Internet Bank Egg Fires 161,000 Customers!

A story is breaking in the UK around internet bank Egg and its credit card business. According to the BBC, Egg has given 161,000, (around 7% of its customer base), 35 days notice that their credit cards will be stopped. The reason given by Egg is that the customers pose a credit risk and are likely to default on their payments as retail credit tightens.

But in a follow-up piece by the BBC, it seems that Egg may be being somewhat economical with the truth. It turns out that many of the customers who have received the Dear John letters regularly pay off their accounts in full and have in fact excellent credit ratings. And there's the nub of the matter. Many of these customers are likely to be low profitability customers precisely because they do pay off their credit cards promptly. That means no revolving credit attracting interest charges. No late payment charges. No over the credit limit charges. And little or no profits.

I find it very difficult to believe that they have just spotted such a huge credit risk problem. Let's not forget that Egg won a prize in 2006 for the excellence of its Credit Management System. Something smells fishy to me. It looks increasingly likely that Egg just decided to go with the easy 'credit risk' explanation to sell the firings to the public & press, rather than with the much harder 'not making enough money from customers' one. Egg is owned by US bank Citigroup, that recently wrote-off almost US$10 Billion in sub-prime losses. You can understand it if Citigroup needs to make savings. Even on uneconomic Egg customers. But the devil is in the detail of how these departing customers are managed. And I wonder how this stacks up with recent Treating Customers Fairly banking legislation.

We will have to wait and see if this turns into another public relations disaster like the Sprint 1,000 story in the USA? It's not looking good for Egg so far!

What do you think? Is Egg suffering due to the credit risk of its customers? Or is it being economical with the truth about its uneconomíc customers?

Post a comment and get the conversation going.

Tip of the hat to BBC Radio 4.

Graham Hill
Independent CRM Consultant
Interim CRM Manager