Bilt Has a Problem

Bilt has attracted attention for its unique approach to credit card rewards, offering points for rent payments and lucrative offers during its “Rent Day” promotions. On the surface, Bilt looks like a game-changer in the points world, promising to turn rent into transferable points.

In this article, I try to peel back the layers of Bilt’s business model to reveal a problem that may pose significant challenges to the company’s long-term viability. With shifting venture capital landscapes and a financially questionable product, how sustainable is Bilt’s business? Let’s dive into the numbers and find out.

Bilt’s business model

Like most credit cards, Bilt makes money through interchange fees, a processing fee merchants pay that typically totals around 2.2%. There are other ways that Bilt makes money–for example, on interest payments that it charges customers who maintain a balance on their cards–but interchange makes up the lion’s share of its revenue. 

It’s also important to note that Bilt doesn’t make money on rent payments that cardholders make because rent payments are done via ACH and thus don’t involve any interchange. Bilt makes this clear on their website, reiterating that they don’t charge landlords.

Bilt spends a lot of money effectively buying the points it awards to customers for credit card and rent spend. I’ve spoken to airline and hotel awards programs in the past, and I think it’s safe to assume Bilt pays their partners (American Airlines, Hyatt, etc.) around one cent per point, on average. These economics mean that, for example, if I go to Target and spend $100 on my Bilt card (for which I earn one point per dollar), Bilt makes around $2.20 in interchange and gives me back around $1 worth of points (100 points worth $0.01 each). In many cases, they’ll award more points than this, specifically, two per dollar spent on travel and three points on dining.

Bilt’s problem

That’s an example of a profitable transaction. The trouble is, most transactions made on Bilt cards aren’t profitable because rent spend makes up most of the transactions that Bilt customers make–about 80%–and Bilt doesn’t earn interchange on rent spend.

What does all this mean for Bilt’s profitability? Well, if Bilt customers run $1 billion of charges on their cards in a given quarter, $800 million of that is rent and $200 million is regular card spend. Because of multipliers for specific spending categories, we can assume Bilt gives out, on average, around 2 points per dollar of credit card spend. That means that for every $1 billion of transactions, Bilt awards 1.2 billion points–400 million points for credit card spend and 800 million points for rent spend.

Assuming they buy points from partners for one cent apiece, these 1.2 billion points would cost them $12,000,000. But given they only earn interchange on $200 million of transactions, they’d only make $4,400,000 from all that spend (2.2% of $200 million). All this means that for every $1 billion of transactions Bilt cardholders run, Bilt loses around $7,600,000.

To put this another way, for every dollar Bilt customers spend, Bilt gives out six points, costing them 6 cents. In other words, Bilt is paying 6 cents in points for every 2.2 cents of revenue.

That’s pretty wild. And I’m using conservative estimates, so Bilt may be considerably less profitable than this. 

How’s this possible?

How has a business that is fundamentally unprofitable achieved so much apparent success?

In the regular world, businesses need to make money to survive. Luckily for Bilt, it raised money from venture capital firms when startup valuations were stupidly stratospheric, and VCs were giving out cash like it was going out of fashion. VCs either didn’t notice or didn’t care that Bilt’s business is a lossmaker and decided to give them money anyway–money Bilt has used to give away billions of points to entice consumers to sign up for its card.

In all fairness to Bilt, there are plenty of examples of startups getting away with this. Uber is the best example: they gained market share by selling rides at a loss funded by billions of VC dollars before eventually raising prices and becoming profitable. 

Unfortunately for Bilt, the funding landscape has shifted hugely, and unprofitable businesses are no longer all the rage. VCs are now paying attention to financials and aren’t funding fast-growing money losers like they used to be.

How can Bilt break even?

To solve its profitability problem without changing its rewards structure, Bilt would need to increase the proportion of credit card spend relative to rent. Specifically, it would need to get rent spend from 80% of transactions to around 17% of transactions. This is because:

• Bilt earns around $2.20 in interchange for every $100 credit card spend (2.2% of the transaction amount).
• Bilt earns $0 for every $100 in rent payments.

And:

• Bilt pays $2 worth of points for every $100 credit card spend (2% of the transaction amount).
• Bilt pays $1 worth of points for every $100 in rent payments (1% of the transaction amount).

So:

• Credit Card Spend: $2.20 (revenue) – $2 (cost) = $0.20 gain per $100
• Rent Payment: $0 (revenue) – $1 (cost) = $1 loss per $100

All this means that for every $100 of rent spend, Bilt needs $500 of credit card spend to break even.

Conclusion

The core value proposition of the Bilt card—earning points on rent—happens to be its Achilles heel: Bilt’s entire value to customers is that it allows them to earn points on rent, but doing so is highly unprofitable. At the same time, venture capital firms are becoming increasingly penny-wise and less interested in unprofitable startups.

Bilt does have routes to success. It could either maneuver to attract a higher percentage of regular credit card transactions (though I really don’t see much reason for consumers to put regular, non-rent card spend on Bilt cards) or try to alter the reward structure for rent payments. Either way, something fundamental has to change at Bilt to transform it into a sustainable operation.