Wells Fargo Bet on a Flashy Rent Credit Card. It Is Costing the Bank Dearly.

When Charlie Scharf took over as CEO of Wells Fargo, one of his priorities was to expand the bank’s credit-card business. Now, a flashy partnership with a startup is complicating a high-profile part of that strategy.

In 2022, Wells launched a credit card with Bilt Technologies, a fintech startup with big-name backers including Blackstone and Mastercard. The co-branded card came with a rare perk: Users can pay for rent with it without incurring fees from their landlords while also earning rewards points. More than one million accounts were activated in the first 18 months, many by young adults.

But Wells is losing as much as $10 million every month on the program as savvy customers flock to the card, according to current and former employees. Executives made internal projections on key revenue drivers, such as the likelihood that cardholders would carry balances, that turned out to be inaccurate.

The San Francisco bank has stopped bidding on new co-branded credit-card programs. Executives Wells recruited for such programs have left, and the bank is launching more credit cards that don’t involve partners. (A Wells-Expedia credit card that was agreed to previously is expected to be the final launch for some time.)

The financial losses triggered a renegotiation of the program that has been under way for months. Wells has told Bilt that it doesn’t intend to renew the contract, which is scheduled to end in 2029, unless economics are changed in its favor.

A Wells spokeswoman said co-brands are a “modest piece” of the bank’s credit-card strategy.

“As with all new card launches, it takes multiple years for the initial launch to pay off,” the spokeswoman said. “We look forward to continuing to work together to…make sure it’s a win for both Bilt and Wells Fargo.”

A Bilt spokesman said that The Wall Street Journal’s reporting “is an inaccurate representation” of the partnership and that the company is “committed to a long term partnership with Wells Fargo that benefits all parties.”

The credit-card program helped catapult Bilt’s valuation to $3.1 billion in a January fundraising round, up from $1.5 billion in late 2022. Ken Chenault, the former longtime American Express chief executive officer, joined Bilt’s board this year. Wells itself has invested at least $20 million in Bilt, according to people familiar with the matter, an unusual arrangement in the world of credit cards.

The partnership has helped lift 34-year-old Bilt CEO Ankur Jain to billionaire status.

There is a reason why credit cards hadn’t gained traction in the rent sector until Bilt came along. Most landlords didn’t accept them because they refuse to pay card fees that get pocketed by the banks issuing them and often run between 2% and 3%.

Bilt structured the card so landlords won’t incur the fees. Wells instead eats much of that.

About six months after the credit card was launched, Wells began paying Bilt a fee of about 0.80% of each rent transaction, even though the bank isn’t collecting interchange fees from landlords.

Wells earns interchange fees every time people use the card to pay for anything but rent and splits those fees with Bilt.

Wells also pays Bilt $200 each time a new card account is issued. Such arrangements are often reserved for airline and other established credit-card programs.

High hopes

Jain founded Bilt in 2019. The startup needed a bank partner to issue a credit card since it couldn’t underwrite or lend on its own. Its first issuer was Evolve Bank & Trust, a small Tennessee bank, but Bilt wanted to ultimately go bigger.

Several lenders, including U.S. Bancorp and Synchrony Financial, passed. Jain also spoke with JPMorgan Chase to gauge its interest in the Bilt platform.

Some Wells employees thought the proposition was crazy, but the bank needed a win and figured Bilt would garner buzz and help attract younger customers. A deal also presented mortgage cross-selling opportunities. Bilt’s cardholders will ultimately want to become homeowners, the thought process at Wells went, and the bank would be well-positioned to give them mortgages.

That hasn’t come to pass, and at any rate, Wells has pulled back from mortgage lending.

Few projections that Wells had for the card have panned out. The bank assumed around 65% of card-purchase volume would be nonrent, generating interchange-fee revenue. The reality is inverted.

Wells expected that around half to three-fourths of dollars charged to the card would carry over from month to month, generating interest charges. The reality ranges between around 15% and 25%.

Many customers would pay their rent off within a few days of charging it to their cards, weeks before their statements arrived—a strategy savvy cardholders use just to earn points.

Wells has told Bilt that cardholder behavior isn’t providing a path for profitability for the bank and that more customers who carry balances and use the card for everyday purchases are needed.

Bilt, meanwhile, hasn’t been satisfied with how Wells is marketing the partnership. Wells has replaced some of its marketing of the Bilt card in branches, on its ATMs and elsewhere with that of its own general-purpose cards.

The program has also been hit by fraud. Random account numbers and expiration dates are generated when new cards are given to customers, but the process for the Bilt card wasn’t so random, which opened the door to swindlers. Last summer, they created fake Bilt card accounts and went shopping with them, leading to losses for Wells.

The partnership also poses money-laundering risk, which the companies have worked to address. When consumers charge rent to their cards, a third-party company sends a check for that amount to the person or entity the cardholder says is the landlord.

That is easy for Bilt to track when it is one of the real-estate companies that participate in its rewards program and hard when it is a mom-and-pop landlord or other company. A Wells spokesperson said the bank hasn’t experienced “any meaningful money laundering issues with Bilt.”

Write to AnnaMaria Andriotis at [email protected] and Gina Heeb at [email protected]