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

Secured credit has long served as a pathway for consumers to build or rebuild their credit histories. Today, it is reemerging as something more: a strategic opportunity for financial institutions (FIs) seeking sustainable growth in a changing regulatory and revenue environment.

As credit access tightens for many consumers and debit revenue faces ongoing regulatory pressure, secured credit sits at the intersection of financial inclusion and commercial strategy. However, traditional secured credit has often stalled due to legacy structural hurdles. Secured credit’s next chapter will be defined by how intelligently its mechanics are designed. Emerging models that modernize how secured credit is funded and managed are beginning to address these barriers, opening the door to broader adoption.

Why Secured Credit? The Case for Inclusion and Revenue

Why Traditional Secured Credit Feels Broken

How Dynamic Funding and Real-Time Design Unlock Secured Credit’s Potential

Building the Next Generation of Secured Credit

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Why Secured Credit? The Case for Inclusion and Revenue

At a time when millions of Americans struggle to qualify for traditional unsecured credit and banks face mounting pressure on debit revenue, secured credit offers solutions for both financial inclusion and revenue strategy.

Millions of consumers need alternative pathways to credit.

Secured credit has historically served consumers who could not qualify for traditional unsecured cards. That population remains substantial. More than 45 million Americans are underserved or underbanked, representing a meaningful addressable market for accessible credit-building solutions.

At the same time, high credit card denial rates are pushing subprime and near-prime borrowers toward alternative options. Recent PYMNTS Intelligence research shows that subprime applicants’ denial rates are 2.3 times higher than those for super-prime borrowers, making it a significant challenge for subprime consumers to secure conventional credit.

2.3x

Increase in credit card denial rates for subprime applicants compared with super-prime borrowers

Secured credit offers a lower-risk on-ramp to credit building.

Consumers who are denied traditional credit increasingly seek alternative pathways to establish or repair credit histories, including riskier options such as payday loans and other nontraditional financial services. For subprime consumers, secured credit offers a structured, lower-risk on-ramp to mainstream financial products.

Unlike unsecured cards, secured credit requires a deposit that backs the line of credit. This structure reduces default risk for issuers while giving consumers a clear pathway to demonstrate responsible usage. By tying credit access to deposits, secured products allow institutions to extend opportunity while managing exposure.

In principle, this alignment makes secured credit uniquely positioned to serve both financial inclusion goals and prudent risk management. For institutions seeking to expand access without loosening underwriting standards, secured credit represents a balanced middle ground.

Revenue pressure is making secured credit strategically attractive.

The renewed focus on secured credit is not driven by inclusion alone. It is also shaped by structural changes in issuers’ revenue.

Debit interchange fees remain subject to regulatory caps established by the Durbin Amendment of the 2010 Dodd-Frank Act, limiting growth potential for debit-based programs. Recent federal court rulings upholding the Federal Reserve’s debit fee framework have reinforced the durability of those constraints.

Credit interchange, by contrast, is not subject to the same caps. As a result, secured credit offers banks and FinTechs a revenue stream less constrained by regulatory pressure on debit products.

As financial inclusion becomes both a social and a commercial imperative, secured credit stands out as a product capable of advancing both objectives simultaneously. However, structural barriers within traditional secured credit programs have historically limited adoption and prevented the product from reaching its full potential.

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Why Traditional Secured Credit Feels Broken

While the concept of secured credit is compelling, traditional models were built around mechanics suited to a slower, more manual era of banking. Today, those mechanics introduce friction, confusion and operational inefficiency—for consumers and issuers alike.

Collateral lockups and double funding create structural barriers for consumers.

Two

Number of separate accounts many legacy secured credit models require customers to fund simultaneously before they have access to credit

Traditional secured credit requires customers to place a deposit equal to the credit limit in a separate collateral account. Because that deposit is locked, consumers must also maintain additional funds elsewhere—such as a primary checking account—to repay credit balances. This structure effectively requires consumers to maintain liquidity in two places simultaneously—a dynamic often described as “double funding.”

Legacy Secured Credit Model

Account | Purpose | Locked?
Checking account | Daily spending and payments | No
Collateral account | Secures the credit line | Yes

Example:

Customer wants a $500 secured credit limit.

Typical legacy model:

• $500 placed in collateral account (locked).
• Customer must also maintain money in checking to repay credit balances.

So if they spend $100 on the credit card:

• They must repay that $100 from checking.

Meanwhile, the $500 collateral stays locked.

Meaning they effectively need liquidity in two places:

• Locked collateral
• Spendable checking funds

This is referred to as double funding.

For consumers with limited liquidity, tying up an entire deposit equal to the credit line creates a meaningful financial hurdle. Instead of functioning as a flexible bridge to credit building, secured credit can feel like restricted access to one’s own money. The result is a structural barrier that dampens adoption before the product even has a chance to deliver value.

Split balances and delayed updates create daily friction.

Beyond capital lockup, legacy secured credit introduces usability challenges. Manual fund transfers and delayed balance updates can slow access to credit, reducing engagement and undermining the very purpose of credit building.

At the same time, customers must track multiple figures—such as “available to spend” and “secured limit”—that do not always align intuitively. These fragmented balances create confusion, drive customer-service inquiries and erode confidence in the product. In a financial environment shaped by real-time visibility and streamlined digital experiences, such friction feels increasingly outdated.

Operational complexity limits scale for issuers.

The friction is not limited to consumers. Traditional secured credit models also introduce operational burdens for issuers. Split accounts and manual fund movements create reconciliation challenges, manual exception handling and potential disputes over fund allocation and limit adjustments.1, 2 These back-end complexities increase servicing costs and constrain scalability. What should function as a strategic growth lever can instead become administratively heavy infrastructure.

When secured credit underperforms, it is often not because demand is lacking but instead because legacy mechanics create avoidable friction at both the consumer and institutional levels. To unlock its full inclusion and revenue potential, the underlying funding model must evolve.

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How Dynamic Funding and Real-Time Design Unlock Secured Credit’s Potential

Modern secured credit rethinks how deposits, limits and transactions interact. At the center of this evolution is dynamic funding—a design that simplifies the user experience while strengthening operational control.

Dynamic funding unifies balances and secures only what is spent.

Rather than forcing customers to juggle multiple balances, next-generation secured credit aligns funding, authorization and credit building in real time.

Dynamic funding eliminates separate collateral accounts by maintaining a single “available to spend” balance that supports both debit and secured credit transactions.

Next-generation secured credit

lowers upfront friction, expanding access for underserved customers while preserving compliance and risk controls.

Next-Gen Secured Credit Model

Dynamic funding:

• Uses one balance.

• Secures only what is spent.

Example:

Deposit: $500

Spend: $100

Only $100 becomes secured.

Remaining $400 stays liquid.

So no separate collateral account.

Instead of locking the full credit limit upfront, only the amount actually spent is secured. This approach preserves liquidity for consumers while still protecting the issuer. The result is a simpler, more intuitive model that aligns credit usage with real-time deposit availability.

Real-time automation reduces friction for consumers and issuers.

Dynamic funding also automates fund movement between balances, eliminating manual transfers and reducing disputes tied to timing or allocation. By removing double-funding requirements and streamlining updates, next-generation secured credit lowers upfront friction, expanding access for underserved customers while preserving compliance and risk controls.

For issuers, automation reduces operational burden, minimizes exception handling and simplifies reconciliation. What was once an administratively heavy product becomes scalable infrastructure.

Modern secured credit strengthens profitability and process optimization.

Dynamic secured credit also enables institutions to capture credit interchange revenue in a constrained debit environment, supporting both inclusion and institutional profitability.

Modern secured credit is not just a new feature. It represents a structural redesign that aligns consumer clarity, operational efficiency and revenue strategy.

Technology partnerships can accelerate the adoption of next-generation secured credit.

Secured credit’s next turn will be defined not only by better mechanics but also by the partners institutions choose to implement them. Technology providers can help issuers modernize funding models, automate operational workflows and integrate secured credit into existing banking platforms.

For example, Galileo’s secured credit solution with dynamic funding enables FIs to deploy modern secured credit programs that streamline deposits, automate collateral management and support real-time balance visibility. By combining modern infrastructure with flexible funding mechanics, such partnerships can help issuers launch scalable secured credit programs more efficiently.

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Building the Next Generation of Secured Credit

Secured credit’s future will be shaped by design decisions made today. Institutions that modernize funding mechanics can expand access, diversify revenue and simplify operations simultaneously.

PYMNTS Intelligence recommends the following steps for institutions seeking to modernize secured credit programs:

Reduce upfront friction. Replace legacy collateral lockups with dynamic funding models that secure only the amount spent.

Unify account structures. Simplify the customer experience by eliminating separate collateral accounts and enabling a single balance view.

Automate funding and reconciliation. Implement real-time balance updates and automated fund movement to reduce operational complexity.

Expand financial inclusion strategically. Use secured credit as a structured pathway for underserved consumers to build credit histories responsibly.

Optimize revenue mix. Leverage secured credit programs to capture interchange revenue that is not subject to debit caps.

Partner with modern infrastructure providers. Work with technology partners that support dynamic funding, real-time processing and scalable secured credit deployment.

Secured credit has long been positioned as a niche product for credit building. Yet when designed with modern funding mechanics and real-time infrastructure, it can serve a much broader role: expanding financial access while strengthening institutional economics. As the industry reexamines how credit is delivered, the institutions that rethink secured credit today may unlock one of the most practical growth opportunities in tomorrow’s financial landscape.

Traditional secured credit often required consumers to tie up liquidity in ways that created confusion and limited adoption. By modernizing the funding model and securing only what is actually spent in real time, financial institutions can deliver a simpler experience while maintaining strong risk management. This approach allows secured credit to function as both a practical pathway to credit building and a scalable product for issuers.”

Shankar Pandravada
Senior Director, Product Management, Galileo

1. Galileo Hub Blog Secured Credit Document
2. Galileo Secured Credit: Simplifying Credit for the Next Generation Flyer