A credit card, a charge card – how about both?

Just as Americans are beginning to show some restraint with their credit cards, reader Rory Sutherland sends along an idea for a card that doubles as a credit card and a charge card. He says he proposed the idea to an as yet undecided American Express.

Create a card with two PINs. If you use one PIN at time of purchase (eg. 1234) the card acts as a credit card and you have the option of revolving at the end of the month. Use the second PIN (eg. 4321) and it acts like a charge card; you will be expected to pay that expense in full when the bill arrives.

You have hence created a hybrid card, half credit card and half charge card. The difference is one has an option not to be tempted to revolve at point of purchase, not only at point of payment. Hence you may sensibly revolve long-term purchases such as furniture or PCs. Meals out, however, you would sensibly pay off in that month. But my hunch is that people’s self-control and good intentions are better at moment of use than at moment of payment, by which point all one’s purchases have been aggregated into one single, and unexpectedly large bill.

This system would mean you would pay interest when it makes sense and not when it doesn’t. Yet it imposes no constraint on the card holder at all – it merely adds an extra layer of choice and control. You could also impose restrictions on the card – voluntarily – when you first signed up, and could revise these annually: eg. prevent me from revolving on purchases below $100.

As an added piece of choice architecture, the credit card PIN could be longer and more complicated than the charge card PIN.



8 Responses to “A credit card, a charge card – how about both?”

  1. Winston Says:

    It could be simplified a little. If the idea is to let larger purchases revolve, instead of different PINs, it could be a dollar-amount threshold — purchases larger than $x revolve and others don’t. The customer could choose their own threshold.

  2. Rory Sutherland Says:

    I agree. That’s how the idea started. I suppose the reason for the refinement is that a threshold isn’t a perfect way to distinguish between more or less creditworthy expenditure. But that change in itself would be a step forward in terms of responsible lending.

  3. Daniel Reck Says:

    This is a neat application of precommitment, but I fail to see why you have two PINs, instead of two different cards. Unless, as indicated in the comments, instead of a choice, you set, or have the consumer set a threshold above which purchases can revolve.

  4. Rory Sutherland Says:

    Why not two cards? A good question – but two cards are not the same as two PINs: the choice between two cards is subtly different. Most people use whichever card is at the top of their wallet, which then becomes a lazy default option. The two-PIN option is a genuine bifurcated choice, which presents you with the question “Do you want to revolve this or not”.

    Another possibility would be to have two cards, where the credit card loudly declares on the front “I’m buying this on credit”, using mild social stigma to discourage its use!

  5. denny Says:

    Damn! I like the idea. Wish I had thought of that

  6. Rory Sutherland Says:

    I have subsequently refined it further. Here’s how it works.

    1) You set a threshold below which all purchases are billed in full at the end of the month. Why borrow money to buy a couple of coffees and a hamburger?

    2) On larger purchases you are sent a text. “You spent $500 at Target. Over how many months would you like to pay?”

    3) You reply. eg “1”, “12”, “18”, “24”, or “Roll”

    4) The payment, interest and outstanding amount appears on each subsequent monthly payment against the item for the duration of the loan. ie the debt is not aggregated with your other debt.

  7. Luis Says:

    I’m with you Rory that’s the way it should work. It makes it much more interactive and you will feel like you have a say in your finances.

  8. Card Comparison Says:

    Instead of being sent a text you could organise it at the terminal when making a purchase. I’m not sure about the “roll” but being offered interest free periods etc would be handy.

    I love your idea Rory!

    Brian White

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