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patio11's profile
Patrick McKenzie
Patrick McKenzie
Patrick McKenzie
@patio11

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Patrick McKenzie

@patio11

I work for the Internet, at @stripe, mostly on accelerating startups. Opinions here are my own.

東京都 Tokyo
kalzumeus.com
Joined February 2009

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    1. Patrick McKenzie‏ @patio11 Jan 23
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      Banks broadly do not believe they have material edges in underwriting consumers: if you are a) a very good credit risk and b) use a lot of credit, banks perceive that it is highly likely all of their competitors will believe the same two things about you, particularly over time.

      1 reply 2 retweets 16 likes
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    2. Patrick McKenzie‏ @patio11 Jan 23
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      (An interesting market opportunity for banks is specializing in people whose circumstances are specialized such that the technology which enables the last tweet, such as credit reports and FICO scoring, does not correctly bucket them as low-risk but where they still borrow lots.)

      2 replies 0 retweets 22 likes
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    3. Patrick McKenzie‏ @patio11 Jan 23
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      So if banks think "Well, if we don't extend credit at the margin our competitors certainly will", whereas previously they might be OK losing the opportunity for your business to protect their risk profile, these days they want you to *know* you have headroom on your card.

      1 reply 0 retweets 14 likes
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    4. Patrick McKenzie‏ @patio11 Jan 23
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      "I don't want to lose a single business trip worth of expenses to Amex just because they were worried about going over and MOST PARTICULARLY I do not want Amex to get their transactions *next month, too* because of an opportunity to change habits or stored cards."

      2 replies 1 retweet 17 likes
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    5. Patrick McKenzie‏ @patio11 Jan 23
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      That is also downstream of the increasing computerization of user spending behavior: previously, the jargon was literally "We want to be 'top of wallet'; the card our customer habitually reaches for first." The expectation is all other cards are a short distance away in wallet.

      1 reply 0 retweets 13 likes
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    6. Patrick McKenzie‏ @patio11 Jan 23
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      When your business runs transactions monthly on AWS or you personally have a card installed on Apple Pay, though, the difference between "top of wallet" and the next card is *gigantic*. Your "next card" isn't on the system charging you money and probably isn't on *you* either!

      1 reply 2 retweets 22 likes
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    7. Patrick McKenzie‏ @patio11 Jan 23
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      You'll note that "Ahah, they are trying to trick you into spending more than you can afford" is a very different narrative from "Ahah, they are hoping you concentrate more of your transactions on them this month, pay back quickly, and come back for more next month."

      1 reply 7 retweets 24 likes
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    8. Patrick McKenzie‏ @patio11 Jan 23
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      There exists a heterogeneity of strategies and a wide distribution in customer behavior. Some banks (and some products at a particular bank) might be caricatured as being more of the first, and some more of the second. And some are both, for different people.

      1 reply 1 retweet 8 likes
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    9. Patrick McKenzie‏ @patio11 Jan 23
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      Financially unsophisticated people, including very smart financially unsophisticated people, often believe "Banks can't make any money from you if you are a responsible user of credit. They want you to get in over your head." This is false as stated.

      2 replies 2 retweets 34 likes
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    10. Patrick McKenzie‏ @patio11 Jan 23
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      Banks sell financial services. Sometimes the pricing is a little opaque to the end user, because it is subsidized by someone else. If you consume a lot of financial services, and banks are eagerly courting your business, it is *probably not* because they're bad at math.

      2 replies 6 retweets 37 likes
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      Patrick McKenzie‏ @patio11 Jan 23
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      A concrete example: which of the following two customers is more lucrative? A: Spends $10k. This strains them; they can pay back the minimums, but it will take them years to pay off, at a 15% APR the whole while. B: Spends $10k monthly. Never pays a cent in interest.

      8:13 PM - 23 Jan 2020
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      2 replies 6 retweets 35 likes
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        2. Patrick McKenzie‏ @patio11 Jan 23
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          Answer: depends *almost entirely* on what it cost the bank to acquire and keep B's business, because B is *printing money* via interchange. A contributes about ~$1.3k of revenue per year (plus $200~$300 in month 1). B contributes about $2.5~$3k annually.

          7 replies 7 retweets 50 likes
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        3. Patrick McKenzie‏ @patio11 Jan 23
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          (Should insert a *plausibly* before "contributes" because there are actually a lot of different interchange rates the issuer could be receiving depending on product, jurisdiction, card brand, regulation, etc, and I should clarify "I'm being very handwavy on math here.")

          8 replies 0 retweets 20 likes
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        4. End of conversation
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