February 10, 2011

This may come as no surprise, but according to recent research Chase has conducted, American consumers misjudge their ability to stick to a budget. Chase surveyed about 1,000 consumers recently in support of its Blueprint program, which its cardholders (of the Slate, Freedom, Sapphire and Ink cards) can sign up for to help them budget and spend more responsibly, by creating plans for paying down large purchases (e.g. paying for a set of branches within two years) that Chase enforces with its monthly statements.

The results of the survey, which was conducted before and after the December 2010 holidays, found that the 92% of those who set or planned to set a holiday shopping budget were confident they would stick to it. In January, 91% of those consumers insisted they had followed their budget, while the study indicated that only 79% hit their target budget. "Many of the people who missed their budgets underestimated prices or couldn't resist," says Hersh Shefrin, a professor at Santa Clara University who studies behavioral finance.

And those who feel they're in control of their spending are the most out of control -- the 20% of people who said they were "completely in control" of their personal finances were the most out of control and irresponsible about their spending.

"People face self-control challenges all the time," Shefrin says. "There are two ways to approach that -- a) you can use willpower or b) you can have rules or systems that make you behave in such a way that you don't have to face the temptation. Willpower just doesn't cut it for most of us." However, he noted, people can get addicted to setting a budget, sticking to it, and having that work out for them.

Blueprint is intended to do the budget enforcement for consumers, helping them determine a timeframe within which to pay off large purchases and enforcing that by automatically charging them the necessary portion each month.

The beauty of Blueprint for Chase is that it's a relationship builder, a tool for customer loyalty and retention. Chase has a call center in Florida that takes 150,000 calls a day from customers who want to talk about their Chase accounts, some of them Blueprint users who want to talk about their money problems, according to Caryn Kaiser, general manager of Chase Blueprint. "You would think they would be uncomfortable, but they want to talk to someone about it," Kaiser says. Of the Blueprint customers who create a pay-down plan, 89% stick to it and pay off the debt within that timeframe. So instead of a fickle cardholder who hops willingly from one card program to another, Kaiser believes this program is creating a base of loyal customers who will stay with the bank for 25 years.

"Customer retention is valuable -- "it can cost hundreds of dollars to replace a lost customer," Kaiser notes. She expects to see "double-digit" penetration of Blueprint by the end of the year, and since a quarter of all credit cards in the U.S. are issued by Chase, that's a sizable number.

Chase has tapped into a psychological and practical need that many consumers have -- the need to better manage their debt and spending -- and turned it into a product that makes sense for customers and the bank. This is the kind of smart thinking that will help banks succeed in the face of economic, political and regulatory pressure.

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