The Rise of Robo Advisors in Credit Card Management – A Perspective

Today, credit cards have become a fundamental pillar of personal finance, especially in growing economies like India. In 2023 alone, 16.71 million new credit cards were issued in India and the total number of users almost hit the 100 million figure!

However, as usage exploded, there were also concerns and challenges being raised.

Indiscriminate spending, rising number of overdue and missed payment instances, and news about the massive rise in credit-card debt are slowly making the headlines in the personal finance space. Additionally, the difficulty of cardholders in managing their credit card reward programs, benefits, etc. is also a major challenge in this space. In most cases, cardholders do not have any relevant insights on how to balance spending and rewards efficiently and often end up with debt or missed payments.

Unlike the case of wealth management, it is extremely difficult for cardholders to make up their mind to seek professional help or advice from credit card experts. This is where Robo advisors can play a major role in streamlining credit card management.

 

What are Robo Advisors?

In simple terms, Robo advisors are digital assistants that help people manage their finances smarter. These assistants or bots are trained to leverage popular investment and financial management algorithms to offer advisory to end users. Using data analytics, Robo advisors can help a credit cardholder optimize their spending habits and help in realizing the true balance between rewards and expenditures. It isn’t a new phenomenon as the world of investment and wealth management has already seen an influx of intelligent AI-powered Robo advisors.

These help a wide range of customers from ordinary citizens to billionaires in managing their funds and sorting out the most profitable investment journey for the growth of their money. This success story is now being increasingly replicated at several scenarios in the personal finance space and credit card management will be one of the most happening places in this regard.

How can a Robo advisor enable customers to get the best ROI from their credit cards?

Let us explore the top 3 ways in which a Robo advisor empowers credit card users to manage their card usage optimally with the best returns:

Track Expenditure

Users often use Credit cards recklessly, especially when unexpected shopping sprees or emergencies happen towards the month’s end. There may also be a scenario when a user uses multiple credit cards for different offers or rewards. In the process, the cardholder may forget their spending history and unknowingly continue adding on to their due amount for the month. Only when the bill for the past month is generated do the cardholders realize their expense behavior.

With a Robo advisor, it becomes easy for cardholders to get accurate insights about their spending. Intelligent bots can read the right data from transaction SMS or email communications or alerts. They can identify the right expenses and classify them into the right categories of expenses. Upon request by the customer or as an automatic routine, they can provide a category-wise spending report periodically. The report will help cardholders stay diligent and updated on their pending dues. It will also give users an idea of which category drains the most credit utilization.

Guide in Budgeting

Taking a cue from the previous benefit of expense insights, Robo advisors can provide a model budget framework for credit cardholders. They can intelligently draft an expense chart wherein the cardholder will be advised on how much they can spend on each category in every billing period. The Robo advisor can take note of priorities and other saving or investment behavior of the cardholder.

It can then provide a threshold on the card usage in specific categories. These limits can be enhanced or shortened depending on each month’s spending patterns in the order of pre-defined priorities and investment commitments. For example, suppose a cardholder has their annual insurance premium payment for his or her car due in a particular month. In that case, the Robo advisor can make a budget framework that allows less expenses on shopping for items that are not a necessity. It will ensure that credit card usage is not maxed out or goes above limits which can hurt the owner’s credit scores.

Best Reward Utilization

Rewards are a major component of any credit card product in the market. Customers often use their credit card rewards to leverage several benefits like discounts or lower prices on partner brands, pay outstanding bills with converted reward points, achieve upgrade status on cards or other affiliate partner programs like airline seats, etc. But in most cases, cardholders often forget the plethora of benefits they can enjoy with reward programs. This problem escalates into several folds when users have multiple credit cards with diverse reward programs.

A Robo advisor can help in tracking all insights about every single reward program a cardholder has for all their cards. It can offer detailed advisory on which card to use for a specific purchase to gain rewards that help the customer the most. This will help in gaining maximum benefits from all credit card reward programs the cardholder participates in.

The Bottom Line

Robo advisors can play a critical role in helping credit cardholders get a solid grip on their finances. It brings efficiency, convenience, accuracy, and financial optimization in one spot. All that cardholders need to do is follow the guidance in every interaction with the Robo advisor. For credit card issuers and banks, this is a golden opportunity to offer a great tool to their customers which will help cultivate a healthy credit lifestyle.

But building a Robo advisor and equipping it with analytical intelligence, data management, and conversational abilities is quite a journey. It involves a high degree of automation, data exchange streamlining, and careful training. This is where a dedicated technology partner in this domain like Verinite can be a major relief. Get in touch with us to know more.