Before creating MagnifyMoney, I spent my career in banking, working mostly with large multi-national banks like Citi and Barclays. Most recently, I ran the consumer credit card business of Barclaycard in London.
Barclaycard has an amazing history. Created in 1966, it was the first credit card company in England and one of the first in the world. What began in a small office in Northampton, became the number one card issuer in the UK – and makes nearly $2 billion a year globally.
I had the privilege of meeting the team that created this business in the 60s. You still see the twinkle in their eyes as they talk about those early years. When they describe what they did, they don’t mention revenue, earnings or market share. They desperately wanted to find a way to make it easier for small businesses on the Main Street to accept payments, and they wanted to make it easier for everyday people to buy things. I could imagine the founders of Barclaycard feeling comfortable working at PayPal, Square or any of the other payments start-ups, because they weren’t afraid to push boundaries, solve real customer needs and have fun doing it.
When the first Barclaycard was launched, it had a one page set of terms and conditions. I met with a woman (still working at Barclaycard) who had cataloged the history of the fine print. For the first 30 years, the product was relatively simple. But, starting in the late 90s, the fine print grew exponentially. The focus shifted from making payments easier to growing profits. Earnings growth would come not only from acquiring new customers. A bigger focus would be making more money from existing customers. This shift was not unique to Barclaycard. The credit card industry – in both the US and the UK – began to adopt tactics that would have made the employees from the 60s cringe.
What were banks adding in the fine print?
- Risk-based re-pricing: the ability to increase your interest rate (on your existing balance) based upon an opaque algorithm. Reasons for being considered risky could include using your credit card.
- Multiple interest rates for multiple types of transactions. A purchase APR that is different from a cash advance APR that is different a go-to rate after a promotional APR. Yes – every new APR added was usually higher.
- Extraordinarily complex definitions of grace periods (the period where no interest is charged) and interest-free periods. With double-cycle billing, it could be very difficult to finally stop the interest from being billed
- Multiple fees, and fees that cause fees (know in the industry as a pile-on). Your payment is late. A late fee is assessed. The late fee causes you to go overlimit. So, an overlimit fee is assessed. Balances are capitalized daily. So, interest starts accruing on the fees.
- Not to mention the shoddy insurance products that were cross-sold on top – the list goes on
A lot of those practices are now illegal, thanks to the CARD Act in the US and the Consumer White Paper in the UK. While a lot of practices have been eliminated, a ton of fine print still exists. Have you read your card agreement? You will still see many fees, many different interest rates, a different version of risk based pricing and more.
Too much of your money gets lost in the bank’s “terms and conditions” At Magnify, we have one goal- show you how to get it back.
Credit card businesses are still churning out record profits, with returns greater than 25% a year. How can a 50+ year old industry, loaded with data and competition, still provide returns of that magnitude? In our survey, 42% of Americans have average debt of $10,902. 75% of them pay more than 15% interest per year. Think about it: over $1,500 spent every year on interest payments.
Why do people pay those high interest rates and fees?
I believe there are 5 reasons:
- They don’t realize how high their rates are. Until the CARD Act, it was easy for credit card companies to increase interest rates without a whole lot of disclosure. People may not even know they are paying 29%.
- They don’t know how to get their rate lower. After paying the minimum due every month and watching the balance stay at the same level – they don’t know where to begin, and feel trapped.
- They are afraid to shop around, because of what it could do to their credit score.
- They don’t understand how the fees work, so find it difficult to avoid them. And trust me – often we in the banks didn’t even realize how the fee was charged, because it was so complex.
- They are just so busy with their life, that they don’t have time to think about how to reduce the interest rate on their debt.
People work hard for their money, so banks should work just as hard as your local shop does for your business.
At MagnifyMoney, we are going to make it easy for people to compare products and save their hard-earned money with confidence. Our brand will be built upon the trust that we must earn. Our success will be measured by the money we save for you. Given that I spent the last 15 years growing earnings and generating fine print, I believe we are uniquely positioned to help you navigate this overly complex system.
I left my job to create MagnifyMoney with my best friend from college. We believe that we can take $1 billion off the bottom line of banks – and put it into your pockets – with over $1,000 to the average American family. That may seem like a big number, but it is just a tiny percentage of the banks’ total earnings.
Right now, MagnifyMoney is not generating revenue. Going forward, we may get paid by some banks, credit unions or new entrants for referring business.
MagnifyMoney will always make the following commitments:
- We always recommend the best product. We have compared over 300 credit cards and 500 bank accounts at the time of launch. And, unlike a lot of websites, we will not put products at the top of our table because of a commission.
- If we are getting paid – you will know. You will see clearly on the table when and if we are getting paid
- If anyone finds a better deal – even if it from some small one-branch credit union – let us know and we will add it. Nothing makes us happier than a small competitor giving the big banks a run for their money.
Since I left my job last year to dedicate myself full-time to building MagnifyMoney, I have spent a lot of time meeting with banks and explaining our plan. The banks have been cordial, some have even been welcoming (because they are working hard to improve). But, during one of my early meetings, someone told me to “be careful. Too much transparency is not a good thing.”
At Magnify, we respectfully disagree.