CASE STUDY: Interactive Brokers Debit Mastercard...Let’s say a customer holds $2,000 in cash and $300,000 in stock in his Interactive Brokers’ account. If he presents his Interactive

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Interactive Brokers Debit MastercardCASE STUDY:


Case Study: Interactive Brokers Debit Mastercard

Adding Stickiness to Client Relationships

Interactive Brokers is all about making it fast and easy for its clients to borrow, earn, spend and invest from a single account that combines higher revenues with lower costs than other broker-dealers.

For its efforts, the $30-billion market cap1 company, based in Greenwich, Conn., is consistently ranked among the best online brokers in the country. But when it wanted to take the next step—providing card-based access to make it easy for clients to transact by leveraging the value of their invested funds or borrowing against that value—even this tech-savvy broker-dealer was stymied by the absence of available support.

Having dismissed a number of options as too inflexible to undertake the significant development effort to merge securities and investing with banking and payments, Interactive Brokers approached Salt Lake City-based Galileo, and six months later—with Galileo’s support—introduced its clients to the Interactive Brokers Debit Mastercard.

The Benefit of Sticky Relationships

Interactive Brokers’ #1 goal for its Debit Mastercard is simple: To increase the stickiness of its relationships, using the card as the vehicle to extend low-interest loans immediately and seamlessly to brokerage clients.

“It costs significantly more to obtain a new client than to keep an existing one, making it essential to consistently deliver added value and opportunities that differentiate us from competitors,” says Steve Sanders, Interactive Brokers’ EVP of marketing and product development. “Creating reasons for clients to remain loyal to Interactive Brokers is an important priority.”

And, yes, Sanders adds, brokerage clients do need credit. In fact, he says, credit is one of the many financial tools Interactive Brokers’ clients use to build their wealth.

“Our clients appreciate having the ability to borrow when they need to in a way that’s as easy as using a credit card—but at a fraction of the interest cost,” he continues.

“Galileo’s robust solution and APIs were instrumental in creating our product and, we believe, contributed to

Interactive Brokers winning the distinction of Barron’s

top online broker for 2018.”

Steve Sanders EVP of Marketing & Product Development Interactive Brokers

1 As of May 3, 2018

02

Rated #1—Best Online Broker 2018 and a Top Online Broker for Eighth Consecutive Year

by Barron’s


Investments Remain 100% Invested

How does the Interactive Brokers Debit Mastercard borrowing capability work?

Let’s say a customer holds $2,000 in cash and $300,000 in stock in his Interactive Brokers’ account. If he presents his Interactive Brokers Debit Mastercard to buy a $5,000 television, for example, the authorization process would first look to his cash balance—which would be debited for $2,000—and then to his stock investment. Based on the value of his stock, a $3,000 margin loan at 3 percent would be authorized instantly and automatically to cover the total cost of the TV. For the store clerk accepting the card for payment, the process would be seamless—indistinguishable from accepting any other payment card.

And, the full value of the customer’s $300,000 stock would remain fully invested without interruption—potentially appreciating and earning dividends.

Cash Balances Earn, Too

Clients who choose to keep cash balances in their Interactive Brokers’ account generate a 1.19 percent return on their money compared to a nationwide average of 0.01 to 0.04 percent2, making it an attractive option compared to an interest-bearing checking account.

And, as illustrated above, when a customer’s cash balance is associated with an Interactive Brokers Debit Mastercard, the card draws on the cash balance first for purchases or payments.

“Treating clients fairly is another of Interactive Brokers’ core values,” Sanders comments, “and we believe paying an equitable rate of return on cash is consistent with the principle.”

Rollout and Feature Enhancements

The Interactive Brokers Debit Mastercard rolled out in August 2017 as an exclusive option for the company’s investment clients who are also significant traders. Its introduction was supported by client communications and online reminders.


“Galileo was the natural partner for our Interactive Brokers Debit Mastercard,

which enables our customers to leverage the value in their accounts with an

integrated payment card and stay invested until the money is needed.”

Steve Sanders EVP of Marketing & Product Development Interactive Brokers

2 https://www.valuepenguin.com/banking/average-bank-interest-rates

03

2018 Winner“Best trading

platform overall”“Best options trading

platform—broker”



“Those who saw benefit in the credit feature signed up immediately, and we were pleased with the response and feedback,” Sanders explains. “Since then, we’ve had steady growth as additional clients recognize the card’s value to borrow at the lowest rates. And, we’re finding new clients, who are introduced to the card at account opening, extremely receptive.

“Clients choose Interactive Brokers because of our overall value, which clearly includes a single brokerage account with card access they can use for everything,” he continues. “They’re starting to show that the old silos of money management are breaking down.”

In early Q2, Interactive Brokers added bill pay, provided by Galileo, to its card’s capabilities, and Sanders says he expects to offer a steady stream of enhancements to keep current cardholders engaged and to attract new clients and incremental assets under management.

The Importance of the Right Partner

Tech is only as good as its ease of use and reliability, and Interactive Brokers says its clients are as demanding as they come. Technology that’s clunky or doesn’t do what it promises doesn’t cut it. You get one shot to make it perfect.

In an extremely competitive environment, Interactive Brokers uses technology as a differentiator. In fact, “creating technology to provide liquidity on better terms” is part of the 40-year old company’s mission.

In late 2017, Interactive Brokers set its sights on doing something new in the investment community—creating a debit card that could act as a direct gateway to its clients’ investments—without the need for related deposit accounts to support card-based and other transactional activity.

What’s the big deal?

“Plenty,” counters Steve Sanders, Interactive Brokers EVP of marketing and product development.

”A second account—a deposit account—would introduce friction into the funds flow,” he explains. “Even a small amount of friction would introduce inefficiencies and higher costs that ultimately would be borne by our clients.

“We use technology to improve client service and investment returns; not to create a Rube Goldberg environment that penalizes clients because we didn’t have the will to identify a more elegant solution.”

Technology as a Competitive Differentiator

04

2018 Winner“Best Mobile Application”



“Very quickly on in our relationship with Galileo, we recognized we had a special partner with an unbelievable depth of knowledge about payments, a full appreciation of the importance of the customer experience, and the technology and commitment to apply that knowledge to address our need,” Sanders says. “The result is a unique financial product tailored specifically for Interactive Brokers and our clients.

“We’re not tech novices and our standards are extremely high,” he continues. “At the outset, we had some suspicions we were asking for the unachievable. But, Galileo already had developed APIs with the flexibility to support much of what we needed, so we were able to work together on final customization and launch an entirely new investment/payment product in an astounding six months.”

The Future

Sanders predicts that as the features and functionality of the Interactive Brokers Debit Mastercard become even more robust and clients become more familiar with how it enables them to generate greater overall return on their money because their cash and investments are never idle, they’ll begin using the card transactionally.

“Our clients have access to virtually any credit card and credit card rewards program they want, so we haven’t positioned our card to disrupt that relationship,” he says. “But, over time, they’ll recognize the comparative advantage of what we’re offering—not only paying market-rate interest on cash balances but low-cost borrowing against securities whose value remains untouched, paying bills, and trading and transacting around the world in different currencies, all from one account.

“If you want me to explain our long-term strategy, that’s it.”

About Galileo

Founded in 2000, Galileo is one of North America’s largest and most innovative payments processors and program managers, supporting 87+ million accounts. Galileo continues its commitment to transform the financial experience with the launch of the Galileo Securities Solution, uniquely integrating banking and payments with investing and securities. The API-based Galileo Securities Solution offers investment organizations the power to create custom investment-based products with true bank-grade payments functionality to attract customers and drive incremental asset acquisition. This first-of-its-kind solution is supported by Galileo’s nearly two decades of unmatched industry leadership in fraud detection, security, AI, regulatory compliance support and advanced analytics. Learn more at www.galileoprocessing.com/galileo-securities.

We’re fintechs’ tech.

05

2018 Winner“#1 Commissions & Fees”

“#1 Offering of Investments”“#1 Active Trading”

“#1 International Trading”

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CASE STUDY: Interactive Brokers Debit Mastercard...Let’s say a customer holds $2,000 in cash and $300,000 in stock in his Interactive Brokers’ account. If he presents his Interactive