Interview With An Insider, Part 1

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I recently came across a credit card industry insider who has agreed to share some of his experiences on the condition of anonymity.

Here is the first of a three part interview:

JSteele: First, could you please tell me a little about your experience?

Insider: Sure – I worked for one of the world’s largest credit card issuers for over ten years in several departments – including Customer Service. Most recently, I have been working for a third party credit card processor (handling the customer service, fraud/security, collection calls for clients).

I have heard more than my fair share of Customer Service calls and sat in on discussions of both marketing and account pricing.

JSteele: What is the credit card industry’s perspective on people who always pay their balance due in full, on time, and never pay interest? Are these your best customers, or are they considered to be “deadbeats”?

Insider: First off, the credit card business, like any other business, has as employees good hard-working decent people who are just trying to do their jobs and make money for their business. It also has some employees who are shady underhanded people. Customers also come in both varieties. :)

A customer who never carries a balance, uses their card either for only a few small transactions, or charges a lot in each month and then pays in full (a “transactor”) is definitely not the preferred customer.

This type of customer is still making money for their merchant acquirer – a merchant acquirer is still getting their 4%-6% of the transaction when the customer uses their card, but the big money (particularly interest) isn’t hitting this account, so they are not your most valued customer. For a bank that doesn’t own their own merchant acquirer, this type of customer does not generate any profit at all.

Your “best” customer is a “revolver” (with a revolving balance at any given moment) someone who charges right up to their limit, pays the minimum each month and sometimes goes overlimit. This person would be making money for the industry with processing fees per transaction, interest rates, overlimit charges, late fees, etc.

All accounts are valued in that they are counted in the “we have xx cardholders” and we have xx in outstandings” (money due to us). In all honesty, I never heard any customer referred to as a “deadbeat” but we did have to chuckle when we would receive correspondence from someone complaining about a problem and they’d state they’d been a customer for xx years, never paid late, always paid in full – to us that wasn’t the way to show yourself as valuable to us.

JSteele: You mentioned that you have seen practices that “make you want to shower”, have you ever seen companies mark payment as received after the due date, when it was received on or before the due date? Can you share some other “interesting” practices?

Insider: Where I have worked, I never saw payments held. That is a major violation of regulations and I would imagine that anyone caught doing that would be immediately dismissed. There was the occasional error of a machine shredding a check to the point where we couldn’t determine who it was from, the amount, or the account number and in that case, a payment would never hit the account, but the checking account would also not be debited. But it would be very difficult for this cardholder to get Customer Service to accept that they mailed in payment and it disappeared. They would usually be charged the late fee, and of course, if the payment wasn’t credited, they could be hit with overlimit fees as well (depending on their situation).

I personally had a credit card with another institution where the statement would arrive at my house with 5 days for payment to be received. That’s just absurd! If I opened the envelope, immediately wrote out the check and handed it right back to the mail carrier to deliver to them, it would still be late!

The “interesting” practices I’ve seen are for the most part all things that people are aware of – double cycle billing, universal default, foreign transaction fees, payment allocation to lower APRs first – things that when they were being proposed, I thought, “no one is going to accept that – that’s just stealing from customers” but cardholders accepted these fees and didn’t cancel their cards – they kept charging and kept paying. Frankly, that amazed me. To this day I can’t understand why people didn’t just “opt out” and close out their account and pay it off. If people opted out from the first bank that did this, no one else would have. But the first bank made a fortune doing it, so everyone else jumped on board.

During a foreign transaction fee meeting I remember one attendee saying, “well if they can afford to go to Europe, they can afford to pay $2 per transaction”.

Things I have seen that just didn’t make sense were things like refusing to talk with a cardholder about their account because they weren’t the “primary cardholder” – even though the caller would be held responsible for any charges on the card. Also the routine loss of faxes led me to believe that anything faxed in would just get thrown out – not maliciously, just because there was so much paper by the machine and it got all jumbled up and there was no way to make sense out of it.

Read Part Two

Read Part Three

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