5 ms·

You also end up spending more, apparently--12 to 20% more. https://www.youtube.com/watch?v=MFkBoXhl5SU https://www.youtube.com/watch?v=MFkBoXhl5SU

mehrdadn 7y ago
They keep around customers who operate at losses for them because then they spend more? So they want these customers to operate at even larger losses?
- ilikehurdles 7y ago
  I’m not aware of any card that gives flat out unconditional 5% cash back. You sometimes have these elevated award rates but for very specific merchant partners, limited periods of time, with some cap on the total amount received, or limits on how the reward can be redeemed. The base cash back on reward cards hovers between 1 and 2 percent, even ones with high yearly fees (another area where the margin for the issuer is further elevated). The high yearly fee incentivizes card holders to “get their money’s worth” by using the card more.
  - mehrdadn 7y ago
    Nobody said unconditional. You just rotate the cards in your wallet and use whatever 5% category fits your purchase. You might not do this, but there are people who do, and never pay interest. They clearly operate at a loss for the company year after year. I'm asking why their accounts aren't closed.
    - kube-system 7y ago
      Because for every person who signs up and causes them a loss, there’s dozens of others enticed by the same rewards programs who make them a profit. Credit card companies aren’t having any problems being profitable. I would imagine the number of people who only purchase things that are in the 5% category on their card is extremely small.
      - mehrdadn 7y ago
        > Because for every person who signs up and causes them a loss, there’s dozens of others enticed by the same rewards programs who make them a profit. That's the answer to the question "why are these cards offered at all", which was not my question. My question was, "why are even the accounts of people who consistently cause them a loss still kept open?", which this doesn't answer.
        kube-system 7y ago
        1. Because those people who were enticed by that program might no be enticed to sign up in the first place if it says “5% cash back (unless you take advantage of this in which case we cancel your account)” 2. I bet government regulators might be a bit peeved by a company that systematically cancels customer accounts for behavior which is within the advertised terms of the agreement. Usually regulators frown upon luring customers in with an advertisement for a product/service and then purposefully sidestepping said product/service. 3. It’s probably such a small number of customers that’s it’s just not even worth their time.
        mehrdadn 7y ago
        1. Possible, but seems unlikely as the explanation? How many people would read that fine print and care? So many other contracts already have provisions like this and nobody blinks an eye. 2. It need not be against their terms though? They could easily specify hyper-optimized usage in their agreements as something that might result in account closure. This is already done in a lot of other cases; they could do the same here. 3. I don't know about that. Just look at the sheer number of sites that explain how to maximize your credit card rewards/cash back/bonuses. They wouldn't seem to be there if the audience for them was so vanishingly small?
        kube-system 7y ago
        I’m fairly certain that it is not worth their efforts to cancel those accounts, evidenced by the fact that they either don’t do it, or the number of customers it affects is so vanishingly small that neither of us are aware of the practice. If you believe so strongly that it is worthwhile for them to do this, then perhaps you have an idea for a lucrative career. But as long as credit card fraud in the US is measured in billions, I’m going to guess that any manpower which can be assigned there is way more lucrative than any manpower assigned to demonizing their honest customers.
    - ilikehurdles 7y ago
      Those merchants likely have a special contract with the card issuer to be a partner with the card issuer. Travel brands lock in repeat brand-loyal customers with mileage rewards. Some of those cards have hundreds of dollars of yearly fees, and the cardholders are spending more overall to negate the impact of the fee. Even so with rotating cards it’s easy to end up in a place where you don’t get your money’s worth or just barely beat the fee. If your card gets you 5% rewards and costs $400 a year, and you come out of the year with $600 in rewards, you’re up $200 overall while the issuer got $400 from you and $300 out of a 2.5% merchant fee, so they’re still up $100. That’s all assuming every one of your purchases was a 5% reward purchase. The issuers margin goes up every time you use their “Shop With CardCo” shopping portal where merchants pay more money to advertise through, or take advantage of other partner deals. The people churning enough to actually cost the issuer money are extremely rare and there are a lot of people making sure it stays that way. And then there are folks who get hit with interest and late fees that subsidize the big churners.
    - nemothekid 7y ago
      >* I'm asking why their accounts aren't closed.* Because, churners, are a very small portion of the 20B in revenue Visa generated last year, of which it generated a ~50% profit margin. The system works so well already, why rock the boat by closing the accounts of a few thousand individuals? It would probably cost more to enforce any such rule than they lose in revenue.
      - ilikehurdles 7y ago
        And by keeping the churners happy, they might recruit some real losers to the platform by word of mouth!
      - zaroth 7y ago
        > $20B in revenue Visa generated last year, of which it generated a ~50% profit margin. I was sure this couldn’t be right... but it absolutely is. https://s1.q4cdn.com/050606653/files/doc_financials/2018/q4/Visa-Inc.-Q4-2018-Financial-Results.pdf https://s1.q4cdn.com/050606653/files/doc_financials/2018/q4/...
        lotsofpulp 7y ago
        Why wouldn’t it be massive? Infinitely scalable business getting a % of each and every transaction at no marginal cost. It’s basically a tax, there isn’t a better business model out there. They don’t even take any risk lending money, just a % fee for owning the network, that one has to be on to do business with most people with money nowadays.

mehrdadn 7y ago

They keep around customers who operate at losses for them because then they spend more? So they want these customers to operate at even larger losses?

ilikehurdles 7y ago
I’m not aware of any card that gives flat out unconditional 5% cash back. You sometimes have these elevated award rates but for very specific merchant partners, limited periods of time, with some cap on the total amount received, or limits on how the reward can be redeemed. The base cash back on reward cards hovers between 1 and 2 percent, even ones with high yearly fees (another area where the margin for the issuer is further elevated). The high yearly fee incentivizes card holders to “get their money’s worth” by using the card more.
- mehrdadn 7y ago
  Nobody said unconditional. You just rotate the cards in your wallet and use whatever 5% category fits your purchase. You might not do this, but there are people who do, and never pay interest. They clearly operate at a loss for the company year after year. I'm asking why their accounts aren't closed.
  - kube-system 7y ago
    Because for every person who signs up and causes them a loss, there’s dozens of others enticed by the same rewards programs who make them a profit. Credit card companies aren’t having any problems being profitable. I would imagine the number of people who only purchase things that are in the 5% category on their card is extremely small.
    - mehrdadn 7y ago
      > Because for every person who signs up and causes them a loss, there’s dozens of others enticed by the same rewards programs who make them a profit. That's the answer to the question "why are these cards offered at all", which was not my question. My question was, "why are even the accounts of people who consistently cause them a loss still kept open?", which this doesn't answer.
      - kube-system 7y ago
        1. Because those people who were enticed by that program might no be enticed to sign up in the first place if it says “5% cash back (unless you take advantage of this in which case we cancel your account)” 2. I bet government regulators might be a bit peeved by a company that systematically cancels customer accounts for behavior which is within the advertised terms of the agreement. Usually regulators frown upon luring customers in with an advertisement for a product/service and then purposefully sidestepping said product/service. 3. It’s probably such a small number of customers that’s it’s just not even worth their time.
        mehrdadn 7y ago
        1. Possible, but seems unlikely as the explanation? How many people would read that fine print and care? So many other contracts already have provisions like this and nobody blinks an eye. 2. It need not be against their terms though? They could easily specify hyper-optimized usage in their agreements as something that might result in account closure. This is already done in a lot of other cases; they could do the same here. 3. I don't know about that. Just look at the sheer number of sites that explain how to maximize your credit card rewards/cash back/bonuses. They wouldn't seem to be there if the audience for them was so vanishingly small?
        kube-system 7y ago
        I’m fairly certain that it is not worth their efforts to cancel those accounts, evidenced by the fact that they either don’t do it, or the number of customers it affects is so vanishingly small that neither of us are aware of the practice. If you believe so strongly that it is worthwhile for them to do this, then perhaps you have an idea for a lucrative career. But as long as credit card fraud in the US is measured in billions, I’m going to guess that any manpower which can be assigned there is way more lucrative than any manpower assigned to demonizing their honest customers.
  - ilikehurdles 7y ago
    Those merchants likely have a special contract with the card issuer to be a partner with the card issuer. Travel brands lock in repeat brand-loyal customers with mileage rewards. Some of those cards have hundreds of dollars of yearly fees, and the cardholders are spending more overall to negate the impact of the fee. Even so with rotating cards it’s easy to end up in a place where you don’t get your money’s worth or just barely beat the fee. If your card gets you 5% rewards and costs $400 a year, and you come out of the year with $600 in rewards, you’re up $200 overall while the issuer got $400 from you and $300 out of a 2.5% merchant fee, so they’re still up $100. That’s all assuming every one of your purchases was a 5% reward purchase. The issuers margin goes up every time you use their “Shop With CardCo” shopping portal where merchants pay more money to advertise through, or take advantage of other partner deals. The people churning enough to actually cost the issuer money are extremely rare and there are a lot of people making sure it stays that way. And then there are folks who get hit with interest and late fees that subsidize the big churners.
  - nemothekid 7y ago
    >* I'm asking why their accounts aren't closed.* Because, churners, are a very small portion of the 20B in revenue Visa generated last year, of which it generated a ~50% profit margin. The system works so well already, why rock the boat by closing the accounts of a few thousand individuals? It would probably cost more to enforce any such rule than they lose in revenue.
    - ilikehurdles 7y ago
      And by keeping the churners happy, they might recruit some real losers to the platform by word of mouth!
    - zaroth 7y ago
      > $20B in revenue Visa generated last year, of which it generated a ~50% profit margin. I was sure this couldn’t be right... but it absolutely is. https://s1.q4cdn.com/050606653/files/doc_financials/2018/q4/Visa-Inc.-Q4-2018-Financial-Results.pdf https://s1.q4cdn.com/050606653/files/doc_financials/2018/q4/...
      - lotsofpulp 7y ago
        Why wouldn’t it be massive? Infinitely scalable business getting a % of each and every transaction at no marginal cost. It’s basically a tax, there isn’t a better business model out there. They don’t even take any risk lending money, just a % fee for owning the network, that one has to be on to do business with most people with money nowadays.