Case Study: Exploring Strategies, Ethics in the Credit Card Industry

This case study examines the competitive strategies employed by credit card companies, focusing on fine-grained customer profiling and the use of information systems to categorize customers based on their purchase behaviors. It discusses how this strategy enables targeted marketing and risk assessment, benefiting service providers through product differentiation, strengthened customer intimacy, and competitive advantage. However, the study also critiques the ethical implications of these practices, highlighting concerns about data privacy, customer profiling without consent, and potential discrimination based on purchasing history. The analysis references the OHCHR's stance on digital privacy and argues that these practices infringe on customers' rights, leading to regulatory scrutiny from bodies like the Congress and the FTC.

Running head: CASE STUDY OF CREDIT CARD BUSINESSES
CASE STUDY OF CREDIT CARD BUSINESSES
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Answer to Q1.
The competitive strategy, which the credit card companies are pursuing is fine-
grained customer profiling. In this strategy, card issuers are able to categorize customers
according to their purchase behaviors. A customer uses his or her credit card for various
purchases and purposes. All of this data is recorded by their card issuers. Card issuers achieve
this by a unique code which of the types of purchases have. For example, bars, grocery stores
and casinos have unique codes. Whenever a card user makes any sort of payment to these
stores, brands or agencies, credit card issuers get the data of the code recorded in their
systems. Using this data, these issuers use insights of behavioral science, to gain insights into
the personality and behavior of the customers. This enables the card holders to stratify and
target these customers in various ways, such as recommending them to purchase from a
particular shop based on their purchasing history, or even categorize them as reliable or risky
customers in terms of debt payment, and impose interests and limits accordingly on them
(Rao, Schaub, and Sadeh).
Information systems perfectly comply with these strategies of the card issuers,
benefiting them immensely. Firstly, the age of digitalization has made recording and storing
data easier than ever before. Secondly, technological advancements like big data analytics
have made it easier for service providers to profile their customers, and target them
accordingly. Thirdly, systems and methods such as behavioral scoring models make it easier
for the service providers to profile customers according to their requirements easily and
effectively (Bennet and Alexandra).
All of these systems put together, make it easy for the card issuers to profile their
customers. The system has already categorized shopping places. Therefore, it becomes even
easier for the service providers to profile the people who shop or make payments to each of
those categories, based on the frequency of doing so.

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Answer to Q2.
These existing systems benefit the service providers in the following ways:
Product or service differentiation: Card issuers benefit immensely from the data which they
are able to collect as a result of customer profiling, by targeting them with specific and
differentiated services and recommendations. These recommendations are sent out to the
customers on the basis of their purchase histories and behavioral traits, who thereby find the
recommendations useful, and hence, tend to spend more as a result of it. It also helps the card
issuers differentiate between the customers as reliable or risky, thereby being able use their
potential or threats by regulating interests and limits accordingly.
Strengthen intimacy with customers: This strategy also helps card issuers to effectively earn
customer loyalty and satisfaction. This is because the touchpoints based on the customer data
prove to coincide with the interests and habits of the customers. Also according to the case
study, card issuers have also been able to effectively interact with the customers, increasing
their loyalty. Issuers use the purchase history data to interact with the customers, either to
warn them or inform them about the market trends, or on which occasions the customer has
been cheated by a store or an agency, which in turn enhance the intimacy between the
customer and the service provider. This increases customer loyalty, which benefits the brand
by having them clearing off their debts more often than not.
Credit card issuers have benefited immensely in terms of gaining competitive
advantage as well. The practice of targeting according to the customer profiles have enabled
the card issuers to target more specifically. Firstly, it helps them to save a lot of money and
advertisements and promotion, and secondly, the one to one selling method not only
increases brand loyalty in the customers, but as discussed earlier, it also helps the companies

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in turning the touchpoint attempts into action by the customer. This makes for more revenue
at a lesser expense.
In the recent times when the economic and financial environment has not been the
most favorable for the credit card companies, the strategy of profiling has helped their
businesses to mitigate the threats of delayed debt payments and other issues, alongside
earning more return on investment as a result of the highly targeted approaches.
Answer to Q3.
The practices of the credit card companies, which have been explained in the case
study, are actually unethical to a great extent. This is because customers are unaware of the
fact that their purchase data gets recorded by an external party. Any purchase of any kind can
be a private matter for any customer, which they might have the right to keep private. Credit
card companies infringe that by recording those purchases.
The OHCHR of the United Nations asserts that any data which has the justification of
being protected offline, must be protected online as well; the breach of it is condemned as a
serious ethical issue ("OHCHR | Right To Privacy In The Digital Age"). Referring to this
statement, customers from all over the world have the right to keep their purchase data
private if it is not related to any criminal activity. Hence, this usage of purchase data by credit
card companies to regulate customer behavior according to their favor, can be classified as
highly unethical. What is worse is the fact that credit card companies even categorize
customers as risky based on their purchase history data. Followed by that, they tend to restrict
their limits or impose higher interest rates on those customers, even if they are not
irresponsible payers in real. For example, a person who regularly spends at a bar does not
necessarily have to be an irresponsible payer if he has that affordability. A credit card
company might differentiate him and impose higher restrictions on him. Differentiating

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people and treating them differently is itself an infringement of right to equality
(Ramacharan). Hence, this is a highly unethical business practice by the credit card issuers.
This is the reason why the Congress and the FTC have taken several steps over the last
decade to penalize credit card issuers who exhibit this business practice.

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References
"OHCHR | Right To Privacy In The Digital Age". Ohchr.Org, 2019,
https://www.ohchr.org/en/issues/digitalage/pages/digitalageindex.aspx.
Bennett, W. Lance, and Alexandra Segerberg. "Digital media and the personalization of
collective action: Social technology and the organization of protests against the global
economic crisis." Information, Communication & Society 14.6 (2011): 770-799.
Duhigg, Charles. "What does your credit-card company know about you." New York Times
12 (2009).
Ramcharan, Bertrand G. "Equality and nondiscrimination." Equality and Non-Discrimination
under International Law. Routledge, 2017. 29-52.
Rao, Ashwini, Florian Schaub, and Norman Sadeh. "What do they know about me? Contents
and concerns of online behavioral profiles." arXiv preprint arXiv:1506.01675 (2015).