Money

Zerocard aims to reduce overspending with "debit-style" credit card and rewards

The entry-level Zerocard, Quartz, with the Zero app.
Zero

Fin-tech company Zero announced on Tuesday, July 30, the public release of Zerocard, a credit card providing a "debit-style experience" issued by WebBank and backed by Mastercard.

Zerocard aims to be an alternative to credit cards from big banks that make money off cardholders who fall into debt.

"We know we're going to make less in the short-term, but we believe that building a better product in the long-term is going to pay dividends in other ways," Bryce Galen, founder and CEO of Zero, tells CNBC Make It.

Zerocard is a credit card, but provides a "debit-style experience" and 1% to 3% cash-back rewards for cardholders. You have to have a Zero checking account in order to qualify for the credit card, which allows you to use the unique debit-style feature. The card gives you all the benefits of a traditional credit card — access to a line of credit, cash-back program and a chance to build credit — while encouraging you to spend within your means thanks to the debit feature.

This debit-style feature can be turned on and off at anytime via the Zero app. When this feature is turned on, the credit limit of your Zerocard is equal to the amount in your Zero checking account: a $100 checking account balance gives you a $100 credit limit. This is similar to a secured card, which typically requires a $200 cash deposit that becomes your line of credit.

This feature also comes with autopay, which automatically deducts your Zerocard balance from your Zero checking account on your due date.

Zerocard holders also have the option to turn off the debit-style feature and simply use the card like a traditional credit card. When the debit-style feature is turned off, Zerocard works similar to a charge card with no preset spending limit, though that doesn't mean unlimited credit (creditworthiness is assessed in real-time).

You can also carry a balance month-to-month when you opt out of the debit experience, however there's a steep 24.99% variable APR, so it's important to pay your bill on time and in full.

Whether you choose to have the debit-style feature on or off is up to you — though Galen says the majority (90%) of cardholders turn the debit-style feature on during onboarding.

The debit-style feature allows cardholders to see how much they can afford to spend in real-time.

"You always know where you stand and you don't have much of a temptation to overspend," Galen says.

The four types of Zerocards (from left to right): Quartz, Graphite, Magnesium and Carbon.
Zero

Zerocard is available in four levels — Quartz, Graphite, Magnesium and Carbon — each with an increasingly higher percentage of cash back on purchases (1% to 3% cash back) and your "current position," which is your daily Zero checking balance minus your Zerocard balance (0% to 2% additional rewards). For example, if you have $500 in checking and a $200 balance on your Zerocard, your current position will be $300.

Cash back can easily be redeemed from within the Zero app at any amount and is instantly applied as a statement credit towards your Zerocard balance. Plus, cash back never expires.

There are no annual fees, foreign transaction fees, balance transfer fees or ATM fees (though the ATM owner may charge a fee). However, there is a late payment fee up to $27 and a returned payment fee up to $25. (See rates and fees.)

Applicants don't have to be a U.S. citizen, but they do need to live in the U.S. and have a Social Security number. If you aren't approved for Zerocard, you can receive a Zero debit card, which earns 0.50% cash back.

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The entry-level Zerocard, Quartz, with the Zero app.
Zero
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