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So credit card issuers are pretty sophisticated with regards to this, and many of them track different user personas and use them to dice up their portfolio by

So credit card issuers are pretty sophisticated with regards to this, and many of them track different user personas and use them to dice up their portfolio by archetypes. The "folks like us" archetype is one which is definitely tracked and goes by different names at different places. I express no strong opinion on whether you personally are contribution margin negative for your issuer. On a portfolio level though, this is extremely well studied and extremely clear: that archetype is staggeringly contribution margin positive. It's actually one of the best performing ones at some issuers, principally because the archetype spends a lot per account, has negligible defaults for non-fraudulent users, and therefore earns lots of interchange at favorable margins. It is possible, given the design of individual products, that a user with close-to-optimal spending decisions is contribution margin negative on individual products and potentially on all accounts with a particular issuer. People outside the credit card ecosystem believe this is much more common than it actually happens. A lot of thought goes into the design of products to decrease the likelihood of adverse use, cap the damages, and encourage users who are very skilled at gamesmanship to game their way to being contribution positive.

hammock 5y ago
It is a tangled tangled web, but if in fact the "folks like us" are actually profitable, due to fees charged to merchants, there is disruption waiting to happen in that arena, perhaps by some huge merchant somewhere (Amazon? Walmart?)
jonas21 5y ago
> It is possible, given the design of individual products, that a user with close-to-optimal spending decisions is contribution margin negative on individual products and potentially on all accounts I feel like that user is typically the sort who enjoys telling anyone who will listen about how they managed to get great rewards from their card. With all that free marketing, the credit card issuer is probably happy to have them as a customer, even if they lose a little bit of money on them.
- patio11 5y ago
  FWIW: I think technologists are far too quick to jump to "I bet they want to do it for free marketing" and far too slow to think "I bet they have a large team of people who does almost literally nothing other than study this exact question, has thought about it for hundreds of thousands more hours than any credit card user has, and has a highly developed technical infrastructure capable of authoritatively answering it." It is a curious, curious belief in the engineering community that we are better at trivial math than banks are. That is not a bet I would encourage people to make.
  - jonas21 5y ago
    Oh, I don't doubt that they have a very sophisticated model for this. I'm just saying they probably take customer acquisition cost into account in the model too. "I bet they do it for free marketing" doesn't mean "I bet they didn't do the math". It means "I bet their marketing department measures everything and is good at math too."
  - sokoloff 5y ago
    I see this pattern almost weekly with engineers (both online and offline). The hubris is fascinating. (Full disclosure: I was often guilty of this myself for the first decade-plus of my career.)
    - BirdieNZ 5y ago
      The current discussions around Covid and vaccines made me realise I am continually guilty of this hubris. I've heard people say before "whenever I see a discussion on a subject I am an expert on, HN is full of ignorant commenters", but I feel it far more viscerally now. The first stage was: these anti-vaxxers don't have a degree in immunology, what makes them qualified to even attempt to interpret scientific papers on the subject? The second stage was: wait, I don't have a degree in immunology either, why am I pretending to be "following the science" when I don't have even the vocabulary or the context to properly grasp immunology papers? Accepting that I am a functional ignoramus with regards to Covid, viruses, immunology, vaccine development etc. is very freeing. I'm basically knowledgeable on very few things, and am not an authority on (vaccines|economics|law|history|basically everything). Being good at software engineering doesn't make me an expert at everything I read two articles on.
WalterBright 5y ago
The term for us, who pay off their entire balance every month, is "deadbeats".
- kgermino 5y ago
  That’s an interesting term for “profitable customer who pays their debts”
  - WalterBright 5y ago
    I'd be much more profitable to them if I didn't pay the debts, and they'd accrue the usurious interest charges. I found this out (and the term) after discovering my credit score was lower than I expected. With some investigation, it was low because it showed I had a lot of credit card debt. Paying it off each month did not factor into the credit score.
polygotdomain 5y ago
Having sat in data presentations from credit card companies, the extent of the data that credit card companies have is incredibly detailed. For those customers who they don't make money on from interest and fees alone, I would imagine that data more than covers the difference. These customer are still VERY desirable from a data perspective. While there are legitimate tracking concerns, the data the credit card companies capture and disseminate is incredibly fascinating. You've got spending data, layered with market segments, layered with location data (both on the cardholder and the business side), and even time of day. Overlay all that with very accessible data from the Census or ESRI, and they can really tell a significant story of how money flows through the modern economy. This is what's feeding the internal fraud detection engines (which have gotten a lot better), but there are also private institutions that are more than willing to pay the credit cards a hefty sum to get access to all this data.
kipchak 5y ago
>The "folks like us" archetype is one which is definitely tracked and goes by different names at different places. Out of curiosity, what names does that archetype go by?

hammock 5y ago

It is a tangled tangled web, but if in fact the "folks like us" are actually profitable, due to fees charged to merchants, there is disruption waiting to happen in that arena, perhaps by some huge merchant somewhere (Amazon? Walmart?)

jonas21 5y ago

> It is possible, given the design of individual products, that a user with close-to-optimal spending decisions is contribution margin negative on individual products and potentially on all accounts I feel like that user is typically the sort who enjoys telling anyone who will listen about how they managed to get great rewards from their card. With all that free marketing, the credit card issuer is probably happy to have them as a customer, even if they lose a little bit of money on them.

patio11 5y ago
FWIW: I think technologists are far too quick to jump to "I bet they want to do it for free marketing" and far too slow to think "I bet they have a large team of people who does almost literally nothing other than study this exact question, has thought about it for hundreds of thousands more hours than any credit card user has, and has a highly developed technical infrastructure capable of authoritatively answering it." It is a curious, curious belief in the engineering community that we are better at trivial math than banks are. That is not a bet I would encourage people to make.
- jonas21 5y ago
  Oh, I don't doubt that they have a very sophisticated model for this. I'm just saying they probably take customer acquisition cost into account in the model too. "I bet they do it for free marketing" doesn't mean "I bet they didn't do the math". It means "I bet their marketing department measures everything and is good at math too."
- sokoloff 5y ago
  I see this pattern almost weekly with engineers (both online and offline). The hubris is fascinating. (Full disclosure: I was often guilty of this myself for the first decade-plus of my career.)
  - BirdieNZ 5y ago
    The current discussions around Covid and vaccines made me realise I am continually guilty of this hubris. I've heard people say before "whenever I see a discussion on a subject I am an expert on, HN is full of ignorant commenters", but I feel it far more viscerally now. The first stage was: these anti-vaxxers don't have a degree in immunology, what makes them qualified to even attempt to interpret scientific papers on the subject? The second stage was: wait, I don't have a degree in immunology either, why am I pretending to be "following the science" when I don't have even the vocabulary or the context to properly grasp immunology papers? Accepting that I am a functional ignoramus with regards to Covid, viruses, immunology, vaccine development etc. is very freeing. I'm basically knowledgeable on very few things, and am not an authority on (vaccines|economics|law|history|basically everything). Being good at software engineering doesn't make me an expert at everything I read two articles on.

WalterBright 5y ago

The term for us, who pay off their entire balance every month, is "deadbeats".

kgermino 5y ago
That’s an interesting term for “profitable customer who pays their debts”
- WalterBright 5y ago
  I'd be much more profitable to them if I didn't pay the debts, and they'd accrue the usurious interest charges. I found this out (and the term) after discovering my credit score was lower than I expected. With some investigation, it was low because it showed I had a lot of credit card debt. Paying it off each month did not factor into the credit score.

polygotdomain 5y ago

Having sat in data presentations from credit card companies, the extent of the data that credit card companies have is incredibly detailed. For those customers who they don't make money on from interest and fees alone, I would imagine that data more than covers the difference. These customer are still VERY desirable from a data perspective. While there are legitimate tracking concerns, the data the credit card companies capture and disseminate is incredibly fascinating. You've got spending data, layered with market segments, layered with location data (both on the cardholder and the business side), and even time of day. Overlay all that with very accessible data from the Census or ESRI, and they can really tell a significant story of how money flows through the modern economy. This is what's feeding the internal fraud detection engines (which have gotten a lot better), but there are also private institutions that are more than willing to pay the credit cards a hefty sum to get access to all this data.

kipchak 5y ago

>The "folks like us" archetype is one which is definitely tracked and goes by different names at different places. Out of curiosity, what names does that archetype go by?