Rewards programs make lots of money for MC/Visa

[pipeguy]

Just posted on the financial newtorks - Visa and MasterCard saw strong usage of their cards resulting in strong profits. If you think the "rewards" have consumers in mind, think again because they are designed to increase usage and swipe fees.

VISA

The world's largest credit and debit card company reported quarterly earnings of $2.18 per share, ex-items, topping expectations for $2.10 per share.

Analysts had expected the company to report earnings of $2.10 a share on $3.91 billion in revenue, according to a consensus estimate from Thomson Reuters.

MasterCard

The company's net income rose to $1.02 billion, or 87 cents per share, in the third quarter ended Sept. 30 from $879 million, or 73 cents per share, a year earlier.

Net revenue rose 12.8 percent to $2.5 billion.

[yfan]

There's no doubt that rewards programs are designed to increase usage. However, Visa and Mastercard do not issue credit cards or run rewards programs, financial institutions do. Visa and MC are just the payment networks. So while they benefit from cards being used, the lion's share of the benefits/losses from specific rewards programs are taken by issuing banks.

[Anonymous]

+1 Great answer.

[jsucool76]

But what OP means is that because of reward programs credit cards are being used more often, benefiting both the banks, and the networks.

[pipeguy]

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@jsucool76 wrote:
But what OP means is that because of reward programs credit cards are being used more often, benefiting both the banks, and the networks.

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Yup - if you think of the concept, "they" want you to use your card for 100% of your spending. Both card issuers and the networks (MC/V/AE/D) get paid everytime you use your card. As consumers, how much "extra" are we paying so that someone gets a piece of every dollar we spend? I understand the benefits and the marketing and even the rewards, I'm just taking a look at the why we buy the marketing. Retailers pay a ton of money to use credit cards, it has to be reflected in prcing....

Edit add:  It's a proven fact that when you (consumers in general) have to spend cash you spend less.

[Imperfectfuture]

It's also a proven fact that when taxes are rolled back (at least in my area where the soda tax was repealed), swipe fees are lowered (which the merchants bargained heavily for), and even if I carry cash to shop, buy bus tickets etc.:

IT'S STILL THE SAME PRICE. Merchants take the savings from the above scenarios, and pad their bottom line (since retailers aren't doing that hot on the market these days, including Starbucks, not bad, just not much growth, unless you are unloved like JCP).

Now, if you buy a car for cash, yes, save money. But only small mom and pop shops offer discount for cash (or surcharge for debit/credit use).

[longtimelurker]

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@Imperfectfuture wrote:
It's also a proven fact that when taxes are rolled back (at least in my area where the soda tax was repealed), swipe fees are lowered (which the merchants bargained heavily for), and even if I carry cash to shop, buy bus tickets etc.:

IT'S STILL THE SAME PRICE. Merchants take the savings from the above scenarios, and pad their bottom line (since retailers aren't doing that hot on the market these days, including Starbucks, not bad, just not much growth, unless you are unloved like JCP).

Now, if you buy a car for cash, yes, save money. But only small mom and pop shops offer discount for cash (or surcharge for debit/credit use).

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Right, the reference is not to cost per unit thing, it's total amount spent.    There is somewhat of a research consensus that credit cards increase overall spending, although many here deny this (probably wrongly!).   Lots of different way this happens:

1) first, not handing over real cash, which is a brake to some

2) things are cheaper: "It's $100 but with Freedom I get $5 back, so it's only $95"   And maybe you wouldn't have bought it for $100 (or even $95 with cash) but now it is a bargain.  In fact, buy 2!

3) Meeting minimum spend.  Sure, some may merely accelarate spending they would otherwise do, but I would guess that many do extra spending to meet the goal.  Maybe not for $500, but for $3K, or the $10K AA Exec cards.

[pipeguy]

Looking at "just" the figures reported for a single quarter for MC/Visa their income is $4.93 BILLION and this does not include AmEx or Discover figures nor is it the heavy spending holifday season. That's a ton of money for the networks, which of course does not include the Chaser/CiTi/Wells, et al share.

Like I said, I understand the marketing and rebate (rewards) but the "share" credit cards off the top of every sale has to come from somewhere. I know this forum (et al) tend to be more in the loop as far as max'ing the advantage of cards - who knew that manufactured spending was a way to churn rewards? I didn't....

I just find it interesting that "they" have convienced "us" that we should process 100% of our spending through their system so they can get a cut of money we would spend anyway. Very succesful it seems, it just somehow seems wrong.... 

[MissMoni223]

Thanks for sharing.

[Anonymous]

Personally, I'm thrilled with the 10.24% I earned just today on the value of my Visa stock. And also the $4,873.19 in rewards I've earned so far this year by using rewards cards for purchases I'd have made anyway.

Chris.