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Credit cards could provide better education on financial health

Since the recent financial crisis, banks and lenders have been forced to make significant changes to their processes and codes of conduct. As well as ensuring responsible lending practices, banks have an implied responsibility to educate their customers in financial health. Although Mapa has seen few initiatives introduced in this field, the efforts that have been made are still a good start.

Cause for concern

The FCA released some statistics in their interim credit card market report, stating that 6.9% of credit card holders are in arrears or have defaulted. This figure has raised concerns about the scale of potentially problematic debt, not only for those already “in the red” but also for credit card holders just above the default level who only pay off the minimum allowed every month.

How can lenders educate their customers?

Mapa’s team often encounter tools promoting financial responsibility, such as calculators that show how long it will take credit card holders to repay their balance, FAQs and video tutorials on how to manage credit, warnings about the risks of not keeping up regular payments, and so on. However, it is rare to see anything truly original. Considering the challenge involved in encouraging people to save, more could be done to help them manage their credit cards.

In order to help customers maintain their financial health, and offer a superior user experience, providers need to build their features and apps with ongoing support in mind; like Moven who, with a colour-coded graph, show average spend versus actual spend for the month. When the average spend is less than normal, customers receive prompts to “lock away savings”. Moven do not offer credit cards, but the solution could be adapted to encourage customers to pay off current debt rather than saving.

Moven app showing average spend

Credit card providers could also take note from HSBC, who recently released a new app called “HSBC Nudge”. The app uses gentle “nudges” to encourage small, regular changes in customer spend that will impact their long-term habits. If applied to a credit card product, the app could nudge customers to keep up regular payments, warn them when they are close to the credit limit, or offer advice when they keep paying the minimum amount each month.

ABN Amro offers customers savings advice over Snapchat. Again, credit card providers could make better use of social channels to target those most likely to get into debt.

Lastly, for customers that have a credit card and current account with the same bank, having money left over at the end of the month could trigger a push notification or SMS to prompt them to clear their credit card debt.

Barclaycard offers additional purchase option

A feature fresh on the credit card market is Barclaycard’s “purchase plan”, which gives an additional payment option to customers who might not have the funds for a particular purchase. Customers can set up a payment plan for any purchase over £495 at 0% interest, although a monthly fee is applicable. Payments are then made in equal instalments (repayment plus fee) over six to 24 months. Once a plan has been set up, the credit card holder can clearly see how close they are to paying off their purchase within the app.

Whilst the purchase plan offers choice to customers who might have previously only had the option to buy on normal credit, the communication around the additional monthly fee isn’t very clear. In order to encourage financial health, all fees need to be clearly and visually communicated, to allow the customer to make an informed decision.

Conclusion

Risky lending is what led to the credit crisis. In order to avoid history repeating itself, banks and lenders need to make bigger strides in educating their customers and encouraging financial health. Clear communication, transparency of fees and integration of PFM solutions will help customers make better financial decisions. At Mapa, we hope to see more initiatives to promote financial health in our upcoming credit card dashboard.


Do you want to see how UK credit card holders are encouraged to maintain their financial health? Mapa’s Credit Card Dashboard goes behind the login for 16 providers across the UK every quarter to monitor all the latest changes. For more information, contact us today.

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