Unprofitable Rewards

[Anonymous]

With the explosion of rewards cards and the number of rewards cards people carry today, one has to wonder when we go back to 1-2% rewards. Rotating categories and a handful of cards, getting 3-5% rewards on most products and services each time is easy to do. But card companies track profitability by cardholder, and when you use a card only when you can get rotaating 5% rewards or even 3% standard when they charge less than that on exchange fees, card companies in the future may decide it's not worth paying out 3-5% rewards for many of their customers.

I try to use each of my cards occasionally for 1% rewards in order to balance that out, but I think the 3-5% rates won't last forever. Card companies already have curbed churning because of the losses. They may curb the rewards. I don't think I'm very profitable for any of the card companies that I have cards with.

[Anonymous]

You may not be profitable but there are more people out there that are profitable.

[simplynoir]

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@Anonymous wrote:

You may not be profitable but there are more people out there that are profitable.

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This. You have to remember we are a niche group for the most part and not representative of the majority. For credit card companies to entice new and current customers to spend the rewards will always play a part. Banks have put restrictions on this to limit bonus earnings (Chase 5/24, AMEX once in a lifetime, spending caps on categories, etc) but they have to have them to get an advantage over the competition.

[coreysw12]

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@Anonymous wrote:

You may not be profitable but there are more people out there that are profitable.

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I was going to say the same thing. When determining rewards models, banks don't look at profitability of individual customers - they look at the profitability of the product as a whole.

95% of us on MyFico might be maximizing our rewards spending and being unprofitable for the card issuer, but we're not the average consumer. Most people can't be bothered with juggling rewards cards. Most people just use whatever card in their wallet "has room on it". And more importantly, most people carry a balance each month, which makes the costs of rewards payouts completely irelevant to the bank's bottom line. For every 10 of us who aren't profitable, it only takes 1 customer carrying a balance month-to-month for the bank to break even.

Probably, the card issuers actually LOVE those of us who optimize and maximize our rewards - because we talk about how awesome the cards are to our friends and on internet forums, ultimately attracting more customers (who are probably more profitable) to their cards.

[CreditInspired]

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@Anonymous wrote:
With the explosion of rewards cards and the number of rewards cards people carry today, one has to wonder when we go back to 1-2% rewards. Rotating categories and a handful of cards, getting 3-5% rewards on most products and services each time is easy to do. But card companies track profitability by cardholder, and when you use a card only when you can get rotaating 5% rewards or even 3% standard when they charge less than that on exchange fees, card companies in the future may decide it's not worth paying out 3-5% rewards for many of their customers.

I try to use each of my cards occasionally for 1% rewards in order to balance that out, but I think the 3-5% rates won't last forever. Card companies already have curbed churning because of the losses. They may curb the rewards. I don't think I'm very profitable for any of the card companies that I have cards with.

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Hi and welcome to MyFICO

Personally, I dont care if the CCCs are profitable or not—but they’re plenty profitable when they make mulimillions of dollars annually off of swipe fees and AFs for those in the know; and NSF fees, late fees, over the limit fees on those who don’t use credit wisely. They’re making a gazillion dollars hands over fist. 

I am taking advantage of every single reward that’s offered. One can’t worry about what a CCC may or may not change in the future. Everyday they make changes. And if a specific card’s rewards don’t suit me, I’m off to the one that does. 

[CreditInspired]

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@coreysw12 wrote:

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@Anonymous wrote:

You may not be profitable but there are more people out there that are profitable.

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I was going to say the same thing. When determining rewards models, banks don't look at profitability of individual customers - they look at the profitability of the product as a whole.

95% of us on MyFico might be maximizing our rewards spending and being unprofitable for the card issuer, but we're not the average consumer. Most people can't be bothered with juggling rewards cards. Most people just use whatever card in their wallet "has room on it". And more importantly, most people carry a balance each month, which makes the costs of rewards payouts completely irelevant to the bank's bottom line. For every 10 of us who aren't profitable, it only takes 1 customer carrying a balance month-to-month for the bank to break even.

Probably, the card issuers actually LOVE those of us who optimize and maximize our rewards - because we talk about how awesome the cards are to our friends and on internet forums, ultimately attracting more customers (who are probably more profitable) to their cards.

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You’ve hit the nail on the head. 

[Anonymous]

yup, most lenders (except axp) makes vast majority (up to 90%) of their profit from interest charges on balance carried.

[Anonymous]

I agree with most of what has been said above.

Forum members here that have a bunch of different rewards cards that use certain ones for certain categories are definitely in the minority compared to the whole.  Most people I know like friends and family members simply carry 1-2 cards and use them for everything.  While they may be getting rewards in one category, the majority of their spend will land in the 1% "everything else" category.   This type of customer is far more common than people like us.

[Anonymous]

Some of these cards are essentially a loss leader -- the financial equivalent of a Black Friday doorbuster deal. These companies hope you'll be enticed to open an account and use its other products and services on which it actually earns money.

[longtimelurker]

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@Anonymous wrote:


I try to use each of my cards occasionally for 1% rewards in order to balance that out, 

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I agree with the comments of most of the other posters, just want to say I wouldn't advocate doing this because:

a) it may not matter, if the issuer is looking at the card performance overall rather than an individual

b) if they do look at it on an individual level, you are only going to profitable if your 1% use far outweighs the enchanced category, really negating the advantage of using the card.   Basically, earning $100 and giving back $1 isn't going to impress them as making an effort!