Reinvent the credit card: card and credit unbundled

#1

Whenever the time is right for Revolut to offer “credit cards”, this is an approach I would find interesting…

I am honestly surprised that it is Amex that came up with it.

https://www.americanexpress.com/us/credit-cards/features-benefits/plan-it/index.html

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#2

I think my Barclaycard from Eurowings offers that, too.

“Mit Mein Zahlplan teilen Sie einzelne ausgewählte Umsätze ab 200 € in feste gleichbleibende Monatsbeträge auf und zahlen diese ganz einfach innerhalb einer von Ihnen gewählten Rückzahlungsdauer zurück.”
(Sorry but I don’t have that in english)

However, you are right when saying that this would be a fit. I could imagine that :r: could make it more usable. Barclaycard is nothing joyful to handle (in DE).

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#3

Yes, Commerzbank does something like this as well. But as far as I know, their solutions aren’t app based.

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#4

I’m waiting for an overdraft product not so much for credit.

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#5

I like the idea of getting rid of the old terms like overdraft and credit. With debit cards, every overdraft is basically a credit. Overdraft allowance + account balance = money available for spending with card.

Typically, overdrafts or interests on revolving credit cards are more expensive than regular consumer credits spread out over monthly rates.

When combining a debit card with something like Amex’s “plan it” feature, one could decide tha a purchase that is already authorized should be financed over a short term, like three months, for a fixed rate that should be cheaper than overdraft.

This could be combined with account overdraft, but doesn’t have to.

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#6

This has been a thing in Switzerland for quite some time already just a little bit different.

Credit card companies offer a “pay as much as you want of your monthly bill” with a minimum payment. Any amount not paid will be a credit (with a high interest rate)

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#7

Hm, credit and overdraft are definitely for spending money in a general term, for shopping and daily stuff or whenever you want to spend money.

I guess, the Amex plan is for monthly “robust” services. And as I can understand you can’t use this card for up front payments. So, it’s kinda one use service card.

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#8

It is different though. What you’re describing is what all revolving credit cards do, compared to charge credit cards that are paid every month in full.

You can already pay more than the minimum with Amex revolving credit cards. You can decide to pay the full credit card bill and then you will not pay any interest at all. The minimum is just that: the minimum.

What the plan does is it replaces the credit where interest is paid with fixed rates that are shown upfront. What Amex does is basically offering three card types in one:

  • charge card, paid back after 30 days in full: when the „pay it“ feature is used for small amounts
  • revolving credit card: all regular payments end up on that bill
  • fixed rate short term consumer credit: when a payment is shifted over to a plan
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#9

What do you mean by „robust“ services?

„Plan it / Pay it“ is availabe for all Amex revolving credit cards. With revolving credit cards, all payments appear on the credit card bill and the customer needs to pay back just a percentage of the total bill every month. The rest is subject to interest.

An example: one buys a bike for 900 EUR. Instead of paying the full credit card bill after 30 days or paying back just the minimum due, lets assume 100 EUR, and then paying interest on the resulting 800 EUR, the bike payment can be converted into a plan: 3 x 302 EUR.

The numbers are just an example, I actually have no idea how much the fees for „Plan it“ are. But traditionally, fixed rate loans are cheaper for customers than credit card / overdraft interest.

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#10

I mean more expensive stuff, like a car or a house, maybe a loan or a rent etc.

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#11

@Frank

Frank, maybe I missunderstood something, but if a company offers Prepaid/Debit-Cards, by definition, there is NO credit linked to the card…?

@Daidai described how things work in Switzerland - to add to his explanation: there is no “Credit Card Account” as it is normal in Germany, where you have a special bank account for the CC…

With your proposal, I fear the perimeters of the different cards (Prepaid/Debit/Credit) would start to disappear.

If now prepaid and debit should get a credit to them, even just as an option, rating-companys would downrate people just for having several cards - due to each card CAN have a creddit to it - if you use it or not… You may be aware of the “Schufa-Faktor”?

Taking the “no difference” or “credit is independent to the card but available with it”-Thing farther: think of all the issues with “when you can use a prepaid, when a debit, when only a credit”… You know you have a CREDITcard, but can’t use it as the system doesn’t recognise it as such aso…

While I agree the Cardsystem must be unified worldwide (all cards need to work the same way worldwide, also being recognised the same way (not as debit here, prepaid there or credit elsewhere aso), I don’t think “separating the credit from credit-cards and allowing debits to get 'em” would do much good…

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#12

Amex says it is for payments above 100 USD. Their “Pay it/Plan it” offer is available on revolving credit cards, but not on charge cards.

The main benefit would be lower interest for fixed rates compared to interest paid on outstanding credit card bill.

Personally, I find it also more appealing to manage my finances like this, breaking down a larger payment in smaller monthly junks. Calculating costs for APR is complicated. N26 does a good job in being transparent about interest for overdraft for example, so this could be done in a consumer friendly way as well. But I like the idea about “unbundling” credit from card payments and the option to decide after a purchase.

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#13

Revolut already offers a loan in UK – with a partner bank. And then this:

I am aware that they are not offering this right now. But this is the ideas section after all. And after obtaining a banking license, loans seems to be an obvious addition to revenue streams.

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#14

Not necessarily. Technically, every credit card (most common charge card in Germany) does have a card account. It runs with a negative balance and is settled once a month with a direct debit from your current account.

Sometimes, the card comes as an add-on to your current account from the same bank, sometimes it comes without a current account and uses a separate current account as a reference account. And sometimes in rare cases the customer has to manually pay the monthly credit card bill by making a transfer to a pooled account similar to how it works with Revolut. There are debit, charge credit and revolving credit cards available. I believe the market in Switzerland is not that much different when it comes to the most common types of credit cards?

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#15

Sure. This idea does not negate the raison d’être of credit cards. It tackles a different point: notoriously high APRs of revolving credit cards and overdraft allowances.

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#16

I know - but why is a loan now linked to the Card? It’s an additional service like the health-injurance…

And if they should start offering CreditCards - I hope they’d do it similar to the cardcompanys in Switzerland, not as those in Germany… As a seperate “service”; if you enable automatic payments by “get the money from account xyz” or “send me the invoice, i’ll pay with an account convenient for me” doesn’t matter…

But yes, a creditcard shouldn’t be linked to the “main account” or a “special card account” (german system)…

But a debit-card should not, or dare I say? MUST not have a credit on it, as the “credit option” is dangerous:

Just look at the DKB: i think NOW, they’re issuing creditcards. A few years ago, they were debits. But the Card-Account had the OPTION of a “Dispo”, if you wanted it or not. Thus, I didn’t get a (Euro)Account there - I have a double-A-rating in CH, but already a CreditCard (in the original meaning, Swisscard). With a german Dispo, my rating’d dropped to B. You don’t get a german account. Add to it, that I, for using in the EUR-zone, I got my revolut-prepaid. To TopUp, the TW-debit.

…imagine the Mastercard system being changed and each card can now have a credit to it! people like me’d co bancrupt immediatly - as not being able to do anything anymore due to an “instant bad rating”. I’m not the only one who’d have severe issues. Also “chose your card” wouldn’t do much good: eg. you have a swiss CC - as it has best conditions in CH. you have a prepaid/debit for EUR/other currencys, as the CH-card abroad is terrible, but the prepaid/debit hardly works in CH aso…

It would cause more issues than solve AFAIK

And yes, I’m aware how CC’s are handled in germany. All similarities with the “it’s an account” aside: pls have a look at how the swiss credit-card-system works! In Germany, the account is part of your “banking-setup”; it’s an official bank account, hence automatically part of your credit-history (like Dispos aso). In CH, you have the card independently from your bank-history - it’s, every month, a liability you have to pay - but not your banc account. (that’s the way it should be)

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#17

allowances:
I can see your point now, but I still think a “worldwide similar behaviour and handling” of the cards would be more reasonable - so the differences between Prepaid/Debit and Credit would actually make sense

(as in “take Debit, which would work worldwide, if you don’t want a credit, only take the CC if you want the Credit-thing added to it”, as the wordwide similar acceptance and understanding of the cards would finally allow this option)

EDIT: for the different ways of “handling the cards”:
(a little exagergated, but: the way a Credit/Debit-Card is handled in germany is the same as maestro-cards are handled elsewhere; I think this “different handling” is causing more issues using/issueing the card then different allowance-handlings…)

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#18

But how is that in control of an Issuer? Acceptance is related but I didn’t want to get into this here. The idea I was proposing would work with a “real” revolving credit card (like Amex) and a debit card, in my opinion. I am not arguing against credit cards here at all.

I think Amex’s offering is clever for customers because it replaces expensive overdraft interest rates with (presumably) lower fees. It actually offers – unbundled from the card itself – three ways of paying: charge credit / revolving credit / short term installment.

  • charge credit: no interest
  • short term installment: medium costs
  • revolving credit: highest costs

I also believe this idea would make a credit offering easier to plan for the customer and fees would be more transparent and calculated upfront (while APR for revolving credit cards is dependent on the overall balance and impossible to calculate.)

Sure, this is my personal view. I avoid overdraft and revolving credit like the devil avoids holy water: they are too expensive. When I want to buy an expensive fridge for example, I would rather ask for a consumer loan than use overdraft, because it is cheaper.

This could be a way for Revolut to offer some sort of credit, but cheaper than revolving credit card APR. And as someone who does not want or need a revolving credit card, I would find this appealing.

This is not addressing the issue where some merchants only accept credit cards. The benefit for the consumer is to spread out a payment. Think more Paypal’s “pay in 14 days” than “internantional car rental”.

Believe me, you’re wrong here. Most cards are charge cards (basically interest free 30 days credit), but revolving credit cards, completely current account independent, are available as well. The majority of banks offer this:

  • debit card: immediate (up to two days) settlement with current account
  • charge credit card (separate credit card account, runs only on negative balance, no interest, settlement once a month with direct debit from any bank account or with a manual transfer)

Some banks offer this:

  • revolving credit cards (they cary a negative balance, users pay a minimum every month or settle the full bill – then no interest. Interest rates are somewhat in the ballpark of overdraft allowances)

Sure, we can discuss this. One benefit that I see with “unbundling” is that one does not have to decide at the moment of payment if a given payment should be financed or not. It can happen afterwards, even days later. And some people might find it easier to track their spendings this way. Future payments for the installment could be factored in somehow in the account balance, there could be reminders. With credit cards, you need to track several accounts.

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#19

Barclaycard UK does this too as well. The transaction though must be a minimum of £400.

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#20

Thank you for pointing it out. I wasn’t aware of this.

It shows one of the potential benefits: fee for “Instalment Plan”: 2 to 8%. APR for Barclays’s “representative example”: 19.9%

https://www.barclaycard.co.uk/personal/instalment-plan

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