Think twice before you ‘Like’: Social media are credit card companies’ newest weapon

Better risk management: That was the biggest and hardest lesson learned by credit card companies during the credit crunch, which started in fall of 2008.  Ever since that frightening period—some call it 'The Great Recession’—consumers and businesses alike have experienced tighter risk management through closed accounts, reduced credit lines, higher interest rates, and more stringent guidelines for credit applicants. 

In an unprecedented effort to minimize their risk, credit card companies and banks have sought every possible resource at their disposal to capture and to store more information about customers—and that includes using social media. While many consumers understand that companies have access to their transaction histories and credit reports, most overlook the tremendous metadata available via social media companies like Facebook.  With the help of such new media, credit card companies have almost a 360 degree look at their customers. 

For example, a credit card company—or an insurance company, for that matter —does a search for profiles mentioning rock climbing.  They cross reference customer e-mail addresses with Facebook profiles.  Over 75,000 matches are returned.  One particular profile shows live pictures of a customer scaling K2, one the most difficult mountains in the world.  The customer has a rather high balance and a high tolerance for living on the edge.  Does the company cancel his account, considering he has a much higher likelihood of imminent death?  Perhaps it cancels the account and gives a lesser important reason like his debt-to-available-credit ratio being too high. 

Information about how credit card companies use data to assess risk—especially when ethics are questionable—is often revealed after the fact, when an employee leaks such information or it is deciphered by a discerning customer.  By then, the damage has been done; valuable information has been captured, aggregated, and stored in a database somewhere subject to the latest algorithm.  However, with the advent of social media and major partnerships, one can figure out current trends. 

One of Facebook’s first advertising customers was Chase in 2006. Here is an excerpt from The Facebook Effect, a recent bestseller that narrates the history and exponential growth of Facebook:

“Chase credit cards was an important pioneer.  Working with a small New York ad Agency called Noise Marketing, it created the Chase + 1 card, specially designed for college students and only available to Facebook users... A week after the program launched, 34,000 students had already joined the group, and Chase soon issued thousands of cards.“

In the same way, American Express has taken advantage of Facebook’s open social graph and API.  Its latest campaign, Small Business Saturday, is partially a public relations scheme to get users to subject themselves to increased data analysis.  Of course, American Express makes money through increased merchant fees by pushing such a campaign, but that’s not a bad thing per say.  In the end, the metadata is more valuable. (In a side note, when I saw the campaign show up in my News Feed on Facebook, I went to the web site to learn more.  A few days later, much to my surprise, the campaign was there in my 'Likes' box.  That was strange, especially since I didn’t press any 'Like' button.)

In conclusion, credit card companies are always one step ahead of the market and two steps ahead of the average consumer. They have to be, for that’s how they make money. Social media and its metadata enable credit card companies to get even further ahead.  Yes, social media are  awesome tools—I love them myself—but consumers must be smarter about exposing the details of their lives to companies that have a history of unscrupulous practices.  In short, think twice before you ‘Like’. 

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Comments

[Merchant Account]

I love the way card issuer are using social media these days. They are all looking for ways to give us incentives to use their cards and I have nothing against that. I understand that there is the risk of getting people who lack self-restraint to overspend by making card use more attractive, but that is always a possibility and not a good enough reason to interfere.

[Kevin D. Johnson]

You are too witty for me. If you 'Like' my site--I've got to put a button on the blog still--it most certainly will increase your credit score and industry awareness. =) Thanks for the comment, Tamara.

[Tamara Oyejide]

I went on a 'liking' spree a few weeks ago. So, I'm sure the credit card companies are having a field day with my information now.

So much info is readily available, that the Internet can be a blessing and a curse at the same time.

After reading this post, I'll be more prudent before 'liking' something, but it's sometimes hard to resist, when you get discounts for simply clicking the 'like' button.

On the other hand, are those discounts worth it in the long run, if it affects my credit score? Probably not.

Also, I just saw your interview on GMA. I'm late, yes, I know. Wow! I had no idea credit card companies could reduce your credit line based on where you choose to shop!

Very informative posts, Kevin. I'm going to have to 'like' your blog...or will that hurt my credit score. :-)

[jason irwin]

i think a lot of people have totally overlooked this. it will be interesting to see how this changes the industry. i think the problem is much biggger than we think it is. only time will tell.

[Aaron B.]

Doh! They already got me. Thanks for sharing, Kevin. Keep up the good work. Can't wait to read what's next.