that? Different question.

We're not talking about a Bitcoin card here, right? We're talking about something different. I'm very optimistic right now about we've been through the wrenching last two years. We're going to come out better for it. But I think even though we've had some contraction, community banks still need revenue to survive, and people are going to keep coming after the space.

Reggie Young:

Yeah, for sure. What about open banking 1033? We saw the final rules from CFPB come out not so long ago. And so something I've been thinking a ton about, what do you think the impact of final open banking regs is going to have on card payments in 2025? Are we going to see changes, impacts, anything?

Matthew Goldman:

I think what's interesting for some fintech card programs is, do they understand how their bank is regulated? The adoption life cycle for 1033 requirements, one of the big changes was it got kind of reduced and pushed out. But there's a similar problem with credit card late fees. A lot of people will be like, oh, well, I'm a fintech, so this rule doesn't apply to me because I'm not Citibank. Well, there are fintech sponsor banks who are large issuers or who have more than $850 million in assets in the case of 1033.

And so I think a lot of fintech programs, ironically, consume open banking data but don't provide it. And this is actually one of the big complaints. If you use a neobank, then you want to use a PFM. Can you actually connect them to each other? A lot of times no. It's gotten better. Plaid has built new tools around that. I think people are going to have to experience the flip side of these requirements the way they probably haven't thought about. The regulatory burden on fintech, I think, will be governed by the burden on the issuer. And so you might be a three-person start-up and have to do certain things because your bank has $5 billion in assets and is qualified to do certain things. I think it's going to surprise start-up operators a lot.

Reggie Young:

Yep. No, it's definitely an, I think, under-discussed aspect. Yeah, it's the bank's responsibility. Well, it's going to get pushed down to a certain degree for certain responsibilities. A lot of opportunities for fintech to help banks navigate that. A lot of business opportunities to help banks figure out their own 1033 management. But yeah, definitely some burdens, I think, on fintech that folks may not appreciate.

Matthew Goldman:

The other thing that I think comes up a lot is the rules around privacy and data. I think a lot of fintech founders were like, well, we're going to do all this stuff and we're going to get a lot of data. We're going to do cool stuff with that data, whether that's for improving your product or selling data or somewhere in between. Maybe some people are realizing, you can't just ingest a bunch of transactions and sell them off, which people used to really want to do. But there's a lot of rules in 1033 that govern how you can use your data. And even for some internal purposes, it's governed.

I think that's going to be tough for operators to realize that you can't just look at your user spend data and decide to build new products off of it and market them in the ways you might think you can. I mean, I'm not a lawyer. That's my interpretation of it. And so I think that's the other gotcha there, is we all asked for some of this because we were like, hey, we're going to force Chase to do this thing. And then the reality is like, also now you can't do that thing. You're like, oh, no, I didn't want that part, too.

Reggie Young:

Yep. Financial services regulation doesn't necessarily distinguish whether a bank is a fintech sponsor or not.

Matthew Goldman:

Yeah. There's a little bit of “be careful what you wish for” involved.

Reggie Young:

Have you seen much in the card space with AI? Similar to stablecoins- the conversation that's picking up with stablecoins was AI 12 months ago, and AI discussed more ubiquitous, seen a lot of great financial crime platforms that are using it and whatnot. But I'm curious if you've been hearing that more from card founders and operators that say, oh, they want to use AI somehow in card programs. There's the backend operational stuff of, oh, chatbots and things like that. But I'm curious if you've seen any other interesting discussion.

Matthew Goldman:

Yeah, absolutely, everyone is using AI, whether they're asking ChatGPT to tell them what's legal or whatever else. But operationally, I think that it really does come down to these two buckets, which is, what are you using it for to make yourself more efficient, customer care, fraud monitoring? That stuff, I think, is actually pretty far along, right? Companies like Sardine and others have been at this for quite a while. Feedzai, when did they start? Ages ago. And that's been there claiming, we're at a totally different step change level of what AI means.

But on the front end, it's really hard. There's a lot of people who are still like, I want to use AI for underwriting. And I think a lot of that stuff's illegal and unexplainable. People are trying to figure out how to make it explainable. And then the question is, does it actually help, or not? When is an algorithm good enough, I think, is an underappreciated question. But I also think everyone, a little bit, wants to be on the bandwagon and hopes it'll help them raise money or whatever.

I haven't seen anyone with a super compelling frontend AI. I think that the PFM, wealth management space has been touching on this for a while. I think that's where it could be really powerful for people. People want to chat with someone about, should I buy this car? Should I loan or lease? Should I make this investment? That's a great tool for ingesting a bunch of data and talking to a consumer or talking them through something versus, again, underwriting or whatever.

But I think that whether it's dispute processing and other things, it's going to have a huge impact on the business, but it's probably not going to be super obvious to the consumer. It'll be more, hopefully, that things just get processed better, faster, whenever. But it's going to be fits and starts. AI can be really dumb as we all know. It can say some really insane things to you. So you have to be careful.

Reggie Young:

Perplexity and Stripe, I think Stripe just announced a Perplexity integration where users can go and order using Perplexity basically through AI. All the lawyer questions in my head just went off. What happens if it orders the wrong thing? What happens if an AI orders it? Do you charge back rights? I don't know. I think there's some really cool use cases, but some, I think, novel questions to work through.

Matthew Goldman:

The thing that worries me about chatbots, in particular, is if they tell you the wrong thing. We all know that saying the wrong thing is where you get into UDAP and stuff. So if you're like, I'm going to put an AI chatbot on my site so people can ask questions about my new credit card before they apply, and then the chatbot says something that's not true, the company is now responsible for that. And you can't control it, right? You actually don't know what it's going to say. You can train it. We've shown that people are smarter than AI still, at least for a while, and can trick them into saying things. Next thing you know, you owe everyone 10% cashback on every transaction. That's not really good.

Reggie Young:

There are already a handful of lawsuits saying, you're beholden to the thing- your company representative promised a flight that cost 1/10 of what it should have. Sorry, airline, you sold that flight for that price.

Matthew Goldman:

Yeah. So I think that's where, on the front end, the advisory stuff, where it's more like, again, I use the example should I finance or lease a car, that's a very common question. You could offer some perspective and you could train the AI, but in the end, it's your decision. You're not really promising anything and you're probably okay, but you could also see an AI accidentally giving away money for 0% or something.

Reggie Young:

Last big topic for me is forward-looking, like crystal ball, what sorts of card trends- I guess maybe we do this like cards, general payments and fintech trends do you foresee happening? We already covered stablecoins. I agree, I think we're going to be hearing that more often and louder in the coming months. But any other big predictions you have for cards or payments generally?

Matthew Goldman:

I think for cards, I'm convinced that we're still in the very beginning of digitization of business payments. Just in general, a lot of small businesses that bank with small business banks have very unintegrated experiences. And a lot of accounting platforms haven't really started embedding stuff yet. QuickBooks has an embedded account, but a lot of the other ones don't yet, or they've announced they're going to.

ServiceTitan, which just did their S1 last week, which is a success story, and 10 minutes from my house, some other LA guys, they take payments, make a bunch of money on payments, which are then talking about their S1. But there isn't a ServiceTitan fleet card yet or check card or debit account, like there probably should be. I would make the case there should be. And I think there's lots of those across everyone.

So that's specific to cards. If I'm hiring a software company to be my operating system for my business, there's so many advantages to having the financial data truly integrated and having it be a service. I think there's some really interesting companies around that, folks like CapitalOS that's doing the full business credit card in a box. I think those companies are going to want more and more embedded program management services and less core processing. Whereas if you're a fintech, you probably want core processing and you want to build it all yourself. That's one.

And then on the payment side, there's just so many checks. That's still a big deal. I did multiple lockbox projects this year, which I never thought I would say. But people are still collecting checks, asking for checks, required by law to take checks. I did a healthcare payments project. They don't have a choice. They have to accept checks. Federal regulations say so. They're probably going to get one but have to set the whole thing up. And then it's like, how do you integrate that data, and how do you recognize it properly?

There's a lot of payments still to digitize. And those payments, I think, can go on to RTP, FedNow. There's other optional modes that should start to make sense, as long as we control the fraud. That's the real problem with real-time payments, right? So much fraud. Those are two things that I've seen a lot of and I think we're going to see a lot more of, which is around faster commercial payments and embedded commercial payments.

Reggie Young:

Yep. I think the only topic I've heard more frequently than stablecoins recently is that commercial payments as an untapped market, untapped opportunity, so makes sense.

Matthew Goldman:

The other thing, if I could lean on a second, card one, I talked about this, coming out of Money 20/20, there's a lot of buzz about secured cards. I think it's really interesting because for a long time, it's been kind of a backwater of the industry. There's a lot of credit builder products that came out, but I think they're very challenged from functional logistics and regulatory. Cards, whether it's Chimes or Extras or whatever that are sort of these, I coined this term quasi-secured cards, you can't really default on them because the payments are all automated. So they're not really a credit card.

Alex Johnson has talked a lot about this. You can report that data to the Bureau, but as an itch, we're going to use that, or they're going to be like, well, I don't learn a lot from a Chime secured card. I don't know. But I think that leans into, hey, secured cards are actually a pretty good tool. And we've seen a lot of interesting alternative ones, like Aven and Yendo and Pesto that are all doing some kind of alternative to cash. I think we're going to see a lot more of that, especially in an era of very expensive capital, relatively speaking, I guess not absolutely from all time, but certainly the last few years. Secured cards are actually cheaper, and those customers are more likely to revolve, which means there's more interest income.

The guys from South Dakota who made the $200-a-year secured cards, they gave you $200 in credit, that's not okay. But I think tech companies can bring the same kind of ideology that they brought to debit cards to secured credit and create new opportunities to bring consumers upstream into the financial world and actually build meaningful credit history. I never heard people talk about secured cards at Money 20/20 before. So that was super interesting.

Reggie Young:

Interesting. I think we've definitely been hearing a bit of a secured card interest, too. Fun trends for sure.

Awesome, Matthew. I appreciate you coming on and sharing your reflections and forward-looking thoughts. Folks, if they don't already, they should go subscribe to Cards for the Win. The issue that went up today, it highlights one of my favorite fintech puns, Goldman Socks. The Totavi clothing store, go check it out. I think I'm going to go order some socks after we wrap up this podcast. Folks should go subscribe to Cards for the Win, amazing newsletter, and Totavi. If folks want to get in touch or find out more about Totavi, where should they go?

Matthew Goldman:

Go to Totavi.com, or I'm just matthew@totavi.com.

Reggie Young:

Awesome. Thanks so much for coming on, Matthew.

Matthew Goldman:

Thank you.