Home > Customer behavior > Credit cards: the new corporate menace we keep funding

Credit cards: the new corporate menace we keep funding

Andrew Martin of The New York Times wrote an article detailing how banks will be charging more to their customers who pay in full and on time each month. The article implies that it’s because the Obama administration is attempting to curtail the penalties, raised interest rates, and other fees the credit card companies are charging.

The credit crunch Many people in the U.S. today are dependent on credit cards for their monthly expenses. The credit card industry has pushed for–and gotten–a largely cashless economy. We pay many of our monthly bills through credit cards. Online storefronts like Amazon and iTunes pretty much require credit cards. Hell, Southwest Airlines won’t even take cash if you want to buy a beer on the plane.

What the Obama administration is doing, though, is setting an artificial price ceiling. Anyone who’s taken a basic economics class knows that artificial price floors and price ceilings don’t work–because they go against the laws of supply and demand. And the problem is that the demand is fast outpacing the supply. We still want credit, we just don’t want to pay what the banks are selling it for. If we want it to change, we–all of us–must lower our demand for credit.

Banks left and right are cancelling people’s credit cards, lowering credit limits to below their current balances, and even offering to forgive a portion of customers’ credit card debt if the customers agree not to use their cards anymore. It sucks to be a credit card customer right now. And with the average household holding almost $10,000 in credit card debt, many people don’t really have a choice.

Many people hate how Wal-Mart treats their employees. Many people hate how Microsoft treats their customers. Many people hate the oil companies. Yet all those companies keep making money hand over fist. If you don’t want to give those corporations power, stop giving them money. When banks (or Wal-Mart, or Microsoft, or Chevron) make it painful for their customers to stop doing business with them, it’s very hard to lower the demand.

Yet it happened. One year ago, the price of gas hit $4.59 a gallon. That made it more painful for people to pay for gas than to stop driving. So people stopped driving. The number of miles driven by Americans went down for the first time in decades. Demand for oil went down 5% as people chose to drive their more fuel-efficient cars (and stopped driving so much). Oil went down from $135 a barrel to $55 a barrel. Gas went down from $4.59 to $1.99 in 6 months.

What does this have to do with marketing? Right now, people do not want to do business with many banks. This is a great opportunity for some financial organization out there to position themselves as the customer-friendly bank. Want to move your credit card debt to a fixed lower-interest account that isn’t going to nickel-and-dime you? I personally would jump in a heartbeat. Especially away from Citi, who have royally screwed me over the last three months. (But I digress.)

Marketing cannot be successful without customer service–especially in the age of social media, which provides the world with an instant (and very noisy) bullshit detector. Imagine Citi trying to promote their “live richly” campaign now. Or any of the big banks trying to market itself as the touchly-feely bank. The opportunity I mentioned in the above paragraph will only work for a financial institution who has kept a good reputation through this whole TARP mess. Local credit unions may be good candidates.

Whatever happens, banks are going to have a tough time marketing to their customers now. They’ve been able to gloss over their horrible customer service shortcomings because they had the credit that their customers wanted. Now that they don’t, the banks have a public relations mess on their hands in addition to their financial woes.

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Categories: Customer behavior
  1. June 10, 2009 at 8:29 am

    If you expect to always pay your monthly bill in full, your best choice may be a credit card that has no annual fee and offers a longer grace period.

    • June 11, 2009 at 6:34 pm

      Okay, Mr. .com, I think that’s pretty obvious. The point of the article was that, in spite of your moniker, no-fee credit cards are going the way of the buggy whip, because it’s all about the Benjamins.

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