Digital Matters - Issue 40

At the moment, both consumers and small businesses are being bombarded with appeals from lenders and lessors. Credit providers spend roughly $36 billion trying to attract and acquire consumers. Just last week, my wife and I received 10 credit-card solicitations, 2 phone-company solicitations (AT&T's being the more desperate), and 3 home-equity come-ons. Small businesses -- particularly those that are growing really fast -- are inundated with appeals for various credit services every day.

What all of this adds up to is a fantastically inefficient marketplace for credit. Credit providers spend $25 to $40 for leads -- which often are nothing more than lists of various consumers. Consumers are bombarded with endless and often misleading appeals for credit. Women, in particular, are targeted for high-interest cards. Small businesses are conned into entering leases that are more expensive than outright purchases. Overall, interest rates are exorbitantly high. Like telephone marketing of yesteryear, the whole credit marketplace seems to thrive on confusion and disorienting amounts of contradictory information ("low introductory APR" in bold type, "18.9% interest after six months" in tiny type on the back).

What's missing from this picture is a service that works for both provider and consumer, but that sides with the consumer. There is exactly one such service in existence today: CreditMinders.com Inc., an Internet startup being incubated by GSD&M, an Austin-based advertising agency and marketing consultancy. Listen to Bill Hillestad, founder of CreditMinders, and you can hear how the credit marketplace will change in the years ahead.

Hillestad is a man on a mission. Having worked in marketing, owned part of a leasing company, and been an active player in the credit market, he knows only too well the social cost of a dysfunctional credit market. He created CreditMinders to change the rules of the game: He wanted to use the power of the Internet for the benefit of creditors.

CreditMinders, explains Hillestad in the company's executive summary, is a "free, membership-based, online, personal financial service provider and infomediary. The company's business model features a consumer advocacy, customer-to-business structure which provides consumers free access to their credit report, and a host of automated services designed to optimize their credit rating, minimize their interest expenditures and maximize their discretionary income. These services include a personalized credit-report analysis, which helps members to create the optimal credit package, content for the members to help them understand and manage their debt, and a stored credit package that may be anonymously submitted for offers to the entire universe of credit providers."

The beauty of the site is that it dramatically minimizes the cost of lead generation for credit providers. As noted previously, credit providers today spend anywhere from $25 to $40 per lead. (A large part of TRW's business model depends on this revenue stream from lead generation for credit providers.) CreditMinders charges a fee of roughly $1 per lead, and the leads come from people who have signaled that they are in the market for some kind of credit, be it a car loan, a home-equity loan, or a student loan. Offers are tendered anonymously through CreditMinders until the consumer or small business decides to deal direct. At that point, CreditMinders steps out of the way (having picked up as many as 25 offers for a single customer and about $25 in fees from lenders), and the consumer and the credit provider hash out the deal.

One million members making four credit inquiries a year equals $100 million in revenue for CreditMinders -- and a significant cut in the cost of lead generation for credit providers. The better job CreditMinders does providing consumers and small businesses with high-quality information and connections to high-quality lenders, the more enthusiastic consumers become about the service. The more consumers who sign up with CreditMinders, the more revenue CreditMinders generates to provide consumers with ever better service. This, friends, is what we call a "virtuous circle."

It's possible that CreditMinders won't work. It might be mismanaged, or it might burn too much money in startup mode and cause investors to shut it down, or its servers might crash and burn -- who knows? But the problem is real, the opportunity is huge, and the model absolutely works. CreditMinders -- or something similar to it -- will exist, it will work, and it will ultimately change the credit business forever.

And when that company does work, it will then turn to insurance and other financial services, and revolutionize those industries as well. The net effect, as in the case of Uni-Card, is that the consumer will be better served and that the value chain of the credit industry will be torn asunder and reconstructed along lines that are much more favorable to the creditor.

New-economy enthusiasts say, over and over again, that we live in the age of the consumer. That is true. But it's not nearly as true as it is going to be. For as long as anyone can remember, only the very rich have had any power in the credit market. All of the information, all of the money, and all of the control have been in the hands of bankers and credit companies. Uni-Card and CreditMinders are the vanguard of a whole new order in a multitrillion-dollar marketplace. More power to them. They deserve the credit.

John Ellis (jellis@fastcompany.com) is a writer and consultant based in New York. Contact Bill Hillestad by email (weh@creditminders.com).