Crowdsourcing the Credit Card

Can “crowdsourcing” work in credit cards? UK-based Barclays Bank is trying to find out with its new Barclaycard Ring card.

The idea is that cardholders can vote on features for the card, which was rolled out to the U.S. market on March 1 carrying an 8% interest rate. As explained in the following interview with Paul Wilmore, managing director-Consumer Markets, Barclaycard USA, holders can decide on many of the features to be incorporated into the card, such as how much leniency should be shown to late bill payers. The company has already taken a big step for transparency by publishing the card’s financial statement online for cardholders to see.

It’s clear that the success of Barclaycard Ring depends on whether cardholders can make responsible tradeoffs. Sure, every individual wants the most advantageous terms but those features will come at a cost to whatever profits end up being shared by the group. Can individual cardholders, as a community, balance the needs of the individual with the interests of the group? The jury is clearly still out on this experiment.

Q: Let’s start with definitions. What exactly is a “crowdsourced” credit card? What does that mean in this context?

Wilmore: The way we’re defining it, a “crowdsourced” card is a credit card program that is continually enhanced by a community. With Barclaycard Ring, a community of card members will vote on the various features and functions of the program. For example, those decisions could be very simple, such as, “Do I want an NFC chip in my plastic?” or, “Should we allow grace days after the due date of your payment?” Or more complicated questions like, “Where should my credit card be serviced, domestically or off-shore?”

For the first time we’re asking the community to be involved in these important questions. One important aspect that helps pull this all together is that we are actually going to share a portion of the profit generated by this card with the community. Barclaycard funds the card and, obviously, our shareholders need to get back a certain return. But any profits generated above that threshold are shared with the community.

We want the community to help us decide how to allocate those funds, whether that’s as a statement credit to individual members or whether they want to aggregate that and put it toward some sort of charitable donation.

Q: From a user perspective, how is the Barclaycard Ring card different from others? How does it stand out?

Wilmore: First, it’s an incredibly simple credit card. There’s no introductory rate with a high go-to rate; it just has one low rate. There are no rewards. The average APR in the U.S. today is around 15%. The interest rate on this card is 8%. So underlying this card are very, very simple terms and a very simple value proposition for the consumer.

The second part is the community involvement. We are engaging our card members to help us decide what features and attributes of the program are important. There are a lot of financial tradeoffs to be made and, quite frankly, most issuers make those without cardholder input. We’re actually going to engage our consumers in some of these decisions.

An example is the question of whether to service the card domestically or off-shore. If we service it domestically, it’s going to cost $30 an hour; off-shore is $15 an hour. Giving the community a chance to decide ensures our card members have skin in the game through a profit share mechanism we call “Give Back.” Is it so important to have domestic servicing that you’re willing to pay twice as much to have your card serviced this way?

One of the things we’re trying to do with Barclaycard Ring is to simulate what we see in the credit union space. Credit unions historically have loss rates that are 200 to 300 basis points lower than the industry average even though they select from a small geographic pool of people. The hypothesis that if someone has five cards in their wallet and can only afford to pay down one of them, chances are they will skip the big issuer cards and pay their local credit union because they know the employees personally. There’s a connection there. They know that other people are relying on them.

In a lot of ways, we’re trying to create a virtual credit union through this new medium known as social media.

Q: From a technical standpoint, how do you collect feedback from your cardholders?

Wilmore: We’ve partnered with a company called Lithium, which supplies the community platform for several large companies such as Verizon and SAP. On that platform, members of the community can ask questions, answer questions, submit posts and read blogs.

We’ve also developed a unique polling system. At first we’ll engage the community in discussion about a topic or product feature and then ask the community to vote on that feature. What’s unique is that we’ve developed this platform to work seamlessly with our credit card servicing platform. So a member only needs to sign on once into our servicing web site and then they can continuously jump back and forth between the community and the servicing site.

Q: Why did Barclays decide to take this unusual approach to a credit card? What obstacles or technical issues did you need to overcome and how did you overcome them?

Wilmore: The idea for Barclaycard Ring germinated about a year ago as we started to see three major trends in the U.S. market. The first is that trust in big banks is at an all-time low. And that’s true across the board except for the credit unions and local community banks. Second, we are experiencing unprecedented change in the regulatory environment. The CARD Act and the newly instituted Consumer Financial Protection Bureau have redefined the credit card space. Regulators keep saying the same three things over and over again: you’ve got to be simpler; you’ve got to be more transparent; and you’ve got to be fair.

Then, combine all of that with the explosion of social media. Companies like Groupon and Living Social are redefining how products are made and how they’re priced. Our answer to all of that was this new business concept called Barclaycard Ring and creating a financial community.

From a technical standpoint, we know how to do credit cards very well. Combining that with a community platform and integrating that with a single sign-on allowed us the technical opportunity to knit those two together seamlessly and make it a good customer experience.

Internally, while Barclays has been incredibly supportive throughout this process, it’s a big change for a 300-year-old bank to take on something brand new like this. Particularly something like unveiling the card’s profit-and-loss statement (P&L) on the community web site. We are trying to be as transparent as we possibly can to show the community how much Barclaycard makes and how much we intend to share back with the community. It also enables us to show the community how good behavior results in good financial results. It’s one more step in order for us to build that trust with the community.

Q: What about compliance or regulatory issues?

Wilmore: The fact that we’re starting with a very simple product helps simplify some of that. For instance, we’re taking a six-page card member agreement and providing a two-page summary of the important terms and conditions that are contained in it. And we’re putting the document into everyday language that doesn’t sound like “legalese.” It doesn’t replace the agreement, but it’s showing members what they should really be concerned with.

From a compliance standpoint, the CARD Act has made it more difficult to change someone’s financial product. As time goes on, we expect that the community will go for different features that could change the product. For instance, we might ask the community if they want their late fees to be $10 or $25. The offset is, would you like your APR to be 8% or 8.25%? At the end of the day we make the same amount of money, but what’s important to the community?

If the community were to vote to change the product, than we have to give people the ability to opt out. We have to give notice before the product changes. It’s not like the community votes today and the change comes tomorrow. We still have to follow the regulatory guidelines that have been put forth regarding notification and terms and the ability of people to opt out. As long as we explain it to the community and set it up and set the right expectations, we can do that just fine.

In some ways, we’re breaking new ground in how we communicate with folks using mechanisms such as Twitter and how much of that needs to go through legal review. It’s awfully important to be able to send quick responses back to the community. We’ve taxed our legal department quite a bit in helping to make sure we’re saying the right thing.

Q: Based on your experiences with this card, how is the credit card of the future likely to evolve?

Wilmore:  I think changing the dialogue with the consumer and getting the consumer involved in making decisions is here to stay. Social media has given the consumer such a powerful voice; if they are unhappy with something, they can band together with a lot of other folks. Figuring out different ways to interact with customers is going to be essential.

We think we’re taking a very disruptive stance in the marketplace. Sharing our P&L with the community is something no other issuer has been willing or able to do in the past. We think it’s so unique that we’ve actually filed 14 patent applications around this business process. I know there are a lot of people watching what we’ve been piloting and are very curious to see how it will evolve and what kind of level of engagement we will actually get with the community.

Mr. English is a contributing writer to BAI Banking Strategies based in Chicago.