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Credit Cards and the Unbundling Craze

Credit Cards and the Unbundling Craze

Anton Samsonov | Dreamstime.com

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Monday, 10 September 2018 10:03 AM Current | Bio | Archive

In years past, consumers were used to getting services bundled—like premium cable packages that came with a plethora of channels. But as the cord-cutting movement gains steam some 22 million adults have canceled cable as of 2017), is it possible that customers will expect a similarly customizable experience when it comes to credit card services?

PYMNTS.com wondered the same recently, pointing out that the unbundling movement has flourished in the digital age. Music selection, entertainment selection and even financial products have become more "unbundled." That includes credit card services, the article notes: "Credit is being unbundled from the traditional line-of-credit, card-based products."

What's causing this unbundling of credit services? According to Karen Webster, "point-of-sale credit innovators offer consumers the chance to finance the purchase of individual products in-store and online, via white label or branded solutions."

But will this unbundling be as effective for some consumers as cord-cutting and the expanded options of the digital entertainment world? Given how many people value convenience at the point of sale, it may be the opposite: that familiarity in the financial world breeds comfort.

Is Unbundling Good for Consumers?

Although the endless number of choices might—at first glance—seem like an inevitable win for consumers, who drive down prices of individual products through unbundling and force companies to adapt to low-cost solutions, there is also the prospect that expanded choice does not always make for an ideal consumer experience.

We see this bear out in the statistics. Some 67% of consumers prefer that traditional credit card providers handle their mobile payments, suggesting familiarity might enhance convenience as well as comfort. In such cases, bundling mobile payments on top of pre-existing credit card accounts can enhance the point-of-sale experience with minimal interference in the customer's life. Rather than require an entirely new account, a customer can manage both credit card and mobile payments from a single app.

We also see unbundling add to consumer costs in other businesses, such as airlines. Airlines that unbundle their services can reduce ticket prices, giving consumers the feeling of savings. But as baggage fees and associated unbundling costs add up, air travelers are left feeling that the experience is worse than when tickets cost more.

Understanding Unbundled Financial Services

Just where are financial services—including credit card companies—unbundling their services and expanding individual choices? Here are a few examples.

  • American Express offers "Plan It," allowing consumers to finance large purchases directly with American Express. Although it's offered as interest-free, it does come with a fixed monthly cost.

  • Amazon offers special financing in addition to its credit cards. This financing requires signing in with Synchrony, a third party, which can complicate a customer's relationship with the site.

  • Some banks—including traditional banks—are offering digital versions of their banks, further blurring the line between the services a bank offers and its available options to consumers. These digital banks aren't necessarily distinct from the bank itself, but simply a different type of bank targeted at the mobile consumer.

These endless financing options can be problematic, according to Webster. Noting that services like Stitch Fix and Amazon Wardrobe create "outfit bundles," allowing users to choose multiple clothing options before making a purchase, could increase the overall purchase rate beyond what the customer intended. These arrangements stand to benefit companies looking for sales—but they don't necessarily always serve the best interests of frugal consumers. Especially if the consumer finances such purchases at a high interest rate.

The topic of bundling and unbundling is wide and varied, reaching across platforms and coming with advantages and disadvantages depending on individual sectors. In some cases unbundling can give customers the convenience they're looking for. Other bundling services can lead to hidden fees and unattractive offerings that take advantage of perceived convenience without necessarily offering benefit to the customer. Customers watching for bundles—or even unbundling in the name of customer demand—should remain on their toes.

Joe Resendiz is a Research Analyst at ValuePenguin, where he focuses on personal finance and credit research to assist consumers. Previously, Joe specialized on public sector and infrastructure financing at Goldman Sachs. He graduated from the University of Texas at Austin with a BBA in Finance.
 

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Music selection, entertainment selection and even financial products have become more "unbundled." That includes credit card services, the article notes: "Credit is being unbundled from the traditional line-of-credit, card-based products."
credit, cards, unbundling, craze
693
2018-03-10
Monday, 10 September 2018 10:03 AM
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