Mastercard inControl allows a credit card user to set up a monthly budget so charges are rejected once the user’s expenditures per month reach the budget. Useless for the fully rational consumer and a godsend for the accidentally-profligate and the constantly-tempted shopper.
Citibank is set to introduce this product in the U.S. in partnership with Mastercard, Visa and Amex do not have similar products. The Mastercard network and Citi are in a great position to capture consumers from their competitors. The segment that is creditworthy and lives beyond its means is the most profitable for the credit card companies. It is precisely this segment that will value the inControl feature to limit their consumption. They may be willing to pay for the feature and there is also the possibility that they will spend a lot on their cards so there are plenty of fees to be collected from merchants who accept the cards.
Sounds good for credit card companies. But what’s good for one firm is not good for the industry. If Citi/MC capture consumers from competitors, the competitors will adopt similar practices and adopt the same technology to retain existing user or entice new adopters. Just the sort of competition that is good for consumers and bad for firms.
Perhaps new consumers will get credit cards because of the inControl feature. There must be some consumers who do not even have a credit card as they are have gone overboard using them in the past. If they get one, the additional purchases will generate more merchant fees.
Isn’t that good for the credit card companies? Even that is not clear. More purchases will generate more merchant fees. The fess are set by Mastercard and Visa and accrue mainly to them. The banks may not see much of this additional revenue.
All in all inControl will be good for the networks but bad for banks who will lose the interest fees they generate from outofControl credit card user. The mystery is why MC or Visa did not introduce a similar product earlier. There are good reasons for banks to oppose them….maybe that’s why?
Cheap Talk 
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August 16, 2010 at 7:42 pm
twicker
I would think that this might be good for the banks, as inControl would help make sure clients can actually pay back credit card bills. The banks get a cut of the transaction charges that merchants pay, so they still make money; however, this seems to keep those people most likely to:
(a) stop using the cards entirely (for fear of not being able to pay back all the charges;
(b) use the cards to the point where they become so swamped the bank has to write off part of the debt; or
(c) as you point out, not open a credit card in the first place for fear of being one of the people who’s a member of (b).
So – the bank gets more credit card customers, and more transaction charges; they also continue to get some interest payments from the people who improperly set a budget of $x for a credit line of $x+$y (where the actual ability to pay at the end of the month turns out to be less than $x). There’s a small loss of some interest, but I bet the yearly fees and transaction charges, and reduction of loss due to bad credit, more than cancels that out.
(Of note: I, the bank, may look at your income and think you should be granted a credit line of $x+$y (say, $20,000); you actually know your real ability to pay (because you know you blow a bunch of cash at wherever you practice your vice), so you are more likely to set your inControl limit closer to your *true* ability to pay. I, the bank, now get both (a) your help in actually keeping your risk as good risk, and (b) data to see how good my calculations were — *before* someone reaches the end of their rope. I’m seeing a win.)
August 16, 2010 at 8:42 pm
Bellisaurius
Actually, I kind of like the sound of this feature from the standpoint of security. While I understand that fraud protections exist, if I have a card I use on the net, I can set up a reasonable sized budget, and never have to worry about some huge amount of charges I have to prove aren’t fraudulent.
Or, I guess I can do what I do, which is a have a lower limit card (losing out in that a higher limit may help credit score).