Dynamics turns credit cards into pocket computers, but it may be too little too late
It’s rare to hear physical credit cards discussed in the same breath as innovative consumer electronics hardware. As simple pieces of plastic with a painted magnetic stripe, and the occasional security boosting chip, there’s not much innovative technology going on in the average physical card. As a result, most entrepreneurs and investors have focused on forgoing these cards altogether. The push to “digitize our wallets” is a lot more common than doing anything at all with credit cards.But Dynamics, a four-year-old Pittsburgh, PA-based company, is an outlier in this sense. The company has a full electrical engineering and hardware manufacturing team focused on innovating the physical credit card. And in doing so, the company is in a race against time.
The result of all this engineering is the ePlate credit card that sports an embedded electronic system just 14,000ths of an inch thick – including circuits, silicon, and a lithium polymer battery – with surface-level buttons that allow cardholders to quickly and easily reprogram their card’s magnetic strip in real-time. The benefit is the ability to switch between multiple rewards programs on the go, while also boosting security. Dynamics holds over 50 issued patents, with 150 more pending.
The big advantage of this flexible rewards model is that it allows Dynamics to offer a single card that appeals to multiple consumer demographics, ranging from the young, tech forward crowd to the older, more financially conservative set. This is in stark contrast to the industry norm under which consumers must apply for and carry multiple cards to access different rewards and in which cards clearly target specific demographics.
Dynamics offers on the order of 50 reward options at any given time, allowing users to switch among them at any time via a Web dashboard and to can keep two rewards offers active on their credit card at a time. Yes, there are the typical airline and hotels offers, as well as cash back. But that won’t get anyone out of bed in the morning, even if the reward rates are high. More unique is the fact that Dynamics offers rewards from specialty retailers like the Skip Barber Racing School, sporting card manufacturer Upper Deck, 1-800-Flowers, and wooden basket and gifts company Longaberger.
This highly flexible model gives Dynamic an advantage over traditional rewards cards from big banks. The company can rewards small retailers or those with niche appeal. And, if a single rewards provider becomes overwhelmed with demand or goes out of business, Dynamics can simply shut off that offer in isolation without rendering tens of thousands of credit cards useless.
Beyond its variety of rewards, Dynamics is also able to offer higher reward rates than most credit cards. This is possible because the process of consumers choosing from among a dozen reward options is akin to demonstrating purchase intent. Brands are willing to pay up for this type of intent-based customer acquisition. As a result, the average reward on Dynamics is 6 percent of the purchase value and in some cases above 50 percent, compared to industry averages of 1 percent or less. Also, ePlates rewards are available instantly, whereas typical credit card rewards can take a month or longer to be made available.
All of Dynamics R&D and manufacturing is done in the US. The company has total 100 employees, the majority of which work out of a repurposed torpedo factory outside Pittsburgh designing and manufacturing its smart credit card technology, with the remainder processing payment rewards in three locations across the US. Through a proprietary automated manufacturing process, the company can produce up to 1 million cards per month, although it does not release its current production and card issuance rates.
Dynamics was declared the winner of the DEMO conference in 2010 and Best in Show at CES in 2011. The company has raised $40 million to date, including a $35 million Series B in June 2011 led by Bain Capital Ventures. Founder CEO Jeff Mullen is a former patent attorney who first came up with the idea for Dynamics while attending business school at Carnegie Mellon.
Mullen has done an impressive job reinventing a seemingly staid and uninteresting category. His technology appeals to a wide range of consumers and best of all, fits within existing payment processing infrastructure. Dynamics released a fee-based version of its ePlate card last year and added a no-fee variation last month. Early adoption has been rabid, according to Mullen, although he declined to give concrete usage details. Nonetheless, it’s very early to call Dynamics a winner.
The biggest risk facing the company is the aforementioned switch away from physical payment cards toward digital payment technologies. Much of Dynamics’ proprietary technology is geared toward backend rewards processing, meaning it won’t be a complete fish out of water in the digital age. Still, it’s unclear how differentiated Dynamics offering will be once the smartphone becomes the default payment mechanism for the average consumer – something that appears to be an inevitability at this point.
Thus, it appears as if Dynamics is in a bit of a footrace, whether it will acknowledge as much or not. If the company is able to build a large, loyal user base before the shift to a cardless future, then it could play a significant role in the future of rewards-based consumer credit. If not, the company will have spent millions of dollars and years of effort building out (rather impressive) custom hardware that is no longer relevant. The credit card is living on borrowed time. It is yet to be seen if Dynamics is in the same boat.