Citi and the lost $282 Million

[SBR249]

I thought you could bring your reward check to a membership desk at Costco and get the cash value? 

[NRB525]

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@SBR249 wrote:

I thought you could bring your reward check to a membership desk at Costco and get the cash value? 

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Oh, now you’ve done it! The OP had a good thread going and now the Rest Of The Story spoils it. 

[DaveInAZ]

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@NRB525 wrote:

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@SBR249 wrote:

I thought you could bring your reward check to a membership desk at Costco and get the cash value? 

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Oh, now you’ve done it! The OP had a good thread going and now the Rest Of The Story spoils it. 

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Well, @Aim_High did say in the OP "You can either cash or apply the balance to purchases", but did base the "lost rewards" calculations on applying the check to a purchase, which most folks probably do. But I'm astounded that on the Citi Costco card the only way to redeem your rewards is to wait for an annual paper check attached to a statement, and the check can only be cashed at Costco??? And I though having to wait for a $25 redemption level to cash out as a statement credit was an inconvenience. 

I will never ever get a Citi Costo card if that's how it works. But I'm not a candidate for one, I always liked Costco but I let my membership expire over 10 years ago. I moved and it's almost an hour & a half to the nearest Costco, and with just me and my dog in the household it was costing me to shop there instead of saving anything.

[kdm31091]

IMO, this is really splitting hairs. The rewards lost are so minimal (less than $5 in most cases unless your reward check is huge) it's nothing to sweat over. Just do whatever you prefer. It's obviously more convenient to just apply the rewards to the purchase you're making, but go the extra step of cashing it out and you technically get a couple more bucks out of it in the end. Is that couple bucks worth waiting in line twice? Personal decision.

We do a lot of things in life that involve paying a little more for convenience.  The more convenient reward redemption here "costs" you a little more.

[CramEiko]

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@DaveInAZ wrote:

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@NRB525 wrote:

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@SBR249 wrote:

I thought you could bring your reward check to a membership desk at Costco and get the cash value? 

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Oh, now you’ve done it! The OP had a good thread going and now the Rest Of The Story spoils it. 

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Well, @Aim_High did say in the OP "You can either cash or apply the balance to purchases", but did base the "lost rewards" calculations on applying the check to a purchase, which most folks probably do. But I'm astounded that on the Citi Costco card the only way to redeem your rewards is to wait for an annual paper check attached to a statement, and the check can only be cashed at Costco??? And I though having to wait for a $25 redemption level to cash out as a statement credit was an inconvenience. 

I will never ever get a Citi Costo card if that's how it works. But I'm not a candidate for one, I always liked Costco but I let my membership expire over 10 years ago. I moved and it's almost an hour & a half to the nearest Costco, and with just me and my dog in the household it was costing me to shop there instead of saving anything.

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As for myself - it's just me, myself and I with no pets and just manage to come out ahead enough to renew ($$ wise) my Executive Membership and a Hot Dog with a free drink. Ha Ha Ha. With the Costco Executive 2% + Citi Costco 2%,3%,4% all the nickle and dimes add up.

I mean, I get to enjoy free snacks (samples), get some exercise (browsing endlessly) and then join the herd as everyone seems to want out the same time I'm wanting to get out. Whats not to like?

But as OP was saying, take your money and run so your new purchase can earn you that combined 4% when combined with the Executive Membership and Citi Costco card.

Good Luck!

[SBR249]

There are also some problems with that calculation of $282 million. 

1. In Costco's SEC Form 10-K (Annual Report), they do list 94.3 million cardholders (as is reported on Wikipedia), however the detailed breakdown is 51.6 million paid memberships and 42.7 million household cardholders. If we assume that it's closer to one Citi Costco Visa account per paid membership on average, that halves the number of people losing money when they redeem their cashback. 

2. Those membership numbers are global memberships and Citi's card is offered in the US only. Costco doesn't breakdown membership numbers by region or country but they do break down store numbers by country/region. There are 527 Costco warehouses in the US out of a global total of 762. If we take that proportion as a rough estimate of the proportion of members that are US based, that's roughly 527/762 * 51.6 = 35.7 million paid US members. 

3. Not every member has a Costco Visa card. I couldn't find any concrete numbers for Citi Costco Visa specifically but there are historical data that can stand in. In 2016, Costco dropped AmEx as its cobrand card partner in the US and at the time, the widely publicized number was that 1 in 10 AmEx cards in the US was a Costco cobranded one. I couldn't fine historical numbers but in 2018, there were about 55 million AmEx cards in circulation in the US. So taking that number, 10% would be about 5.5 million cards. Let's be generous and say that Costco has been extremely good at pushing their new card and has doubled the number of cardholders. That's 11 million cards or about 20% of their paid membership in the US. 

4. Not everyone spends enough at Costco or elsewhere to generate $150 in cashback a year. At 2% cashback rate, that's $7500/yr spending at Costco alone or about $145 per week. Costco's own financial data bears this out. Their 2018 net sales minus membership fees was $138.5 billion from 51.6 million paid members. That's about $2700 per member in sales. Even being generous and saying that US members buy a lot more due to higher standard of living and more disposable income, I doubt the average cracks $5000/year spent at Costco. You could argue that people earn more of their cashback on other categories besides Costco which would be a valid argument. If we are generous and let's say $500 in total cashback a year (extremely generous), that's a loss of $10 if redeemed for purchases. 

So to put it all together, $10*11 million cardholders is $110 million in "loss".

And I would argue that $500 in total cashback is being extremely liberal with the numbers. There's a cap of $7000 for the 4% gas category, so if you max that out, that's $280 in cashback. If you get the rest through the next highest category of 3% in restaurants and travel, you'd need to spend almost $7500 for total of more than $14,000 spending on the card. No matter how affluent Costco's customers are, that's likely not the average spend across all their cobrand cardholder base.

If we take the OP's number of $150/year cashback and $3 loss, that's $33 million in estimated "loss". 

[Anonymous]

"That would be about 43 million US members with a Citi Costco card."

Citi reported that 86 million of their 142 million credit card accounts are "retail services" accounts (store accounts). So that leaves 56 million to divide up between 15-16 cards. I doubt 76% of their remaining card business is Costco. Citi's number one client is American Airlines.

But yeah, breakage is where the money is. Breakage is people who don't cash in their rewards.

[Aim_High]

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@DaveInAZ wrote:

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@NRB525 wrote:

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@SBR249 wrote:

I thought you could bring your reward check to a membership desk at Costco and get the cash value? 

---

Oh, now you’ve done it! The OP had a good thread going and now the Rest Of The Story spoils it. 

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Well, @Aim_High did say in the OP "You can either cash or apply the balance to purchases" ... 

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Yes, you can! 

But the point was that most people probably don't do that and don't even stop to think about losing rewards money over it.  And that's want the banks hope people do when it comes to these types of rewards tactics that potentially erode actual rewards rates by small values.  Multiplied over the volume of cards, it's huge money for the banks when we don't pay attention to how we redeem rewards.  As someone pointed out, this practice isn't limited to just Citi or the Costco card and is used on many other types of credit card rewards programs.

[Aim_High]

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@kdm31091 wrote:

IMO, this is really splitting hairs. The rewards lost are so minimal (less than $5 in most cases unless your reward check is huge) it's nothing to sweat over.

We do a lot of things in life that involve paying a little more for convenience. 

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The point isn't the $5, or whatever the specific amount.

The point isn't the amount of loss to each consumer.

And the point also isn't the precise amount the banks are "saving".

The point is that the banks purposefully use these policies to erode rewards.

The erosion is in small ways people don't even often really notice.

But it is huge money for them.

They could choose to make redemption more easy or fair to the consumer. 

But they choose not to do it.

As to convenience, that is true.

But why would the bank make it more convenient to not get the cash?

Obviously, it is a small way for them to add profits at our expense.

[Aim_High]

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@SBR249 wrote:

There are also some problems with that calculation of $282 million. 

So to put it all together, $10*11 million cardholders is $110 million in "loss".

If we take the OP's number of $150/year cashback and $3 loss, that's $33 million in estimated "loss". 

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Thank you for that detailed analysis.  I didn't go to that extent in my original calculations, but was more off-the-cuff.

You actually validated my posting even more completely.

The exact number wasn't the point.  Either way you slice it, whether it's $282 Million or $110 Million or $33 Million, we're talking huge numbers based on a few dollars per customer over that volume.  And that was my point.

And that the design of some credit card rewards programs and redemptions are purposefully meant to erode what actual rewards we are being paid as opposed to what we believe we are earning. 

The overall reason for the thread was to encourage attention to detail and mindfulness about our credit card rewards programs.  There are many members who scour the internet and this forum looking for the optimum rewards cards for their spending.  But if they aren't careful, they could end up leaving "money on the table" to the banks by letting a little slip away here and there.  The terms and conditions are always in the banks' favor.