Inspiration

In the wake of the global pandemic, customers across the country are struggling with new expenses, loss of income sources, and less time to manage their finances. At the same time, low interest rates mean that banks want to extend credit to more customers, and they need a way to do so without compromising the stability of their loan portfolios.

Idea

Project Ladder is a new experience that banks can offer to customers struggling to pay back revolving credit debt. Instead of transferring the balances to another lender or simply being unable to pay them, banks will roll the existing debt into a repayment plan and restrict new charges to a budget--developed algorithmically or in a conversation with the customer. Instead of one credit limit that can be spent on the first day, monthly or even weekly limits can be set for specific categories. Customers can spend what they need on groceries, utilities, and rent, while limiting discretionary purchases to a fixed amount. Through their unique Path to Zero, customers will be able to compare their new spending against progress towards their old debt to make sure they stay on track.

Project Ladder will benefit both banks and their customers, strengthening their relationships and helping those struggling with credit card balances to pay down their debt while maintaining a banking relationship and keeping the ability to use credit responsibly and thoughtfully.

Features for customers

Receive guidance and reduce the temptation to spend up to their credit limit.
Prevent past-due accounts from being marked as closed for nonpayment on their report.
Keep the option of using credit when truly needed for an emergency, not everyday splurging.
Continue receiving cash back and purchase protection benefits when they partially prepay a larger charge through Request to Spend More, instead of using debit or checks which don't have benefits.

Features for banks

Instead of ending relationships with struggling customers, retain them and position yourself as a trusted partner in their financial recovery.
Turn doubtful accounts back into collectible assets by incentivizing customers to stay on track.
Engage in managed exposure to subprime risks--essential in today's low-rate environment.
Receive higher interchange rates when customers opt to prepay for part of an over-limit charge through Request to Spend More, rather than using their debit card for which interchange rates are capped.

Benefits to society

Reduce the growth of the unbanked/underbanked population.
Increase public trust and confidence in the financial system.
Lessen burden on court systems from bankruptcies and collection actions.
Increase consumer confidence by maintaining ability to spend more when truly needed.
Prevent uncontrolled growth of subprime credit, which can lead to financial crashes.

Next steps

We used simple formulae for approving spend requests, etc., in the real world a bank would have existing models or tie into other enterprise systems to determine this information.
We tried to get the Plaid API working for scanning the user's deposit account transactions to determine spend limits, but did not have time to add it into the finished app.
We want to integrate informed decision making into the Request to Spend More, ex. showing the percentage of the users' income they would dedicate and how much interest they'd pay.
Banks implementing the technology would need to decide how to handle the program on the financial side--ex. will interest be suspended on the old balance and for how long, how much credit they are willing to extend for new purchases, etc.
Banks could opt to treat the old debt as a separate, closed-end account on the books, and report the limit of the card as the sum of all category limits, which would be more favorable on the customers credit report.

Resources used

Kamaleon Ladder Icon used for demonstration purposes only. Plaid API libraries for React and Python (this code exists in repo but not ultimately shown in demo). Flask and Flask_CORS libraries for Python. Canvas.js and React for JavaScript.