The Old-School Card Product Banks May Need Most

Secured credit cards have never had the glamour their more luxury and premium card cousins command.

Traditionally, they haven’t had much glamour at all. Secured credit cards have long been tools of necessity, not lifestyle strategy, designed for borrowers with thin or damaged credit files, offering low limits, modest margins, and little prestige.

But findings in the March 2026 edition of the Embedded Finance Tracker® Series, a PYMNTS Intelligence collaboration with Galileo, reveal how, when properly designed, secured credit is evolving into a scalable growth lever for banks and FinTechs alike.

After all, despite the bright lights at the top of the market, access to traditional credit remains uneven. More than 45 million Americans are underserved or underbanked, and subprime borrowers face significantly higher rejection rates for unsecured credit products.

The report underscores that this persistent exclusion has potentially served to create a large, durable market for alternative on-ramps to credit.

There is, however, one key hurdle. Traditional secured credit models were built for a slower, more manual era of banking. Their architecture can often reflect risk management priorities of the past rather than the user expectations of the present.

Still, change waits on no industry. And a convergence of real-time payments infrastructure, embedded finance platforms, and programmable treasury systems is increasingly reshaping how financial institutions think about risk, liquidity, and capital allocation.

This, in turn, is reshaping how firms think about secured card issuance. The result is a structural inversion: the very segment once defined by its risk is now emerging as one of the more predictable, capital-efficient ways for financial platforms and institutions to expand lending.

Secured Credit Evolves From Compliance Tool to Growth Engine

The traditional secured card model hinged on immobility. A customer deposits funds, those funds are locked and the bank extends a line of credit equal to or slightly below the deposit amount. The deposit serves as a risk buffer, but it also creates inefficiencies. Capital sits dormant, customer liquidity is reduced and the bank’s ability to dynamically adjust exposure is limited.

Emerging models, however, are introducing real-time balances, usage-based collateralization and automated fund flows that respond dynamically to user behavior. Instead of locking a fixed deposit against a fixed credit line, these systems allow collateral to flex with actual usage. What was once a static product category is being reengineered into a dynamic system.

And as credit becomes software-defined, the boundary between debit and credit begins to blur. Instead of separate accounts and rigid categories, consumers interact with a unified balance layer that dynamically determines how funds are allocated — whether as immediate debit or contingent credit.

From the bank’s perspective, this flexibility does not come at the expense of control. In fact, it enhances it. Because only the amount spent is secured in real time, issuers maintain protection against default without requiring excessive upfront deposits. This creates a more proportional relationship between risk and capital, improving both accessibility and efficiency.

Read the report: Secured Credit’s Next Turn: Unlocking Growth With Dynamic Funding

A Structural Inversion of Risk

After all, one of the most striking aspects of this evolution is the inversion of traditional risk assumptions.

Historically, subprime lending was viewed as inherently unstable. Higher default rates, thinner margins, and regulatory scrutiny made it a challenging segment to scale profitably. Secured cards mitigated some of that risk, but they were not seen as a primary growth engine.

But by lowering friction and expanding eligibility, dynamic secured card models can increase card usage among underserved segments, ultimately driving transaction volume and associated revenue.

For consumers, the experience feels less like a constrained product and more like a conventional credit card. For issuers, the underlying risk profile remains tightly managed.

Looking ahead, dynamic secured credit could also raise questions about the future of traditional credit segmentation. As risk becomes more precisely managed, the distinction between “prime” and “subprime” may become less relevant than the quality of the underlying data and models.

What this could imply is the emergence of a new middle layer in consumer finance, one that sits between constrained debit economics and tightening unsecured credit. A layer built on programmable infrastructure, designed for continuous adjustment, and optimized for users who cannot afford inefficiency.

At PYMNTS Intelligence, we work with businesses to uncover insights that fuel intelligent, data-driven discussions on changing customer expectations, a more connected economy and the strategic shifts necessary to achieve outcomes. With rigorous research methodologies and unwavering commitment to objective quality, we offer trusted data to grow your business. As our partner, you’ll have access to our diverse team of PhDs, researchers, data analysts, number crunchers, subject matter veterans and editorial experts.