So, since FakeIPLPlayer copied Cynicalbanker's style (refer below posts for proof dated over a year ago), I've decided to stop making such references to people I work with. For more than one reasons. Apart from the fact that a lion kills its own dinner, this is also a country that reads and blogs a lot - so there's always room for holdup.
For once, I'm going to be a little serious, and write what I actually think about my job. Being in credit cards is very, very different from being in hard core banking - but that isn't to say this is any less a business. From what I've seen, there aren't many big fans of the business right now.Who'd want to dish out money on credit with a "trust"-ing period of six months when the world's coffers are going bust?
Basic issue number one. I do appreciate the value credit cards bring to a person's life in terms of automated accountancy and pushing your actual payments till later. What I do not understand is why people should not be asked to pay for that luxury. If I bring a comfort to your life, I would want to be paid for it. Credit cards is a business where the real revenue comes from the "revolvers", those who don't pay within the month and bear the crazy interest charge to pay up next month. If the customer doesn't pay up within six months, you write him off. In essence, the business runs on hope that the customer has just the right amount of financial burden to pay late, but he doesn't have so much burden that he will not pay at all. That makes no sense to me - it's almost like luring the customer into a trap that will make you money if he gets out of it, but will pull you both down under if it doesn't work out. Bottomline - credit cards should charge fees, in my opinion.
That brings me to basic issue number two. If today, I went to my business unit and suggested this idea, it would almost sound laughable. Innocuous, ridiculous, crazy. The infinite competition in this business has had issuers in the past few years falling one over the other trying to give the customer better offers in terms of more freebies, superb offers at particular stores, etc. The very suggestion of fee (as I realized in a recent market survey) gets shot down with less than 5% of respondents even feigning interest. Here's my take on why that happens - the customer, while intelligent, is also busy. He doesn't have the time to decode all the different offers competition is making him, calculate NPV and choose a fee paying product - which is why when he sees 10 free cards, and one card he must pay for - he naturally picks up the free stuff.
Which is why, a responsible businessman worth his salt should explain to the customer what he's getting into with zero pretence. Three months in this business and whatever little I've talked to customers has convinced me that it makes total sense to sit down with your customer (like a relationship manager) and explain to him why he's doing the right thing by using your card. Offers, rewards, product features, discounts, whatever. You've got to tell him.
Owning a credit card is almost like having a bank account. There are issues around reputation, reliability, responsibility and all of those hygiene factors. Add to that the prestige value and the superb experience a customer expects to get when he walks in with his credit card (apart from the actual utility). It's high time we started charging for that service, and it's high time we told the customer why.
PS: I just can't wait for the brickbats on this one :)
8 comments:
Do you really have the time and energy to explain NPV to your customers? :) And your new product (Fee + low interest rate, if I got you right) might attract only the bad eggs, who're paying the huge interest on account of late payment. Adverse selection are there.
I might be the wrong guy to comment on this, but by being a customer I think it allows me the right to comment - I really really liked your idea. Perhaps a well established bank can implement it.
I too am assuming that by charging fees you are planning to reduce the penalty on late payments. I agree with Maddy's point but let's say this is essentially the card for bad eggs. What I like is the linearity of the fees you pay. In the present system if you pay at time t you pay nothing extra, if you pay at the (t+1)th minute you pay a ransom!
@Maddy - If savings accounts can do it, so can credit cards. Of course, there's always directed marketing you can do to get around the problem.
My new product, as you call it, isn't (fee + low interest rate). It'd be just fee + existing credit card which is why I said the idea would not pass muster today. The other thing you have probably not accounted for, is that every credit card comes with its own host of usage and rewards offers and people have no way of knowing which offer saves them how much money, if you will.
I agree with your point of adverse selection, but I don't mind having customers who pay in 2 or 3 months. There are bureau ratings that will filter out the real defaulters for me anyway. In fact, charging customers the fee reduces the uncertainty around my revenue and lets me play more confidently with my sales - whereas now I'm having to make sure customers of all vintage know my "awesome new" run-of-the-mill discounts every time I give it.
I may not be qualified enuf, but........
There is some rationale when speaking from a banker's perspective. But as a customer, with no history of defaults, I would rather give up my credit card, than paying a fee(given that I don't take pride/prestige in using my CC - partly bcos of its ubiquity). There is also the option of Debit card. Not sure about the stats, but I believe, the DCs have dug into CC's profits.
Taking into the account the manner in which the customers have been chased(read harassed :-P) by the banks with a multitude of freebies/offers, any retrograde move wud earn only the wrath of the customers. The idea MAY work, iff the banks form a cartel and start charging fees on CCs in unison.
Regarding revenues from CC usage, there are also the "SERVICE" charges that banks charge for usages like booking Train tickets, booking ur GRE/TOEFL/GMAT blablabla xams(not to forget the charges levied on currency conversion) etc....and I suppose these numbers are huge....Don't know abt other banks, but SBI,in the past, HAD come up with a credit card offering discounts on train ticket bookings.
Won't be surprised if banks come out with cards which can be used only for applications whr service charges apply.
Nataraj - Totally agree about the harassment and the opposition to retrograde movement. But if I came to you with an accounting of how using my offers in combination with my fee-based card would make you money rather than lose it, you might feel differently.
Also, service charges levied might appear huge, but one, these are charges that are used to square off costs the merchant refuses to bear; and two, these are again contingent on finding a source of income based on how much you spend. I wonder if the very concept of luxury / status / convenience holds any value that is not related to how much you spend on the card.
My 2 cents...
I don't think the only source of revenue are people who pay their bills late.
I think the merchants pay a fee for the credit instead of the customer. That's why merchants have a minimum purchase via credit card because below which their profit margin is less than the cost of credit.
First we started off with Credit cards with fee but once competition kicked in slowly the merchants started paying the cost of credit, since without the credit card the purchase would never have happened.
MR dude.. I donno bout other countries but in India it doesn't make sense to charge a credit card fee cuz of one basic reason.. 90% people don't need a credit card here...
One major fact u r overlooking is the fact that there is parallel economy or d 'black economy' in India where Cash in king... People don want to purchase in white money.. The salaried class is still not very large compared to the total potential
So credit card more than a need is a lifestyle luxury here and you as a CC seller first have to make people use it and then may be charge for it.
n frankly if someone charges a fee for CC i'd say dude i'm ok with my cash but when u come to my doorstep and say 'sir, its free!!' and has benefits like cash back, credit etc.. I say ok dude lets try it.. it doesn't cost me even if i don use it..
Mayb 5 years down d line wen i am dependent on a CC for my spending i'll be interested in listening to an MR to explain how a fee based card is better than a free card..
But right now in India the question is NOT of Free card or Fee card..
its more basic that whether credit card or No credit card at all.
n yes if someone needs a credit card then i agree that a fee based card can provide better services.. for instance one manhattan card (though sold by ur competitor), i feel is very good fee based card!!
But such people are very less right now..
i disagree that everytime you bring some comfort to a customer's life you charge them for it]
so many businesses dont
esp net ones - rapidshare, pagalguy etc
the comfort you bring may just be a PoP and in which case u cant charge for it if the industry doesnt
bring a PoD and then you can charge even if comptn doesnt
good post!
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