One of the most exciting products that Apple has introduced of late, in August 2019, is the AppleCard, which boasts to be “a new kind of credit card, created by Apple, not a bank” (although the issuing partner bank is Goldman Sachs), and touts its simplicity (in both usability and design), transparency, and respect for privacy. It is a cash-back, no-fee (titanium!) card that aims to not only provide a user convenience in making payments but also a full suite of finance management features (e.g. easily choose the amount to be repaid, real-time calculation of interest) that empowers the user to make better financial decisions, a vital ask of consumers as we move towards higher-frequency, invisible and autonomous payments through digitization.
Apple is not alone in issuing a branded card of its own. Closer to Southeast Asia, non-banks like Grab has already launched cards in the Philippines in partnership with Citi, and has also started issuing what it claims to be Asia’s first numberless card, a prepaid Mastercard directly linked to the GrabPay e-Wallet, after announcing of the partnership in October 2018. This unlocks the potential of the e-wallet as it allows transactions across the Mastercard network and encourages the user to perform full KYC on its platform so as to increase regulatory-imposed spending limits and facilitates other strong use cases like remittance in the region.
Another example would be the MCO Visa card that touts to be the first free crypto-linked card. It is travel-focused, much like YouTrip – with multi-currency functionality and benefits like travel lounge access and rebates on Airbnb and Expedia, and is targeted at the millennial generation.
The credit card market is crowded and competitive, and card issuers, even traditional ones like AmEx and banks, are hoping to find ways to distinguish themselves – that is where Ondot aims to provide a value-added service. Ondot’s goal is to extend the value proposition of financial institutions to their customers, by increasing mobile engagement and empowering the customers to personalize, manage and control how payments are made, with the intended result of higher usage of payment instruments while controlling for the number of fraud incidents.
Who are they?
Founded in 2011 by Rachna Ahlawat (Executive Vice President) and Bharghavan Vaduvur (President & CEO), Ondot is a Silicon Valley-headquartered company that provides financial institutions (i.e. banks and credit unions) with a digital card services platform with greater convenience, convenience, and transparency for virtual and physical cards, in order to increase engagement and hence life-time-value of their customers.
It created Mobile Card Services (now “Card App“), a white-label solution that gives consumers greater control over payment cards, spend insights and management, as mobile becomes increasingly adopted as a payments channel. Would-be-issuers can engage consumers better through faster digital account opening, card issuance, and real-time offers with smarter, targeted choices, to move towards top-of-wallet status. These services can be implemented through the cloud for greater convenience and speed.
On the backend, Ondot® Advanced Solution Support Services provides tiered support for any issues directly involving their software, and mConsole is an administrative module supporting the Card Services platform that allows for ease in onboarding (configure branding, upload digital assets such as card image, T&Cs), customer issue troubleshooting through visibility on information such as device and usage, analytics and insights dashboard (adoption trend, churn, usage patterns, etc.)
Leveraging off the buzz and shine of an Apple Card, through the Card App, they further claim that it enables any issuer to emulate what an Apple Card experience is like for existing credit and debit card portfolios. As of December 2019, they claim to have processed almost ~$103B in transactions and served >4K financial institutions.
Some of the features that it provides are (taken from a press release):
- Immediate card issuance: Apply for a card within the app and receive a digital card immediately.
- Mobile wallet integration: Add cards to a mobile wallet like Apple Pay and Google Pay with ease.
- Transaction clarity: See enriched transaction and merchant information – clean name, address, map, logo, contact, hours – no more cryptic, confusing, or incomplete descriptions.
- Self-Service at fingertips: Get to critical card operations instantly – report lost, set travel, initiate a dispute, etc.
- Safety controls: Be safe, feel safe – turn a card on or off, limit the geographic area where a card will work, control ATM and online transactions, set limits, get instant notifications of purchases, etc.
- Spend insights: Help customers spend smarter by showing spend trends, manage card-on-file and recurring merchants, and monitor credit wellness and spending health.
What is the team and who are the investors?
OnDot was founded in 2011 by Rachna Ahlawat, and Bharghavan Vaduvur, who is President & CEO. Both of them have experience mainly in the wireless network sector, complemented by Prasanna Narayan’s (Head of Product) extensive experience in digital payments product and innovation.
- Rachna Ahlawat (Co-Founder, Executive Vice President) – Previously VP of product strategy and marketing at Meru Networks, after 8 years as a research analyst in Gartner covering wired and wireless LAN, network security and management.
- Bharghavan Vaduvur (Co-Founder, President & CEO) – Founded Meru Networks, Inc., a wireless networking solutions supplier, in 2002 and served as its CTO till 2011. Prior to that, he was the founder of Bytemobile Inc., a global cellular data optimization company. He was also an Associate Professor of Electrical and Computer Engineering at the University of Illinois at Urbana-Champaign.
- Prasanna Narayan (Head of Product) – Former Head of Innovation & Partnerships of Global Digital Payments at Citi and almost 12 years at Visa in product development and innovation, and partnerships roles
- Todd Lesher (Chief Revenue Officer, Advisor) – Have been with the company from the start for 8 years, previously spent 6 months as CEO at Santa Barbara TPG, a tax products-provider, and 4 years at Fiserv, a provider of financial services technology, primarily in the electronic banking division
- Lali Nathan (CFO) – Former CFO of Ultrasound Technology, an early-stage innovative hardware technology company, and various finance positions in the energy sector, with an MBA from Wharton.
Citi Ventures invested in OnDot in October 2018, and it has multiple venture rounds in September 2018, March 2016 and April 2014 ($18M in an angel round including Sam Ginn, the founding CEO of AirTouch Cellular and former chairman of Vodafone, Richard Kovacevich, the former CEO and chairman of Wells Fargo, and Alvin Shoemaker, the former chairman of the board of First Boston), totaling a recorded $51M in funding.
What is their value proposition?
OnDot claims to have either fully integrated or be interoperable with many entities in the payments ecosystem, which is a huge value-add if customers within the space would like to expand or improve on its offerings in any given sub-sector. Some of the potential customer value propositions (CVP) of a digital card management solution like OnDot’s are:
- Better cardholder engagement – The tenant on which a digital card solutions platform is built on is that customers see a value in having greater control and visibility in spending, as well as the ability of card issuers to personalize financial services solutions for them.
- Better confidence for cardholders – a vital aspect of any card today, given the increase in connectivity and pervasiveness of data collection and sharing.
- Cost-efficient for card issuers – to build from scratch an in-house team for an all-in-one, or any part thereof, a solution like Card App would likely take a considerable amount of resources, especially for financial institutions with legacy systems. For a card issuer that wants to focus and compete on other offerings and aspects such as building strong loyalty program mechanics or optimizing scheme/interchange/fx fees, or one that might not want to worry as much about the need for constant improvement and maintenance to tweak features for changing consumer demands might, it might best outsource this.
- Time-efficient, especially for legacy financial institutions that need them most – Even if resources are available, given the need to consider integration, for example, to phones or payment providers (e.g. Google Pay) that might take time to negotiate, Card App with its claim on being pre-integrated into their processing rails and has the technology, regulatory and compliance programs, will likely allow quicker go-to-market. For banking institutions/finance providers that have a relatively complex organizational structure, it might be more straightforward to obtain a green-light for a trusted all-in-one provider as compared to approvals for multiple requirements in relatively complex products.
- Leverage use of data for innovative, targeted financial solutions offerings – Related to 1), the ability to capture and analyze data with greater ease through Card App, and then target customers, based on credit scoring, with personalized just-in-time offers such as merchant-specific promotions, installment (think Klarna Pay Later in Europe or Afterpay in Australia), as well as overdraft protection in real life, financial institutions can tap on its data-rich offerings to unlock new revenue streams.
On 1), 2) and 5), from the end-consumer point of view on engagement and safety, OnDot, as recently as Oct 2018, claimed that its capabilities have delivered a 23% increase in card usage and ~25% reduction in fraud among users. A year later, this narrative changed slightly to a 25% reduction in operational costs, in the form of lower fraud, fewer service calls, and reduced false chargebacks. Fraud management is key to financial services companies as the repercussions go beyond financial, implicating also reputation. In a hypercompetitive environment, in a sector that is built-or-broken on trust, companies have to be investing in managing these risks.
On 3) and 4), from the merchant or card-issuer point of view on cost and time-efficiency to get to market, OnDot claimed that the Card App delivers a 25% lift in the profitability of debit and credit card portfolios for regional and community issuers. Importantly, the reduction in friction for card issuers to adopt OnDot’s solutions comes through the form of interoperability, with the Card App linked to an existing mobile banking app, which many issuers (think banks) already have and might be very clunky and harder to modify, and customers can use just one sign-on to move between the apps. Hence it is akin to a plug-and-play solution, where card issuers can push out innovative solutions faster than modifying their mobile banking app.
What could the company branch out into and what similar companies are there?
The recently-rolled out Card App is a great way for OnDot to tie all its offerings into a single solution. For companies that are hoping to be the top-of-wallet choice for customers, all, or part of their suite of offerings could be extremely useful, especially if a card is not-yet the core offering. For example, incumbent financial services companies such as banks could use it to unlock greater convenience and integration into deposits held, or credit already offered, to its customers. Newer, aspiring-transformative payments providers such as Fave (Merchant-focused) or Grab (Consumer-focused) could also leverage OnDot’s services to provide flexibility beyond QR-scan payment.
To bring more value to its current customers, OnDot could also aim to become an acquirer of merchants, in Adyen-fashion, which would be a value add to banks which either don’t already do this in-house, or are not willing to dedicate more resources to it, and also to the aforementioned payments providers that might deem it more convenient and cost-effective to increase its usability. Another alternative would be to delve deeper into financial planning and management, a key concern of millennials, through a partnership with more bespoke financial planning platforms akin to the ones NaviPlan provides, or data-driven marketing and loyalty programs (about 17% of their revenue and 15% of EBITDA), like what AllianceData has.
OnDot’s Card App solution focuses on personal/retail banking, and SME / commercial banking could be interesting as well. For example, it could serve SME through a corporate card, allowing the CFO to have control (e.g. what transactions and time period are permissible) and visibility over employees’ spend. Ease of transaction tracking, tagging to projects will also make claims more transparent. Other business financial transactions such as salary payments, loan disbursements, insurance premium collections are also functionalities provided by digital payment business solution services provider Obopay.
CardValet by Fiserv is a white-label card management app that provides the ability to set alerts, spend controls and on/off usage on existing cards, in partnership with financial institutions. On top of what Card App offers, it also has functionality for control of card usage through merchant codes, location parameters etc., in line with corporate card demands.
The payments industry is an ultra-competitive one that success relies heavily on change consumer behavior. Apple Card, while announced with much fanfare, has seen relatively slow adoption, with reasons including that customers already have their preferred choice of card or card-usage behavior that is hard to change (mainly because of better benefits elsewhere). In the less developed countries (Southeast Asia, for example), relatively greater opportunities exist as much of the region is mobile-first and it either does not have a strong digital financial services infrastructure, or strong existing financial services and consumer relationship.
Yet that is also in itself a challenge because while the cashless landscape is nascent and hence full of opportunities, the flipside is that there is still no one (if it even ends up having) preferred mode of payments, and it is anyone’s guess how long the transition from cash to cashless takes. Being mobile-first could imply that physical cards are not required at all, given alternatives such as Quick Response codes (QR), instantaneous mobile bank-to-bank transfer, virtual cards, etc. As merchants increasingly adopt a broader variety of payment methods, perhaps just having a mobile phone is enough to make payments (think WeChat Pay, Alipay, GrabPay), skipping the card altogether.
Overarching this, the world is moving towards cashless as the benefits are hard to be gainsaid. It is likely that card usage will be prevalent in the near future as other methods are still not as widely accepted (except in China and India) and the user experience clunky as it undergoes the testing and adoption phase. OnDot’s products, beyond the physical card, will be relevant, although a greater breadth of offerings could further differentiate and benefit them.