Nick Clements writes about consumer-credit issues at the personal-finance website he co-founded, MagnifyMoney.com; at Forbes.com, where he is a regular contributor; and in his recent Forbes e-book, Secrets from An Ex-Banker: How To Crush Credit Card Debt. As the title indicates, Clements launched his career as a consumer banker. At institutions such as Citibank and Barclays, he expanded banking in Mexico, helped pioneer credit cards in Russia and ran the UK’s largest credit card company.
In his official Forbes bio, Clements sums up his philosophy this way: “I believe that basic banking and borrowing have become too complicated and too expensive. And I believe that technology is poised to change everything, empowering people with information, choice and dramatically better value.” He elaborated on those views in a recent e-mail exchange with The Score:
What are the newest credit card features and trends that you’ve seen gain traction in the industry?
The biggest visible change all of us have experienced is the introduction of the EMV chip, although no one seems particularly excited about it. Consumer complaints are all over the internet and social media about those extra seconds we all seem to be losing at the checkout counter.
But I think the most meaningful trend is the intense competition for new customers, which continues to heat up. Credit cards remain the most profitable lending asset for banks, and 2008 is becoming a distant memory. That means credit card issuers are approving more people, sweetening sign-on bonuses and improving rewards across their product portfolios. Consumers love cash back, and it is now easy to earn 2 percent or more. Consumers love miles, and finding a 50,000-point sign-on bonus is not hard to do. Almost every feature is just getting better as banks battle for customers.
Your website is a great resource for people who are trying to gain a better grasp on their financial health. What do you think is the most commonly asked consumer question when it comes to credit cards, and why?
People email us every day with their questions. Most frequently, people just try to figure out the best credit card for their needs because there are so many choices out there. I think people are suffering from an abundance of choice, and they are looking for help to select the right card.
Another very common question relates to credit cards and how they impact your credit score. They want to know how much of their credit limit they should use and whether they need to “borrow” money in order to get a good score. The biggest myth that just doesn’t seem to go away is that you need to borrow money and pay interest in order to get a good score. We try to tell people every day that you don’t need to go into debt to have a good score.
In your e-book Secrets from An Ex-Banker: How To Crush Credit Card Debt, you go over the ways to identify if a person/reader should or should not own a credit card. Turning the tables around, what do you think the credit card industry could do better in order to serve consumers?
Complexity is the enemy of transparency. When I used to run Barclaycard’s UK business, I asked to see a copy of the original terms and conditions from 1966 (when the product was first launched). It was only one page long. The terms and conditions are now much longer across the industry. Over the years, the simple credit card has become increasingly complex. There are different interest rates for different types of balances, and the interest charged depends upon payment hierarchy. I think the best players in the market are working hard to simplify their product set and communication, but there is still a lot to do.
And there is one practice that has to go away: deferred interest. It is confusing and too many consumers just don’t understand it.
Your “Perceptions on Time & Money” study encompassed research from six countries and demonstrated the correlation between how a person consumes both time and money. What are some of the surprising stats that have come out of both the quiz and research?
Financial literacy education has largely been focused on helping people “do the math.” There is an unspoken belief that if you understand how to calculate compounding interest, you will be in the position to make wise financial decisions and live a financially healthy life. But the evidence just doesn’t show that to be true. We found no meaningful correlation between “financial acumen” and “financial health.”
The UK scored the highest in our global poll for financial health. Having lived in the U.K. for five years, I think consumers there are much more skeptical and have more tools available to help them treat financial products like any other product. In fact, the price comparison websites in the UK (like MoneySuperMarket) inspired me to start MagnifyMoney.
As you have chronicled, the credit scoring industry has undergone rapid change recently. What are the one or two most important changes from a consumer standpoint and why?
I think the single biggest change is that so many more consumers know their score and want to understand in even more detail how it is calculated. Credit scores have a big impact on people’s lives, and for far too long the algorithm lived in a box. Companies like CreditKarma have really been pioneers in making the score, and how the score is calculated, public knowledge.
But as the box is opened, people start to become more acutely aware of shortcomings and start demanding that the system be even more open and fair. I think that is a good development.
The second trend is a focus on making the tent bigger. Far too many responsible people are unable to get a credit score. If you pay your rent on time, use your debit card for all of your purchases and save 20 percent of your income every month, you still might not exist from a credit scoring perspective. Although a secured credit card is a nice product, there has to be a better way to get good people credit scores. A lot of smart people are working on this deficiency, and there have been some real improvements. But we still have a long way to go.
You left a successful career in banking to found MagnifyMoney.com. What is the website all about, why did you create it and what’s next for MagnifyMoney.com?
I get excited by the ability of technology to help people live demonstrably better lives. In the UK, I saw a mature price-comparison market that educated consumers and gave them the confidence and tools needed to find the best savings accounts, cheapest loans and longest balance transfers. When I looked across the Atlantic, I felt like the U.S. market was focused on “lead generation” rather than helping educate consumers and helping them find the right product for their needs.
We have two pillars to our business. The first is content, and this summer we hired Mandi Woodruff from Yahoo Personal Finance as our executive editor. Our team is expanding, and we plan to provide unbiased, actionable answers to every possible personal finance question. Our list of questions is long, and we are just at the beginning.
Our second pillar is our product marketplaces, where people can compare and shop for financial products. Unlike many companies, we don’t “sell” our #1 position. We rank our products based upon the value to the consumer, rather than the commission paid to us. That means we will make less money than our competitors, but I think we will win consumer trust in the long run. In the year ahead, we will continue to expand the number of product marketplaces, with a few big product verticals in the works.