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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 on theme: "Adding Value with Spending Control Functionality Excerpted from IPA/USHFI Financial Products Innovation Fund II Informational Webinar Jonathan Zinman Professor."— Presentation transcript:

1 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

2 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…

3 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

4 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)

5 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


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