A new 'introductory' card boosts competition for banks

Patrick T. Fallon/Bloomberg

There's a new option for consumers trying to build credit from scratch, and it's aiming to compete with banks' secured cards.

Financial technology company GetAugie has launched a virtual charge card that attaches to consumers' bank accounts and acts like a debit card to pay for subscription-based services. Payments are reported monthly in the aggregate to the major credit bureaus—helping people build credit by paying their normal bills. 

Unlike traditional secured credit cards, Augie does not require a security deposit and it doesn't charge an annual fee or interest. Consumers can't borrow more than what is in their bank account, and they receive reminders when the payment of a subscription-based bill is imminent. There's also no credit check required to get the card.

Many people need help entering the financial world and Augie allows them to do it independently, said Paul Harkins, a serial entrepreneur and co-founder of Augie. "You don't need anyone's help. This is all you." 

The offering, available to consumers primarily through employers, community banks and other financial providers, is the latest in a stream of products aimed at helping younger or underbanked individuals build credit. Another new entrant, a debit card with credit card-like features, became available from ShoulderTap Technologies in January 2023. The Fizz card generally targets students between the ages of 18 and 24, helping them to build credit over time based on healthy payment habits.

Demand has been growing in recent years for credit-building products, said Matt Schulz, chief consumer finance analyst at LendingTree, which analyzes the credit card landscape. "If you can build credit in a relatively low risk kind of way, there's always going to be interest in that sort of thing," he said.

Indeed, more than 45 million Americans are either credit unserved or underserved, according to a 2022 TransUnion report. About 20% of them become credit active every two years, the credit bureau said.

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For banks and fintechs, consumers with little to no credit history represent an important market. Getting a foot in the door with these customers early on can mean a lifetime of brand loyalty. "That's so much of what credit cards are. They are the first entry point for a consumer into the financial space, and then it allows banks to upsell in different ways and market other products to them," Schulz said.

To be sure, upstarts like Augie don't have the brand recognition of big banks, but as more alternative products come to market, it behooves banks to pay attention. The "expanding market for credit-building solutions indicates a demand that could inspire established banks to develop new products," Jennifer Doss, a credit card analyst with CardRatings.com, wrote in an email. "While many offer standard secured credit cards, the emergence of unique offerings might encourage them to broaden their product lines."

Ideal candidates for an Augie card are recent high school or college graduates who need help building credit, as well as new immigrants who need similar credit-building support, Harkins said. The Augie card could also be appropriate for people with credit scores lower than 620 who have trouble accessing credit products because of their scores. "It's really expensive to have bad or no credit in this country," he said.

Harkins hopes consumers will be attracted to the idea that there's no security deposit, annual fee or interest to use Augie. According to a 2024 LendingTree report, many secured cards have average APRs above the national average APR for all new credit card offers. What's more, a LendingTree review of 47 cards found that nearly a third charge an annual fee. Fees ranged from $19 to $50, with the most common being $29.

For some consumers, not having to put down a security deposit, coupled with not having to go through a credit check could be appealing. "The absence of a credit check may provide reassurance to individuals who may be apprehensive about the application process," Doss wrote.

Augie launched earlier this year to a small number of consumers, and the fintech company is hoping to build momentum through partnerships with employers, financial institutions and through referrals from existing users' friends and family. Augie does not plan to market its card to the general public, Harkins said.

Augie's executives anticipate that a consumer might stay on Augie for around nine to 14 months before graduating to a traditional credit card. "It's really powerful for young consumers to have this type of power over their financial wellness going forward," Harkins said.