As more retailers and other consumer-facing companies look to offer customer loyalty payment cards with rewards and easier shopping experiences, Imprint seeks to simplify that process and offer cobranded cards to a broader range of companies. Cofounder and CEO Daragh Murphy saw an opportunity in the aging cobranded card technology and started the company to build a new tech stack that provides a better experience for brands looking to offer cards.
In this episode of Talking Banking Matters, Murphy speaks with McKinsey partner and payments industry expert Roshan Varadarajan about why building Imprint’s tech stack from scratch was important, what the future holds for cobranded credit cards, and what it was like to start the company with backing from Thrive Capital, whose partner Gaurav Ahuja is also a cofounder and the chair of Imprint. The following edited transcript shares highlights from their conversation. For more discussion of the banking issues that matter, follow Talking Banking Matters on your preferred podcast platform.
Roshan Varadarajan, McKinsey: Why did you choose to focus on cobranded credit cards, and how do you create differentiated value for your customers?
Daragh Murphy, Imprint: Credit cards are an amazing way to build return on equity. Brands want their consumers to come back to them and to have a card they use all the time and that keeps them thinking about that brand. Our goal at Imprint is to take the cardholder experience and embed it deeply into the experience of the brand. We are trying to bring together consumers’ experience of and interaction with a brand, using their cobranded card, and managing that card. If you’re using that brand’s app, you’ll see Imprint in the app; everything will live inside the app.
We’re looking to help consumers become even more engaged with the brand through better experiences and rewards. Often, signing up for a cobranded card is cumbersome, and then you can’t manage the card and make your payments in the same place as you shop that brand. You have to log into another platform to see your statements and make payments.
Roshan Varadarajan: How did you build your systems? Did you have to start from scratch?
Daragh Murphy: Our competitors are banks that have built their cobranded cards on their COBOL [legacy programming language] mainframe technology, and they have to rely on partnerships with other providers, so we wanted to build our technology entirely ourselves. That allows us to do these interesting things with partners and our customers, who in turn want their customers to have a better experience and differentiated rewards, because ultimately, they want their cobranded credit card to drive retention and engagement.
Roshan Varadarajan: Tell us about your founding story. It’s a unique one, in that you started with a combination of venture incubation, and even one of your cofounders, Gaurav Ahuja, is a partner with your main funder, Thrive Capital, and now serves as your chairman.
Daragh Murphy: Thrive has done this for years, and they’ve had a bunch of success doing this. They find people who have the germ of an idea they like and say, “Let’s work on it together, and we’ll be the first money in.” As a founder with that model, you don’t have to worry about creating the pitch, validating it, and going and meeting 40 VCs [venture capital firms] in the first six months of starting the company. Instead, you can spend all your time working on the thesis and the company; they’ll be there to write the check on the other side. They’re very thoughtful about how we set it up.
One of the downsides of incubation is that, a lot of times, it means 80 percent [ownership] for the incubator and 20 percent for the founder. Luckily for me, Thrive is pretty modern in how they think about these relationships. They understand that founders who would agree to that kind of 80/20 percent arrangement are actually adversely selected. They know they want the best people, so they have to have thoughtful terms.
Roshan Varadarajan: Like other fintechs, you also had to decide early on whether you would need a banking license to accomplish your mission. How did you think about that?
Daragh Murphy: Ultimately, the choice of becoming, buying, or building a bank is downstream of addressing the problem we’re trying to solve. We want a better, fairer, and more rewarding way for the end consumer to pay, to help our partners, meaning the brands we serve. The thing we realized early was that no matter what we decided to do under the hood, we had to abstract all the pain away for consumers and our partners. This is especially so because our competitors are established banks that feel very safe to potential customers. For our partners to choose us over them, we have to take away the pain in the existing systems.
When we started out, fintechs were so new that they couldn’t get a bank charter, so it didn’t matter whether we wanted a banking license or not. It was 2019 or 2020, and the venture capital firms were saying, “Owning the balance sheet as a bank is a fool’s errand; we want enterprise-software-like multiples, because only the balance sheet seems capital intensive.”
Roshan Varadarajan: Fintechs’ access to banking licenses has changed in recent years, though. How has your thinking on this changed as a result?
Daragh Murphy: We have definitely evolved our thinking on this, for two reasons. The first is that Affirm went public, and they owned the balance sheet. And the second that happened is that Nubank went public at amazing multiples, and they’re a bank that owns the balance sheet, so investors started to say, “Some of our priors here were wrong.”
So today we absolutely want to own the bank, because it takes away regulatory risk, but we want to do it in a way that doesn’t affect the whole of Imprint; we want to maintain our ratio of engineers. If we became a banking holding company, then only 10 percent of our team would be engineers, because we would need so many compliance, risk, and internal audit people. There are ways to achieve this with certain types of banking-related licenses.
We also do not want to have to take deposits at the bank, because that would hurt our return on equity at scale, because banks that take deposits have to hold 12 percent of Tier 1 capital, which hurts the denominator in your ROE. So we’ve kind of come full circle here. We definitely think owning the bank is the right choice because it takes away the regulatory risk. Also, the tide is turning, and we obviously want to ride that wave.
Roshan Varadarajan: When you think about the implications of the current state of your ability to underwrite and approve cards and how your design choices impact the cost of funds, how does that compare to legacy providers in this space?
Daragh Murphy: The cost of funds has always been a big knock against us. How can we compete on cost of capital with companies that have a $4.5 trillion balance sheet? It seems impossible. But we sit atop one of the four biggest capital markets in the world, in that we originate prime US credit card receivables. And the securitization market, on the other side of that, is also pretty amazing. Traditionally, what would happen is you would burn a lot of VC dollars funding the delta between where you are and where the market is, and you would have to prove yourself over five or six years, and then you could access the securitization markets.
But the recent and tremendous growth of private credit has changed that. There’s now a lot of capital chasing the assets that we originate, and that has allowed our cost of capital to fall amazingly quickly. Our cost of capital today is probably 75 basis points over that of a bank. Most of our ability to maintain this cost of capital is driven by the fact that there’s such a broad and deep bid for these credit card loans we are originating. And that’s been great for us, because it let us bridge that two- or three-year period when we didn’t have the track record to go to securitization markets.
Roshan Varadarajan: And how much of this was by design?
Daragh Murphy: I wish I could tell you these were incredibly thoughtful design choices. But we were just fortunate that we founded the business at a time that private credit and demand for cobranded cards was exploding. A key design choice we did make was to be conscious about going slow to go fast into this market. We’ve been incredibly reluctant to broaden our underwriting aperture, because the number-one thing we have to do is show we can underwrite well-performing assets, that they continue to perform when the world gets noisy, and that we have a collections function that works. All those things matter, because the greater the willingness to buy the loan portfolios we originate, the lower our cost of capital.
Roshan Varadarajan: What’s the dialogue like with investors on profitability versus growth? Is it changing?
Daragh Murphy: We’ve lived through what feels like three eras now for a company that got only started in 2020. At first, we were in the period of zero-interest-rate-policy lending and all the free money that was pumped into the economy. And then inflation goes up, and what I would call a VC winter hit, especially for fintechs. Today things are looking brighter again. We’ve been lucky in that we did our series A with very little product-market fit, and we were able to raise $45 million at attractive prices, and that let us then fund the first three or four J-curves [patterns of return].
We’ve been able to prove, over the two or three years since that VC winter, that longer-lived cohorts [of fintechs] make really good margin. And that lets us go to VCs and say, “Hey, if you like stock growth and all the cohorts get to the same point, this is a business that can fund itself and be free-cash-flow-positive and soon GAAP profitable.” We ask our capital market and VC partners to look at the brands we’re winning, at the scale of the market, and the fact that we just keep doubling down. We raise [funds] every nine to 12 months. They’re able to see that the logo wins are indicative of solid future growth, and they’re able to see that the longer-lived cohorts are performing and that credit performance is sticking.
We try to be very thoughtful but aggressive with our investors. We use VC dollars for what they’re meant to be used for, which is helping us get to huge scale. That’s not growth at all costs, though.
Roshan Varadarajan: Let’s talk about those brands you partner with to offer cobranded cards. How much are they talking to you about acceptance cost versus driving customer experience, loyalty, and engagement?
Daragh Murphy: There are three economic conversations that generally happen with partners. The first is “Can you drive repeat rate, basket size, and overall loyalty for me?” The second is “Can you lower my cost of acceptance?” And the third is “Can you share economics with me in a profit share from your P&L?” We thrive most with the first brands that ask us the first two of those questions, because those are the brands that are looking to take all the value and put it back to bringing those customers back again and more often and turning the flywheel of more engagement and more spend.
The cost of acceptance comes up all the time, and it’s a lever we can pull with the partner. If we reduce acceptance costs to zero, that has to come out of the P&L somewhere else, so it is a conversation. We’ve also been seeing more conversation around stablecoins and business that are more oriented to gross merchandise value. For example, $100 of volume across the platform in GMV is equal to $7 of revenue, and payments costs can be $2.50 out of that $7 of revenue. And they’re saying, “What are ways that we can get around the payments acceptance cost?” Stablecoins are a really interesting way to do that, where if you’re going to issue rewards anyway in points, why not make them stablecoin backed? Given the cobranded card already has a relationship with a customer’s bank account, we can take the money out of the customer’s bank account, because we already have that relationship with them, buy stablecoins, and then you accept the stablecoins in your platform. That’s been a very interesting thing that’s come up over the last six or eight months that will be accelerated now by the GENIUS Act [the Guiding and Establishing National Innovation for US Stablecoins Act].
Roshan Varadarajan: Between the GENIUS Act and agentic AI, we’re hearing that brands, especially marketplaces, are worried about disintermediation, where agents go do the shopping to find the best offer, so they don’t need the marketplace anymore, in an end state. How are you thinking about this? What is the role of cobranded or private-label cards in an agentic-commerce world?
Daragh Murphy: To go back to agentic commerce, we honestly are not hearing a lot of concerns about it yet. Maybe that’s a function of the brands we work with, because they tend to have tight relationships with their customers. We have talked with partners about where they are getting disintermediated and how to keep the customer engaged. Creating reasons for customers to download the retailer’s app on their phone and giving them a reason to engage is a great selling point for us, where the card is a retention driver. It’s one of the highest-engagement things in your life, because you have to pay your bill, you have to check your balance, and you want to check whether a transaction has cleared. Putting that in the center of the app drives people back, so it’s been a useful way for us to sell.
Roshan Varadarajan: Let’s wrap up by having you tell us a bit about your story. You started out as a lawyer and then became a consultant before becoming a founder. That’s not the typical straight line to entrepreneurship.
Daragh Murphy: I think I grew over time and realized that I just didn’t want a boss, in the simplest of terms. Law is a strange place to start if you don’t want a boss, because the partners and senior associates are your bosses, and your clients are all your bosses too. I was very fortunate to get to know Marc Brodersen, a senior partner at a McKinsey, when I was in year three or four of being a lawyer and really wanting to get out. I remember him telling me that McKinsey would hire lawyers and let us be businesspeople, and that was amazing. One of the deep frustrations I always had as a lawyer was all the questions that would come up where people would say, “Oh, that’s a business decision.” I wondered what they knew that I didn’t.
Working as a consultant at McKinsey was great because it taught me how to communicate, how important the [Minto] Pyramid Principle is, and that there isn’t some big secret to business. Most of it is common sense, relationships, and a bit of hard work.
From there, I landed at WeWork, working with Adam Neumann. What I can tell you is that what you’ve read or heard or seen about WeWork really doesn’t capture the half of it. But working directly with Adam for a year was amazing. When you’re a lawyer or consultant, you need to get permission for so much that you need to do. But when I worked with Adam, I could see that there was nobody to give you permission and that you just have to go and do the thing you thought needed to get done. I got laid off from WeWork right when the IPO fell apart as part of the leadership change amid investor concerns. And that was really the point where I decided to start Imprint.
Roshan Varadarajan: Daragh, this has been fantastic. Thank you so much for taking the time to speak with us.
Daragh Murphy: Thanks, Roshan.
