5 ms·

SimplyCredit: Keep the credit cards you love, Ditch the terms that suck

23 points by sksk 11y ago

sksk 11y ago
This is Karthik, one of the founders of SimplyCredit. I wanted to share SimplyCredit here because HN folks have pretty strong views about the banking system and I’d love to get your feedback. Also, this community loves 'hacks' and we feel this may be one of the biggest hacks in the financial services. We created SimplyCredit because we were tired of credit card companies’ approach of 'paying billions in fine is easier than doing the right thing'. To fight credit card companies, you need to understand why their product has been very sticky -- for example, attractive rewards programs incentivizes spend and gimmicky terms keep people in debt for a very long time. Most consumers are not good with managing their finances so handing cash over to them (in the form of personal loans) to manage their credit card debt does not work -- most of their paid-off cards start accruing balances shortly thereafter. We wanted to build SimplyCredit so the credit card companies will not even see a single dollar in interest charges. Happy to answer any questions you guys have. I used to work at FICO for nearly a decade so I would like to think I know a thing or two about the credit card industry.
- commentzorro 11y ago
  One of the things that allows credit card companies to keep the high rates is the difficulty in "bankrupting" your way out of their debt. How do you plan on avoiding this? Are you limiting yourselves to only lower risk people or are you serving the lower income higher risk (but constant balance) people too?
  - sksk 11y ago
    Hey commentzorro, thanks for your comment. I am not sure I follow how you are connecting difficulty in bankrupting to higher rates. If anything, opposite will be true (if your assertion is correct) as they will eventually get most of their money back. Consumer bankruptcy laws are fairly well defined in the US (not that it is nice for the consumer but there is a process) so it is not quite driven by the banks although they probably wrote the legislation around it. If you ask me higher rates are justified because consumer's get tricked into it. Take department store cards for example, they charge 25% - 30% because no one thinks they need to carry this balance forward when they are buying a refrigerator -- they just want the 15% off at point of sale and 0% for 6 months is a bonus. Fast forward 6 months, they have not paid it off and the credit card company calculates interest by going back in time as those interests were 'deferred'. Now with all the compounding they end up getting stuck in debt for much longer they needed to be. For people we give credit to, we focus on consumers with good credit. For others, we will still service them and help them by optimizing their payments and those payments will directly come from their checking account. Edit: I want to clarify one thing. When I say good credit -- it does not mean you need to have a FICO Score or long history. We look at everyone holistically so it comes to down whether you are a responsible borrower measured across many dimensions.
    - commentzorro 11y ago
      There no way to ask in a polite way and I don't think you're doing anything wrong. It's excellent to help people get out of debt quicker ... but are you planning on picking off the low hanging fruit (best credit and demographic) and leave the hardest hit with the likely to increase rates if you're really successful. (And I see no reason why you wouldn't be.) Sort of like selling cheap health insurance to the young and healthy so the rates for the old and sick rise.
      - sksk 11y ago
        That's an excellent question. We want to serve everyone but how we serve them will be different. For example, people with very poor credit -- like the ones that go to Payday lending are not going to benefit from having a revolving line that pays off their credit cards; most don't even have credit cards. However, all of them can benefit from a platform that does the right thing for them -- for example, recommend the right payment amount based on people's cash flow unlike a credit card company which tries to push for minimum payment. Or suggesting changes in spending behavior that can dramatically reduce their overall cost. Especially, the poor disproportionately suffers from compounding of interest. Imagine going to a payday lender (or heck a subprime credit card) and missing a payment. First of, those APRs are insane and on top of it, they compound and just makes it impossible for them to get out of it. We really believe compounding of interest should be abolished on the lending side. In the software world, when users struggle to use a product, the product fails, you don't ding the users. But in finance it is the other way around -- the consumer pays the price for mistakes the lender does. If more main stream consumers demand simple interest and no fees across the entire industry, we will slowly get rid of these evil practices and eventually benefit everyone. We are also talking to regulators on how we can make many of these principles (dead simple terms) as the model for future lending products. The Economist recently had a very interesting article about how the poor end up paying more fees even though they are the ones who cannot afford it -- for depositing money they pay fees, for withdrawing money they pay fees..they really cannot win either way. While, it is harder for us to help the poor on basic banking (deposit type products) at this time but we certainly have plans to do so. Lending can be profitable, we just don't think it has to be predatory for it to be sustainable.
brandonb 11y ago
Joyce and Karthik are awesome, I love their vision to make compound interest a thing of the past.
- sksk 11y ago
  Thanks, Brandon. My friends from the industry are already starting to hate us :)
jugad 11y ago
Brief version: Its sounds like the benefits of "simple interest" are being inflated and being used as a marketing tool. The monetary difference between simple and compound interest are minuscule if the interest is paid off every month - which this service insists on. If you pay off 100% of your compound interest every month, you can only save a few cents per month by signing up with this simple interest. If you can't pay off 100% of your interest every month (the only scenario where simple is substantially better than compound), this service is not available to you. This looks like marketing a very marginally better product (if at all), with excessive pomp. This is no revolution... its much more like well disguised misleading stuff from financial institutions that we are so much used to. ================================================== [ edited to clarify some points ] Karthik, Since you insist on the complete interest being paid at the end of each month, the grand idea of "simple interest" has very little meaning. Hear me out here... The whole idea of compound interest is to charge interest on the unpaid interest. You are "solving" the compound interest problem by not compounding interest for a month and forcing people to not have unpaid interest at the end of the month. However, the benefits amount to very little. If people are capable of paying off their interest at the end of each month, there is little difference between simple and compound interest. I find your explanation on simple interest (https://www.simplycreditinc.com/simpleinterest https://www.simplycreditinc.com/simpleinterest) a bit misleading and self serving. The difference between simple and compound interest (as stated in your essay) arises only in the long run, and your service does not allow long runs of unpaid interest... which means there can only be very little difference. Its misleading to compare long runs (> 30 days) if you don't allow them. The large savings from simple interest only apply to people who cannot pay the interest for 4 years. But you will kick them out after 2 months of non-payment. Also, if a person is capable of paying the interest every month, they don't gain anything by signing up with your service... maybe a few cents on 5000$ every month, but that's it. Nothing more. The positives I really see... 1. Convenience of not worrying about paying different credit cards. 2. Possibly lower interest rate... but I have seen no solid numbers on that on the website. 3. By forcing people to pay off the interest every month, you might make them more financially responsible. 4. I would like to see banking evolve, and this might be a ray of some hope... but I need to see more. Also, it will be useful to give us some ballpark figures on the APR... I would like to see a table of some figures before I take the pains of giving out further details.

23 points by sksk 11y ago

sksk 11y ago

This is Karthik, one of the founders of SimplyCredit. I wanted to share SimplyCredit here because HN folks have pretty strong views about the banking system and I’d love to get your feedback. Also, this community loves 'hacks' and we feel this may be one of the biggest hacks in the financial services. We created SimplyCredit because we were tired of credit card companies’ approach of 'paying billions in fine is easier than doing the right thing'. To fight credit card companies, you need to understand why their product has been very sticky -- for example, attractive rewards programs incentivizes spend and gimmicky terms keep people in debt for a very long time. Most consumers are not good with managing their finances so handing cash over to them (in the form of personal loans) to manage their credit card debt does not work -- most of their paid-off cards start accruing balances shortly thereafter. We wanted to build SimplyCredit so the credit card companies will not even see a single dollar in interest charges. Happy to answer any questions you guys have. I used to work at FICO for nearly a decade so I would like to think I know a thing or two about the credit card industry.

commentzorro 11y ago
One of the things that allows credit card companies to keep the high rates is the difficulty in "bankrupting" your way out of their debt. How do you plan on avoiding this? Are you limiting yourselves to only lower risk people or are you serving the lower income higher risk (but constant balance) people too?
- sksk 11y ago
  Hey commentzorro, thanks for your comment. I am not sure I follow how you are connecting difficulty in bankrupting to higher rates. If anything, opposite will be true (if your assertion is correct) as they will eventually get most of their money back. Consumer bankruptcy laws are fairly well defined in the US (not that it is nice for the consumer but there is a process) so it is not quite driven by the banks although they probably wrote the legislation around it. If you ask me higher rates are justified because consumer's get tricked into it. Take department store cards for example, they charge 25% - 30% because no one thinks they need to carry this balance forward when they are buying a refrigerator -- they just want the 15% off at point of sale and 0% for 6 months is a bonus. Fast forward 6 months, they have not paid it off and the credit card company calculates interest by going back in time as those interests were 'deferred'. Now with all the compounding they end up getting stuck in debt for much longer they needed to be. For people we give credit to, we focus on consumers with good credit. For others, we will still service them and help them by optimizing their payments and those payments will directly come from their checking account. Edit: I want to clarify one thing. When I say good credit -- it does not mean you need to have a FICO Score or long history. We look at everyone holistically so it comes to down whether you are a responsible borrower measured across many dimensions.
  - commentzorro 11y ago
    There no way to ask in a polite way and I don't think you're doing anything wrong. It's excellent to help people get out of debt quicker ... but are you planning on picking off the low hanging fruit (best credit and demographic) and leave the hardest hit with the likely to increase rates if you're really successful. (And I see no reason why you wouldn't be.) Sort of like selling cheap health insurance to the young and healthy so the rates for the old and sick rise.
    - sksk 11y ago
      That's an excellent question. We want to serve everyone but how we serve them will be different. For example, people with very poor credit -- like the ones that go to Payday lending are not going to benefit from having a revolving line that pays off their credit cards; most don't even have credit cards. However, all of them can benefit from a platform that does the right thing for them -- for example, recommend the right payment amount based on people's cash flow unlike a credit card company which tries to push for minimum payment. Or suggesting changes in spending behavior that can dramatically reduce their overall cost. Especially, the poor disproportionately suffers from compounding of interest. Imagine going to a payday lender (or heck a subprime credit card) and missing a payment. First of, those APRs are insane and on top of it, they compound and just makes it impossible for them to get out of it. We really believe compounding of interest should be abolished on the lending side. In the software world, when users struggle to use a product, the product fails, you don't ding the users. But in finance it is the other way around -- the consumer pays the price for mistakes the lender does. If more main stream consumers demand simple interest and no fees across the entire industry, we will slowly get rid of these evil practices and eventually benefit everyone. We are also talking to regulators on how we can make many of these principles (dead simple terms) as the model for future lending products. The Economist recently had a very interesting article about how the poor end up paying more fees even though they are the ones who cannot afford it -- for depositing money they pay fees, for withdrawing money they pay fees..they really cannot win either way. While, it is harder for us to help the poor on basic banking (deposit type products) at this time but we certainly have plans to do so. Lending can be profitable, we just don't think it has to be predatory for it to be sustainable.

brandonb 11y ago

Joyce and Karthik are awesome, I love their vision to make compound interest a thing of the past.

sksk 11y ago
Thanks, Brandon. My friends from the industry are already starting to hate us :)

jugad 11y ago

Brief version: Its sounds like the benefits of "simple interest" are being inflated and being used as a marketing tool. The monetary difference between simple and compound interest are minuscule if the interest is paid off every month - which this service insists on. If you pay off 100% of your compound interest every month, you can only save a few cents per month by signing up with this simple interest. If you can't pay off 100% of your interest every month (the only scenario where simple is substantially better than compound), this service is not available to you. This looks like marketing a very marginally better product (if at all), with excessive pomp. This is no revolution... its much more like well disguised misleading stuff from financial institutions that we are so much used to. ================================================== [ edited to clarify some points ] Karthik, Since you insist on the complete interest being paid at the end of each month, the grand idea of "simple interest" has very little meaning. Hear me out here... The whole idea of compound interest is to charge interest on the unpaid interest. You are "solving" the compound interest problem by not compounding interest for a month and forcing people to not have unpaid interest at the end of the month. However, the benefits amount to very little. If people are capable of paying off their interest at the end of each month, there is little difference between simple and compound interest. I find your explanation on simple interest (https://www.simplycreditinc.com/simpleinterest https://www.simplycreditinc.com/simpleinterest) a bit misleading and self serving. The difference between simple and compound interest (as stated in your essay) arises only in the long run, and your service does not allow long runs of unpaid interest... which means there can only be very little difference. Its misleading to compare long runs (> 30 days) if you don't allow them. The large savings from simple interest only apply to people who cannot pay the interest for 4 years. But you will kick them out after 2 months of non-payment. Also, if a person is capable of paying the interest every month, they don't gain anything by signing up with your service... maybe a few cents on 5000$ every month, but that's it. Nothing more. The positives I really see... 1. Convenience of not worrying about paying different credit cards. 2. Possibly lower interest rate... but I have seen no solid numbers on that on the website. 3. By forcing people to pay off the interest every month, you might make them more financially responsible. 4. I would like to see banking evolve, and this might be a ray of some hope... but I need to see more. Also, it will be useful to give us some ballpark figures on the APR... I would like to see a table of some figures before I take the pains of giving out further details.