Coming soon: credit and debit cards that cut you off when you disregard your own monthly budget.
In the next couple of days, MasterCard is expected to announce that Citigroup will be the first company in the United States to issue MasterCards with special features intended to protect consumers not only from thieves but also from themselves.
The service, called inControl and already in use by some Barclaycard holders in Britain, is a sort of financial chastity belt that offers the potential to prevent a variety of budget sins and other money traps.
Worried about your restaurant habit? If your bank adopts MasterCard’s service, you could tell it to have your debit or credit card reject any restaurant purchase above whatever monthly cap you set.
Sick of your credit card number falling into the hands of thieves? Tell your card issuer to never allow charges originating from the fraud-prone countries that end in “stan” or “ia.” (Don’t worry: You can instruct your bank to make an exception for Australia during the few weeks that you’ll be honeymooning in Sydney.)
Or, if you don’t want to get too fancy, you could simply make sure your bank never lets you spend more than you have in your checking account by having your credit card shut off once you’ve reached the limit you set that corresponds to your monthly disposable income.
At the moment, Visa doesn’t offer anything quite like this, though the company and the banks that issue its cards do offer alerts when you’ve reached certain spending thresholds. Discover and American Express don’t have any such features on their consumer cards either.
Citi customers will have to wait a bit to use the new MasterCard service. And when introduction begins in a few months, it will include only alerts for credit card customers; letting people set their own spending limits will presumably come later. MasterCard says other banks will add inControl as well, though it won’t say which ones just yet.
Still, this is the sort of service that makes you slap your forehead and wonder why it didn’t exist before. It has the potential to solve the core problem with budgeting: it’s easy to make a spreadsheet and track what you spend, but it’s awfully hard to stick to the plan.
Changing behavior, in the end, is the biggest challenge. And now MasterCard seems to have made it possible for your bank to become a partner in your self-improvement instead of an enabler of your misdeeds.
The inControl system, at its most basic level, is intended to let people do two things: be warned about charges on their cards and block the wrong kinds of transactions.
Alerts can be sent when a purchase is made with a credit or debit card in particular geographical areas or at certain dollar levels. Also, if you use your card only for in-person purchases and never use it online or for recurring charges, you could arrange for an alert every time your card is used when you’re not present at the merchant ringing up your purchase. That way, if fraud is afoot you can call the company right away to cancel the charge.
If the alerts start to get annoying, you can alter them or turn them off at any time through your bank’s Web site or over the phone.
Third parties like Mint.com already offer such alerts, like when you’ve surpassed your monthly grocery budget. But Mint must log in to your bank’s site to retrieve updates, and it does that only every 24 hours unless you log in separately. The inControl alerts happen in real time. Besides, for Mint’s service to work, you need to give it the username and password for your bank account, something that makes a lot of people skittish.
The real leap with inControl, however, is being able to turn off certain forms of spending altogether. Dining out is the one I sometimes have trouble keeping in check, but for you it might be your iTunes habit or something else. While inControl now sorts companies into merchant groups that you can set budgets for or ban altogether, MasterCard said that if it had enough demand for company-specific caps it would add those, too.
“The personalization of consumer products has reached far deeper than it ever has before,” said Ed McLaughlin of MasterCard, whose title is chief emerging payments officer. He added that he was well aware that financial services companies had lagged on this front for some time and that inControl was created to help banks catch up.
MasterCard hopes that banks will use inControl to help consumers restrain other people’s spending, too. Your college-age child could be issued a card linked to your account with a limit the size of whatever monthly allowance you’ve agreed on (and maybe an automatic rejection for any charges at a bar or liquor store). That way, you keep any rewards for your child’s spending — and still keep an eye on where the money is going.
Employees can get the same treatment. A baby sitter, for instance, could get a card billed to you that doesn’t work on the Internet or outside of your state. People with cards for their small businesses could limit their employees’ use to weekdays or to construction supply stores. (Many commercial cards from MasterCard and others already work like this.)
So what could stop inControl-enabled cards and copycat products from showing up in millions of wallets? Plenty.
If consumers en masse got religion and placed a cap on their spending, credit card companies wouldn’t collect very much interest. So what incentive do these same companies have in helping people with their willpower?
When I asked Mr. McLaughlin how he would respond to card issuers who asked this question, he fell silent for several seconds. Then, he said he would compliment their office décor. Why? “I think anyone knows that having a superior offering wins out in the long run,” he said. “To get that office, they would have to know that.”
Actually, there are several reasons for banks to sign up. Once consumers start setting limits, alerts and warnings for a particular credit or debit card, they’ll have a lot more reason to use that card every day, lest they lose the consolidated snapshot of their spending. Thus, the bank makes more money from fees merchants pay to accept the cards.
Also, for a bank like Citi that’s still trying to win back its reputation, offering a service that helps consumers control spending can’t be bad for its image.
That said, the service isn’t foolproof. Even after you’ve hit your monthly limit, you will be able to turn your card back on via telephone (and eventually via a mobile app). And nothing’s stopping people from dipping into their wallets for cash or raiding the nearest A.T.M.
Presumably, however, having a credit or debit card reject a purchase in real time will send enough of a message to put a psychological damper on any additional spending in that category for a while.
There are execution risks here too. Setting up a self-service Web dashboard for people to spin the dials and pull the levers on their cards is tricky. When things get buggy, they’ll flood the phone lines, which is expensive for a bank.
Also, the merchant codes need to be correct for MasterCard to recognize purchases and sort them into the right categories. Anyone with a rewards card that earns more in some stores than others knows that these systems can make mistakes, and that stores like Wal-Mart and Target don’t change their codes according to what categories of products you buy there.
Why not forget about cards and use cash, or just put the cards away after the online statement hits a certain number each month? This is certainly possible, but then you’re losing the ability to track all of your expenses easily through your monthly bills or through sites like Mint. Or, you’d be giving up cash back or rewards points.
So adopting inControl won’t be easy, and banks like Citi might take a year or two to fully integrate all the bells and whistles. Try to be patient and not pester them.
I’m convinced, however, that the ability to cut yourself off from certain kinds of spending will become a standard card feature sooner rather than later.
After all, now that this possibility is real, whether banks offer it or not will become a litmus test for sincerity. If they want to argue with a straight face that they’re in business to help their customers make prudent financial decisions, how could they not let people cap or block certain kinds of spending in any way they want?
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