I don’t use credit cards as much as I used to, and I have switched most of my spend to cash. Having worked for a credit card company and a number of banks, I learned to appreciate and use credit cards as a budgeting tool (I blogged about it here). Yet I have recently grown convinced that unless credit card products are brought in line with the times, they will face even higher competition from debit and cash.
There are different groups of customers in the credit card world. Generally speaking, there are people who don’t qualify for a credit card (so called unbankable), people who are in debt (revolvers), people who use credit cards as a budgeting tool (transactors), people who are credit averse and do not want a credit card even if they can get one.
Transactors are the savvy customers. They repay on time and use credit cards to take advantage of the interest free period as well as points that they get on their spend. There are transactors who are well off and use credit cards for status and convenience. There are transactors who use credit cards as a budgeting tool.
If you talk to people working in the sector, they will tell you that it’s all about credit against debit, or credit against cash. Credit cards just can not provide the same level of control as debit or cash, and so many people who previously used credit cards as a budgeting tool, now increasingly flock to debit and cash, and those who could use them for these purposes stay away from them altogether.
But is there nothing we can do about it?
In the world where we can easily find an app to overlay over the programme and make it do what we want, can we not do the same with the fossils that are banking products? If we can’t disrupt the product, yet, can we at least overlay a layer of the latest technology based servicing over it, to make it meet our needs?
Here is how I propose we ‘hack’ the credit card products to make them a better budgeting tool.
1. Know what you owe at any point in time. There is currently no way to know how much exactly one owes at any point in time (including blocked amounts) and see the split between what is to be paid this month and what – later. I assume that this data is available, so with the right software, why could not a credit card customer see this?
2. Use the normal calendar. The credit cards live in their own time continuum. The dates one sees on their statements do not make sense. Somehow month starts on the 4th, the payment is due on the 16th and grace period is 56 days. Common. How hard is it to create a card which uses normal calendar? If not possible for whatever weird reasons, could there be an app that could convert banking time into normal time and see spend and outstanding balance accordingly? I think so.
3. Allow to plan the spend, eg preset a weekly maximum spend amount and be prompted when the customer exceeds it. Aren’t companies like simple.com already doing it? If software already exists, albeit for debit cards, why could not it be applied to credit cards?
4. Reliable and proactive notification system. Currently credit card notifications are weak, reactive, inconsistent and irrelevant. And they need to be the other way, think how Amazon does it. Especially if I want my credit card to help me plan and manage my spend.
5. All cards in one dashboard. And finally, an app which would (safely) bring all of my payment cards/ accounts balance and spend data together in one dashboard, for me to track my spend in the most effective way. Such programmes already exist like this one in Russia.
One big assumption that I did not mention is profitability of transactors to the banks and credit card companies, who make most of their profits on interest or – bluntly speaking – getting people in debt and keeping them there. Transactors are only interesting to those financial organisations who make money on transactions. However I would imagine transactors are not a small segment and if feeling the squeeze, they give up credit cards like I did, credit card companies and banks should pause, stop blaming debit and cash, analyse customer motivations and finally create a piece of tech that would account for points above. It could be quite revolutionary.
Or if it’s too late for the current market players, then we need a disruptor, a third party, fintech start up who can do this. Keep watching the space.