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Test-driving social credit card

By Janna Herron · Bankrate.com
Wednesday, June 6, 2012
Posted: 4 pm ET

Barclaycard invited me to take a spin in its online community for its new crowdsourced credit card called the Barclaycard Ring. What an interesting ride.

But let's back up. The card launched six weeks ago to the public and taps its online community of cardholders to chime in on how the card is designed, priced and marketed. The card offers an 8 percent interest rate on all balances, no annual fee, no balance transfer fee and an opportunity for cardholders to share in the card's profits.

Here's my first take on this credit-card-meets-social-media experiment.

So far, the card has 849 active cardholders. I know this because the company provides cardholder stats and the card's profit and loss figures in its online community. Cardholders can monitor the number of active accounts, balances in good standing (100 percent at last glimpse), total amount of transactions, percentage of payments made online, total amount of balances and percentage of cardholders who receive paperless statements. The stats also show the percent change from last month.

These categories help track the profitability of the card. For example, if a cardholder chooses paperless statements, the company saves $5 per year -- a percentage of which ends up in cardholders' pockets per the card's design. Larger balances make more money, while late payments eat into profits. So, the online stats passively encourage cardholders to put more purchases on the Ring (versus other credit cards) but to maintain good payment habits. It's social media peer pressure of sorts.

The community also breaks down the card's income (interest, fees, revenue from purchases, protection services) and expenses (member servicing and bank borrowing) that factor into the net profit.

In this case, Barclaycard Ring netted $14,093 in April, of which $6,548 went to taxes and paying shareholders. The community got 70 percent of the remaining profit through its Giveback program. In six months, cardholders can choose to cash out the accumulated money as a credit statement or donate to a charity. (The company is working out the kinks for its charity program now.)

Each cardholder's share of the community's profit is based on two factors: card balance and number of referrals. The bigger the balance, the bigger your share. The more approved referrals, the bigger your share. (Approved referrals add $20 to the community pot, while other new accounts contribute $10.)

Also, the company (and the community) makes money off interest. It's the top line of the income statement. Of course, this is a Catch-22 for responsible cardholders -- persuade other cardholders to revolve and add to the bottom line, while paying off balances to avoid unwanted interest yourself.

An idea posted on the online community (more on that Thursday) to reward those who pay off the balance every month was quickly shot down by other cardholders. Many said paying no interest was reward enough, while others noted that cardholders who don't carry a balance don't contribute as much money.

"We're not interested in rewarding transactors or revolvers," says Jared Young, senior director of consumer markets for Barclaycard U.S. "We're rewarding people who use the card more actively."

Of course, I'd still advise you to pay off your entire balance every month. What you end up paying in interest will most likely outpace any profits you get back from the Ring. Check back Thursday for my second take.

What do you think so far about this "crowd-created" credit card? Is this a glimpse into the credit card future?

Follow me on Twitter: @JannaHerron

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