In Super Crunchers, Ian Ayres notes that Visa can predict divorce — which leads to more missed payments — from credit-card data.
Now debt-collectors are using a combination of data-mining and psychology to improve their collection rates. In this example, debt-collector Rudy Santana treats a recently divorced man with compassion and suggests that it will really help him find peace to pay back as much of the $29,000 he owes as possible:
Eventually, the man from Massachusetts called Santana back with a proposal. He had spoken to his ex-wife, he said. They wanted to wipe out their debt by paying just $10,000 — only 35 percent of what they owed.
Santana had actually already sought permission from the bank to settle for as little as $10,000. It’s an open secret that if a debtor is willing to wait long enough, he can probably get away with paying almost nothing, as long as he doesn’t mind hurting his credit score. So Santana knew he should jump at the offer. But as an amateur psychologist, Santana was eager to make his own diagnosis — and presumably boost his own commission.
“I don’t think that’s going to work,” Santana told the man. Santana’s classes had focused on Abraham Maslow’s hierarchy of needs, a still-popular midcentury theory of human motivation. Santana had initially put this guy on the “love/belonging” level of Maslow’s hierarchy and built his pitch around his relationship with his ex-wife. But Santana was beginning to suspect that the debtor was actually in the “esteem” phase, where respect is a primary driver. So he switched tactics.
“You spent this money,” Santana said. “You made a promise. Now you have to decide what kind of a world you want to live in. Do you want to live around people who break their promises? How are you going to tell your friends or your kids that you can’t honor your word?”
The man mulled it over, and a few days later called back and said he’d pay $12,000.
“Boom, baby!” Santana shouted as he put down the phone. “It’s all about getting inside their heads and understanding what they need to hear,” he told me later. “It really feels great to know I’m helping people in pain.”
Credit cards grew in popularity once credit-card companies realized there was more money in people who didn’t pay off their balances every month:
Today Americans carry an average of 5.3 all-purpose cards in their wallets, and the average household has $10,679 in credit-card debt, according to the industry publication The Nilson Report.
Canadian Tire doesn’t sell just tires, and studying its house credit card’s purchase data revealed who was risky and who wasn’t:
His data indicated, for instance, that people who bought cheap, generic automotive oil were much more likely to miss a credit-card payment than someone who got the expensive, name-brand stuff. People who bought carbon-monoxide monitors for their homes or those little felt pads that stop chair legs from scratching the floor almost never missed payments. Anyone who purchased a chrome-skull car accessory or a “Mega Thruster Exhaust System” was pretty likely to miss paying his bill eventually.
Martin’s measurements were so precise that he could tell you the “riskiest” drinking establishment in Canada — Sharx Pool Bar in Montreal, where 47 percent of the patrons who used their Canadian Tire card missed four payments over 12 months. He could also tell you the “safest” products — premium birdseed and a device called a “snow roof rake” that homeowners use to remove high-up snowdrifts so they don’t fall on pedestrians.
It’s all pretty obvious in retrospect, isn’t it? (And I shouldn’t be surprised that there’s a whole class of people like me, paying their bills and keeping their floors safe, while watching the birds at the birdfeeder from a CO-free living room.)
American Express is using data to choose which customers to pay to leave:
Selected members — the company won’t say how many — received letters with the voluntary offer a couple weeks ago, according to Molly Faust, an American Express spokesperson. Each letter came with an RSVP code that, when submitted online, immediately cancels that member’s card. Members have until the end of April to pay off their balance, after which they will receive a $300 Amex prepaid gift card. If they do not pay off their balance in time, they do not get the gift card and their accounts will still be closed, Ms. Faust said.
Nicholas Ciarelli also shares some data-mining discoveries from a non-credit-card company, Hunch:
For instance, Hunch has revealed that people who enjoy dancing are more apt to want to buy a Mac, that people who like The Count on Sesame Street tend to support legalizing marijuana, that pug owners are often fans of The Shawshank Redemption, and that users who prefer aisle seats on planes “spend more money on other people than themselves.”
Intriguing.