Bilt Economics Revealed: Wells Fargo Losing Money?

In the miles & points world, we’re almost all familiar with the Bilt Mastercard (issued in partnership with Wells Fargo), which is one of the most innovative products that we’ve seen launch in recent years. Bilt Rewards is a transferable points currency, and the Bilt Mastercard is one of the most lucrative no annual fee cards out there.

The coolest aspect of the Bilt Mastecard is that you can earn points for paying rent at no cost, even when your landlord doesn’t accept credit cards. This is awesome, since rent is one of the biggest expenses for many people.

I’ve long wondered about the economics of Bilt. I mean, it’s great for consumers, but who exactly is funding all these rewards? As is the case with many startups, I’ve assumed that the priority is showing growth, and that profitability will come later (maybe). However, there’s a bit more to this, as it seems that Bilt isn’t even the party incurring many of the losses.

If you’ve been curious about how the economics of Bilt work, we now have some insights…

Wells Fargo reportedly losing $10 million per month on Bilt

The Wall Street Journal has the scoop on how Wells Fargo reportedly made a very bad bet with Bilt, and is losing $10 million every month on the partnership.

For some background, back in 2022, Wells Fargo got a new CEO, and one of his priorities was expanding the credit card business. At the same time, Bilt was launching, and was looking for a bank to partner with, since it couldn’t lend or underwrite on its own. Chase reportedly wasn’t interested, but Wells Fargo was.

Wells Fago executives felt that they needed a credit card win, and figured that a Bilt partnership would generate buzz and attract younger customers. It was also thought that these young customers who are renting would then come to Wells Fargo for mortgages, but that’s a business that the company has since pulled back from.

What reportedly happened is that Wells Fargo made internal projections on key revenue drivers with the partnership, and they ended up being completely wrong.

As a result, Wells Fargo has reportedly been trying to renegotiate its contract with Bilt in recent month, stating that the current consumer behavior doesn’t provide a path to profitability. Wells Fargo has also told Bilt that it doesn’t intend to renew the contract the two companies have in 2029, unless economics change.

Here’s how the current economics reportedly work:

• Wells Fargo pays Bilt a 0.8% fee on all rent transactions, even though Wells Fargo isn’t collecting any interchange fees from landlords (Wells Fargo is paying Bilt since Bilt issues rewards to members for these transactions)
• Wells Fargo pays Bilt $200 each time that a new card account is issued, which is similar to what you’ll find for co-brand agreements with airlines and hotels
• Wells Fargo had projected that around 65% of purchase volume on the Bilt Mastercard would be non-rent expenses, generating interchange fee revenue; the reality is inverted
• Wells Fargo projected that around 50-75% of purchases charged to the card would carry over month-to-month, generating interest charges, while the reality is instead 15-25%

As a result of this, Wells Fargo has stopped bidding on new co-branded credit card programs, and is instead focused on launching credit cards that don’t include partners. Wells Fargo has reportedly even taken some of its Bilt marketing materials out of bank branches.

In the interest of presenting both sides, a Bilt spokesperson told The Wall Street Journal that the 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.” No further details were provided.

I can’t say this is terribly surprising

Bilt is now valued at $3.1 billion, and 34-year-old founder Ankur Jain has become a billionaire thanks to it. Former American Express CEO Ken Chenault is even on Bilt’s board, and has personally invested at least $20 million in the company.

Look, all along I’ve said that Bilt is fantastic for consumers, and in many ways, it’s too good to be true. Who doesn’t want to earn points for rent without paying a fee? They say “there’s no such thing as a free lunch,” but… that’s basically a free lunch!

There was an interesting CNBC interview earlier this year with both Jain and Chenault, where some interesting questions were asked about the economics of the company. The interview didn’t exactly clarify a whole lot about who pays for what, but I guess now we know.

Bilt has fewer revenue streams than other kinds of cards, and a lot more expenses:

• The Bilt Mastercard has no annual fee, and a lot of card issuers make money through annual fees
• The Bilt Mastercard gives out rewards for paying rent, without getting any revenue from it (well, more accurately, Bilt is getting some revenue from Wells Fargo, but it basically only covers the cost of issuing rewards)
• Many of the people with the Bilt Mastercard are savvy miles & points consumers, who don’t carry balances, so the revenue there isn’t as high as Wells Fargo had projected

Essentially it seems that Bilt has an amazing arrangement with Wells Fargo, as clearly Wells Fargo was expecting completely different consumer behavior. I also can’t help but wonder what Wells Fargo was basing its projections on, as expecting 50-75% of purchases to generate interest charges seems highly optimistic.

Of course it’s normal for it to take some time before a card portfolio becomes profitable, so it’s not surprising that money would be lost early on in terms of acquisition costs, etc.

But there’s one thing here that’s very hard to overcome. Wells Fargo was hoping that around 65% of purchase volume would be non-rent expenses, but instead it’s the inverse, so somewhere around 35%. That’s a major issue, since that’s a portion of revenue on which Wells Fargo takes a loss. Add in the lack of people carrying balances, and one has to wonder where the upside is for Wells Fargo.

So what can be done so that a higher percentage of the purchase volume is non-rent expenses, and/or so that people carry balances? That’s not so easy…

Obviously Bilt has been able to show amazing growth, and for good reason, because the product is very lucrative for consumers. Actually making this sustainably profitable for all parties is a challenge, though.

I know that part of Bilt’s business model is also getting the big rental companies in the United States onto its platform. While that might help Bilt’s bottom line, it doesn’t help the bottom line of the bank that’s underwriting all of this.

Bottom line

The Bilt Mastercard is issued in partnership with Wells Fargo, and is an incredibly lucrative product that awards points for rent, without any sort of fees. I’ve recommended that anyone who is eligible pick up this product, given that you’re basically getting something for nothing.

If you’ve been curious about who is paying for these rewards though, now we know, at least according to sources quoted by The Wall Street Journal. The economics of the Bilt partnership haven’t worked out the way that Wells Fargo had hoped, as a majority of purchase volume is for rent, where consumers are earning something for nothing. On top of that, not many consumers are carrying balances.

I’m curious to see how this evolves. Will Bilt and Wells Fargo be able to renegotiate their contract, or how does this play out in 2029?

What do you make of the economics of Bilt?