In her capitalist era
Taylor Swift is funneling her biggest fans into high interest credit cards and exposing them to massive financial risk.
I remember back when I was in college in the mid 2000s, university branded credit cards were a thing.
Back then, credit card companies could basically hand a bag of cash to a university and in exchange, the university would let them exploit the brand in all kinds of ways; Like print the university logo on credit cards, mail offers directly to students, give away merch or football tickets in exchange for sign-ups, etc.
It was all part of a comprehensive strategy to get credit cards into the hands of more young people.
By at least one key measure, that strategy was a massive success.
In 1998, the average credit card balance held by Americans under the age of 35 was $2508.35. By 2007, that figure roughly doubled to $5,214.46, according to Fed data.
But why target young people?
Thinking back on some of the financial decisions I made when I was in my 20s, I find it puzzling that any financial institution would want me as a client. Yet there they were at my school, handing out free towels in exchange for sign-ups.
It’s like they knew I needed a towel.
Indeed, their knowledge of my psychological profile went well beyond my weakness for freebies. For example, they knew that I had just made a bunch of new friends; that keeping up with them and impressing them was a major driver of my behavior; that I was impulsive, envious and pretty vain; and that I was developing a bunch of new habits (good and bad) that would follow me well into adulthood.
Those characteristics paired with a lack of financial literacy made my propensity to overspend, carry a balance and incur fees extremely high. And since I was enrolled at a university that cost $50k per year, they also knew that I wasn’t poor, so the likelihood of me ever defaulting on my debt was low.
So basically, the perfect customer.
To really juice the profits they make off young people, the credit card companies target them with cards that are purpose-built to exploit their shortcomings, according to a recent study by MIT economists Hong Ru and Antoinette Schoar.
For example, you would think that a card marketed to someone with little to no credit history would have a high APR, but the study found that’s often not the case. Instead, they tend to have low introductory APRs with spring loaded interest rates that trigger after the introductory period. They also have all sorts of hidden fees that hit you when you fall behind on your payments.
“It sounds almost Machiavellian,” writes Schoar. “Backward loaded credit card features with high late fees can only be optimal [for credit card companies] if customers do not understand their actual cost of credit.”
It’s a fascinating, if depressing read. Imo, this is what happens when too many engineers go into finance.
Instead of using the incredible predictive power of big data and machine learning to cure disease and solve climate change, we’re using it to determine which credit card perks are most enticing to a 23 year old fifth-year who orders off the dollar menu and has had a 40 pound bag of dog food in his amazon shopping cart for over a year.
This is not the dream.
The celebrity endorsement
Celebrities endorsing credit cards is a relatively recent phenomenon. Interestingly, it started around 2012 right after Congress basically banned predatory credit card marketing tactics on college campuses.
That’s right, no more free towels. Apparently after I graduated things got really out of hand, with students receiving hundreds of credit card offers in the mail and marketers preying on broke students, offering them free food, clothing, iPods and strait-up cash in exchange for sign-ups.
So when Congress put the kibosh on it, the credit card companies started exploring other ways to reach their favorite demographic.
One idea that showed promise was celebrity-branded cards, although the first iteration was pretty rough. They had people like Sizie Orman, Russell Simmons and Magic Johnson shilling these janky prepaid debit cards with all kinds of arbitrary fees, like charging you 50 cents for a balance inquiry.
But as a proof of concept it basically worked. The celebrity endorsement did the same trick as printing the university logo on the card: It gave the target customer a fun, personal reason to sign up for a credit card that had nothing to do with the terms.
Fast-forward to 2024, and Taylor Swift’s partnership with CapitalOne is shaping up to be the most successful credit card marketing campaign of all time. A recent article in the New York Times captured its potency:
“Halie Smith’s devotion to Taylor Swift runs so deep that she feels as if she can trust her like a friend. After the pop star encouraged fans to vote in the 2018 midterm elections, Ms. Smith registered. The 23-year-old’s most recent rite of passage — getting her first credit card — was also prompted by the singer.”
The specific card Taylor promotes her commercial for CapitalOne (in which she appears in various looks from past eras) contains many of the predatory terms called out in the Schoar report, like a $395 annual fee, a $40 fee for late payments and a 20–30 percent variable interest rate.
None of those details are mentioned in the ad, but for a fan like Halie Smith who doesn’t have any experience with credit cards, I suspect it wouldn’t matter.
For her, Taylor said to get this card, so this is the card she’s going to get.
The numbers
The real genius of the campaign though was the second part. Not only did CapitalOne get Taylor to endorse their card, they also gave cardholders exclusive access to a special Eras Tour ticket presale event.
It was the same trick as handing out fluffy towels to college students, but on roids. Legions of rabid swifties signed up for the card in hopes of increasing their chances of securing these highly coveted concert tickets.
I would bet that not a single one of them even scrolled past the sign up button, let alone read any of the fine print.
So how did this surge translate into profits? Here’s what we know:
In it’s 2023 Q3 earnings, CapitalOne reported a 17 percent ($20 billion) year-over-year surge in credit card debt held by it’s customers. Purchase volume was up 6 percent, and revenue from credit card fees and interest was up 15 percent ($124 million). They also reported an increase in marketing spend of 10 percent ($49 million).
The picture is even clearer outside the US, where a Singapore-based bank called United Overseas Bank (UOB) posted record earnings for Q3 of 2023. The report confirms the obvious, specifically crediting the bank’s partnership with Tayler Swift for their record inflows.
Back in June of 2023, when dates were announced for the Southeast Asia leg of the Eras Tour, over a million fans from Singapore, Malaysia, Indonesia, Thailand and Vietnam were sent into a frenzy trying to secure one of the 350,000 available tickets. The UOB credit card was a must-have since it gave cardholders access to pre-sale tickets. One fan told Yahoo Finance that she applied for a UOB credit card immediately after learning about the Singapore concert dates.
“I don’t have a UOB account or card but to get the tickets during the pre-sale, I decided to sign up.” she said. “I really hope I get the card in time.”
She was not alone. There was a backlog of online applications, so fans were actually lining up at physical UOB branches to apply in person. UOB collected $104 million in credit card interest and fees that quarter compared to just $28 million in Q3 of the previous year, a surge of 89 percent.
Fraud and scams
I did a little digging around the UOB website to try and find out what kind of terms all the Southeast Asian swifties had signed themselves up for, but it turns out banks in Singapore are not required to disclose interest rates or fees in their marketing materials.
You have to submit an application first (including a hard credit check), which means they were literally signing blind.
Out of some morbid curiosity, I almost submitted an application myself. Like, how depraved were these terms that were hiding behind a credit check? But further research turned up some other risks that stopped me from doing that.
Many switfies who signed up for that card fell victim to identity theft and were swindled for millions.
To apply for the UOB credit card, they handed over a ton of personal information, including first and last name, phone, email, physical address and social security number. Pretty much everything a hacker would need to steal their identity and scam the shit out of them.
And that’s exactly what happened.
UOB customer data was stolen in a cyber attack and used specifically to target Tayler Swift fans. The full extent of the damage is unknown, but estimates say at least 1000 swifties had their bank accounts drained in 2023, totaling over $10 million in losses.
Consumer protection
Back in 2009, the skyrocketing credit card balances held by young Americans made it onto the radar of Congress.
In response, they passed what became known as the CARD Act (Credit Card Accountability Responsibility and Disclosure), which was meant to protect young people from predatory marketing and increase the transparency of these financial products.
Much of the law was aimed squarely at the partnerships between credit card issuers and universities, and according to a GAO report that came out a few years later, the law did succeed at reducing credit card marketing on college campuses.
But with respect to its wider aims, the 2022 numbers suggests the law came up short. In that year, the average credit card balance held by young adults in the US was $4,070, the average interest rate paid on revolving balances was a staggering 40 percent, and 8.3 percent of the credit card balances they held went into delinquency. Additionally, one in five young adults had at least one debt sent to collections in 2022.
While Congress deserves some credit for correctly identifying the problem, I think it’s safe to say that in so far as protecting young people from the credit card trap, they failed. The CARDS Act was too narrowly focused on the marketing campaigns aimed at college students and the credit card companies simply found new, more powerful ways to reach their target.
For example, they got a chart-topping artist with a massive and truly crazed fan base to shill a credit card. Then they gave cardholders exclusive preferred access to her concert tickets, which just happened to be some of the most sought after concert tickets in history.
Pure evil genius.
But what’s in it for Taylor?
In 2022, credit card companies charged consumers a record 133 billion in interest and fees.
For them, targeting the customers who are most likely to rack up big balances and pay late fees is just good business. They are corporations with one goal and one goal only: to accrue value to shareholders.
For an artist like Taylor Swift however, you’d think there would be a different calculation. She’s spent her life cultivating an intimate relationship with her fans, sharing her joys and pains through nearly constant social media contact.
The fans, in turn have grown up with her. For many of them, she occupies the same mind space as a dear friend.
This relationship is an incredibly powerful thing and what she choses to do with it is completely up to her. She can publicly support a cause she cares about, or not. She can tell her fans to vote, or not. She can take positions on the hot-button political topics of the day, or not. She can shill products like makeup and mattresses, or not.
It’s a difficult dance.
She has to be engaged with the fans all the time without oversharing and becoming “cringe,” be authentic and vocal without alienating people who may disagree with her views, sell expensive products without “selling out,” and somehow accumulate a massive fortune without losing touch.
Perhaps no celebrity has that dance down better than her. Taylor Swift has truly mastered the art of being a global super star in the social media age and I personally respect and admire her tremendously.
You’re the problem, its you
But everyone makes mistakes, even her.
The measure of a person is whether they can face the music and course correct.
I’ve seen speculation that she made $8 million from the CapitalOne deal, but officially the terms remain confidential. If we add in the UOB deal, let’s say it was a total of $25 million.
Taylor, you’re a billionaire. Your documentary about the Eras Tour made five times that much in its first weekend at the box office. You may not have realized this would happen when you signed those deals, but allowing a credit card company to gate keep your ticket pre-sale events effectively made signing up for a credit card a hard requirement for your biggest fans.
You serve as a role model not just to them, but to other pop stars. Ed Sheeran and others are now following in your footsteps, signing similar deals with the exact same predatory lenders.
These people are not our friends. These products are financial napalm. They put your fans at real risk and I don’t think they represent you. It’s okay, you probably didn’t know. You’ve got a lot going on. But now that you know, it’s time to break off these partnerships.
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Thanks for reading until the end. I work in crypto and write about human nature, money and technology. You can find me on twitter @dappbeast
