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How Credit-Card Companies Can Innovate Their Way From Naughty To Nice

How would a genuinely trustable credit card company function? Answer: exactly the opposite of how they do now.

Few industries are more committed to taking advantage of people who don’t act in their own interest than credit cards. Think about it: If you are a marginally sophisticated consumer who can never resist spending, borrow against the card, roll your balance from month to month, and often incur late fees, then your credit card company considers you a most valuable customer.

In fact, if you dutifully pay your credit card bill in full every month, never incurring a late fee or an interest charge, the official credit card industry term for you is "deadbeat."

In our book Extreme Trust: Honesty As a Competitive Advantage, Martha Rogers and I argue that interactive technologies will inevitably lead consumers to demand a higher standard of trustworthiness from companies. Increasingly, you will come to expect the companies you do business with to protect your interests proactively—that is, to prevent you from making mistakes, or buying more than you need of something, or incurring fees by accident, or overlooking anything else that might be in your interest.

For example, when you order a book from Amazon or a song from iTunes that you already bought from them, before they sell it to you again they’ll remind you that you already bought it once. This is an example of proactive trustworthiness, or what Martha and I call "trustability," and it is almost the exact opposite of the business model that almost all credit card companies operate on today.

So how would a genuinely trustable credit card company function? It would encourage you to be a "deadbeat." Rather than taking advantage of your weakness for instant gratification, it would offer services and tools to help you conquer it. A genuinely trustable credit card would:

  • Encourage you to use the card judiciously. Don’t spend the money unless you have a plan for paying it off (the way utility companies encourage you to turn off the lights when you leave a room);
  • Provide incentives for paying down your balance (reduce your balance to less than $1,000, and we’ll lower your interest rate from 16% to 12%);
  • Let you set a monthly spending budget for the card, and then text or email you at regular intervals with updates (it’s 15 days into the billing cycle and you’ve spent 80% of your monthly budget); and
  • Alert you by text or email two days in advance of a bill being due, to help you avoid incurring a late fee.
A truly enterprising credit card, with a sincere interest in helping customers help themselves, might even set up a program allowing you to save while you spend. Sign up for this service, and for every $100 you spend on the credit card we’ll bill you $105, and we’ll put $5 aside in a savings account with your name on it. (I don’t know about you, but my family would find this to be a highly attractive way to accumulate the savings we never seem to put aside on our own!)

As far as I know, there are no genuinely trustable credit cards like this in operation today. But there will be, you can count on it. Every time you encounter trustable behavior from Amazon, or USAA, or Apple, or Zappos, or Ally Bank, your own expectations go up for the next company you deal with. So it might take a few more years, but you can definitely count on the fact that sooner or later this kind of credit card will be offered by credit unions, forward thinking banks, and perhaps customer-oriented retailers as well. Over time, trustability will become the new standard, and we’ll all be encouraged to be deadbeats.

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[Image: Flickr user Kai C. Schwarzer]

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  • Yvan De Munck

    Groups like Simple and Movenbank are all over this, and rolling out services as we speak. Also, the fastest growing class of cards are the pre-paid ones, as more and more people feel they no longer need/want that much credit buildup, and rightfully so. Deleveraging continues unabated, and concepts like Gamification (playing with PBL's, i.e. points, badges and leaderboards, to nudge people into socially desirable actions / your "forced savings" as a good example) and P2P lending (70%+ of all activity on these platforms are for CC debt refinancing) are still just scratching the surface, while moving things quickly. These are exciting times indeed.

  • Jim Hausch

    I see Amex as the stern parent rather then trusted friend.  Pay the annual fee, pay off the card every month, and they will always be there for you (excellent customer service).  Roll over what they will allow and pay dearly (high rates) for your poor money management, but, if you need them, they will still be there for you.  

  • Lisa Kuhn Phillips

    aaah.....gotta love it.... the new greed is....goodness. education nation, here we come.

  • ram

    You're right in that banks are almost always focussed on transferring value from their customers to themselves, rather than in providing value to their customers. A senior exec at a large bank was really proud when he told me that they made most of their money off the poorest customers.

    You're already seeing some pro-customer offerings. Bank of America offers a keep the change program, similar to what you described. They round up your debit card transactions and move the additional amount to your savings account.They even match a part of it. It does seem like the improvements will be driven by smaller innovators who aren't weighed down by a legacy culture and approach. Perkstreet is an example, anchored on finding offers for their customers. Activehours is another example, with a pay what you feel is right approach to oppose payday loans and overdraft fees. Mint tries to help you manage your money better.

  • KlompusJ

    Your central premise is 100% correct. What is a good customer to the bank is not necessarily a financially sound consumer.  And you present some interesting ideas but there's nothing shockingly new in there.  The problem is the really hard question that you fail to even address: how do they make money with your new ideas?  Interchange, the amount paid by the merchants, isn't big enough to justify the risk of the portfolio, despite the neophytes' protestations to the contrary and there is a significant lawsuit by the merchants that could drive interchange down.  

    So here's the litmus test: Will a consumer pay an annual/monthly fee for these services?  This question addresses two points.  First since there's real costs in running a credit card business and someone has to pay for it plus a profit margin.  Second, it demonstrates how much consumers actually value "trust."  

    My cynical guess is that what an issuer will find is that people would rather pay interest and get miles than buy trust.

  • Lisa Kuhn Phillips

    That would be great, as long as those not-for-profit SERVICE credit unions are......"cred" unions, rather than for-profit mclightweights, in their operating practices, culture of thought and service strategies.