Bank Launches an Experiment in Credit-Card Democracy

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What if financial services were more like American Idol, say, where you had the choice of different options and could vote for which ones sound best? It’s a weird idea, but one bank is in fact applying this model to a new credit card. 

The American credit card division of British bank Barclays plans to roll out a product called the Barclaycard Ring later this spring. Billed as a “crowd-sourced credit card,”  it’s a flat-fee, no-frills offering — a model a few issuers have been experimenting with, especially in the wake of the CARD Act and consumer ire over needlessly complicated contracts crammed with “gotcha” fees and rate-hike triggers. Citi’s Simplicity card is another example, but this proposed Barclaycard offering takes the idea several steps further.

The card has one fee — 8%, about half the industry average — for purchases, balance transfers and cash advances. There’s a $25 late fee but no penalty rate hike for late payers. The foreign transaction fee is 1%, lower than the 3% most issuers charge.

Terms of the card are easy to understand, but that’s just half of what’s radical about it. In the bank’s vision, Ring customers will function as a democracy. They’ll have access to online forums where they can discuss issues with fellow cardholders. What’s more, Barclaycard US will provide them with the card’s profit and loss information so they can see how much the bank is earning from interest and late fees and how much it’s spending on things like customer service and write-offs.

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Paul Wilmore, managing director of consumer markets for Barclaycard US, says letting customers see the financials isn’t just a goodwill attempt at transparency but an effort to get cardholders more involved in the decisions the bank makes about card services and account terms.

He offers the following examples: Cardholders see how much the bank is spending on phone customer service. The bank highlights this and points out that outsourcing its call centers would cut this expense by a certain amount. Or cardholders view a line item expense for the cost of providing paper statements; next to this, the bank provides a figure of how much it would save if everyone had paperless statements.

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Customers will see in black and white how more cost-effective services effect the bottom line, and then they’ll vote on which option they want. “We can show the community how these economic trade-off decisions work,” Wilmore says. “We’re trying to show them how behavior translates into results.”

Since most consumers don’t care about a bank’s bottom line, Barclaycard US set up an incentive system to get customers to consider these costs. In lieu of a traditional rewards program, Ring cardholders will get periodic “givebacks,” in the company’s parlance, of profit the bank earns above a predetermined threshold. Customers will vote on whether they want that money distributed as statement credits, donated to a charity, or some combination.

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