A behavioral puzzle – how credit cards compete for your business

You are a consumer looking for a credit card. Good news – There’s lots of choices out there. Ultimately, the feature that is going to determine the “price” of the card is the interest rate. The lower the interest rate, the less the card will cost (put aside added complications around annual fees and scenarios where two cards have the same interest rate but different credit limits).

Bad news – Interest rates are abstract ideas. Assessing the costliness of, say, a 2.4 percent APR difference on your credit card bill is not a simple calculation, especially when your spending and payment patterns fluctuate. Plus, paying back interest will happen later. Much later. Consumers are thinking about the present. What can I buy with this card? Throw in some overconfidence. Your past track record of repayment may not be as good as your expected track record in the future. What you end up with is credit card companies that have no need to compete on interest rates since that’s not how the average person is going to pick a card. So what do they compete on?

Reward programs (those are all the rage now).

The simplicity of those reward programs.

Ability to use this card in more places.

Social proof.

Identity (and social proof).



Celebrity pitches.



In other words, everything but interest rates. Puzzling indeed.

Addendum: Here’s a Capital One commercial for a “personalized” card with the option to pick a “low interest” rate. Of course, the real draw seems to putting a photo of your pet on the front.


  • Anonymous

    This is true but what many do not know is that the merchants are paying for these rewards in the way of higher % for those cards. Many credit card processing companies rarely disclose this fact and generally try to lock you into a 3 yr contract. I use http://www.prestigemerchantservices.com for that reason as they don’t charge those outrageous fees etc..

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