topic Re: Card issuer lose money? in Credit Cards

Card issuer lose money?

Anonymous — Thu, 20 Jun 2013 04:01:39 GMT

So if you use your CSP to dine in a restaurant or check in a hotel in Australia, where the CC transaction fee is greatly reduced, normall below 1% for most merchants and below 2% for traditionally high-profit industries like hotel.

Here comes the question, if you check in a hotel, then Chase actually receive far less than 2% of transaction fees, but Chase still gives you 2 UR points per dollar, which can be redeemed for 1cent/point cashback, though in reality it's far more valuable than 1 c/p if you use it for award plane tickets. Since Visa merchants code is universal, so merchants should code the transaction the same way. And there's no forex fees.

I know there's a guy who frequently travel between Australia and US here in the forum, CreditScholar? . So I think he really saves a lot of money from this because local Australian creditors offer very lousy CC award, 1 point every five dollar!? and a hefty AF (How lucky we are!).

Does this mean Chase is losing money?

Re: Card issuer lose money?

Anonymous — Thu, 20 Jun 2013 02:51:47 GMT

@Anonymous wrote:
So if you use your CSP to dine in a restaurant or check in a hotel in Australia, where the CC transaction fee is greatly reduced, normall below 1% for most merchants and below 2% for traditionally high-profit industries like hotel.

Here comes the question, if you check in a hotel, then Chase actually receive far less than 2% of transaction fees, but Chase still gives you 2 UR points per dollar, which can be redeemed for 1cent/point cashback, though in reality it's far more valuable than 1 c/p if you use it for award plane tickets. Since Visa merchants code is universal, so merchants should code the transaction the same way. And there's no forex fees.

I know there's a guy who frequently travel between Australia and US here in the forum, he's scholar what.. I don't remember exactly. So I think he really saves a lot of money from this because local Australian creditors offer very lousy CC award, 1 point every five dollar!? and a hefty AF (How lucky we are!).

Does this mean Chase is losing money?

I don't quite understand the whole thing in general, but here's my take.

Chase may be losing money for a few transactions, or maybe for a few customers. They're making money through other aspects as well, such as interest fees. The general population is not going to accrue mostly overseas charges and transfer UR points to their partners. We don't even know how much Chase is paying their partners for those points. For all you know Chase might be getting them for less than 1ccp due to existing business dealings with those partners.

Re: Card issuer lose money?

Anonymous — Thu, 20 Jun 2013 03:14:28 GMT

chase didnt make billions of dollars by losing money. Plain and simple.

Re: Card issuer lose money?

FinStar — Thu, 20 Jun 2013 03:17:00 GMT

Where's CreditScholar when one needs him

Re: Card issuer lose money?

FinStar — Thu, 20 Jun 2013 03:20:11 GMT

@Anonymous wrote:
@Anonymous wrote:
So if you use your CSP to dine in a restaurant or check in a hotel in Australia, where the CC transaction fee is greatly reduced, normall below 1% for most merchants and below 2% for traditionally high-profit industries like hotel.

Here comes the question, if you check in a hotel, then Chase actually receive far less than 2% of transaction fees, but Chase still gives you 2 UR points per dollar, which can be redeemed for 1cent/point cashback, though in reality it's far more valuable than 1 c/p if you use it for award plane tickets. Since Visa merchants code is universal, so merchants should code the transaction the same way. And there's no forex fees.

I know there's a guy who frequently travel between Australia and US here in the forum, he's scholar what.. I don't remember exactly. So I think he really saves a lot of money from this because local Australian creditors offer very lousy CC award, 1 point every five dollar!? and a hefty AF (How lucky we are!).

Does this mean Chase is losing money?
I don't quite understand the whole thing in general, but here's my take.

Chase may be losing money for a few transactions, or maybe for a few customers. They're making money through other aspects as well, such as interest fees. The general population is not going to accrue mostly overseas charges and transfer UR points to their partners. We don't even know how much Chase is paying their partners for those points. For all you know Chase might be getting them for less than 1ccp due to existing business dealings with those partners.

Which is how most financial institutions leverage their marketing and strategic partnership agreements with a variety of them to begin with.

Re: Card issuer lose money?

09Lexie — Thu, 20 Jun 2013 03:20:40 GMT

Shaking his head at this and the other 3 threads!

Re: Card issuer lose money?

Anonymous — Thu, 20 Jun 2013 03:24:14 GMT

@Anonymous wrote:
@Anonymous wrote:
So if you use your CSP to dine in a restaurant or check in a hotel in Australia, where the CC transaction fee is greatly reduced, normall below 1% for most merchants and below 2% for traditionally high-profit industries like hotel.

Here comes the question, if you check in a hotel, then Chase actually receive far less than 2% of transaction fees, but Chase still gives you 2 UR points per dollar, which can be redeemed for 1cent/point cashback, though in reality it's far more valuable than 1 c/p if you use it for award plane tickets. Since Visa merchants code is universal, so merchants should code the transaction the same way. And there's no forex fees.

I know there's a guy who frequently travel between Australia and US here in the forum, he's scholar what.. I don't remember exactly. So I think he really saves a lot of money from this because local Australian creditors offer very lousy CC award, 1 point every five dollar!? and a hefty AF (How lucky we are!).

Does this mean Chase is losing money?
I don't quite understand the whole thing in general, but here's my take.

Chase may be losing money for a few transactions, or maybe for a few customers. They're making money through other aspects as well, such as interest fees. The general population is not going to accrue mostly overseas charges and transfer UR points to their partners. We don't even know how much Chase is paying their partners for those points. For all you know Chase might be getting them for less than 1ccp due to existing business dealings with those partners.

Here I mean whether Chase lose money in this kind of transactions or not. Because obviously this small portion of CC spending will not cause the whole Chase CC business to lose moeny.

And second, I'm pretty sure Chase buy airline reward mile for more than 1 cent each, United MileagePlus for example. Because only certain cards of certain banks can transfer points to airline miles on 1:1 bases. If 1 mile is cheaper than 1 cent, then every large bank should offer this kind of transfer instead of a plain 1 point to 1 cent cash back redemption on their no AF CC.

Re: Card issuer lose money?

Anonymous — Thu, 20 Jun 2013 03:30:22 GMT

@Anonymous wrote:
Here I mean whether Chase lose money in this kind of transactions or not. My guess is they're losing money on such transactions. Because obviously this small portion of CC spending will not cause the whole Chase CC business to lose moeny.

And second, I'm pretty sure Chase buy airline reward mile for more than 1 cent each, United MileagePlus for example. Because only certain cards of certain banks can transfer points to airline miles on 1:1 bases. If 1 mile is cheaper than 1 cent, then every large bank should offer this kind of transfer instead of a plain 1 point to 1 cent cash back redemption on their no AF CC.

No one besides Chase or that partner knows how much Chase is paying for those points.

The only reason Chase is able to offer those points is because of other pre-existing business partnerships. Note how Chase happens to be the credit card issuer for most of the partners where you can transfer points to. With such pre-existing business arrangements, they might be giving each side discounts / perks to offer to their respective customers. Think of it as cross-marketing. The only exception that I can remember is Virgin Atlantic and Korean Air.

Re: Card issuer lose money?

Open123 — Thu, 20 Jun 2013 03:52:00 GMT

@Anonymous wrote:
I know there's a guy who frequently travel between Australia and US here in the forum, he's scholar what.. I don't remember exactly.

I suppose, it would require too much of an effort to look up the guy's name. LOL

Re: Card issuer lose money?

myjourney — Thu, 20 Jun 2013 04:25:03 GMT

@Open123 wrote:
@Anonymous wrote:
I know there's a guy who frequently travel between Australia and US here in the forum, he's scholar what.. I don't remember exactly.
I suppose, it would require too much of an effort to look up the guy's name. LOL

Lol

Re: Card issuer lose money?

parakleet — Thu, 20 Jun 2013 05:01:04 GMT

Re: Card issuer lose money?

09Lexie — Thu, 20 Jun 2013 05:28:25 GMT

Exactly!

Re: Card issuer lose money?

FinStar — Thu, 20 Jun 2013 05:47:12 GMT

@parakleet wrote:

ROFLMAO!!!!! I concur with 09Lexie on this.

Re: Card issuer lose money?

Anonymous — Thu, 20 Jun 2013 11:05:50 GMT

@Anonymous wrote:
@Anonymous wrote:
So if you use your CSP to dine in a restaurant or check in a hotel in Australia, where the CC transaction fee is greatly reduced, normall below 1% for most merchants and below 2% for traditionally high-profit industries like hotel.

Here comes the question, if you check in a hotel, then Chase actually receive far less than 2% of transaction fees, but Chase still gives you 2 UR points per dollar, which can be redeemed for 1cent/point cashback, though in reality it's far more valuable than 1 c/p if you use it for award plane tickets. Since Visa merchants code is universal, so merchants should code the transaction the same way. And there's no forex fees.

I know there's a guy who frequently travel between Australia and US here in the forum, he's scholar what.. I don't remember exactly. So I think he really saves a lot of money from this because local Australian creditors offer very lousy CC award, 1 point every five dollar!? and a hefty AF (How lucky we are!).

Does this mean Chase is losing money?
I don't quite understand the whole thing in general, but here's my take.

Chase may be losing money for a few transactions, or maybe for a few customers. They're making money through other aspects as well, such as interest fees. The general population is not going to accrue mostly overseas charges and transfer UR points to their partners. We don't even know how much Chase is paying their partners for those points. For all you know Chase might be getting them for less than 1ccp due to existing business dealings with those partners.

Yes. And in general there is nothing surprising about this. To make a profit, a seller doesn't need to make a profit on every single transaction, so long as the profit on some transactions is greater than the losses on the others. The standard non cc example is loss-leaders in supermarkets, cheap stuff to draw shoppers in who then buy enough marked-up items to make it all worthwhile.

As in "perk abuse" in credit cards, there might be people who go to several supermarkets and buy only loss-leaders, but that is the exception.

And though chase might not lose on the points, they almost certainly do on the 5x Freedom stuff for example, but those are capped, and most "normal" people will use the card on 1% transactions as well.

Re: Card issuer lose money?

Open123 — Thu, 20 Jun 2013 13:42:38 GMT

Selective loss leaders are a part of the CC and banking business.

If you were to use Chase Freedom or Discover card *ONLY* for the 5% bonus categories, and *NEVER* for anything else, they will most assuredly lose money if you PIF without any balance interest. This is the reason why the rewards are capped to $1,500 per quarter. The issuers are fully prepared and find the loss levels within the limits they've set tolerable, so long as they can profit from others who use the card for the non-bonus categories.

If an issuer finds that almost everyone *only* uses the loss category, they will change the terms or terminate the program, e.g. BCP's lowering the limit to $6k, nerfing of US Bank Cash+, Citi's mistake with 5X unlimited.

Unitl then, take advantage while you can, such as the $30K in US Cash+ bill pay resulting in a cool $1,500 tax free rebate, which otherwise would have required to spend a massive $150,000 at 1% cashback to earn.

Re: Card issuer lose money?

GatorGuy — Thu, 20 Jun 2013 13:53:22 GMT

@Open123 wrote:
Selective loss leaders are a part of the CC and banking business.

If you were to use Chase Freedom or Discover card *ONLY* for the 5% bonus categories, and *NEVER* for anything else, they will most assuredly lose money if you PIF without any balance interest. This is the reason why the rewards are capped to $1,500 per quarter. The issuers are fully prepared and find the loss levels within the limits they've set tolerable, so long as they can profit from others who use the card for the non-bonus categories.

If an issuer finds that almost everyone *only* uses the loss category, they will change the terms or terminate the program, e.g. BCP's lowering the limit to $6k, nerfing of US Bank Cash+, Citi's mistake with 5X unlimited.

Unitl then, take advantage while you can, such as the $30K in US Cash+ bill pay resulting in a cool $1,500 tax free rebate, which otherwise would have required to spend a massive $150,000 at 1% cashback to earn.

Exactly. I'm not sure why so many other people think this is a ridiculous thread. It was a valid question. Companies certainly will lose money on some customers in certain situations. Obviously, that can't be the situation for the majority of customers but they do that so they can gain profits in other areas.

Don't forget that with these 'rewards' all it pretty much takes is someone not to pay their balance in full one month for the CC company to turn a profit on you.

Re: Card issuer lose money?

Razeus — Thu, 20 Jun 2013 13:55:50 GMT

I wouldn't worry about it. Chase, one of the biggest banks in history, has people that come up with these things for a living and have all the profit permutations & probabilities worked out. Just enjoy the rewards if they are good to you. For me my Chase Freedom will be my main card for everything next quarter due to gas, theme parks and my wife shopping at Kohls. I'm sure Chase knows what they are doing.

Re: Card issuer lose money?

bahbahd — Thu, 20 Jun 2013 13:59:29 GMT

The money they make off of the big data they collect on your more than makes up for the little loss on any one transaction.

Re: Card issuer lose money?

shakalaka — Thu, 20 Jun 2013 14:02:35 GMT

OP that is what´s called marketing You attract customers and at the end you make money on the interest, the "normal" usage ... whatever.

Re: Card issuer lose money?

JonStur — Thu, 20 Jun 2013 14:15:56 GMT

@shakalaka wrote:
OP that is what´s called marketing You attract customers and at the end you make money on the interest, the "normal" usage ... whatever.

+ 1.... Creditors understand it takes these perks to attract the elite customers, ( like those of us in the FICO family). If and or when it becomes unprofitable, they have the right to change or discontinue the program at any time. There usually is some mention of this in their T&C...