The X1 Credit Card: A Unique Option for Younger Consumers

Jim Marous:
Hello, and welcome to Banking Transformed. I am your host, Jim Marous, owner and CEO of the digital bank report and co-publisher of the financial brand.

Jim Marous:
The just introduced X one credit card harness the power technology to offer higher credit limits, an aggressive reward program and unique automated features driven by a mobile app created by Twitter alums, Deepak Rao and Sid Batra and supported by pal co-founders Matt Lucan, and Instagram's former at a product Kevin Wheel. The X one card targets younger consumers who want a tech savvy, elegantly designed stainless steel card. At introduction, there was a 350,000 person wait list for the card. I am excited to have Sid Batra, co-founder of the X one card on the banking transformed podcast. He discusses the strategy behind introducing a brand new credit card to an underserved segment and the potential for growth beyond payments. The X one card is a differentiated option for a new generation of young cardholders and entrepreneurs. Its smart technology, modern look, strong rewards program, and a promise of a higher credit limit makes a card appealing as does the no-fee structure in mobile integration. So Sid, can you share a little bit about your background and the path that you and your partner have taken since 2017 to get where we are today?

Siddharth Batra:
Absolutely. So Jim, my personal background is in building consumer tech products, but my start was kind of funny.

Siddharth Batra:
I started off as a machine learning researcher at Stanford's AI lab, where as you can imagine, a lot of smart people, but the time horizon to have any kind of consumer impact is like a decade, if you are lucky. So I took some of the research I was working on and spent the next few years building two consumer tech companies. One was in digital advertising. The second one was in e-commerce. The second one did okay where the team at Twitter liked our product, liked our team. So we ended up at Twitter where I spent four and a half years. I was a director there and really enjoyed being part of like a phenomenal team and contributed to an iconic consumer product. But then few years ago, my co-founder Deepak and a couple of our amazing founding engineers, Adhu and Tony, we took all of our combined consumer tech wisdom and applied it to the FinTech space where we at X one are not going to re-imagining the credit card for a particular audience that we refer to as digital natives.

Siddharth Batra:
That is my personal background.

Jim Marous:
And both you and your partner came from Twitter. How did that help in the development and understanding of the consumer marketplace and how they are interacting more and more on their mobile devices and how that could change the overall experience from a credit card perspective?

Siddharth Batra:
So I think having built a lot of consumer products, we had a very different audience and market thesis when we got into FinTech. What we saw was this ever increasing size of an audience called digital natives. What is very interesting is this particular audience is not quite known by like a particular age group or an income bracket. They are known more for their very high expectations from their consumer products. Now they use predominantly products that are post-internet, post mobile, things like and Amazon or an Uber. And these products are shaping their expectations for their consumer tech products. And I mean, you were a great example of this, Jim, right? Both you and I, we missed the cut-off for being millennials by a few years, but I imagine you use Amazon or you take an Uber or maybe you drive a Tesla.

Siddharth Batra:
And what is interesting is you, just like all the other kind of members of this digital native audience, they are very intelligent. So when they see like Amazon is trying to get them to buy products to single click and Tesla does not even want them touching the handle of the door to get into the car. But then when they get a credit card from a large bank it is a piece of plastic that is shipped in an envelope that takes seven days to get to them. Then when they get it, they have to call a phone number to activate and start using the card. Like they know that this does not meet their expectations. That is not quite the same category of product. So having all that consumer tech background, gave us a very different lens and showed us a very different north star of what FinTech products could be and replying all of that into re-imagining the credit card with X one.

Jim Marous:
So press releases from your firm from the very beginning, dubbed the X one card as the smartest credit card ever made. Now that is a pretty lofty statement, but it got me in line and, and got at me one of these credit cards of yours. From your perspective, what makes X one card so special in the marketplace?

Siddharth Batra:
I will answer it from like the customer perspective. So if you go back to some of these unmet expectations from a customer lens, you start to see kind of the pattern emerge. Let us just start with speed that we were talking about, where it does take like seven days to get the card and start using it. In our case, customers are going from getting an invite to making the first transaction and about half our customers are actually already spending on the card before the physical card gets to them. So that is a speed expectation that we, the interesting expectation is around underwriting and how they are like millions and millions of Americans for whom the credit score and being underwritten on a credit score. Is not quite working well. I can give you maybe a give you my personal anecdote here.

Siddharth Batra:
So you can probably tell from my accent, I did not grow up in the U.S. So when I got here, one of the kind of big moments in my finance journey was getting my first credit card, which was at bank of America. I was generally excited as a young person getting that card. I got the one with the flag on it, the whole deal. So even though my credit limit was $500, which is fine as a student. Over the years, as my income grew, it was interesting that my limit did not quite grow with it. And at some point was funny because bank of America could see my paycheck in the same bank account. And my credit limit never went over a thousand dollars. So when we were kind of, re-imagining this sort of portion of underwriting, it was very important for us to underwrite on someones complete financial picture. So what we are doing to meet customer expectations is we try and look at as complete a financial picture as possible.

Siddharth Batra:
To do that. We connect your back account and just model your payroll and your cash flow, it is hard to describe makes such a big difference to people's lives, right? You lower utilization, which means you can get much lower interest rates on a car loan or a home loan in the future. So that is another expectation, which is like underwriting. I can keep going, but you get the idea. There is so many unmet expectations with traditional credit cards that there is actually a ton of low hanging fruit for us to do better on.

Jim Marous:
So Sid, can you discuss a little bit about what you mentioned around the decision to add supplemental data on top of credit bureaus? What role did AI and machine learning play in the decision process? And I think you mentioned that the impact on credit limits is two things. Number one, for people that may not have gotten a card, you are enabling them to get a card. And for those who do get a card, they have an increased credit limit. I can tell you, you did not disappoint on my side. Maybe you over delivered, but in my case, it was significantly more than I expected, but the amount you asked upfront was not all that much, but how do you use alternative data?

Siddharth Batra:
Great question. Maybe an anecdote to kind of frame the problem. What we have seen is particularly for younger folks, what happens is the moment they get their first credit card makes an enormous difference to their credit journey. And what we see is particularly if someone's parents are financially savvy and they add them to their credit card early on, the difference in like the limits you will get, the APRs you will get is enormous and income almost does not play a factor. And the reason for that is when you apply for a traditional credit card, the banks do ask you for your income. But the funny part is like, they mostly have no way of actually verifying if what you are saying there is correct or not. So they do have some amazing models, but the models are designed just to mitigate risk. And so what happens is you have millions and millions of people who are normal Americans do not necessarily have to be immigrants whose limits are just really poor.

Siddharth Batra:
We connect your bank account and we can see your actual payroll, your cash flow, and this gives us so much more confidence to be able to give someone the appropriate limit that is worth the off their credit and their income is just the completeness of data helps a ton. And, going forward, we are also pulling in, we get a lot more information as well, right? Like how much money is in your checking account, how much investment products you have. If you imagine kind of the roadmap of being able to underwrite on someone's entire financial picture and history, you can do a far are better job than just the credit score.

Siddharth Batra:
And so coming to the role of machine learning, one of the fun things you learn by being a practitioner of machine learning for several years in some very dark labs, is that when you should not use machine learning. So this problem is definitely machine learning based. We are using a ton of statistical and data analysis techniques, but it is also very important to not just go kind of for a model and just trust the model. You have to kind of build it over time as you scale.

Jim Marous:
So, your use of alternative data, what is it more used for X one card to serve the underserved segments or to offer higher credit limits?

Siddharth Batra:
Let me reframe the word alternative data here. It is kind of interesting where the credit score has not been around for that long. And if you go back in time, the way underwriting used to work before the credit score era was bankers would essentially look at all of your transaction history and just your cash flow.

Siddharth Batra:
And so for us, it is a very, primary kind of data source, right? And it is not just for an underserved audience. The word underserved is often used as a shorthand for people who do not have access to traditional finance products. But the problem is kind of bigger than that. It is not just to cap the downside for that audience. For most Americans, the underwriting count does not make sense. Basically, if you do not already have a large credit limit, it is very hard to get a large credit limit. So a lot of people get chronically poorly underwritten, and they are kind of trapped in that cycle. So using kind of for what seemed to us, very obvious data signals like your bank account, your transactions, your savings that allows us to kind of break that cycle and have a more complete kind of underwriting model.

Jim Marous:
I was one of the early people on your wait list. And it was interesting because I am not in your normal demographic group, but I am highly digital and I am a fairly heavy credit users. So it kind of met your criteria, but not from an age segment basis. What I was amazed by was the simplicity of the application. Anybody listens to the podcast or in my webinars or any of the events I do, what is interesting is I always bring up the apple credit card as being the bar that I said and say it takes me four screens. I got it instantly. It was very intuitive, very simple. Well, yours replicated that even to the point where the simplicity and intuitiveness of what you asked, made a lot of sense. I did not have to question why you would ask it. And then as you said, the delivery of the card in this nice black box, it met expectations. So how important was the development of an ultra simple application process?

Siddharth Batra:
You might want to say you are representative of our digital native audience, like 100%, because what we see is, there is no age restriction or income bracket for this particular audience. I think you are on the cutting edge. And so you are a hundred percent of representative. So you kind of squarely fit the criteria.

Siddharth Batra:
Now, coming to the experience, coming from a tech lens for us, an amazing experience is simply table stakes. You just need to have it. And the way we do it philosophically is we are not just optimizing the stop player of experience. We are reinventing the stack all the way down for the credit card. And this is actually letting us do some really clever things for the customer on the experience side. So for us this experience is basically table stakes. And just the starting point. Apple card is actually really fascinating. I feel like they have done a great job, but it is a bit of a missed opportunity because of this fact that they did not go deeper into the credit card layer apple is doing the experience and they are outsourcing the actual credit part of the credit card to Goldman Sachs. Right now, it is like an amazing store card for apple products. It is not like the best credit card by itself.

Jim Marous:
So we look at this card and it is a digital card in every way, shape and form. You put in my apple wallet, I am using it more on my mobile device, and I am as a plastic card or a metal card in this case. So why do you make the decision to go with a stainless steel card beyond the beauty of it all and why a physical card at all, when really it, your card is so integrated with the mobile app.

Siddharth Batra:
Jim I will give you the practical and the philosophical answer for the question practically, there is still a ton of merchants that do not accept contactless payments, or do not accept apple pay and Google pay. So if we want to create a true credit card that can cover all of your spending, we have to have a physical card. For us philosophically, the physical incarnation of the card had to represent two values. The first is that when you interact with the card, it should make you feel that this is from the future. Almost like when you sit in a Tesla or see it, it should have that feeling and you are right that we did not have to make it as heavy. But the second value we would love to represent is our digital native audience is very broad. Our customers include new grads from college all the way up to billionaires. So that is why the physical card. And that is why it is as heavy, as beautiful as it is.

Jim Marous:
One of the interesting things you have is you have the fact that you have no fees on the X one card, no annual fees, no application fees, not even a foreign transaction fee. Do you see your users being heavy overseas travelers?

Siddharth Batra:
We are already seeing that from our data of cardholders. I think travel has come back a lot post COVID and we see a lot of international travel and we are saving our customers thousands of dollars on that would have been spent on foreign transaction fee that they can use for more fun things now.

Jim Marous:
Okay. So let us take a short break here and recognize this sponsor to this podcast.

Jim Marous:
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Jim Marous:
Welcome back. I am joined today by Sid Batra co-founder of the X one card. We have been discussing the strategy behind the introduction of the X one card and how to differentiate in a crowded marketplace. So Sid, young digital native consumers appreciate smart functionality of financial services. For instance, the X one card. If I am not mistaken, unless cardholders cancel subscription payments in a single click and end free trials automatically. Can you share some of the other digital features of your card that are integrated within the mobile app?

Siddharth Batra:
Yeah, let us dive a little bit deeper into virtual cards themselves and how they are so useful as like a platform feature. There is another unmet customer expectation around control. So credit cards were designed for more offline shopping, right? And there is a lot of control in those transactions. Let us say I go to a movie theater, I will physically hand my car to the cashier, they will swipe and give it back. So I control that transaction. Now what happens in the digital sphere is that I hand over my car digits and then it is up to the merchant, and now they have the control for the amount, the frequency by which they will charge me. And so this creates a lot of hassle control wise where like you were saying, subscriptions are such a pain to cancel. And in this kind of digital era, there is so many subscriptions to manage.

Siddharth Batra:
And so one of the features we have is one click subscription cancellation, you press a button that merchant will never charge you again. And another feature is around free trials. This one is immensely popular. People absolutely love it. So you can generate a virtual card number specifically designed for free trials, where imagine you are starting a free trial on Hulu. You put this card number into your trial, the trial begins and then the card number is automatically canceled. And so your free trial continues with complete peace of mind. And if you decide you like the service, you can go back and change the card number, but you have the control. But the control part is really important here. I will give you a couple of more examples that stem from virtual cards and they are changing the behavior of our customers. One is budgeting? So mint is great for budgeting, but it is reactive.

Siddharth Batra:
What our customers are doing is for a budgeting use case, they will create a virtual card, add a limit. And so they can really guarantee that they will not spend more than a certain budget.

Siddharth Batra:
As a fun anecdote. One of our customers was use using this for pet supplies. So they do not overspend on their dogs food. So that is kind of one use case. Another gets into our anonymous card offering, which is also based on virtual cards. And I know everybody thinks that this is mainly for like nefarious purposes, but I will give you two examples that are really interesting. People are using our anonymous cards for charitable donations. And that way you can be sure that the merchant has no idea who you are whenever you are making that donation. Another example is political donations. We are seeing our customers make political donations using the card. And that again, it ensures you are anonymous, which is particularly useful in this climate. So just this amount of control that virtual cards offer is changing customer behavior in just a number of ways, all fueled by our really smart, excellent card app.

Jim Marous:
So it is interesting. I often reference the movie field of dreams and the great line is "if you build that they will come", well in the financial service world, just because you build it does not mean people use it. How do you educate your customers as to the immense level functionality they have much of which they have never seen before connect with a card

Siddharth Batra:
For us, the product is the education. The Vision for the credit card app, and the experience is at par with other consumer apps. Everything that customers use from Amazon to Uber, to even something social, like Snapchat, that is the level of execution we want on our app. So we are sweating every single detail

Jim Marous:
With X one, you have no fees. Your interest rates really are not any higher than the marketplace is your acquisition costs low? How do you make money?

Siddharth Batra:
Acquisition wise, we have spent $0 on advertising. Our entire customer base has been through organic means. People like you have been very kind to have us on podcasts and publications who have written about us. That has been the source of customer education. And also our customers have been amazing. Just a number of people we are getting from referrals is an insane amount. It is on par with consumer products. So it is all been word of mouth, organic we have spent $0 on any kind of marketing. So we are very thankful for that $0 cost of acquisition.

Siddharth Batra:
Now coming to the fundamentals of the business, this is where we are recognizing the merchants also as a customer of the credit card. Because ultimately, the merchant is paying the interchange that we then use as revenue and that is used to fuel their rewards for the customer. The interesting thing about interchange is that it is capped, two point some percent, no merchant anywhere wants to pay anything more than that for the convenience of accepting a credit card. But what is very interesting is merchants will pay if you can drive spend, and you can drive customers to them. So since day one, what we have been doing quietly behind the scenes, is doing a ton of merchant partnerships. And then we have a lot of very interesting touch points in the app where we expose these partnerships to create a lot more value for customers and a lot more value for merchants.

Jim Marous:
So it is interesting. One of the major value plays is the fact that you have rewards program. It is not a broad point that can be used anywhere. They are very targeted. Is that part of the reward system just built for merchants and the partnership you have from a value transfer basis?

Siddharth Batra:
So just our baseline level of points is really high as far as the industry goes, like two X of everything, three X if you spend more than fifteen thousand, 4 X for a month, if you invite a friend. It is pretty outrageous and we charge no annual fee for any of this. Now going back to the point of our merchant partnerships, we are doing some very clever integrations that are a win-win for the customer and the merchant. And I will give you an example.

Siddharth Batra:
In the X one app, there is a dedicated tab for shopping, and there, customers can get extraordinary multipliers if they shop directly from that app. An example just really popular right now is Lululemon. Customers can get 10 X on a LuLulemon transaction through our app and safe to assume like the merchant LuLulemon is giving us a much higher commission than 2.5%. And so it is creating this amazing win-win for customers, the merchant, and for us. So the way we fuel these outrageously higher reward points is through very clever, long running merchant partnerships. And then we are exposing through a lot of different methods in the app.

Jim Marous:
So it is interesting, because I have worked with a couple of financial institutions, interviewed a few financial institutions that have built really interesting open banking relationships. A lot of them for the lower age categories where actually the benefits of the open banking relationship are outside the financial services. So there may be gain, there may be music, there are discounts on tech, there are discounts on purchases that are really targeted this marketplace, but the merchants are actually paying to be included in this open banking market place. Therefore, the product itself is not the driver of revenue as much as the relationships outside. Do you see yourselves eventually becoming more of what I call an open banking or embedded super app where you may go beyond simply a credit card app, but also include more and more outside partners that make it so the revenue model is vastly different from what a traditional banking service or credit card model would be

Siddharth Batra:
On a long term horizon. Absolutely. For the next few years, there is so much to be done just in the credit card sphere and so much to be done to improve the relationship credit cards have with merchants and the customer experience. There is so much to be done there that we are really laser focused on just building the most amazing credit card out there and fully re imagining it from top to bottom.

Jim Marous:
It is amazing what has happened. You had a 350 person waiting list when you finally introduced the card just recently, how many people are still on that waiting list?

Siddharth Batra:
We are trying our best. What I can tell you is like we are growing week on week, every single week. The number of people getting the card and actively spending the card are growing and we are trying our absolute best, having some very sleepless nights to just get this card to more and more people.

Jim Marous:
Can you share what conversion rate you have? We have heard for years, all the FinTech Companies had waiting list and then the conversion rate and they call them all customers and they are not. Do you have any information early reads on what number of people are actually applying once they have been included into the app ability to apply and have the invite and then how many of the customers become active?

Siddharth Batra:
I think as far as the conversion goes, what I can tell you is it is enormously healthy, where to the point where it is closer to a consumer product wait list, than a FinTech wait list.

Jim Marous:
Wow.

Siddharth Batra:
And ties back to the experience as well. People feed it so easy. They finish in less than five minutes. It is a surprisingly high number that is surprising us as well. Another thing to note is how much customers are bringing other customers through referrals. The referral rates are also through the roof, which again, makes it a little bit slower to then go to people on the wait list because the existing customers are bringing in so many other customers. So we are trying our best.

Jim Marous:
That is what I was going to ask about. Because again, the experience is so different from what we are used to. It is easy to apply for. It is easy to get. It is a great experience when you get it. The credit limits are a surprise. The rewards are surprise. The benefits are a surprise. So I was just going to ask you, you followed up with my question before I got to you, which was Jesus, your wait list getting longer, faster than you can keep up with actually sending out invites because I know how many people I have told since I got it. And I was impressed because honestly I see a lot of products out there and this one, impressed me in the front end. I got in the wait list relatively early. It caught my attention and I do not do that for credit cards at all. And then when I got it, I told more and more people and still telling people and more of my son's aide and people my age.

Jim Marous:
I would imagine that this is a nice cycle you are going through right now where you are fulfilling and meeting, and exceeding expectations, which helps that referral engine.

Siddharth Batra:
Absolutely. I am so happy that you like the product and it works for you. It meets your very high bar for these FinTech products. So that is amazing to hear that. I can also summarize it this way. If we saw these kind of referral numbers when we were building products at Twitter, we would be really impressed even from a consumer product lens. So now you can imagine those numbers in a FinTech lens. It is quite something.

Jim Marous:
So finally we are seeing so many changes in the marketplace. We are seeing acquisitions, we are seeing merge, we are seeing new product models, new implementation models, new customer models, based on actually things that have happened since the pandemic. What do you see happening that, that you think will be really transformational in the next two to three years in the financial services space?

Siddharth Batra:
This space is very interesting where you will likely end up with about less than 10 finance companies or modern FinTech companies that will consolidate most of the market almost as a parallel to the conventional four or five banks that are most of the market they will have like five Fintechs will have most of the market. It is a huge market. And what is very interesting is the interoperability in the U.S Financial system is really bad, which means moving money is terrible. It is slow. So as a result, what you are seeing is a lot of these super apps, they offer almost identical functionality. It is funny if you pull up the PayPal cash app and Venmo app right now, they have identical tabs. And if you then look at the roadmap and the way companies like Robin hood and Affirm or Hiring, they are going to have very similar functionality.

Siddharth Batra:
So essentially functionality wise, all these Fintechs will more or less converge over the next decade. The two main things that will be left are, which audience are they serving and what was their starting point? Because that dictates a lot, right? Time will tell. They are all going to converge. And a few Fintechs will own most of the market in a decade from now.

Jim Marous:
What this is a great example of, and this is why I called you as soon as I heard that you are going live, is that it is really a perfect model of a brand new company from start as opposed to an apple car that was a partnered model, but a brand new company that was really based on using data in a relatively unique way that has not been done that much in the marketplace, but could be done by everybody with a customer experience center where the whole thing was built on making it the best possible customer experience your claims did not disappoint. It was very lofty claims, but at the end it really showed that this is not something that is simply can be done by X one, any organization, if they really focused on what was most important they could transform their organization.

Jim Marous:
Now, the difference between can and will, is, as we have seen in our research is light years away. And what is interesting is that for our listeners especially, get to the X one app, try it out, kick the tires, see about what they have done, I am not being paid by X one, but reality is that the experience and the way this product has been built is a model for the future. Sid, thank you for being on the show today. I am glad we were able to spend some time, again, I am hoping to use this even more and more, and as you alluded to, you are not going to be sending out emails, tell me how it works. I got to be playing it like playing game of Thrones or one of the other video games to be able to figure it out on my own. And because most of the digital native can do that pretty easily as I did on Uber and things like that. So thank you very much for being on the show.

Siddharth Batra:
Jim, thanks so much for having me and thanks again for actually using the product, really appreciate it.

Jim Marous:
Thank you.

Jim Marous:
Thanks for listening to Banking Transformed, rated as a top five banking podcast. If you enjoy what we are doing, please be sure are to follow Banking Transformed on your favorite podcast app. In addition, please take 30 to 45 seconds to show some love in a formal review. It means the world to us. Finally, be sure to catch my recent articles on the financial brand and check out the amazing research for doing for the digital bank report. There has been a production of evergreen podcast, a special thank you to our producer, Leah Longbrake audio engineer, Sean Rule-Hoffman and video producer Will Pritts. I am your host, Jim Marous until next time, remember innovation is the unrelenting drive to break the status quo and develop something new where few have dared to go.