One Small Step for a Credit Card, One Giant Leap for Trustability.
Recently
Citibank launched a new credit card product called the “Simplicity Card.” Believe it or not, the Simplicity Card
doesn’t charge late fees, and there’s no penalty interest rate for late
payments.Citibank’s “small step” truly represents a “giant leap” for trustability in the credit card category because, as a general proposition, virtually the entire category is not trustable. Remember, when I use the word “trustability” I’m talking about proactive trustworthiness. Trustability is extreme trust, which means going out of your way to ensure that your customer’s own interests are protected.
If we were to grade the credit card industry on its trustability we’d have to give the whole category no more than a D-, if not an outright F, because the overwhelming majority of credit card companies base their profits on encouraging their customers not to act in their own self-interest.
Consider this: For the typical credit card firm, a marginally sophisticated consumer who can never resist spending, rolls his or her balance from month to month, and often incurs late fees is considered a most valuable customer. And these are not just the kinds of consumers that credit card companies try to recruit, but the kinds of behaviors that credit card companies actively encourage.
In short, the business model generally adhered to by the entire credit card industry relies on making sure that most customers do not act in their own self-interest.
Still not convinced? Well, do you know what the official credit card industry term is for a consumer who pays his bill in full and on time every month, never incurring a late fee, and never rolling a balance from one month to the next? Deadbeat.
Yep, I didn’t make that up, you can Google it for yourself. Any credit card customer who is financially responsible enough not to spend more than he can afford, and who regularly pays his bill on time, is a “deadbeat” in the jargon of the big credit card companies.
In Martha Rogers’ and my book Extreme Trust, we argue that a genuinely trustable credit card (that is, one that proactively watches out for the interests of the customers it serves) would do things quite differently. Quoting from our book:
“Rather than encouraging spending and borrowing, a trustable credit card would counsel its customers to spend wisely and use the card prudently. (Think of the utility company urging you to turn off the lights or adjust the thermostat when you leave the house, for instance.) It would provide incentives for customers to pay off their balances, perhaps reducing the interest rate applied when a balance is reduced. Such a company would be careful not to earn too much of its profit from late fees, which would indicate a flaw in the business model; in fact, it might provide extra incentives for on-time payments.”
So the fact that Citibank has figured out how to promote a card that doesn’t charge late fees or penalty interest rates is indeed a small step. There are a lot more steps to come, but it’s progress.
In our book, Martha and I make an audacious prediction. We predict that the more technologically interconnected we all become, the more trustable every business will have to be, in order to remain competitive – even credit card companies. Every 20 years, tracking along with Moore’s Law, we interact about a thousand times as much with others including friends, co-workers and colleagues, as well as the businesses we buy from. But efficient interactions require trust. And the more interacting we all do – with smartphones, social media, status updates, e-commerce – the more trust we will demand. It’s just such a hassle to have to worry whether you can trust those you’re interacting with.
Trustability, or extreme trust, is the “gold standard.” Trustability will be essential for a hassle-free, frictionless customer experience, and it will be more and more demanded by consumers. So our prediction is that eventually all credit card companies will be trustable – that is, careful to watch out for their customers’ interests, proactively. They’ll all be trustable because the ones that aren’t trustable will no longer be in business.
So hooray for Citibank’s first small step.
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