We came across some news in the Wall Street Journal that has us scratching our heads. Food delivery giant DoorDash and dominant online grocery (and now beyond grocery) player Instacart plan to introduce credit cards for consumers.
According to the WSJ, Instacart — which is mobilizing for an IPO this year — will work with JPMorgan Chase to issue a card that will earn customers 5% cashback on Instacart purchases. According to the U.S. Bureau of Labor Statistics, the average household spends about $387 per month on groceries. If we round it up to say $500 since the pandemic pushed a lot of food spend back to the grocery store, that would mean consumers could be looking at a $25 cashback on average per month. That percentage is considerably higher than the 2% Costco offers via its deal with CitiBank.
The Search for New Opportunities
There’s motivation on both sides of the equation. For Instacart, the pandemic accelerated their trend lines that were already headed to the upper right quadrant. But as pandemic-related restrictions begin to ease, those hypersonic trends are likely to slow to conventional speeds. At the same time, JPMorgan Chase is hunting for new opportunities. With so much travel and entertainment money getting sucked out of the system over the last 12 months, JPMorgan Chase needs to find new avenues for offering credit and transaction solutions.
DoorDash is also looking for a credit card partner so it can extend and drive broader rewards and discount solutions for its delivery loyalists. As with Instacart, DoorDash’s stars aligned over the last year with a massive increase in orders. DoorDash grew by roughly 200% in 2020. By offering a card, DoorDash is also working to cement its customer relationships.
How Many Credit Cards are on Your Phone?
In both cases, looping customers into a credit card generates a ton of data that can be analyzed and used in multiple ways. Some for product marketing, some of course for advertising. But here’s what we wonder. How many credit cards can a person really have in their pocket?
Back in the day, we’d talk about wallet share. But that probably doesn’t accurately reflect today’s situation. Since we load our credit cards into our apps, there’s frankly an unlimited amount of wallet space. But that doesn’t mean consumers will want to have one card for their grocery orders and one for their food delivery orders. Then at the end of the month, they’ll be two bills to pay instead of one.
Sounds like more trouble than it is worth frankly. But at $25 a month, it might catch the attention of a segment of the consumer market. For Instacart, we think the real win is in garnering even more customer data for building out its advertising platform. And as for DoorDash, it’ll use the data to figure out even more precisely the food trends of millions of consumers. This is something that, if they observe and analyze the data intelligently, can generate a lot of product initiatives.
But we ask again, in closing, do any of us really need another credit card?