It wasn’t long after credit cards were first introduced in America that the companies realized it wasn’t the people who paid their balances in full each month that would make them the money – it was the people who carried a balance from month to month that would help them become the multi-billion dollar industry they are today.
The trouble with giving credit to the riskier customers of course, was that they had to figure out how to decide which cardholders would pay something each month, and not just run up a huge bill and skip out completely.
Two solutions were created – the first was to create a number of different credit cards, each with different credit limits, terms, and interest rates and give them out to people based on their credit score and credit worthiness. The second solution was a strategy to learn how different types of customers pay their bills. Companies started analyzing how people behave based on what kind of purchases they made on credit cards – and you might be surprised just how detailed their investigations and research have gone.
In 2002, an executive at Canadian Tire had breakthroughs in credit cardholder research when he analyzed the information from every customer who paid with credit card at Canadian Tire stores. The stores sold electronics, kitchen supplies, automotive goods and sporting equipment. Martin could see what cardholders were purchasing. He was able to pinpoint which brands people bought who would continue to pay their bills on time versus the brands people bought that would result in late payments or no payments at all.
People who used their credit card at a bar would typically miss credit card payments, while 47% of people who used their cards at a specific bar could be expected to miss 4 payments in a 12 month period!
Math geniuses who did nothing but study the trends and statistics of credit card use versus how the cardholder makes their payments were hired by all the major credit card companies to analyze risk for lending.
People having babies or getting married were shown to be more responsible with their credit cards and suddenly credit card companies were marketing to people getting married or having babies. Signs of depression or desperation (like seeing marriage counselors or going to pawnshops) would result in credit card companies reducing credit lines since they were more risky.
"If you show us what you buy, we can tell you who you are, maybe even better than you know yourself," said Martin, who now works for Wal-Mart Canada. "But everyone was scared that people will resent companies for knowing too much."
Data driven psychologists are not only employed by credit card companies to determine a cardholders level of risk, but also to handle their credit card collection calls. They know how to talk to people and what to say to get money out of them based on the things they’ve bought and the things they say during the phone calls.
Learn more about credit card company psychology: NY Times article
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