Why CC doesn't simply forbid Gift Card purchasing?

[enharu]

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@Open123 wrote:

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@Anonymous wrote:

Yes, it screws up other normal "non-abusers" but so do a lot of things in life, and credit cards perks are just that, perks, and can all go away at any time.

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From an individual's perspective (say, mine), to what end would make decisions considering the welfare of others?  If I'm making a decision for myself, I couldn't care less what's better for you, my neighbor or society.  I'm not interested in making any sacrifices for the "greater" good.

I *only* care to maximize my own utility of benefit, just as Citi will maximize theirs.

A case in point.  If I have an infection which hurts, the last thing I want to hear is the "antibiotics are abused and will become ineffective in 50 years."  I don't care about 50 years later.  I don't care about how it works for anyone else's potential infection.  *All* I care about is treating mine.

In my view, it's a specious argument or criticism to expect or suggest any indvidual makes "individual" financial decisions by considering the greater good of everyone else. 

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I agree.

Most people will not expect a single individual to not "spoil" it for everyone else, but at the same time those people have the right to be annoyed at those few individuals who did "spoil" it for everyone else. Those TBTF banks are a good example. They certainly did not care about the repercussions of their actions because the profits were just so good, and they literally tanked the economy as a result. At the end of the day, people might be unhappy, but they move on because things like this happen all the time. Given the same position, most people wouldn't care either. For my case when I was debating whether to abuse it I certainly did not even think about the "greater good". I was simply considering the pros and cons for myself.

I do agree and that perks come and go as well. A good example was return abuse at Walmart / Target. People would buy stuff for 40-60% off on Amazon, bring it to Walmart to return for store credit for the full price. As a result they basically got 40% off for their groceries. While that legally constitutes as retail fraud, many people still did it anyhow and such actions forced retailers to impose stricter rules. 

[Open123]

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@Anonymous wrote:

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@Open123 wrote:

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@Anonymous wrote:

Yes, it screws up other normal "non-abusers" but so do a lot of things in life, and credit cards perks are just that, perks, and can all go away at any time.

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From an individual's perspective (say, mine), to what end would I make decisions considering the welfare of others?  If I'm making a decision for myself, I couldn't care less what's better for you, my neighbor or society.  I'm not interested in making any sacrifices for the "greater" good.

I *only* care to maximize my own utility of benefit, just as Citi will maximize theirs.

A case in point.  If I have an infection which hurts, the last thing I want to hear is the "antibiotics are abused and will become ineffective in 50 years."  I don't care about 50 years later.  I don't care about how it works for anyone else's potential infection.  *All* I care about is treating mine.

In my view, it's a specious argument or criticism to expect or suggest any indvidual makes "personal" financial decisions by considering the greater good of everyone else. 

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In case it's not clear, we totally agree!

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LOL...Like Enharu said, it's a Sunday and I've got nothing but time watching baseball and posting here!  I just wanted to elaborate instead of the perfunctory "+1!" 

[oscar_actuary]

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@b_seeker wrote:

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@oscar_actuary wrote:

Open123 said "They do what they do, and we do what we do.  No quarter asked, and none given."

That's basically where I stand. 

[....] 

fwiw, Discover Financial is doing just fine.

According to yahoo finance

Profit Margin:  34%

Operating Margin 59%

Compare that to "Big Oil" Exxon

Profit Margin:  11%

Operating Margin 13%

 Not begrudging Discover.  Like they should not begrudge me collecting cashback for buying gas station gift cards next quarter.  Maybe they'll cancel me, maybe I'll use a better card one day.  It's business.  Finally, with their incredible rewards mall, unlimited 10% etc, I think Dsicover is on top of the risk/rewards dilemna and figure it works well for them.

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I always hate when people do this. Comparing two completely different industries doesn't mean much when given no additional context. Different industries just naturally have different profit margins. Just showing two random companies only proves a point when you explain why it is an apt comparison. A more interesting comparison is Discover Financial and Citigroup. Citigroup actually operates at a similar margin to Exxon(It's 13/15).

I'm trying to claim to be a stock/profit margin/etc expert. Just curious why I'm supposed to care about your comparison.

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Sorry you were confused.  My point was made before adding Exxon.  It was simply pointing out that Discover is doing fine and they have historically been the most generous.  For some folks who think of Big Oil as the greediest of industries, it might have been a useful comparison.   I come from a strong free market point of view and agree this "comparison" if used in the wrong context would be misleading

[indiolatino61]

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@jamesdwi wrote:

Because more than a few AMEX customers, especially businesses have a reason to purchase gift cards, and AMEX doesn't want to alienate card holders especially lucrative corporate customers.

Examples would include companies that want to give out gift cards to employees, partners as rewards and incentives, large companies could buy 100's of gift cards at a time, most retailers would prefer to have people buy giftcards with a credit card than a check  even if its a bussiness account. its a lot more risk, and corporations surely don't want employees carrying $10,000 in cash into a store.  Or the Grandma doesn't know what to give her grandson Johnny for Christmas so picks up a $100 gift card. Both are legitimate purchases done by valued AMEX customers. 

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This is a very good explanation. Thank you.

[lonewolf210]

So I was thinking about this today and I am obviously missing something because I fail to see how CCC lose out on gift card purchases. If I go to Walmart and buy a VR, best buy card,  ect, then either I, Walmart or  the third party buy the fee that they get on any other transaction. Now if your using a visa to buy gift cards directly from Visa online I could see how that would hurt them but otherwise why do they care? 

[enharu]

It hurts them when you are using a card that gives you more rewards than what they earn through swipe fees.

For example some cards give you 5-6% at groceries, but only 1% at best buy for instance. So CCCs very much rather you make the purchase at best buy directly. But stuff like this don't really get flagged as abuse unless its really excessive.

It becomes a big problem for them if you are using those 5% cards to reload into cards that you can basically convert back to cash, only to rinse and repeat the entire cycle.

[Anonymous]

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@enharu wrote:
It hurts them when you are using a card that gives you more rewards than what they earn through swipe fees.

For example some cards give you 5-6% at groceries, but only 1% at best buy for instance. So CCCs very much rather you make the purchase at best buy directly. But stuff like this don't really get flagged as abuse unless its really excessive.

It becomes a big problem for them if you are using those 5% cards to reload into cards that you can basically convert back to cash, only to rinse and repeat the entire cycle.

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That is my understanding too, clearly the credit card companies can suffer a loss.  What I am not sure about is why Office Supply stores stopped selling them (or why CVS doesn't stop selling them!)  I can see there might be excessive loss through fraud, or perhaps there is no margin after the swipe fee get paid, and increased volume made this too expensive.

[lonewolf210]

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@Anonymous wrote:

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@enharu wrote:
It hurts them when you are using a card that gives you more rewards than what they earn through swipe fees.

For example some cards give you 5-6% at groceries, but only 1% at best buy for instance. So CCCs very much rather you make the purchase at best buy directly. But stuff like this don't really get flagged as abuse unless its really excessive.

It becomes a big problem for them if you are using those 5% cards to reload into cards that you can basically convert back to cash, only to rinse and repeat the entire cycle.

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That is my understanding too, clearly the credit card companies can suffer a loss.  What I am not sure about is why Office Supply stores stopped selling them (or why CVS doesn't stop selling them!)  I can see there might be excessive loss through fraud, or perhaps there is no margin after the swipe fee get paid, and increased volume made this too expensive.

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O I guess that makes sense. I was thinking more in terms of the 1-2% cards didn't really consider the 5% cards. I was considering using a pin enabled gift card to be able to pay my rent just because I don't want to pay the convinience my place charges. They charge $56  dollars to use a visa it's crazy 

[UpNComing]

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@Open123 wrote:

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@Anonymous wrote:

Now the poster was advised not to do it, and so probably didn't, but the question arose, so I view this as a classic example of "Let him that is without sin cast the first stone" type of stuff.

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LOL...Amazingly enough, if there were a place where people are "above" the lure of "perk abuse," it's here!

I've seen many occasions where many here have opted to forgo applying for a new card missing out on (1) the free annual first year fee; (2) 50 - 100K MR bonus points; (3) and, 200K AA miles because the 2bm method was unethical.

However, perhaps it's because the cost of inquiries or a credit score is more important to some than money, miles or upgradable flights.  

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Forgive my ignorance, but what is the 2bm method?

[laboi_22]

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@lonewolf210 wrote:

So I was thinking about this today and I am obviously missing something because I fail to see how CCC lose out on gift card purchases. If I go to Walmart and buy a VR, best buy card,  ect, then either I, Walmart or  the third party buy the fee that they get on any other transaction. Now if your using a visa to buy gift cards directly from Visa online I could see how that would hurt them but otherwise why do they care? 

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It also hurts because technically they would be able to charge you a cash advance fee. This is what it is. When you strip it all down, funding an account that you can then liquidate to your benefit, is considered a cash advance. It's equal to you going to the ATM with your credit card, and then turning around and placing that cash in your checking or prepaid account so that you can pay bills etc. You would normally pay an ATM fee and a cash advance fee not to mention the interest fees that start to pile up until the transaction is paid off which begins the day of the cash advance transaction. APR's for cash advances tend to be higher than purchase APR as well.

With merchants (and there seem to be less and less of them) that allow you to use a credit card to fund this VR card, banks miss out on cash advance fees and still have to pay out rewards. That is why most banks are upset. You are knowingly getting away with cash advance fees and you are taking money directly out of their pockets. Eventually, the merchants that allow this (because they can care less that the bank is loosing money--they are making money) will get caught by the banks and the banks will not allow the transaction to be approved. This is the common problem with over use of this method. Eventually people won't be able to purchase with credit cards at all.

That is after all how VR markets its reloadable cards anyway. Cash only transactions. Most merchants are aware of this under handed work around to cash advances and they don't allow it ie Walgreen's.