5% Rewards.....

[s_haliz]

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? 

[Open123]

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.

[s_haliz]

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@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.

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

[nachoslibres]

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@s_haliz wrote:

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@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.

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

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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.

[mongstradamus]

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@nachoslibres wrote:

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@s_haliz wrote:

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@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.

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

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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.

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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 :-)

[compassion101]

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@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.

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+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

[Open123]

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@compassion101 wrote:

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

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

[noobody]

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

[Anonymous]

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@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.

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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!

[TheFate]

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@nachoslibres wrote:

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@s_haliz wrote:

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@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.

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

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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.

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