Question: How does Billshrink work?
Peter Pham: So far today we have a couple things. One is Billshrink lets you save money on your wireless cell phone plan. What we found is about 80 percent of Americans overpay for their cell phone bill. On average it's about $300 a year, so it's about $25 a month that most people are overpaying on their cell phone. That's just a function of mostly confusing products and kind of services that are out there; it's really hard to understand what you're getting and more importantly what you're actually utilizing. I don't know if you've flipped through a cell phone bill lately; it's a pretty complicated and most people are really, really scared of overages so they typically tend to overpay and buy more than they actually need.
So that's one. Two is credit cards. Credit cards are very popular on our website as well. A lot of people have the same credit card since college or their first credit card, 10 years later, 15 years later, without recognizing the fact that putting a different credit card and a better credit card in their wallet can save them up to a $1,000 a year or in the case of people who actually pay off their credit card every month it can actually pay you an extra $1,000 a month and getting you better points and bonuses and the way you earn a reward, the program.
Gas prices are the third thing we have and that's just a function of where you live and where you work. What we do is route that commute, between point A and point B, and find every single gas station along that routes including figuring out what kind of car you drive to look at your gas mileage, so that you can understand whether or not it's worth driving out of your way.
The last one was actually topical, which is savings accounts. We actually launched a tool on our site that allows people to find the right savings accounts and CD based on your needs. So how much money do you have, how much are you putting away every month, how much do you need access to. What kind of features? Do you need check writing or direct deposit? We actually converged over 100,000 ATM locations so that we can figure out locally which banking product's right for you and which ones to keep liquid and illiquid versus savings and CDs.
Question: How does the credit card portion of the website work?
Peter Pham: It starts with a few simple questions. So do you pay off your credit card every month? Yes or no. If it's a no, it's really how much you owe, how much you are spending every month, and how much you are paying off. The way we look at it is let's try to find you a credit card that's going to cost you the least amount of money. Of course if you're not paying off your credit card every month there is some sort of interest rates and maybe even fees if you're paying late -- making late payments. So our perspective is to find you a card that's right for your spending patterns. If you do pay off your credit card every month, it's where do you spend most of your money, how much are you spending, what's your credit and what type of lifestyle do you have in terms of how do you want to redeem. Do you want airfare, hotels? Are you a Continental or United frequent flyer? Do you only stay in Hiltons or Hyatts or Starwoods? Do you want cash back?
Those are the type of things that we look at. What we did was we calculated all the reward programs that exist over hundreds of different credit cards and broken it down to very simple terms and dollar amounts so that every person can then simply understand what the value of a credit card is based on their actual spending patterns.
Question: Are credit card companies trying to trick us?
Peter Pham: They are not necessarily tricking you; I think what it is is the redemption is pretty big. And if you are a person who really never gets on an airplane, why get an airline reward card? Or if only stay at a specific hotel or if you really want cash, it really makes a difference because each one redeems differently in each one of those categories and also you're spending patterns. Do you go out to restaurants? Do you travel? Are you grocery shopping? Are you buying with these things?
A lot of these cards have very complicated reward bonus, like 3 points for every dollar spent here, 2 points for every dollar spent here. It makes most people pretty dizzy. What we are trying to do is just very simply present that to you what you should be doing to earn the most amount of money from using your credit card.
Question: Is it wise to own more than one credit card?
Peter Pham: There are a couple of things. One is a couple credit cards is okay, in my opinion; probably two. I, for example, have a Visa and an American Express. It does a couple things. One it does help build your credit. I do pay off my credit card every month. In having that gap of how much of a credit line you have versus how much you spend. Your debt to available credit ratio is something that will help build your credit and I prefer to use my credit card mostly for receipts and tracking as an individual, but paying off those credit cards means I get to earn a tremendous amount of reward points and then I get to go spend on when I actually have time to travel outside of work on vacation.
So I think credit cards have its place for folks that are disciplined and having multiple credit cards is okay as long as you don't let yourself get out of control. It's okay for a lot of folks to have a gas card, a credit card that they use for buying every day groceries and items, and another credit card maybe just for travel. But I definitely recommend people kind of keeping control of credit cards getting out of control.
Question: What can we do about the glut of choices out there?
Peter Pham: I think the big companies believe that lots of choices are good but fundamentally a lot of it is built around quantity of services and products. Selling packages and a great example would be television services. Are you Comcast, DirecTV, Dish; what should you do when all I want to do is watch ABC and NBC? Understanding all of your options gets more and more complicated because, a, of competition and, b, I think they're trying to create more dynamic pricing in the marketplace to get more customers, sell kind of promotionally pricing and products, package it sexy or so that it can market. It actually is the opposite. What happens in the market is you get more confused and people understand, "Wow. This new service or plan is now out. How is that different from what I currently have? Is it the same thing and they're just calling it something different, which by the way a lot of cases is what happens, or is it really better or is it worse?" So then you have consumers just kind of confused.
There's a lot things happening to credit card merchants. One is the Credit Card Act of 2009 to credit card holders bill of rights. A lot of it is pushed through by Congress and the House really trying to legislate some rules around helping consumers understand these bills and not getting exhorted interest rates, not gaining penalties on late fees, et cetera.
There's a lot of really interesting laws that are going into effect which again adds to a layer of confusion for people to say, "Well, which cards are fair, which ones aren't, which ones are complying with the law and which one's are good for me as an individual." So we're big proponents of that and we actually have an interactive credit card bill holders bill of rights on our website where we track every single card and which rules they're following and which ones they are not.
The industry is coming along but fundamentally no matter what service that we go and help people with, what we're finding is gosh the number of choices are unbelievable. So working with professor [Richard] Thaler, looking at data, how do we help.? How do we really help consumers figure all this out because if you look at your wallet and you look at your bills that you pay every month, we're touching things that are 20, 30 percent of household income.
Question: What has been your biggest spending mistake?
Peter Pham: College. You know, I was in college and I was one of those first credit card you get not really knowing a lot and ran up my credit card debt quite a bit. Essentially, paid for my college experience, but regretfully not understanding interest rates. I mean, compound interest, penalties, and minimum payments don't last forever. That was the big, big mistake and I hope to educate as many people as possible to not get in the same trap. Coming out of that, I've learned a lot around how credit cards work and how the credit card industry actually is a profitable industry. For me, now, it's how do I get the most out of my mileage? I travel a lot; I use my credit card a lot and so I'm kind of getting back by making sure I have the best credit card in my wallet and being sure I'm earning the most amount of points.
Recorded on November 4, 2009