This might sound dumb, but I'm gonna write it out anyway.
I took a serious look at my wallet the other day. I started moving cards in and out of pockets and sock drawering cards that have passed their use for me or just to lighten the wallet. It dawned on me, that while many of us treat the credit system as a game, the banks are playing their own game.
Why is it that (not looking at you, AOD) we can't just have flat cash back rewards or points that offer higher tiered points, no caps, etc? Was just reading about Citi Custom Cash and USBank's Cash+. And then there's the Discover It and the Freedom Flex. These cards tempt you with 5% back but then have low caps so you move off one card onto the next one, gamifying the entire system. Then that made me wonder, why can't we just get a 5% cash back card for general spend? I mean they have 5% cash back for categories so why not just for everything at once? Heck, even cap them! Actually—now I'll bring up AOD—how is it that they offer 3% on unlimited spending but other, larger institutions can't/don't/won't?
I understand that these corporations/banking institutions have a goal and that is to make tons of money. And I get it, that's probably the reason. But why do they have to make it so heckin' difficult?
Thanks. I feel better.
The goal of 5% cards is to get you accustomed to using the card for all purchases, mostly at around 1%. For consumer credit cards, Interchange is almost exclusively under 3% and the issuing bank will not make much money on many rewards cards purchases on a per-transaction basis. It's really the bread and butter of those low rewards purchases and those who carry a balance that cover the rewards. Remember that most consumers do not have a stack of credit cards that they rotate to maximize rewards.
@K-in-Boston wrote:The goal of 5% cards is to get you accustomed to using the card for all purchases, mostly at around 1%. For consumer credit cards, Interchange is almost exclusively under 3% and the issuing bank will not make much money on many rewards cards purchases on a per-transaction basis. It's really the bread and butter of those low rewards purchases and those who carry a balance that cover the rewards. Remember that most consumers do not have a stack of credit cards that they rotate to maximize rewards.
Pretty much this. Banks are "training" us (or trying to) to use their card over and over so that eventually, you won't think twice about using their card at X merchant, even if rewards are as little as 1% (or even nonexistent in some cases). Most "normal" people outside of MF only have 1 or 2, maybe 3 CCs at most, and they're usually not applied for with the purpose of maximizing rewards. A lot of these consumers just use whatever card they happen to pull out of their wallet/purse first without thinking about rewards.
When posing a question such as this, it may be useful to imagine "how would I market, take applications for, get people to use, and make a profit by offering an innovative credit card with a flat 5% Everywhere rewards rate?"
You as Card Issuer need to look into what the swipe fees are, which your cardholder customers will be pushing merchants to send you, the Issuing Bank. How does that relate to the 5% advertised rewards rate?
@NRB525 wrote:When posing a question such as this, it may be useful to imagine "how would I market, take applications for, get people to use, and make a profit by offering an innovative credit card with a flat 5% Everywhere rewards rate?"
You as Card Issuer need to look into what the swipe fees are, which your cardholder customers will be pushing merchants to send you, the Issuing Bank. How does that relate to the 5% advertised rewards rate?
Unless of course you were a bank with assets that needed, um, cleaning. (And no, LTL Bank absolutely doesn't fall into that category. Really). Then, with paying the merchants with dirty cash and getting nice clean money from the customers, the extra traffic generated by the 5%, plus the fact that smallish losses don't matter, an ideal set up!
@longtimelurker wrote:
@NRB525 wrote:When posing a question such as this, it may be useful to imagine "how would I market, take applications for, get people to use, and make a profit by offering an innovative credit card with a flat 5% Everywhere rewards rate?"
You as Card Issuer need to look into what the swipe fees are, which your cardholder customers will be pushing merchants to send you, the Issuing Bank. How does that relate to the 5% advertised rewards rate?
Unless of course you were a bank with assets that needed, um, cleaning. (And no, LTL Bank absolutely doesn't fall into that category. Really). Then, with paying the merchants with dirty cash and getting nice clean money from the customers, the extra traffic generated by the 5%, plus the fact that smallish losses don't matter, an ideal set up!
Well, the dirty part means there's another group, besides the cardholders and the merchants, with an interest in running their cash through the "bank". And, as an interchange bank which is part of the Federal Reserve ecosystem, a prerequisite to be able to issue payment network credit cards, that means bank examiners living in this "bank" and asking pesky questions about all those other transactions from cash.
But if someone wants to model that out to see that they are able to offer a 5% Everywhere Card, have at it.
@Azza wrote:This might sound dumb, but I'm gonna write it out anyway.
I took a serious look at my wallet the other day. I started moving cards in and out of pockets and sock drawering cards that have passed their use for me or just to lighten the wallet. It dawned on me, that while many of us treat the credit system as a game, the banks are playing their own game.
Why is it that (not looking at you, AOD) we can't just have flat cash back rewards or points that offer higher tiered points, no caps, etc? Was just reading about Citi Custom Cash and USBank's Cash+. And then there's the Discover It and the Freedom Flex. These cards tempt you with 5% back but then have low caps so you move off one card onto the next one, gamifying the entire system. Then that made me wonder, why can't we just get a 5% cash back card for general spend? I mean they have 5% cash back for categories so why not just for everything at once? Heck, even cap them! Actually—now I'll bring up AOD—how is it that they offer 3% on unlimited spending but other, larger institutions can't/don't/won't?
I understand that these corporations/banking institutions have a goal and that is to make tons of money. And I get it, that's probably the reason. But why do they have to make it so heckin' difficult?
Thanks. I feel better.
I don't see a problem at all. We are lucky to have all these 1.5%, 2%, 3%, 5% CB opportunities available to us. I enjoy taking advantage of them. I don't look at it as a hassle, I look at it as a fun puzzle/challenge on how to maximize CB returns each quarter - and throughout the year. Go back some 30-40 years when Discover gave you 0.25% on the first $1000, then 0.50%, then 0.75%, etc.... We've come a long way! Be grateful!
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They make optimizing difficult in the hope that we won't do it. Why should they make it easy? What's in it for them? Banks are not in the business of giving away money.
It is possible to earn well above 2% back on everything if you're strategic about which cards you have and how you use them. Like most things in life, though, the payoff is proportional to how much work you're willing to put into it.
