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Market for Rewards Cards "Overheated"?
Old 12-09-2016, 08:05 AM   #1
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Market for Rewards Cards "Overheated"?

WSJ article explores how banks are struggling to hold on to customers who keep hopping from one rewards card to another.

I happen to disagree with the statement that "it is very difficult to create a memory or emotional attachment around cash, since I am quite attached to my 2% Citi card. We aren't big on travel, so miles never appealed to us.

Reward Credit Cards: How Much Cash Can You Get? - WSJ
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Old 12-09-2016, 08:37 AM   #2
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Me too. I'm quite emotionally attached to my cash back cards and loyally use them.
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Old 12-09-2016, 10:37 AM   #3
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I even bought a new wallet to hold my new cards.

The Chase Sapphire Reserve gives 3% back on dining/travel and Chase Freedom gives 1.5% on everything. These get multiplied by 1.5 if using the Ultimate Rewards program for travel. So that 3% becomes 4.5%.

BTW, to read the WSJ article cut and paste the title into Google to get around the pay wall.
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Old 12-09-2016, 10:47 AM   #4
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Reward options are more limited here in Canada and I can't be bothered to shop around or play the game. I put everything except online purchases on my Costco MasterCard which gives 3% at restaurants, 2% on gas, and 1% on all other purchases. For online, I use an Amazon Visa.
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Old 12-09-2016, 10:51 AM   #5
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I'm holding out for the 100% cash back card. Until there's a 110% cash back card.

I suppose rewards cards fall under the Tragedy of the Commons umbrella.
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Old 12-09-2016, 11:04 AM   #6
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I suppose rewards cards fall under the Tragedy of the Commons umbrella.
Tragedy? More like taking a good deal and then having fun.
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Old 12-09-2016, 11:42 AM   #7
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I'm holding out for the 100% cash back card. Until there's a 110% cash back card.

I suppose rewards cards fall under the Tragedy of the Commons umbrella.
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Tragedy? More like taking a good deal and then having fun.
I'm not too worried about any tragedy of the commons, because only a subset of us can use these cards and pay it all off month after month. For the issuers - they still make plenty off the big spenders even if they pay off their accounts monthly. They would rather have our business than let their competitors have our business. For the customers who end up carrying a balance - well, they make plenty back there too.

We charge almost everything on our cards.
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Old 12-09-2016, 11:58 AM   #8
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For the issuers - they still make plenty off the big spenders even if they pay off their accounts monthly.
The card issuers don't pay for the rewards, instead they pass the costs to the merchants, who pass them to all customers (the "commons") in the form of higher prices.
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Old 12-09-2016, 12:00 PM   #9
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I don't know that I would say I am attached to any of my reward cards, but I do my absolute best to maximize my return. I think I have been carrying around the same $120 in cash that I get out of the ATM about 2 months ago. If I can use my card, I certainly do!

I am looking forward to a trip in May that will have cost me a total of about $450 (annual fee for Chase CSR card) but will have a net worth (ROI) of about $1600. So, I am thankful that a large majority of the population carry a balance...they are subsidizing our rewards!

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The card issuers don't pay for the rewards, instead they pass the costs to the merchants, who pass them to all customers (the "commons") in the form of higher prices.
I won't summarily discount your statement, but I think this argument can be put to bed. I rarely see folks pay cash for ANYTHING, so the CC merchant fee being added into the price is nothing more than another cost of doing business. On occasion (very, VERY rarely) I will see a merchant who has a policy of "adding a fee" to any purchase that is paid for with a CC. But, this almost always small merchants.
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Old 12-09-2016, 12:09 PM   #10
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I don't know that I would say I am attached to any of my reward cards, but I do my absolute best to maximize my return.
I'm not attached to a specific card at all, though there is an inertia factor which makes it less likely I'd change cards for a minor benefit. Dealing with the application and the hard pull on your credit file, changing all the card info used for autopays and online merchants.... probably not worth an extra 0.25% cash back to me. That's even more true when the really high rewards cards tend to not last long because there seems to be a form of adverse selection there -- the type of people specifically looking to max out cash back are the type who don't need to worry about the interest rate since they tend to charge many of their bills and routine expenses, and pay it off each month. (Guilty as charged.) Customers who get a lot of (say) 2% cash back and pay no interest aren't very profitable. I had the old Schwab card with 2% back for a while until it could no longer be sustained; I think it was because they were attracting the kind of customers that didn't keep a balance.

Now get me from 1% to 2%, or maybe even 1.5%, and yeah, if it's not a teaser offer and seems likely enough to last a while, and I'd reconsider. I have one MasterCard with 1.5% cash back and another Visa is 1.25%. And since they have unlimited rewards and are good on everything, not rotating 'special' categories to keep track of, it hasn't really been worth it to me to bother with a switch. At some point "good enough" is good enough that constant pursuit of the slightly better seems like a net negative to me in terms of enjoying life.
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Old 12-09-2016, 12:13 PM   #11
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I used airline and hotel credit cards over the years when I was traveling for business; the miles/points seem less valuable now, especially since they've cut back on the signing bonuses. (I once opened American Airlines Visa and MasterCard accounts and each gave me 75,000 miles.) The value of these programs is eroding, too, especially for the airlines. I'd rather choose the airline that has the best schedule, the most reliability and the most reasonable prices for a particular trip. If I want the love they show Elite members, I can buy it by flying in Business Class.

I just cancelled the Chase Sapphire card and am now down to the Fidelity Visa (2% back on everything, no annual fee) and the Marriott Visa, which is the one with the longest tenure. Once I've had Fidelity long enough to be good for my credit score (have had it only a couple of years), I may drop the Marriott card and look for something else with a fat sign-on bonus and the annual fee waived the first year.
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Old 12-09-2016, 12:16 PM   #12
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The card issuers don't pay for the rewards, instead they pass the costs to the merchants, who pass them to all customers (the "commons") in the form of higher prices.
No the card issuers are not passing the costs to the merchants for the cash rewards credit cards. They get the same fees from the merchant whether a regular credit card or cash back credit card is used. There is no difference to the merchant. So the issuer is getting lower fees on their cash rewards cards and hoping to make up for it some other way.

If you are talking about credit cards in general raising prices. That doesn't bother me. I'm using a credit card, getting my float, getting cash back from my purchases. Any other buyer can choose to do the same.
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Old 12-09-2016, 12:18 PM   #13
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I'm not attached to a specific card at all, though there is an inertia factor which makes it less likely I'd change cards for a minor benefit. Dealing with the application and the hard pull on your credit file, changing all the card info used for autopays and online merchants.... probably not worth an extra 0.25% cash back to me. That's even more true when the really high rewards cards tend to not last long because there seems to be a form of adverse selection there -- the type of people specifically looking to max out cash back are the type who don't need to worry about the interest rate since they tend to charge many of their bills and routine expenses, and pay it off each month. (Guilty as charged.) Customers who get a lot of (say) 2% cash back and pay no interest aren't very profitable. I had the old Schwab card with 2% back for a while until it could no longer be sustained; I think it was because they were attracting the kind of customers that didn't keep a balance.

Now get me from 1% to 2%, or maybe even 1.5%, and yeah, if it's not a teaser offer and seems likely enough to last a while, and I'd reconsider. I have one MasterCard with 1.5% cash back and another Visa is 1.25%. And since they have unlimited rewards and are good on everything, not rotating 'special' categories to keep track of, it hasn't really been worth it to me to bother with a switch. At some point "good enough" is good enough that constant pursuit of the slightly better seems like a net negative to me in terms of enjoying life.
All very good points. I tend to use just my Amex Preferred Cash (6% groceries, 3% gas, 1% all other categories) for just about everything and don't sway from that often. BUT..I am also a fan of the Chase Freedom for the 5% they do on gas and membership clubs. It is true that you have to sign up for the rotating categories, but they make it about as simple as possible (an email a little before the 3 month period beings with a one-click link to activate it). And at times I will make exceptions (such as with the Chase CSR that was an extraordinary reward benefit)..but only when the rewards are worth the time or effort.

The hard pulls don't bug me too much, but it does require a credit thaw that can be a pain.

A few years ago, I was a churner. No questions about it. I think in 2013, I opened about 15-20 cards. It was a pain, but I got a decent about of $$$ out of it.
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Old 12-09-2016, 12:18 PM   #14
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The card issuers don't pay for the rewards, instead they pass the costs to the merchants, who pass them to all customers (the "commons") in the form of higher prices.
I don't think it's productive to worry about this. Nobody here should feel guilty about taking a bargain. It's a competitive society (world too) whether we like it or not. Maybe we should have a thread on this? Is this a moral issue? Do we have to make sure to equalize everything? Where would that end? I don't have answers but it's an interesting topic.

And what about the US income tax system?

Do we feel guilty for buying a sale item? That too could be viewed as a light form of tragedy of the commons. Most of this society is playing that game of bargains.
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Old 12-09-2016, 12:25 PM   #15
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No the card issuers are not passing the costs to the merchants for the cash rewards credit cards.
My business had a merchant account and when a customer used a rewards card the card processor charged us higher fees. Other businesses report similar.
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Old 12-09-2016, 01:18 PM   #16
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Yep thats true the rewards cards do cost some merchants more. Same with Amex which is why some won't take them.

But that ship sailed many years ago and the merchant is free to offer a cash discount if he chooses (there was a court case against Visa et al for this). There is no tragedy of the commons here.
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Old 12-09-2016, 02:02 PM   #17
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Now get me from 1% to 2%, or maybe even 1.5%, and yeah, if it's not a teaser offer and seems likely enough to last a while, and I'd reconsider. I have one MasterCard with 1.5% cash back and another Visa is 1.25%.
And in reality, I use the 1.25% card more than my 1.5% card. That's because the former is tied to accounts with my credit union (out of CA, have been a member since 1988) which has a featured checking account where if you have at least 10 CU debit or credit card transactions a month -- I get 6 or 7 a month just on autopay -- you get free checking with free checks, ATM reimbursements and a 0.90% interest rate (0.90% on ordinary checking). I figure the extra interest I'm making on my checking balance is a lot more than I'm leaving on the table with a dozen or so Visa transactions per month with 0.25% less cash back. Not to mention that I love this CU; I've been a member for about 28 years and I have never had a bad experience or bad service there. That's worth something just by itself in terms of doing business.
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Old 12-09-2016, 06:03 PM   #18
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My business had a merchant account and when a customer used a rewards card the card processor charged us higher fees. Other businesses report similar.
I did not know that. Thanks for informing me. No wonder rewards cards have proliferated if processors can turn around and charge the merchant higher processing fees on rewards cards.

Well - I guess from us the consolation is that we spend plenty. If rewards card holders in general are bigger spenders, maybe it balances out. Otherwise I guess some merchants can start putting up "no rewards cards accepted" signs.

Quote:
She said she would lose customers if she stopped accepting rewards cards. "They are higher dollar spenders and they want something back," she said.
http://money.cnn.com/2011/07/14/smal..._credit_cards/

I guess it's pretty complex.
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Fees are also impacted by whether the card being used in the transaction is a debit or credit card. Furthermore, the type of credit card is also important. Business credit cards tend to be the most expensive to process, followed by rewards credit cards and regular credit cards closing the group off.
https://www.valuepenguin.com/what-cr...ing-fees-costs
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