Fintech uses behavioral science to monitor consumer debt | Credit Union Journal

For consumers struggling with credit card debt at a time when inflation is driving up rates, a Michigan company is working to help their bank or credit union break the cycle.

Nickels, a financial technology company in Ann Arbor, Michigan, partners with financial institutions through its Credit Card Coach platform – an application that analyzes anonymized data from other sources to help improve the financial health of members through tailored services and marketing efforts, while offering account holders personal advice to manage payments and tackle credit card debt.

After completing his initial round of seed funding On October 12, the firm now begins work to deepen its partnerships with banks and credit unions and drive growth through product development and talent expansion following a series of setbacks related to the COVID-19 pandemic. Although it serves both banks and credit unions, Nickels has done significant work with Reseda Group, a credit union service organization.

Nickels launched in 2019 with a focus on helping consumers get out of student loan debt this debt reached a record high. But after seeing the business drastically fall from one payment freeze put in place at the beginning of the pandemic by President BidenNickels shifted in early 2021 to address a different type of debt, said Joseph Gracia, founder and CEO of Nickels.

“From a behavioral perspective, there’s a decent amount of research showing … that these [top] 15 major banks have arguably developed a system that is set up to optimize the interest rates and fees they can charge and not to actually optimize credit card health, which is an aspect of this financial wellness conversation that I think is woefully under-discussed, Gracia said. .

When the company integrated the Credit Card Coach program into a credit union’s mobile or desktop website, the company found that many members didn’t realize how much their various cards were costing them in interest. This created an educational opportunity for Nickels to encourage members to follow better payment plans, Gracia said.

“Three decades ago, credit unions had that extra level of service when it all just went into branches and they had that personal touch. … From my point of view, many of them have struggled to translate that level of customer service and convenience into a digital world , and that’s where I think credit unions and community banks have an important role to play in our financial ecosystem going forward,” Gracia said.

Credit card balances at all have continued to risewith recent figures from the Federal Reserve reports an 8.3% annual interest rate increase in outstanding consumer credit.

Nickels’ partner Reseda Group, founded under the $6.8 billion Michigan State University Federal Credit Union in East Lansing, was one of the lead companies in Nickels’ funding round and has been working with the firm since August to test its app through the Lab at MSUFCU – a development department for incubating new offerings.

Benjamin Maxim, chief technology officer for Reseda Group and head of digital strategy and innovation for MSUFCU, explained how many Gen Z consumers were conditioned to avoid credit cards from a young age and are flocking to options that may cost them more.

“Many of them use buy-now/pay-later offers [and] do not realize that it is actually a loan with a high interest rate, they do not understand how it works. … Credit cards actually provide an opportunity to have interest-free payments and things like that where you can buy something and then pay it off over time as well, but they’ve been kind of conditioned through their upbringing that maybe credit cards are something to avoid,” Maxim said.

After concluding the personal testing phase of the app, Maxim and his team are preparing to roll out the feature to a small group of members this month for the second testing phase. A focus area will be to identify debts that other financial institutions have.

“From a yield perspective for a credit union partnering with Nickels and us specifically, we’re looking to capture those loan balances and bring them over to our institution,” Maxim said.

Credit unions are limited in data sources when it comes to building credit profiles for members, however fintech partnership can help institutions with smaller economies of scale to compete against modern players such as e.g apple and PayPal by the on-boarding of younger consumers, said Richard Crone, managing director of advisory firm Crone Consulting LLC.

“What Nickels do, much like how a turbocharger brings the exhaust back into the engine, is turbocharging [statement and transactional] data that is now just pouring out the tailpipe of most banking processing systems,” and using that much-coveted data to give a boost to financial institutions, Crone said.

As resurgence in crime continues to affect low-income areas, credit union efforts to market other products are affected for members working to take away the accumulated interest.

“For millions of Americans, it’s a serious burden [as] a missed statement or a late payment can jeopardize consistent cash flow and create this whole snowball effect of debt being carried over from month to month and accruing interest, says Dylan Lerner, senior digital banking analyst for Javelin Strategy & Research.

For banks and credit unions, “it’s a big problem for the banks … because it affects their ability to sell their products,” as consumers with debt are disinterested in being cross-sold products, Lerner said.