Fintech using behavioral science to monitor consumer debt

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

Nickels, a financial technology company in Ann Arbor, Michigan, works with financial institutions through its Credit Card Coach platform — an application that analyzes anonymized data from checking accounts other sources to help improve the financial health of members through tailored services and marketing efforts while offering account holders personalized advice for managing payments and tackling credit card debt. 

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After completing its inaugural round of seed financing on Oct. 12, the firm is now beginning work on deepening its partnerships with banks and credit unions and furthering its growth through product development and talent expansion after numerous setbacks tied to the COVID-19 pandemic. Though 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 break free of student loan debt as those debts reached record highs. But after seeing business dramatically drop off from a payments freeze put in place at the beginning of the pandemic by President Biden, Nickels shifted in early 2021 to address a different kind of debt, said Joseph Gracia, founder and chief executive of Nickels.

"From a behavioral perspective, there's a decent amount of research that shows … that these [top] 15 major banks have arguably designed a system that is set up to optimize the interest 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 underdiscussed," Gracia said.

Upon integrating its Credit Card Coach program into a credit union's mobile or desktop website, the company found that many members were unaware of how much the various cards they held were costing them in interest. This created an educational opportunity for Nickels to encourage members to adhere to better payment schedules, Gracia said.

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

Credit card balances on the whole have continued to rise, with recent figures from the Federal Reserve reporting a 8.3% annual rate increase in outstanding consumer credit. 

Nickels' partner, Reseda Group, was founded under the $6.8 billion-asset Michigan State University Federal Credit Union in East Lansing, was one of the leading companies in Nickels' funding round and has worked with the firm since August to test its app through the Lab at MSUFCU — a development division for incubating new offerings.

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

"A lot of them are using buy now/pay later offerings [and] not realizing that it is actually a loan with a high interest rate, they don't realize how it works. … Credit cards actually provide an opportunity to have grace periods 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 staff 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 phase of testing. One area of focus will be identifying debts held by other financial institutions. 

"From a return on investment 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, but fintech partnerships can help institutions with smaller economies of scale compete against modern players such as Apple and PayPal when onboarding younger consumers, said Richard Crone, CEO of the advisory firm Crone Consulting.

"What Nickels is doing, much like how a turbocharger brings exhaust back into the engine, is turbocharging [statement and transactional] data that now just flows out the exhaust pipe of most bank processing systems," and using the highly coveted data to provide a boost to the financial institutions, Crone said.

As a resurgence in delinquency continues to impact low-income areas, credit union efforts for marketing other products are impacted for members working to chip away at the accumulated interest.

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

For banks and credit unions, "it's a big issue … because it affects their ability to sell their products," as consumers saddled with debt are uninterested in being cross-sold products, Lerner said.