topic Re: 5% Rewards..... in Credit Cards

5% Rewards.....

s_haliz — Tue, 08 Jul 2014 02:57:18 GMT

Lately I have seen that many credit card issuers do offer 5% rewards on Gas or Dept Store or something else. Many are on a rotating categories throughout the year.

My friend runs a Gas station and he just pays flat 1.78% fees on any credit card swipes.

So I am curious as to how CC companies can afford to pay more than what they make from merchants as income? By interest charges, I suppose, assuming most customers may carry (except customers like me who don't carry baance...).

Any insight, opinion on this?

Re: 5% Rewards.....

Open123 — Tue, 08 Jul 2014 03:01:13 GMT

They're banking that you will use the card for non-gas purchases for a much lower rewards tier. It's a loss leader, much like how Fidelity Amex offers 2%; they can lose money on CCs, if they make it back on AUM fees.

Re: 5% Rewards.....

s_haliz — Tue, 08 Jul 2014 03:04:56 GMT

@Open123 wrote:
They're banking that you will use the card for non-gas purchases for a much lower rewards tier. It's a loss leader, much like how Fidelity Amex offers 2%; they can lose money on CCs, if they make it back on AUM fees.

You made a great point. In addition to buying lower rewards items, they may also count on late fees, over the limit fees, etc.

Re: 5% Rewards.....

nachoslibres — Tue, 08 Jul 2014 03:33:01 GMT

@s_haliz wrote:
@Open123 wrote:
They're banking that you will use the card for non-gas purchases for a much lower rewards tier. It's a loss leader, much like how Fidelity Amex offers 2%; they can lose money on CCs, if they make it back on AUM fees.
You made a great point. In addition to buying lower rewards items, they may also count on late fees, over the limit fees, etc.

Of course they do. They wouldn't offer the product if it didn't make money. So the people who use their card only for the 5% bonus categories and pay it off may cost them money, but those people who consistently use that same card for every thing and carry a balance every month more than make up for it.

Re: 5% Rewards.....

mongstradamus — Tue, 08 Jul 2014 03:35:31 GMT

@nachoslibres wrote:
@s_haliz wrote:
@Open123 wrote:
They're banking that you will use the card for non-gas purchases for a much lower rewards tier. It's a loss leader, much like how Fidelity Amex offers 2%; they can lose money on CCs, if they make it back on AUM fees.
You made a great point. In addition to buying lower rewards items, they may also count on late fees, over the limit fees, etc.
Of course they do. They wouldn't offer the product if it didn't make money. So the people who use their card only for the 5% bonus categories and pay it off may cost them money, but those people who consistently use that same card for every thing and carry a balance every month more than make up for it.

i think they are making plenty of money for all the poeple who are in debt that can't PIF. Not really going to shed an tear for them :-)

Re: 5% Rewards.....

compassion101 — Tue, 08 Jul 2014 03:43:26 GMT

@Open123 wrote:
They're banking that you will use the card for non-gas purchases for a much lower rewards tier. It's a loss leader, much like how Fidelity Amex offers 2%; they can lose money on CCs, if they make it back on AUM fees.

+1 it's a loss leader. They make up for it by gaining customers who like the 5% back. The average customer that they gain will pay much more in fees, interest, and merchant swipe fees on other products.

If everyone played the cashback game like most on this forum, they probably wouldn't offer 5% categories

Re: 5% Rewards.....

Open123 — Tue, 08 Jul 2014 03:57:55 GMT

@compassion101 wrote:

If everyone played the cashback game like most on this forum, they probably wouldn't offer 5% categories

Right, we're the "freerider" cost, which if it becomes too large of a portion, will force the issuer to "nerf" the card.

Re: 5% Rewards.....

noobody — Tue, 08 Jul 2014 04:08:26 GMT

Chase already took drug store, dept store, hotel, airline out of rotation. and lowe's starbucks can hardly be called categories.

Re: 5% Rewards.....

Anonymous — Tue, 08 Jul 2014 04:23:41 GMT

@Open123 wrote:
They're banking that you will use the card for non-gas purchases for a much lower rewards tier. It's a loss leader, much like how Fidelity Amex offers 2%; they can lose money on CCs, if they make it back on AUM fees.

Right, the card I REALLY don't get is the Penfed Plat Cash Rewards, which offers 5% off gas and no other rewards. Are there really people who use this for everything? Maybe!

Re: 5% Rewards.....

TheFate — Tue, 08 Jul 2014 04:29:30 GMT

@nachoslibres wrote:
@s_haliz wrote:
@Open123 wrote:
They're banking that you will use the card for non-gas purchases for a much lower rewards tier. It's a loss leader, much like how Fidelity Amex offers 2%; they can lose money on CCs, if they make it back on AUM fees.
You made a great point. In addition to buying lower rewards items, they may also count on late fees, over the limit fees, etc.
Of course they do. They wouldn't offer the product if it didn't make money. So the people who use their card only for the 5% bonus categories and pay it off may cost them money, but those people who consistently use that same card for every thing and carry a balance every month more than make up for it.

And these are the people who more than likely get CLI vs the guy who only uses for the 5% cash back

Re: 5% Rewards.....

noobody — Tue, 08 Jul 2014 04:33:57 GMT

why do u need CLI on cards wth cap on bonus any way? spend on something other than 5% category?

Re: 5% Rewards.....

Anonymous — Tue, 08 Jul 2014 04:34:41 GMT

@TheFate wrote:

And these are the people who more than likely get CLI vs the guy who only uses for the 5% cash back

Right, they get the CLI. And then what? If they are using it for 1% rewards, no great value, whereas those getting 5%, with the existing CL, are going to do better.

Re: 5% Rewards.....

TheFate — Tue, 08 Jul 2014 04:39:44 GMT

@Anonymous wrote:
@TheFate wrote:
And these are the people who more than likely get CLI vs the guy who only uses for the 5% cash back

Right, they get the CLI. And then what? If they are using it for 1% rewards, no great value, whereas those getting 5%, with the existing CL, are going to do better.

Why not make it a mutual benefit? You show love to your lender and by far they will show you MORE love

Re: 5% Rewards.....

Open123 — Tue, 08 Jul 2014 04:46:03 GMT

@TheFate wrote:
@Anonymous wrote:
@TheFate wrote:
And these are the people who more than likely get CLI vs the guy who only uses for the 5% cash back

Right, they get the CLI. And then what? If they are using it for 1% rewards, no great value, whereas those getting 5%, with the existing CL, are going to do better.
Why not make it a mutual benefit? You show love to your lender and by far they will show you MORE love

Choosing to spend with 1% with better options available isn't showing "love," but...er...imprudence.

Re: 5% Rewards.....

Anonymous — Tue, 08 Jul 2014 04:46:28 GMT

@TheFate wrote:
@Anonymous wrote:
@TheFate wrote:
And these are the people who more than likely get CLI vs the guy who only uses for the 5% cash back

Right, they get the CLI. And then what? If they are using it for 1% rewards, no great value, whereas those getting 5%, with the existing CL, are going to do better.
Why not make it a mutual benefit? You show love to your lender and by far they will show you MORE love

Because love from the lender has little to no value for me! That's my point about CLIs. Whereas if I use a 5% card to get 1% on a certain transaction, when by using another card I could get 2%, that is an actual loss.

The only card I have sought CLIs on are the uncapped cards (Blue Cash, Citi Forward) where a bigger CL can allow bigger rewards.

Re: 5% Rewards.....

Open123 — Tue, 08 Jul 2014 04:50:22 GMT

@Anonymous wrote:
Because love from the lender has little to no value for me! That's my point about CLIs. Whereas if I use a 5% card to get 1% on a certain transaction, when by using another card I could get 2%, that is an actual loss.

The only card I have sought CLIs on are the uncapped cards (Blue Cash, Citi Forward) where a bigger CL can allow bigger rewards.

You'd think this would be self-evident.

I mean, if my US Bank Cash+ is capped at $2,000 per quarter, to what end would a $20K CL serve? I can think of no earthly reason I'd ever spend beyond the $2K for 5% categories on this card.

Re: 5% Rewards.....

TheFate — Tue, 08 Jul 2014 04:57:35 GMT

@Open123 wrote:
@TheFate wrote:
@Anonymous wrote:
@TheFate wrote:
And these are the people who more than likely get CLI vs the guy who only uses for the 5% cash back

Right, they get the CLI. And then what? If they are using it for 1% rewards, no great value, whereas those getting 5%, with the existing CL, are going to do better.
Why not make it a mutual benefit? You show love to your lender and by far they will show you MORE love
Choosing to spend with 1% with better options available isn't showing "love," but...er...imprudence.

Guess it all depends on the person...

I'd take a larger CLI over saving $20-$30 anyday because I benefit far more from the increase than the extra $30 in my pocket.

I suppose once your credit is already established and in good standing one can see your way, but I'm rebuilding so every CLI is vital in growth.

Re: 5% Rewards.....

Open123 — Tue, 08 Jul 2014 05:01:26 GMT

@TheFate wrote:
I suppose once your credit is already established and in good standing one can see your way, but I'm rebuilding so every CLI is vital in growth.

Agree that until adequate CLs are finally attained, they take on more importance during the building or rebuilding stage. From my perspective, if CCs got rid of rewards, aside from air & hotel reservations, I'd never use them and would opt for cash to curry favor with merchants.

For me, it's *all* about the bottom line.

Re: 5% Rewards.....

noobody — Tue, 08 Jul 2014 05:02:38 GMT

@Open123 wrote:
@Anonymous wrote:
Because love from the lender has little to no value for me! That's my point about CLIs. Whereas if I use a 5% card to get 1% on a certain transaction, when by using another card I could get 2%, that is an actual loss.

The only card I have sought CLIs on are the uncapped cards (Blue Cash, Citi Forward) where a bigger CL can allow bigger rewards.
You'd think this would be self-evident.

I mean, if my US Bank Cash+ is capped at $2,000 per quarter, to what end would a $20K CL serve? I can think of no earthly reason I'd ever spend beyond the $2K for 5% categories on this card.

that is exactly what i thought, just called US bank last week to CLD my cash+ from 17K to 10K, I just can not see myself charge more than 2K on the card ever!

Re: 5% Rewards.....

Open123 — Tue, 08 Jul 2014 05:05:34 GMT

@noobody wrote:
that is exactly what i thought, just called US bank last week to CLD my cash+ from 17K to 10K, I just can not see myself charge more than 2K on the card ever!

Right, for the $5 cashback offer, I accepted their CL increase, only to request a CLD later.