/start ups

News and resources on fintech start-ups, scale-ups, hubs, accelerators, VCs and funding worldwide.
Zero Financial raises $20 million to blur the distinction between debit and credit cards

Zero Financial raises $20 million to blur the distinction between debit and credit cards

Zero Financial, a US startup that offers a checking account and rewards credit card that operates like a debit card, has closed a $20 million Series A financing round, led by New Enterprise Associates (NEA).

The latest investment brings its total equity and debt funding to date to $35 million. Previous backers include SignalFire, Eniac Ventures, Nyca Partners, and Silicon Valley Bank.

The Mastercard-based Zerocard is combined with an FDIC-insured checking account called Zero Checking, with transactions from both displayed in a mobile app, allowing cardholders to see one net number they can spend from. Transactions in the app are enhanced with logos and maps, making it easy to recognise purchases.

"If you're someone who spends $30,000 a year and maintains an average of $30,000 in deposits, you'll earn $0 in cash back and interest with a typical debit card and non-interest bearing checking account, and $1,425 a year with your Zerocard Carbon," says Joel Washington, founder & COO of Zero. "And it takes just a few minutes to sign up."

Launched as a small beta programme in November, the firm says the new funding will be used to ramp up the onboarding process for the 200,000+ customers on its waiting list.

Comments: (2)

A Finextra member
A Finextra member 24 May, 2019, 12:221 like 1 like

This looks like a debit card since the funds are taken from the underlying checking account.. The interchange fee for a credit card is higher than for a debit card due to the float cost for the grace period, the credit risk associated and the fact that the credit availability at POS gives the merchant the advantage to sell more to credit savvy cardholders.  If the spending on this new card is matched to the deposits on the checking account none of these cost drivers for the issuer are in place to justify the credit card interchange fee and thus the higher merchant commission. Why should acquirers and merchants agree to pay more for a card that in reality is a debit card? If the card attracts debit interchange fees, how does one finance the cardholder benefits? What if all the high-street banks can re-register their debit cards to credit cards - and earn more interchange fees? 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 24 May, 2019, 17:151 like 1 like

Interesting comment @FinextraMember. 

A couple of your questions can be easily answered on the basis of the prevailing common narrative in the fintech world. Here goes:

  1. Fintechs run on VC money, with little or no need to make profits. As long as they can claim to disrupt someone, they're good, as I highlighted in Fintech Shouldn’t Stop Chanting The Disruption Mantra. So they can finance higher credit card benefits despite receving only lower debit interchange fees. I can name a fintech or two in India that finances many benefits despite receiving no interchange fees. As a customer, I call this "VC Subsidy" and my motto is enjoy it while it lasts.
  2. High street banks are too slow. No way they will re-register their debit cards to credit cards to earn more interchange fees.  

Now, I have a question related to your question "Why should acquirers and merchants agree to pay more for a card that in reality is a debit card?": Is it really up to them to agree or disagree? Who really decides MDR? Undercutting is so common in competitive industries - like my own, namely, IT products and services. Banking is also a very competitive industry. Why don't we hear about one bank offering a sweeter MDR to some merchant in return for exclusive / higher share of its business?