Adding Value with Spending Control Functionality Excerpted from IPA/USHFI Financial Products Innovation Fund II Informational Webinar Jonathan Zinman Professor.

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Presentation transcript:

Adding Value with Spending Control Functionality Excerpted from IPA/USHFI Financial Products Innovation Fund II Informational Webinar Jonathan Zinman Professor of Economics Dartmouth College Scientific Director, U.S. Household Finance Initiative

Innovating with Spending Control Functionality Consumer pain point (generally speaking): Many people feel like they spend and borrow too much Business case premise: Value-added in helping people do better People will pay for that value-added, or it will pay for itself Design strategy: Attach spending control functionality to existing debt/payments products Three ideas along these lines…

Spend Control Idea #1: Float-Free Credit Card Consumer pain point: the credit card slippery slope Get new card/liquidity Splurge during the float/teaser period Don’t pay in full (even if intend to) Product innovation: Float-free credit card Marketing that says: transparency not tricks Business case could work because: People value commitment (face real cost of spending at all times) Selects better credit risks (more self-aware borrowers) Eliminates transactors

Spend Control Idea #2: Spending Limits Consumer pain point: mad money factor with liquidity Can we do better than the card-in-the-freezer trick? Product innovation: consumer-imposed spending/withdrawal limits Time-based ($50 cap on Fridays after work) Amount-based (cut off after $300 this month) Merchant-(category) based (the latte problem) Channel: cards (MasterCard InControl); ATMs Too? Business case could work because: People value commitment Selects better credit risks (more self-aware borrowers)

Spend Control Idea #3: Loan-linked Decision Aid Consumer pain point: overspending on big-ticket items How much should I spend on a car, house, college education? Product innovation: link budgeting tools to loan Could be voluntary, could be compulsory Could be linked to concession on rate/terms Channels: online, mobile, etc. Business case could work because: People value the help Selects better credit risks (more self-aware, prepared borrowers) Provides additional data for underwriting