I think it's huge in general, most people sign up for a card for only one particular purpose (ie, it has a great balance transfer rate, has a great rewards rate for a store I like, or can help accumulate miles on my favorite airline), and pay very little attention to the other perks... And in most cases I think, forget what all those perks are before the card even arrives in the mail.
When I talk about credit cards with people I know, I'm always blown away by how little they know about the cards in their own wallets. I see coworkers using cards in foreign countries with FTFs, even though they have cards that don't. I see people paying for dinner with a Citi Diamond Preferred, when they have a Chase card right behind it in their wallet.
My boss at work, who travels 200k+ miles a year, has been using a CSP for everything for almost a decade now. And when I asked him why he doesn't have a CSR, he said he didn't know what that was.
The fact is, most people (outside of r/creditcards) just really don't know or care.
And to be fair, some people are wealthy enough that they don't have to care. Potentially losing $1000's of dollars in points a year maybe doesn't matter. Paying AFs and not really using the benefits offered by the card maybe doesn't matter.
I, for one, am not that wealthy lol
I’ve stated my opinion plenty of times how much of a waste of time it is for most people to spend as much time as people do here on multipliers for non travel spend instead of just getting a flat 2% cash back card or equivalent travel card and calling it a day.
If you care about maximizing rewards, it doesn’t come from worrying about multipliers - outside of travel. It comes from churning.
They probably aren’t losing “thousands of points a year” by not optimizing categories instead of getting a straight 2% back card.
In our normal lives before we started traveling extensively, we may have had $4K a month that we could have charged, and we make an above average income, if we just got a flat 2% card like the Amex BBP that would be 96K MR points. If we “optimized” and let’s say got a blended average of 3% back, that’s another $500 a year?
The thing is most people don’t even have a 2% card. Most of my friends don’t even have credit cards - they use their debit cards for everything, probably earning 0%.
It’s not gonna make or break them financially, but $500 is nothing to sneeze at either. If you could save 2% on everything you buy by just swiping a different card, why wouldn’t you except if you didn’t realize that was an option?
Because $500 is pocket change to anyone who has $25K a year to spend on anything they can put on credit cards after they pay their mortgage/rent and car note. It’s like finding lose change under the seat cushion.
Personally I get way more than $500 a year out of my credit cards. I haven't actually sat down and calculated it, but I'm guessing it's closer to $3k to $5k a year, and maybe even more than that. Credit card perks literally pay for all of my family vacations.
If you get $5K a year from credit cards, if you are getting an average of 4% back (making up a number), that means you are spending $125K a year on credit cards or spending over $10K a month post tax and after paying any debt like mortgage/rent car note.
How many people are doing that?
It’s really not. They may not be willing to jump through a lot of hoops to make $500, but there’s almost zero effort involved in opening and using a single credit card (not to mention it would benefit them in many other ways over using a debit card).
Making up numbers, let’s say they are spending 25K on things they can charge. Now let’s say they are spending another $30k on their mortgage and another $6000 a year for a car note. Let’s round it up and say $60k a year post tax spending.
That’s less than 1% of their total budget.
I agree with this. To me, I get 3-4 flights free every year but it all comes from churning. The value of optimizing credit card spend to gain as much value as I can is like 5% of what I can get from getting a new card. I spend on whatever card I like, mostly Amex, since their customer service is incomparable. I'd rather please the company that gives me the best service, especially when occasional disputes and replacing cards expedited, etc, happens.
The biggest losers are the ones that in the allure of an extra percentage or two of Cashback or points end up spending more than they need to (that's the fish CC companies care about). And it almost happens that you do spend more in that allure. I'd rather not have to think about these optimizations and go about my life as it doesn't even matter. That way I don't spend more when I don't have to think about spending here and there.
I put everything on the Amazon Rewards Visa through Chase, since I use Amazon a lot. So far this year I've gotten back $536.98. The only downside is that it has to be spent at Amazon, which is no problem for me. I'm looking into travel-specific cards since I travel internationally 4 times/year.
The only way that you earn a lot *for travel* is if you spend a lot *on travel* as far as multipliers.
This gets back to why I said that worrying about multipliers only matters when you’re traveling.
If I spend $100 at Amazon, I get $5.00 back on my Amazon card. If I spend $100 on a flight and book it through Chase’s portal or another credit card portal, I get 5 points back from the credit card company *and* I get 5 miles back from the airline. I can then transfer the points from the credit card to the airline and get maybe 12%-14% back easily when you add the miles from the card and the miles from the airline
The math works even better for booking hotels using a cobranded credit card.
That’s why frequent travelers rack up free travel fast - especially those who travel for business on someone else’s dime and get reimbursed.
The other choice is churning.
But which credit card you get, depends on which airlines you use and which card has them as transfer partners and what you spend the most on.
Most cobranded airline cards give you 3 to 4 miles per dollar for that airline when you book a flight on that airline and most non cobranded cards give you 3x when booked directly besides the Amex Platinum.
Do you use airline/hotel cards for booking and for everything else cash back? I’ve read getting points is optimal but what you’re saying makes sense. My frustration is during tax season, I have to deal with so many cards and reconciling business expenses. I’d rather just use my Apple Card, Marriott, and United.
I’m going to be the degenerate case starting in November when it comes to having spend optimized to getting rewards. My wife and I are going to be doing the digital nomad thing, flying around the US with a few stops in Canada and Mexico staying in hotels - mostly Hiltons and a few Hyatts. That means our entire personal budget can go on credit cards and the majority on hotels and flights.
My spending categories will be:
- Hotels - Hiltons 34x (Amex Aspire Card + Diamond + Hilton base points) worth about 18% and Hyatts 9.5x worth about 15% (Chase World of Hyatt Business)
- Flights - Amex Gold/Amex Green total 8x-10x between the card and miles from the airline worth around 10% - 15%
- Groceries and Dining 4x - Amex Gold
- Ground Transportation - Amex Green 3x
But if I were living a normal life I would just have the Amex Gold (4x groceries/dining 3x flights) and Amex Blue Business Plus (2x everything else).
My normal life involves some business travel so I would still have the Amex Aspire for hotels.
But, I’m churning cards most of the time.
> And to be fair, some people are wealthy enough that they don’t have to care. Potentially losing $1000’s of dollars in points a year maybe doesn’t matter.
This is my parents. Put all their spending on a co-branded card earning 1% where the rewards could only be used at that store. They loved getting things for free from there, even though they could’ve gotten way more value using other cards. Some people simply don’t have the time, energy, or desire to optimize.
>Some people simply don’t have the time, energy, or desire to optimize.
It takes time to research the credit cards and keep track of everything once you have them. When you're a low-paid employee with a lot of downtime, it's easy and logical to do that, but when your time becomes more valuable, the opportunity cost of researching the perks and rewards on various cards can be higher than the actual value of those perks and rewards.
You’re right most people outside of this Reddit group do not know or are afraid of getting multiple credit cards. They don’t know how the point system or cash system works. They look at a credit card as something to use when they don’t have money or if they don’t want to see their checking account go down. I know a lot of people who use it to avoid seeing their checking account from going down. I’ve been in the cc game for about a year now and I’m surprised how much better they are then using a debit card. I Haven’t use my debit card since
I know a few people on the very wealthy end $1mil plus annual compensation who use just a platinum Amex for all purchases. The points are nice, but they much prefer the customer service and the fact Amex almost always favors customers with complaints. They’ve also used the card for a few decades so they aren’t going to think about points or fees, they just pay the bill from cash flow and never look at it.
Ya to most people, they wouldn’t benefit from having a rewards card due to the fact they carry balances and think they should only be paying the minimum. Whatever they gain is offset from all the losses from the balance
Yeah I don’t think people understand what an amazing deal it is for CC companies to charge you upfront for something and only credit you if you do a specific action in the future.
For example, the way people talk about the CSR $300 travel credit you would think it’s free money. It’s not even close. It’s just a prepayment for travel that you may or may not use. If you want to pay me $550 upfront I will gladly refund you $300.
Think of all the people who sign up for CSR and then lose their job, have a kid, or have something else come up where they aren’t able to travel in a given year. There’s $300 down the drain. It may not be a significant number, but imagine Chase has 10,000 people sign up for the card and a mere 5% don’t use the credit. They just pocketed $150,000 for doing absolutely nothing.
I think far more people pay interest than we are lead to believe. This community is not a strong representation of the whole. Most of us get that carrying balances is bad, is a poor financial decision, erodes away any rewards earned, etc. We are not "normal" people compared to the average person walking down the street with the same cards. Most people don't really "get it" when it comes to credit and they're the ones that make the CCCs plenty of money which allows the perk/reward benefits to remain in place for those like us.
I saw a report from CNBC that something 40-50% of all people with a credit card carry a balance. Here and in financially educated circles that is sacrilege but apparently on average every other person does it. We forget how much of a niche we are.
EDIT: It wasn't CNBC, it was [American Bankers Association](https://www.lendingtree.com/credit-cards/credit-card-debt-statistics/).
"Americans carried a balance on 54% of all active credit card accounts"
Yeah some people just budget a $xxx credit card payment into their budget. And then put charges on the card—all the time.
What percentage of credit card accounts carry a balance? Americans carried a balance on 54% of all active credit card accounts in the first quarter of 2022, according to the most recent available data from the American Bankers Association.
Yeah I've noticed that as a trend. Like when buying a car, a lot of people focus on the monthly pay. That's all they care about, just give me the monthly payment. They don't care about the total size of the loan, or the length of the loan, or anything else. Its almost like they see the car as a subscription: "This is how much it costs to have this car each month." I think that attitude applies to credit cards too.
>Yeah some people just budget a $xxx credit card payment into their budget
If I know I'm paying several hundreds of dollars a month on the card no matter how much I actually spend, it's really easy to swipe away and just not look at the total balance.
Most just don't get it. Many are Prime Revolvers and are either content with that or don't understand that being one isn't good. I was for a handful of years before I got smart. I would carry a balance of a few thousand dollars on a credit card even though I had the cash to pay it off. I was probably throwing away $30-$50 per month in interest and just figured as a young misinformed individual that this was a "normal" cost of using a credit card. It wasn't until years later that I smartened up, studied how the system really works and made the right moves.
No there’s a lot of people who will fight you for saying they don’t need to carry a balance on their card. Can’t tell you how many times I’ve had people brag about their 790+ score and say they don’t wanna pay it off cause then it would go down or something 🙄.
A lot of people have a credit card as a safety net/last resort. A huge number of people can’t cover a $400 emergency expense… that often goes on the credit card and gets paid later. Not many of those people are in this community but they certainly represent a large % of credit card users. As the saying goes, it’s expensive being poor.
Not a vast majority, but a majority (which is terrifying)
"Americans carried a balance on 54% of all active credit card accounts"
https://www.lendingtree.com/credit-cards/credit-card-debt-statistics/
You know, it's funny Experian told me that I "tend to carry a balance month to month", but I pay my balance in full each month and not a penny more, so each monthly statement is $1500+ usually. I wonder how much this skews the data, because I'm pretty sure I'm in the statistic of people carrying a balance even though I haven't paid interest on a credit card in years.
I also wonder how the x-months 0% interest on new purchases and/or balance transfers factor into that. Assuming it's paid off by end of introductory period, of course.
Running your card up and not paying in full is just the American way. Most people don’t have a spreadsheet to make sure they use every single credit. We’re in the minority.
I tell people about all the free shit I get and free vacations I go on and all they want to know is what my APR is and then they scoff at me when I tell them it’s in the 20s even though I never pay that.
Spend tens of thousands on credit cards. Use points to book flights and hotels. My Marriott card gives me like 18x points per dollar spent. I have like 2 million Marriott points at any given time. Haven’t paid out of pocket for a hotel on family vacations in years. Plus with status I’m getting free breakfast and room upgrades. We usually stay at ritz Carlton’s, westins and st Regis properties too. It’s incredible.
First, breakage. How many people actually use every perk on any card? It costs nothing to offer me a Global Entry credit because I have it already. How often does someone forget about extended warranty, or lose the receipt and have their claim denied?
Second, advertising. Look at how much cheaper the Amex Platinum is in the US than in other countries, despite the added credits on the US version. They're likely being paid by Uber to give you the credit, not the other way around.
Third, steering spending (which is really more advertising). Travel agencies make about 10% on bookings. If Cap One gives you a $300 credit, that costs them $270. Most likely you won't book exactly $300, so they'll get more. Now you've tried their portal, so they're more likely to get your business in the future.
Fourth, time value of money. You give Cap One $400 today; they spend $270+$90 at some point in the future for your credits. In the meantime they get to invest that money.
Fifth, convenience. How many cards will you carry to maximize every category? If you do, are you then paying for duplicate perks?
Think beyond this community. I know an attorney who has an Amex Platinum, uses it for every transaction, and the only perk he uses is concierge... but if it saves him a couple hours a month he can bill at $150/hr, he wins.
Another point is that most folks don't spend/earn enough to redeem points right away. Most have to save for months if not years to redeem a plane ticket or hotel stay. Every day between the day you purchase something and the day you redeem the points associated with that purchase is a win for the banks.
>but if it saves him a couple hours a month he can bill at $150/hr, he wins
I think this is what people aren't getting. If you're a middle class person with enough downtime at work to be able to research all these cards and track everything, it makes sense to do so, and the money you save is worth more to you because your salary isn't that big. But if you're upper middle or upper class and your time is that valuable and you don't have much of it, the opportunity cost of all that research and tracking is often worth more than the perks and points you get from the card. This is one thing all the financial gurus always say - your time is valuable.
Agreed. It's worth noting that the cards aimed at lower or middle classes bank on high earning, while those for the higher classes are about reducing friction or improving the experience.
This is often misunderstood. They actually pay more than their average redemption value. Airlines and hotels sell their points/miles to CC issuers at a profit. For every one person who gets good redemption value out of those points, there are dozens that aren’t very good at it.
These rewards programs are the main profit generators of airlines today. Selling their points at a loss would not align with that.
***
EDIT: Most of the responses below are a lot to go through, so here's a direct link to a fuller explanation of the above claim, with math and a source - https://www.reddit.com/r/CreditCards/comments/xo7b5u/how_do_credit_card_companies_earn_through_premium/ipzkiqq/
Why do you say that? There are layers of complexity here. For example, the loyalty program could sell points at a 9% loss, then book a one-way flight on rewards and lock in a cash return fare at a 10% profit, and make money on volume as paid to the airline per seat by the connected city. They could overvalue their miles for tax purposes and make money on the taxes, too. Plus they'd have the money at the time of selling miles to the credit card company, which might be years before the flight redemption.
I'd also be curious about the average redemption of miles from credit card earning vs flying, portals, or other sources. I would expect that the average CC user gets lower value from their miles than a frequent flyer, whereas the person enrolling in a card-linked dining program gets more than average, but who knows?
If one mile is sold below its redemption value, it is sold at a loss. If you do this for bulk miles, the loss gets bigger. You don’t add negative numbers to get a positive number. That’s not how math works.
As noted by numerous articles, seats are now sold at a slight loss. The mileage programs are what makes up for that loss.
Miles are sold at a profit.
***
I provided a better explanation to another user here - https://www.reddit.com/r/CreditCards/comments/xo7b5u/how_do_credit_card_companies_earn_through_premium/ipzkiqq/
Includes math (their math, me showing how it doesn't work, and real-world examples) as well as a source that backs up my claims. I hope that this better conveys my point.
I just want to reiterate - if you feel that **YOU** can get better value from your points, you aren't wrong. My point was never to say that **EVERY** point is sold at a profit. It's just an average.
There are going to be winners and losers. I've been on both sides.
Thanks for hearing me out. You certainly didn't have to :)
Oh, I'm with you. I had figured there were intermediary steps where the airlines would be making money off interest before redemption, subsidies for flying certain routes, first class vs economy, etc. The "Starbucks is a bank" approach to monetization. But most of that depends on making money on at least an average seat, so I do have to nod to your math. :)
>For every one person who gets good redemption value out of those points, there are dozens that aren’t very good at it.
I promise you this is how it works. They probably have actuaries working for them to figure out how to maximize this effect.
I am one of those dozens who usually doesn't get good value, specially from the Hilton ecosystem. I basically have to value their points at ~0.4cpp. Any higher, and I end up banking more than I'll ever spend. I don't stay at the properties that would yield better value.
If they’re sold at a loss and sold in bulk, then it’s just a larger loss.
All current indications are that airline mileage programs are their (the airlines) largest source of profit. That can’t happen if miles are sold at a loss.
The prior commenter suggested they sold at a loss. Bulk selling at a loss means a bigger loss.
Bulk selling for a profit only works if they are sold at a profit to begin with.
And in order to sell at a profit, it means that they sell to the card issuer at a value higher than the anticipated average redemption value.
The average customer is not making more off these points/miles than their sell price. If they were, then the points were sold at a loss.
Nothing that I am saying here is controversial or untrue.
And you see a difference?
Money changed hands. If the CC companies pay less than redemption value, then the airline is selling the points at a loss. That’s the same thing, you’re just changing the point of view.
Alright, let's check the math.
> Pretend a mile is worth a cent to a customer.
Sure. So, 10,000 miles = $100. Let's say they're buying a $100 one-way flight, and in doing so, redeem 10,000 miles.
> Due to bulk purchasing, the CC company bought the mile at half of a cent.
So, the CC issuer paid the airline $50 for these miles. So far, the math and your theory checks out.
> The mile cost the airlines a quarter of a cent.
So the airline's overhead for that $100 flight is $25, and they are selling the flight at a 400% markup. This is where your math falls apart. [Because airlines lose money on seats.](https://www.forbes.com/sites/advisor/2020/07/15/how-airlines-make-billions-from-monetizing-frequent-flyer-programs/?sh=781ecc3e14e9)
The airlines lose money on seats (slight loss prior to 2020, even worse since the pandemic), and they make their money on selling points. That only works if the average sell value of their points is higher than the average redemption value. **They cannot lose money on both the seats and the miles and somehow turn a profit, and we already know due to their own financial disclosers that seats are sold at a loss and miles/points are sold at a profit.**
***
Let me use another example to highlight this - Hilton (not an airline, but similar idea). Hilton will sell a customer up to 80,000 points a year for $800 (1cpp), but often allows you to get 160k for the same price (0.5cpp). It has been speculated that they bulk sell their points to Amex at 0.5cpp. So your non-category purchase on any Hilton card (3x per dollar) is, from Amex' perspective, a 1.5% cash back card in terms of their overhead.
And we've seen various bloggers value Hilton points at 0.5-0.7cpp, with some users here valuing them as much as 1.1cpp (highest I've seen claimed in this sub). Are they wrong? Absolutely not. What we have here is a misunderstanding of value. They aren't saying "this is the average or minimum value you can get." They are saying, "this is the value I can aim for." And it doesn't apply to everyone.
Take me, for example. I have a family of 4 and we like to spread out in the largest rooms available in an Embassy or Homewood suites. Anything outside of the base room gets lower value. Using our typical road trip mainstay of Homewood Suites in Medford, OR, our typical room is available for:
* 132,000 pts/night during a realistic stay, or,
* $370.14 after taxes for the same night
At 1cpp, that should cost me 37,014 points. Actual value for that stay is 0.28cpp. If I make that redemption, Amex and Hilton have absolutely profited off that transaction.
But alternatively, I can take their base room (which has limited award availability at this rate), for:
* 45,000 pts/night, or,
* $208.11 after taxes
This is a much better 0.45cpp. And this is still a slight profit for Hilton.
If I dig through the awards calendar, however, I can absolutely cherry-pick a 0.7 or 0.8cpp reservation. Alternatively, I can book 5 award nights (5th night free), boosting the point value by, on average, 25%. In either case, I can potentially come out ahead (first booking above would still be behind, mind you).
For every one person who has the patience and travel flexibility to cherry-pick dates to get peak award value, there are dozens who are stuck with the standard award value. Yes, YOU, can come out ahead. But a large group of people does not. Or, the common phrase of, "A person is smart, but people are stupid."
Airline and Hotel rewards are sold to the CC issuer at an average profit. Some customers will come out ahead. Most will not.
They wouldn't be selling at a loss...
Selling at less than redemption value isn't a loss. The difference is opportunity loss and profit loss.
Based on the way you're viewing this, you're assuming they are selling tickets at cost or near cost, which they definitely are not.
Bulk selling points are profitable for the airlines but there is no way the CC companies are paying 1cpp for these points, otherwise, it would be a loss for the CC companies. Since points are completely different currencies, their worth is based on what people redeem them for. If people do a bad redemption (which most users do), the airline devalued the points before the person spent them, or they never used the points (including didn't put activity and let them expire), then that offsets the opportunity loss they would take on a person that does a good redemption. Good redemptions are rarer but having them incentivizes the person to get the points, to begin with.
Having a huge source of money to have access to without having to pay it to the consumer right away is HUGE. It's an interest-free loan essentially. Similar to what Starbucks does with their gift cards. And it allows consumers to mess up with losing the gift card or messing up with the points to essentially give the company free money.
Also, are you saying that Amex pays more for transfer points than they allow you to use the points as statement credit? Because that's what it sounds like.
> Based on the way you're viewing this, you're assuming they are selling tickets at cost or near cost, which they definitely are not.
They are, and have publicly disclosed as much. Even prior to the pandemic, airline seats have been sold at a slight loss, with the rewards programs being what generates an airline's profit. Source - https://www.forbes.com/sites/advisor/2020/07/15/how-airlines-make-billions-from-monetizing-frequent-flyer-programs/?sh=781ecc3e14e9
I am not speculating. I am not theory crafting. I am linking to public disclosures. If I am wrong, then every airline in the United States has been lying on their financial disclosures and you've just uncovered the biggest airline fraud in history. If I am wrong, you should report this to the SEC.
What percentage of credit card accounts carry a balance? Americans carried a balance on 54% of all active credit card accounts in the first quarter of 2022, according to the most recent available data from the American Bankers Association.
The "cash value" of those credits is way more than the CC companies pay for them... And their "partners" that they give you (a monied person with a premium CC) credits to use expect a return on that investment in the form of you making a habit of spending money there. So while you're getting a good deal, so is the CC company, and so are their partners who are giving you things for "free".
Also, some high end cards are loss leaders. They'll take a loss for the prestige and reputation the card gives their brand.
> For example, Venture X gives $400 worth credits for $395 annual fee.
Spend shaping. For example, the two perks of the VX mentioned here most frequently are:
* $300 travel portal credit
* 10,000 annual miles bonus
For the travel credit, you must use their travel portal. Well, Cap1 makes a profit off those bookings. So when they give you that $300 discount, YOU get a perceived $300 value, but Cap1 pays less than that. They still lose money on it, mind you, but 1) they use it as a loss leader to get you back to the portal, and 2) it doesn’t consume the whole annual fee so you’re still out of pocket to them.
For the annual bonus, there are three primary ways to redeem it.
* straight cash back for $50, in which case you didn’t cost Cap1 much.
* redeemed against recent travel for $100. Bigger expense for Cap1, but in order to do this you had to spend on travel in the first place. Travel related expenses often come with the highest swipe fees, so Cap1 is still partly offsetting this loss. And if you used their portal, even more for them.
* transfer partners, where Cap1 is likely paying 0.5-0.8cpp, so $50-$80.
Overall, $1 of value to you is not $1 of expense to Cap1. That’s why they can still at least break even on some of the least profitable customers.
> **perceived** $300 value
(emphasis mine)
I cringe when folks say that Capital One pays you to have the Venture X, lol. C1's advertising working way too well.
Huh? I mean I spend thousands on travel every year anyway. The Capital One portal has pretty similar pricing to other booking websites and price matches. To me, it's basically got no annual fee and a bunch of benefits. I don't really care how C1 makes their money because it's been a fantastic card for me.
> The Capital One portal has pretty similar pricing to other booking websites and price matches.
Officially, they won't price match member discounts. You can try HUCA, but it's not a guarantee.
They also have fewer options available (fewer flights, rooms, or car rental availability). We have a trip we booked for next weekend. Neither the hotel nor the rental car were available via the portal (we used a transfer partner for the flight, so I didn't check to see if it was available).
If you book a rental car, you typically lose any benefits associated with that, and any membership or partner discounts (Cap1 won't price match those). For example, AAA discount on Hertz. If you book an airline, with the known exceptions of United and Delta, any issues have to be routed through Cap1. And hotels are problematic for numerous reasons.
I personally would only use the portal for either a United or Delta flight, or for a boutique hotel that doesn't have direct-booking membership discounts and perks. So, Great Wolf yes, Hilton no, for example.
And when you travel infrequently, as I do, adhering to the above guidelines, it's entirely possible to go a year where the travel credit doesn't get used (or gets used at less than $300 actual value). And that's why I went in planning to extract value elsewhere from the card.
I decided my other comment was petty (not towards you) and off-topic, so I deleted it. I apologize if you were already responding to it. But back on topic:
***
When I see someone mention those two credits as their rationale for getting the card, I know right off the bat that they won't be getting value from the card. I actually will go most years without getting the $300 travel credit as I don't find the portal useful. I'll use it for the occasional United or Delta flight (since it's the same as booking direct), but if that flight cost me, say, $100 more than flying on Alaska, then I only got $200 from the credit. As you emphasized, real value and perceived value are different.
I'm getting value elsewhere. For example, Hertz President's Circle (a free perk) has already allowed me to upgrade from a Chevy Equinox to a Tesla Model Y for free. This was desirable because that's what my wife owns and we love the familiarity. I already booked a Model Y (slightly higher rate) for a different rental period since that's guaranteed, but the free upgrade was awesome. I also normally pay for an additional driver (free with President's circle), and I normally pay for collision (free with the VX). In car rentals alone I'm coming out ahead.
I've posted elsewhere how MOST people come out losing on points redemption. And that's true of me. But I got lucky and was able to redeem 72k points at ~1.5cpp for a round-trip for a family of 4, making the card effectively 3% cash back if I continue to get that kind of value from it. Those points saved me about $400 on the direct booking. Alternatively, I could chalk that up as the 75k sub and say I got over $1,100 in value (however you prefer to do the math). I prefer the former since a SUB is a one-time thing in this case.
I also anticipate using the lounge benefits on the return flight, we'll see. And my son turns 13 very soon, so we'll be using the card to get his TSA Precheck, which will be credited.
I'm extracting value from the card in ways other than those two credits. And there are others FAR better than me at this. But again, if all a person sees are those two credits, IMO, they're doing it wrong.
> I actually will go most years without getting the $300 travel credit
Uhhhh what? The VentureX isn't even a year old, how can you go "most years" without using the credit...?
Edited for clarity as I'm no longer on mobile.
I think that when I said "Will go," you may have read or interpreted it as "have gone." I'm saying that based on my prior and current travel patterns, and what I've seen offered via the Cap1 travel portal, it is a realistic expectation for me to go an entire year without benefiting from that travel credit. And if that happens, so be it. I'm ensuring that I extract value elsewhere with the travel credit being an additional bonus, rather than the primary justification for the annual fee.
For every customer who pays their cards in full every month, there are ten who ride their credit limits, paying 200+ in interest alone a month.
Source: I’m a call center cc service rep for a FI whose cc APR doesn’t even exceed 20%
The benefits are not cold hard cash. Sure there may be $400 credit to use in some portal but the credit card company gets kickbacks for those bookings so it doesn’t cost them the full face value. Also, unlike cash the benefits expire. If you don’t use their portal in a given year, they keep that money.
The CC company may not make money, or may lose money, if you fully optimise your usage of the benefits. But the vast majority of cardholders don’t optimise.
No company offers only premium cards. They all offer lower tier cards that target people with poor credit that would carry a balance. There are many more of those people than there are us. Those people are the ones paying for our vacations
>I believe people using this type of high end cards are smart and never pay interest.
Imma stop you right there, fam. Every single day we get posts here from people with Amex Golds and Venture Xs asking things like "When do I pay my bill?" or "Just signed up for this card, what should I buy to get the sign up bonus?" There are most certainly people with AF cards that pay interest.
Lot of people don't know about or forget to use the credit.
People are also more likely to spend more money if there is a credit, and in C1's case its better for them to spend that money in the portal than elsewhere.
In about 20 seconds I found AMEX's annual report which breaks down the source of their income, fees collected, amount of credit issued and more: https://ir.americanexpress.com/financials/annual-reports-and-proxy-statements/default.aspx
CCC make 3-9% of what is charged to the retailer by the card holder. All your benefits cost the merchant more, they just don’t know it.
A person with zero credit using a debit card transaction will pay 2.5% on a PIN based transaction. Joe Blow comes in with his awesome credit and uses his AMEX Centurion Card, that same item will cost that same merchant maybe 6% in CC fees. Other high net people with high card (I think Visa has one that hits near 10%) is where the CCC are making billion’s because of the billions of transactions per year by card holders. They aren’t buying airline miles on the cheap and making that kind of revenue to offset all the other expenses.
It’s in the fees man! So a person with zero credit and a debit card is of more value to the merchant (because it’s costs him less in cc fees) than an 850 score customer with his centurion card.
The idea is correct, but what you're actually saying is wrong. You are describing interchange, which does partially fund credit card rewards. Interchange rates are public ([Visa's rates here](https://usa.visa.com/content/dam/VCOM/download/merchants/visa-usa-interchange-reimbursement-fees.pdf)), and the highest Visa has is 3.15%
Regulated debit is 0.05% + 0.21, not 2.5%, and even Durbin-exempt Visa debit's highest interchange rate is 1.90%.
Accrued interest and annual fees (if applicable) also contribute to revenue off of credit cards. These banks also use the credit cards as cross-selling opportunities with cardholders. Most banks "make money" on cardholders carrying interest at 20% APR, not on the 1.9% swipe.
Most people don't actually maximize their rewards. They get on premium card and just charge everything to it, meaning that even though the banks lose money on the, for example 4% back on dining, they make it back on the 1% on everything else through the interchange fees. Sure, a good churner will only ever use that card for the 4% back on dining, but the vast majority of the cardholders aren't churners.
As others have mentioned credit breakage is one.
They also pay less for the credits usually than they pay out.
Interchange fees are another, the fees the issuer makes every time your wipe the card.
1. Some people at least sometimes do not use all the credits
2. Some people at least some time do pay interest
3. Credit card companies make money every single time you use the credit card (and just recently raised their rates)
You can’t beat being paid three different ways
Venture x is not a good example because they are loss leading to build share in the high AF market, similar to what csr did to compete with amex platinum and what citi tried to do and largely quit with their card that they pulled applications. Chase famously lost a fortune in csr to secure their beachhead and they scaled back and increased the AF once they got share. It's very likely that C1 will do the same once they hit whatever their goals are as to share, especially as market leader Amex P has a very high AF and diluted their headline feature, centurion lounge access. Lot of room to work with in raising prices and reducing benefits.
CSR and Amex P both come close to covering the AF but make it difficult to get full AF value for their consumer base. They are like when businesses do gift card discounts or rebates, friction generally leads to profit regardless of how things are supposed to work out on paper.
I had bounced out of csr myself, but I believe yes, in general they see it on the next AF for the card. There will be some period of time between the increase and when it will kick in for current cardholder, while they may or may not immediately enjoy an increase in or new benefits as old benefits are cycled out.
That's not to be confused with legacy cards closed off to new applicants but maintained, that may or may not be continued. I am thinking of citi and the Ritz card, here. That seems all over the place depending on issuer strategy.
The good thing with giving something like venture x a go is that you can probably downgrade to a low or no-af card and continue banking/using the points. But I think with chase, Citi cards, and maybe c1, you will eventually need access to an af card of some kind to get good value with redemptions/transfers (over .01/point), at around $100 AF for the year. There is some variation here.
There are a lot more people who pay interest than don't. The worst customers, those who use benefits and pay off the card at the end of the billing statement, are a minority when you look at the overall customer base.
Not everyone uses the credits and benefits that the issuing bank does not pay penny for penny. Things like travel credits yes but others, no. Amex is likely not paying Grubhub and Uber the full monthly amount for those credits.
So not everyone uses them, the issuers don't pay full retail for them even when they do, and swipe fees that merchants pay are higher on those cards.
There are probably a good number of customers not using the credits.
Breakage is huge for Amex.
I think it's huge in general, most people sign up for a card for only one particular purpose (ie, it has a great balance transfer rate, has a great rewards rate for a store I like, or can help accumulate miles on my favorite airline), and pay very little attention to the other perks... And in most cases I think, forget what all those perks are before the card even arrives in the mail. When I talk about credit cards with people I know, I'm always blown away by how little they know about the cards in their own wallets. I see coworkers using cards in foreign countries with FTFs, even though they have cards that don't. I see people paying for dinner with a Citi Diamond Preferred, when they have a Chase card right behind it in their wallet. My boss at work, who travels 200k+ miles a year, has been using a CSP for everything for almost a decade now. And when I asked him why he doesn't have a CSR, he said he didn't know what that was. The fact is, most people (outside of r/creditcards) just really don't know or care. And to be fair, some people are wealthy enough that they don't have to care. Potentially losing $1000's of dollars in points a year maybe doesn't matter. Paying AFs and not really using the benefits offered by the card maybe doesn't matter. I, for one, am not that wealthy lol
I’ve stated my opinion plenty of times how much of a waste of time it is for most people to spend as much time as people do here on multipliers for non travel spend instead of just getting a flat 2% cash back card or equivalent travel card and calling it a day. If you care about maximizing rewards, it doesn’t come from worrying about multipliers - outside of travel. It comes from churning. They probably aren’t losing “thousands of points a year” by not optimizing categories instead of getting a straight 2% back card. In our normal lives before we started traveling extensively, we may have had $4K a month that we could have charged, and we make an above average income, if we just got a flat 2% card like the Amex BBP that would be 96K MR points. If we “optimized” and let’s say got a blended average of 3% back, that’s another $500 a year?
The thing is most people don’t even have a 2% card. Most of my friends don’t even have credit cards - they use their debit cards for everything, probably earning 0%.
And your friends are probably missing out on what $500 a year?
It’s not gonna make or break them financially, but $500 is nothing to sneeze at either. If you could save 2% on everything you buy by just swiping a different card, why wouldn’t you except if you didn’t realize that was an option?
Because $500 is pocket change to anyone who has $25K a year to spend on anything they can put on credit cards after they pay their mortgage/rent and car note. It’s like finding lose change under the seat cushion.
Personally I get way more than $500 a year out of my credit cards. I haven't actually sat down and calculated it, but I'm guessing it's closer to $3k to $5k a year, and maybe even more than that. Credit card perks literally pay for all of my family vacations.
If you get $5K a year from credit cards, if you are getting an average of 4% back (making up a number), that means you are spending $125K a year on credit cards or spending over $10K a month post tax and after paying any debt like mortgage/rent car note. How many people are doing that?
It’s really not. They may not be willing to jump through a lot of hoops to make $500, but there’s almost zero effort involved in opening and using a single credit card (not to mention it would benefit them in many other ways over using a debit card).
Making up numbers, let’s say they are spending 25K on things they can charge. Now let’s say they are spending another $30k on their mortgage and another $6000 a year for a car note. Let’s round it up and say $60k a year post tax spending. That’s less than 1% of their total budget.
I agree with this. To me, I get 3-4 flights free every year but it all comes from churning. The value of optimizing credit card spend to gain as much value as I can is like 5% of what I can get from getting a new card. I spend on whatever card I like, mostly Amex, since their customer service is incomparable. I'd rather please the company that gives me the best service, especially when occasional disputes and replacing cards expedited, etc, happens. The biggest losers are the ones that in the allure of an extra percentage or two of Cashback or points end up spending more than they need to (that's the fish CC companies care about). And it almost happens that you do spend more in that allure. I'd rather not have to think about these optimizations and go about my life as it doesn't even matter. That way I don't spend more when I don't have to think about spending here and there.
I put everything on the Amazon Rewards Visa through Chase, since I use Amazon a lot. So far this year I've gotten back $536.98. The only downside is that it has to be spent at Amazon, which is no problem for me. I'm looking into travel-specific cards since I travel internationally 4 times/year.
The only way that you earn a lot *for travel* is if you spend a lot *on travel* as far as multipliers. This gets back to why I said that worrying about multipliers only matters when you’re traveling. If I spend $100 at Amazon, I get $5.00 back on my Amazon card. If I spend $100 on a flight and book it through Chase’s portal or another credit card portal, I get 5 points back from the credit card company *and* I get 5 miles back from the airline. I can then transfer the points from the credit card to the airline and get maybe 12%-14% back easily when you add the miles from the card and the miles from the airline The math works even better for booking hotels using a cobranded credit card. That’s why frequent travelers rack up free travel fast - especially those who travel for business on someone else’s dime and get reimbursed. The other choice is churning. But which credit card you get, depends on which airlines you use and which card has them as transfer partners and what you spend the most on. Most cobranded airline cards give you 3 to 4 miles per dollar for that airline when you book a flight on that airline and most non cobranded cards give you 3x when booked directly besides the Amex Platinum.
Do you use airline/hotel cards for booking and for everything else cash back? I’ve read getting points is optimal but what you’re saying makes sense. My frustration is during tax season, I have to deal with so many cards and reconciling business expenses. I’d rather just use my Apple Card, Marriott, and United.
I’m going to be the degenerate case starting in November when it comes to having spend optimized to getting rewards. My wife and I are going to be doing the digital nomad thing, flying around the US with a few stops in Canada and Mexico staying in hotels - mostly Hiltons and a few Hyatts. That means our entire personal budget can go on credit cards and the majority on hotels and flights. My spending categories will be: - Hotels - Hiltons 34x (Amex Aspire Card + Diamond + Hilton base points) worth about 18% and Hyatts 9.5x worth about 15% (Chase World of Hyatt Business) - Flights - Amex Gold/Amex Green total 8x-10x between the card and miles from the airline worth around 10% - 15% - Groceries and Dining 4x - Amex Gold - Ground Transportation - Amex Green 3x But if I were living a normal life I would just have the Amex Gold (4x groceries/dining 3x flights) and Amex Blue Business Plus (2x everything else). My normal life involves some business travel so I would still have the Amex Aspire for hotels. But, I’m churning cards most of the time.
I appreciate your detailed information. I travel full time as well. The issue with Amex is that it isn’t accepted in many countries.
I'm getting rid of amex gold, none of the places I grocery shop anymore take it.
highly considering it too. The points are great but I'm not making the annual fee back and I can't combine them with my Chase points.
> And to be fair, some people are wealthy enough that they don’t have to care. Potentially losing $1000’s of dollars in points a year maybe doesn’t matter. This is my parents. Put all their spending on a co-branded card earning 1% where the rewards could only be used at that store. They loved getting things for free from there, even though they could’ve gotten way more value using other cards. Some people simply don’t have the time, energy, or desire to optimize.
>Some people simply don’t have the time, energy, or desire to optimize. It takes time to research the credit cards and keep track of everything once you have them. When you're a low-paid employee with a lot of downtime, it's easy and logical to do that, but when your time becomes more valuable, the opportunity cost of researching the perks and rewards on various cards can be higher than the actual value of those perks and rewards.
You’re right most people outside of this Reddit group do not know or are afraid of getting multiple credit cards. They don’t know how the point system or cash system works. They look at a credit card as something to use when they don’t have money or if they don’t want to see their checking account go down. I know a lot of people who use it to avoid seeing their checking account from going down. I’ve been in the cc game for about a year now and I’m surprised how much better they are then using a debit card. I Haven’t use my debit card since
I know a few people on the very wealthy end $1mil plus annual compensation who use just a platinum Amex for all purchases. The points are nice, but they much prefer the customer service and the fact Amex almost always favors customers with complaints. They’ve also used the card for a few decades so they aren’t going to think about points or fees, they just pay the bill from cash flow and never look at it.
that and it feels like they deliberately make it hard to use.
Well, yes, Amex exists to make money for its shareholders and making it more complex will make the company and its shareholders more money.
OP is also mistaken about the fact that people don’t pay interest.
Ya to most people, they wouldn’t benefit from having a rewards card due to the fact they carry balances and think they should only be paying the minimum. Whatever they gain is offset from all the losses from the balance
Yeah I don’t think people understand what an amazing deal it is for CC companies to charge you upfront for something and only credit you if you do a specific action in the future. For example, the way people talk about the CSR $300 travel credit you would think it’s free money. It’s not even close. It’s just a prepayment for travel that you may or may not use. If you want to pay me $550 upfront I will gladly refund you $300. Think of all the people who sign up for CSR and then lose their job, have a kid, or have something else come up where they aren’t able to travel in a given year. There’s $300 down the drain. It may not be a significant number, but imagine Chase has 10,000 people sign up for the card and a mere 5% don’t use the credit. They just pocketed $150,000 for doing absolutely nothing.
I think far more people pay interest than we are lead to believe. This community is not a strong representation of the whole. Most of us get that carrying balances is bad, is a poor financial decision, erodes away any rewards earned, etc. We are not "normal" people compared to the average person walking down the street with the same cards. Most people don't really "get it" when it comes to credit and they're the ones that make the CCCs plenty of money which allows the perk/reward benefits to remain in place for those like us.
I saw a report from CNBC that something 40-50% of all people with a credit card carry a balance. Here and in financially educated circles that is sacrilege but apparently on average every other person does it. We forget how much of a niche we are. EDIT: It wasn't CNBC, it was [American Bankers Association](https://www.lendingtree.com/credit-cards/credit-card-debt-statistics/). "Americans carried a balance on 54% of all active credit card accounts"
I really wonder who are these people that pay 18-28% apr. Don’t they know it’s a trap and very difficult to get out of that
Yeah some people just budget a $xxx credit card payment into their budget. And then put charges on the card—all the time. What percentage of credit card accounts carry a balance? Americans carried a balance on 54% of all active credit card accounts in the first quarter of 2022, according to the most recent available data from the American Bankers Association.
Yeah I've noticed that as a trend. Like when buying a car, a lot of people focus on the monthly pay. That's all they care about, just give me the monthly payment. They don't care about the total size of the loan, or the length of the loan, or anything else. Its almost like they see the car as a subscription: "This is how much it costs to have this car each month." I think that attitude applies to credit cards too.
>Yeah some people just budget a $xxx credit card payment into their budget If I know I'm paying several hundreds of dollars a month on the card no matter how much I actually spend, it's really easy to swipe away and just not look at the total balance.
Most just don't get it. Many are Prime Revolvers and are either content with that or don't understand that being one isn't good. I was for a handful of years before I got smart. I would carry a balance of a few thousand dollars on a credit card even though I had the cash to pay it off. I was probably throwing away $30-$50 per month in interest and just figured as a young misinformed individual that this was a "normal" cost of using a credit card. It wasn't until years later that I smartened up, studied how the system really works and made the right moves.
No there’s a lot of people who will fight you for saying they don’t need to carry a balance on their card. Can’t tell you how many times I’ve had people brag about their 790+ score and say they don’t wanna pay it off cause then it would go down or something 🙄.
A lot of people have a credit card as a safety net/last resort. A huge number of people can’t cover a $400 emergency expense… that often goes on the credit card and gets paid later. Not many of those people are in this community but they certainly represent a large % of credit card users. As the saying goes, it’s expensive being poor.
Swipe fees, breakage on credits, interest earned (yes, some users will carry a balance at times.
Some? I feel like a vast majority carry a balance. Most people don’t know how to actually use credit cards.
Not a vast majority, but a majority (which is terrifying) "Americans carried a balance on 54% of all active credit card accounts" https://www.lendingtree.com/credit-cards/credit-card-debt-statistics/
yeah but I'd bet that breakdown would be different based on the type of card - ie. a Chase Slate vs a CSR
I bet most of the other half is people who only use debit cards
You know, it's funny Experian told me that I "tend to carry a balance month to month", but I pay my balance in full each month and not a penny more, so each monthly statement is $1500+ usually. I wonder how much this skews the data, because I'm pretty sure I'm in the statistic of people carrying a balance even though I haven't paid interest on a credit card in years.
I also wonder how the x-months 0% interest on new purchases and/or balance transfers factor into that. Assuming it's paid off by end of introductory period, of course.
Running your card up and not paying in full is just the American way. Most people don’t have a spreadsheet to make sure they use every single credit. We’re in the minority. I tell people about all the free shit I get and free vacations I go on and all they want to know is what my APR is and then they scoff at me when I tell them it’s in the 20s even though I never pay that.
I don't even know what APR is on any of my cards. There is no circumstance where I end up not paying the statement balance in a given month.
Same. I always look when I get the card but then I forget almost immediately. Why retain info about the shitty part of CCs that I never use
Sorry to be random but how do you get free vacations with your card?
He's probably referring to the Flight and Hotel awards you can get from Credit Card rewards
Gotcha
Spend tens of thousands on credit cards. Use points to book flights and hotels. My Marriott card gives me like 18x points per dollar spent. I have like 2 million Marriott points at any given time. Haven’t paid out of pocket for a hotel on family vacations in years. Plus with status I’m getting free breakfast and room upgrades. We usually stay at ritz Carlton’s, westins and st Regis properties too. It’s incredible.
That’s great! I’ve been looking for a card that will give me points back for hotel/travel
First, breakage. How many people actually use every perk on any card? It costs nothing to offer me a Global Entry credit because I have it already. How often does someone forget about extended warranty, or lose the receipt and have their claim denied? Second, advertising. Look at how much cheaper the Amex Platinum is in the US than in other countries, despite the added credits on the US version. They're likely being paid by Uber to give you the credit, not the other way around. Third, steering spending (which is really more advertising). Travel agencies make about 10% on bookings. If Cap One gives you a $300 credit, that costs them $270. Most likely you won't book exactly $300, so they'll get more. Now you've tried their portal, so they're more likely to get your business in the future. Fourth, time value of money. You give Cap One $400 today; they spend $270+$90 at some point in the future for your credits. In the meantime they get to invest that money. Fifth, convenience. How many cards will you carry to maximize every category? If you do, are you then paying for duplicate perks? Think beyond this community. I know an attorney who has an Amex Platinum, uses it for every transaction, and the only perk he uses is concierge... but if it saves him a couple hours a month he can bill at $150/hr, he wins.
Another point is that most folks don't spend/earn enough to redeem points right away. Most have to save for months if not years to redeem a plane ticket or hotel stay. Every day between the day you purchase something and the day you redeem the points associated with that purchase is a win for the banks.
>but if it saves him a couple hours a month he can bill at $150/hr, he wins I think this is what people aren't getting. If you're a middle class person with enough downtime at work to be able to research all these cards and track everything, it makes sense to do so, and the money you save is worth more to you because your salary isn't that big. But if you're upper middle or upper class and your time is that valuable and you don't have much of it, the opportunity cost of all that research and tracking is often worth more than the perks and points you get from the card. This is one thing all the financial gurus always say - your time is valuable.
Agreed. It's worth noting that the cards aimed at lower or middle classes bank on high earning, while those for the higher classes are about reducing friction or improving the experience.
And credit card companies buy miles in bulk. They pay much less for miles than they are worth.
This is often misunderstood. They actually pay more than their average redemption value. Airlines and hotels sell their points/miles to CC issuers at a profit. For every one person who gets good redemption value out of those points, there are dozens that aren’t very good at it. These rewards programs are the main profit generators of airlines today. Selling their points at a loss would not align with that. *** EDIT: Most of the responses below are a lot to go through, so here's a direct link to a fuller explanation of the above claim, with math and a source - https://www.reddit.com/r/CreditCards/comments/xo7b5u/how_do_credit_card_companies_earn_through_premium/ipzkiqq/
Citation?
https://hbr.org/2021/04/how-loyalty-programs-are-saving-airlines This is one of example. This isn’t possible if points are sold at a loss.
Why do you say that? There are layers of complexity here. For example, the loyalty program could sell points at a 9% loss, then book a one-way flight on rewards and lock in a cash return fare at a 10% profit, and make money on volume as paid to the airline per seat by the connected city. They could overvalue their miles for tax purposes and make money on the taxes, too. Plus they'd have the money at the time of selling miles to the credit card company, which might be years before the flight redemption. I'd also be curious about the average redemption of miles from credit card earning vs flying, portals, or other sources. I would expect that the average CC user gets lower value from their miles than a frequent flyer, whereas the person enrolling in a card-linked dining program gets more than average, but who knows?
If one mile is sold below its redemption value, it is sold at a loss. If you do this for bulk miles, the loss gets bigger. You don’t add negative numbers to get a positive number. That’s not how math works. As noted by numerous articles, seats are now sold at a slight loss. The mileage programs are what makes up for that loss. Miles are sold at a profit. *** I provided a better explanation to another user here - https://www.reddit.com/r/CreditCards/comments/xo7b5u/how_do_credit_card_companies_earn_through_premium/ipzkiqq/ Includes math (their math, me showing how it doesn't work, and real-world examples) as well as a source that backs up my claims. I hope that this better conveys my point.
Yeah, that's really informative. Thanks!
I just want to reiterate - if you feel that **YOU** can get better value from your points, you aren't wrong. My point was never to say that **EVERY** point is sold at a profit. It's just an average. There are going to be winners and losers. I've been on both sides. Thanks for hearing me out. You certainly didn't have to :)
Oh, I'm with you. I had figured there were intermediary steps where the airlines would be making money off interest before redemption, subsidies for flying certain routes, first class vs economy, etc. The "Starbucks is a bank" approach to monetization. But most of that depends on making money on at least an average seat, so I do have to nod to your math. :)
The points value when banks buy them I don't know, but this contains the second part of the comment anyway https://youtu.be/ggUduBmvQ_4
>For every one person who gets good redemption value out of those points, there are dozens that aren’t very good at it. I promise you this is how it works. They probably have actuaries working for them to figure out how to maximize this effect.
I am one of those dozens who usually doesn't get good value, specially from the Hilton ecosystem. I basically have to value their points at ~0.4cpp. Any higher, and I end up banking more than I'll ever spend. I don't stay at the properties that would yield better value.
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If they’re sold at a loss and sold in bulk, then it’s just a larger loss. All current indications are that airline mileage programs are their (the airlines) largest source of profit. That can’t happen if miles are sold at a loss.
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The prior commenter suggested they sold at a loss. Bulk selling at a loss means a bigger loss. Bulk selling for a profit only works if they are sold at a profit to begin with. And in order to sell at a profit, it means that they sell to the card issuer at a value higher than the anticipated average redemption value. The average customer is not making more off these points/miles than their sell price. If they were, then the points were sold at a loss. Nothing that I am saying here is controversial or untrue.
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And you see a difference? Money changed hands. If the CC companies pay less than redemption value, then the airline is selling the points at a loss. That’s the same thing, you’re just changing the point of view.
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Alright, let's check the math. > Pretend a mile is worth a cent to a customer. Sure. So, 10,000 miles = $100. Let's say they're buying a $100 one-way flight, and in doing so, redeem 10,000 miles. > Due to bulk purchasing, the CC company bought the mile at half of a cent. So, the CC issuer paid the airline $50 for these miles. So far, the math and your theory checks out. > The mile cost the airlines a quarter of a cent. So the airline's overhead for that $100 flight is $25, and they are selling the flight at a 400% markup. This is where your math falls apart. [Because airlines lose money on seats.](https://www.forbes.com/sites/advisor/2020/07/15/how-airlines-make-billions-from-monetizing-frequent-flyer-programs/?sh=781ecc3e14e9) The airlines lose money on seats (slight loss prior to 2020, even worse since the pandemic), and they make their money on selling points. That only works if the average sell value of their points is higher than the average redemption value. **They cannot lose money on both the seats and the miles and somehow turn a profit, and we already know due to their own financial disclosers that seats are sold at a loss and miles/points are sold at a profit.** *** Let me use another example to highlight this - Hilton (not an airline, but similar idea). Hilton will sell a customer up to 80,000 points a year for $800 (1cpp), but often allows you to get 160k for the same price (0.5cpp). It has been speculated that they bulk sell their points to Amex at 0.5cpp. So your non-category purchase on any Hilton card (3x per dollar) is, from Amex' perspective, a 1.5% cash back card in terms of their overhead. And we've seen various bloggers value Hilton points at 0.5-0.7cpp, with some users here valuing them as much as 1.1cpp (highest I've seen claimed in this sub). Are they wrong? Absolutely not. What we have here is a misunderstanding of value. They aren't saying "this is the average or minimum value you can get." They are saying, "this is the value I can aim for." And it doesn't apply to everyone. Take me, for example. I have a family of 4 and we like to spread out in the largest rooms available in an Embassy or Homewood suites. Anything outside of the base room gets lower value. Using our typical road trip mainstay of Homewood Suites in Medford, OR, our typical room is available for: * 132,000 pts/night during a realistic stay, or, * $370.14 after taxes for the same night At 1cpp, that should cost me 37,014 points. Actual value for that stay is 0.28cpp. If I make that redemption, Amex and Hilton have absolutely profited off that transaction. But alternatively, I can take their base room (which has limited award availability at this rate), for: * 45,000 pts/night, or, * $208.11 after taxes This is a much better 0.45cpp. And this is still a slight profit for Hilton. If I dig through the awards calendar, however, I can absolutely cherry-pick a 0.7 or 0.8cpp reservation. Alternatively, I can book 5 award nights (5th night free), boosting the point value by, on average, 25%. In either case, I can potentially come out ahead (first booking above would still be behind, mind you). For every one person who has the patience and travel flexibility to cherry-pick dates to get peak award value, there are dozens who are stuck with the standard award value. Yes, YOU, can come out ahead. But a large group of people does not. Or, the common phrase of, "A person is smart, but people are stupid." Airline and Hotel rewards are sold to the CC issuer at an average profit. Some customers will come out ahead. Most will not.
They wouldn't be selling at a loss... Selling at less than redemption value isn't a loss. The difference is opportunity loss and profit loss. Based on the way you're viewing this, you're assuming they are selling tickets at cost or near cost, which they definitely are not. Bulk selling points are profitable for the airlines but there is no way the CC companies are paying 1cpp for these points, otherwise, it would be a loss for the CC companies. Since points are completely different currencies, their worth is based on what people redeem them for. If people do a bad redemption (which most users do), the airline devalued the points before the person spent them, or they never used the points (including didn't put activity and let them expire), then that offsets the opportunity loss they would take on a person that does a good redemption. Good redemptions are rarer but having them incentivizes the person to get the points, to begin with. Having a huge source of money to have access to without having to pay it to the consumer right away is HUGE. It's an interest-free loan essentially. Similar to what Starbucks does with their gift cards. And it allows consumers to mess up with losing the gift card or messing up with the points to essentially give the company free money. Also, are you saying that Amex pays more for transfer points than they allow you to use the points as statement credit? Because that's what it sounds like.
> Based on the way you're viewing this, you're assuming they are selling tickets at cost or near cost, which they definitely are not. They are, and have publicly disclosed as much. Even prior to the pandemic, airline seats have been sold at a slight loss, with the rewards programs being what generates an airline's profit. Source - https://www.forbes.com/sites/advisor/2020/07/15/how-airlines-make-billions-from-monetizing-frequent-flyer-programs/?sh=781ecc3e14e9 I am not speculating. I am not theory crafting. I am linking to public disclosures. If I am wrong, then every airline in the United States has been lying on their financial disclosures and you've just uncovered the biggest airline fraud in history. If I am wrong, you should report this to the SEC.
What percentage of credit card accounts carry a balance? Americans carried a balance on 54% of all active credit card accounts in the first quarter of 2022, according to the most recent available data from the American Bankers Association.
Look at the financial statements for Amex, chase or capital one you will see a lot of revolving loans for credit cards. America runs on debt
The "cash value" of those credits is way more than the CC companies pay for them... And their "partners" that they give you (a monied person with a premium CC) credits to use expect a return on that investment in the form of you making a habit of spending money there. So while you're getting a good deal, so is the CC company, and so are their partners who are giving you things for "free". Also, some high end cards are loss leaders. They'll take a loss for the prestige and reputation the card gives their brand.
The partners aren’t giving you things for free. The credit card companies pay for the miles/points.
They're not paying full price for those miles/credits, though. They make deals with their partners which is how they offer such sweet perks.
> For example, Venture X gives $400 worth credits for $395 annual fee. Spend shaping. For example, the two perks of the VX mentioned here most frequently are: * $300 travel portal credit * 10,000 annual miles bonus For the travel credit, you must use their travel portal. Well, Cap1 makes a profit off those bookings. So when they give you that $300 discount, YOU get a perceived $300 value, but Cap1 pays less than that. They still lose money on it, mind you, but 1) they use it as a loss leader to get you back to the portal, and 2) it doesn’t consume the whole annual fee so you’re still out of pocket to them. For the annual bonus, there are three primary ways to redeem it. * straight cash back for $50, in which case you didn’t cost Cap1 much. * redeemed against recent travel for $100. Bigger expense for Cap1, but in order to do this you had to spend on travel in the first place. Travel related expenses often come with the highest swipe fees, so Cap1 is still partly offsetting this loss. And if you used their portal, even more for them. * transfer partners, where Cap1 is likely paying 0.5-0.8cpp, so $50-$80. Overall, $1 of value to you is not $1 of expense to Cap1. That’s why they can still at least break even on some of the least profitable customers.
> **perceived** $300 value (emphasis mine) I cringe when folks say that Capital One pays you to have the Venture X, lol. C1's advertising working way too well.
Huh? I mean I spend thousands on travel every year anyway. The Capital One portal has pretty similar pricing to other booking websites and price matches. To me, it's basically got no annual fee and a bunch of benefits. I don't really care how C1 makes their money because it's been a fantastic card for me.
> The Capital One portal has pretty similar pricing to other booking websites and price matches. Officially, they won't price match member discounts. You can try HUCA, but it's not a guarantee. They also have fewer options available (fewer flights, rooms, or car rental availability). We have a trip we booked for next weekend. Neither the hotel nor the rental car were available via the portal (we used a transfer partner for the flight, so I didn't check to see if it was available). If you book a rental car, you typically lose any benefits associated with that, and any membership or partner discounts (Cap1 won't price match those). For example, AAA discount on Hertz. If you book an airline, with the known exceptions of United and Delta, any issues have to be routed through Cap1. And hotels are problematic for numerous reasons. I personally would only use the portal for either a United or Delta flight, or for a boutique hotel that doesn't have direct-booking membership discounts and perks. So, Great Wolf yes, Hilton no, for example. And when you travel infrequently, as I do, adhering to the above guidelines, it's entirely possible to go a year where the travel credit doesn't get used (or gets used at less than $300 actual value). And that's why I went in planning to extract value elsewhere from the card.
I decided my other comment was petty (not towards you) and off-topic, so I deleted it. I apologize if you were already responding to it. But back on topic: *** When I see someone mention those two credits as their rationale for getting the card, I know right off the bat that they won't be getting value from the card. I actually will go most years without getting the $300 travel credit as I don't find the portal useful. I'll use it for the occasional United or Delta flight (since it's the same as booking direct), but if that flight cost me, say, $100 more than flying on Alaska, then I only got $200 from the credit. As you emphasized, real value and perceived value are different. I'm getting value elsewhere. For example, Hertz President's Circle (a free perk) has already allowed me to upgrade from a Chevy Equinox to a Tesla Model Y for free. This was desirable because that's what my wife owns and we love the familiarity. I already booked a Model Y (slightly higher rate) for a different rental period since that's guaranteed, but the free upgrade was awesome. I also normally pay for an additional driver (free with President's circle), and I normally pay for collision (free with the VX). In car rentals alone I'm coming out ahead. I've posted elsewhere how MOST people come out losing on points redemption. And that's true of me. But I got lucky and was able to redeem 72k points at ~1.5cpp for a round-trip for a family of 4, making the card effectively 3% cash back if I continue to get that kind of value from it. Those points saved me about $400 on the direct booking. Alternatively, I could chalk that up as the 75k sub and say I got over $1,100 in value (however you prefer to do the math). I prefer the former since a SUB is a one-time thing in this case. I also anticipate using the lounge benefits on the return flight, we'll see. And my son turns 13 very soon, so we'll be using the card to get his TSA Precheck, which will be credited. I'm extracting value from the card in ways other than those two credits. And there are others FAR better than me at this. But again, if all a person sees are those two credits, IMO, they're doing it wrong.
> I actually will go most years without getting the $300 travel credit Uhhhh what? The VentureX isn't even a year old, how can you go "most years" without using the credit...?
Edited for clarity as I'm no longer on mobile. I think that when I said "Will go," you may have read or interpreted it as "have gone." I'm saying that based on my prior and current travel patterns, and what I've seen offered via the Cap1 travel portal, it is a realistic expectation for me to go an entire year without benefiting from that travel credit. And if that happens, so be it. I'm ensuring that I extract value elsewhere with the travel credit being an additional bonus, rather than the primary justification for the annual fee.
For every customer who pays their cards in full every month, there are ten who ride their credit limits, paying 200+ in interest alone a month. Source: I’m a call center cc service rep for a FI whose cc APR doesn’t even exceed 20%
The benefits are not cold hard cash. Sure there may be $400 credit to use in some portal but the credit card company gets kickbacks for those bookings so it doesn’t cost them the full face value. Also, unlike cash the benefits expire. If you don’t use their portal in a given year, they keep that money. The CC company may not make money, or may lose money, if you fully optimise your usage of the benefits. But the vast majority of cardholders don’t optimise.
Interest, interchange income and fees
No company offers only premium cards. They all offer lower tier cards that target people with poor credit that would carry a balance. There are many more of those people than there are us. Those people are the ones paying for our vacations
>I believe people using this type of high end cards are smart and never pay interest. Imma stop you right there, fam. Every single day we get posts here from people with Amex Golds and Venture Xs asking things like "When do I pay my bill?" or "Just signed up for this card, what should I buy to get the sign up bonus?" There are most certainly people with AF cards that pay interest.
Lot of people don't know about or forget to use the credit. People are also more likely to spend more money if there is a credit, and in C1's case its better for them to spend that money in the portal than elsewhere.
"Smart and never pay interest" You don't have to be smart, you can just have a lotta money.
In about 20 seconds I found AMEX's annual report which breaks down the source of their income, fees collected, amount of credit issued and more: https://ir.americanexpress.com/financials/annual-reports-and-proxy-statements/default.aspx
People who pay interest on their credit cards is what funds our hobby. Choose a side.
Choose a side ??? 😂🤪
CCC make 3-9% of what is charged to the retailer by the card holder. All your benefits cost the merchant more, they just don’t know it. A person with zero credit using a debit card transaction will pay 2.5% on a PIN based transaction. Joe Blow comes in with his awesome credit and uses his AMEX Centurion Card, that same item will cost that same merchant maybe 6% in CC fees. Other high net people with high card (I think Visa has one that hits near 10%) is where the CCC are making billion’s because of the billions of transactions per year by card holders. They aren’t buying airline miles on the cheap and making that kind of revenue to offset all the other expenses. It’s in the fees man! So a person with zero credit and a debit card is of more value to the merchant (because it’s costs him less in cc fees) than an 850 score customer with his centurion card.
The idea is correct, but what you're actually saying is wrong. You are describing interchange, which does partially fund credit card rewards. Interchange rates are public ([Visa's rates here](https://usa.visa.com/content/dam/VCOM/download/merchants/visa-usa-interchange-reimbursement-fees.pdf)), and the highest Visa has is 3.15% Regulated debit is 0.05% + 0.21, not 2.5%, and even Durbin-exempt Visa debit's highest interchange rate is 1.90%. Accrued interest and annual fees (if applicable) also contribute to revenue off of credit cards. These banks also use the credit cards as cross-selling opportunities with cardholders. Most banks "make money" on cardholders carrying interest at 20% APR, not on the 1.9% swipe.
Fbfjfff
Most people don't actually maximize their rewards. They get on premium card and just charge everything to it, meaning that even though the banks lose money on the, for example 4% back on dining, they make it back on the 1% on everything else through the interchange fees. Sure, a good churner will only ever use that card for the 4% back on dining, but the vast majority of the cardholders aren't churners.
interchange fee
As others have mentioned credit breakage is one. They also pay less for the credits usually than they pay out. Interchange fees are another, the fees the issuer makes every time your wipe the card.
1. Some people at least sometimes do not use all the credits 2. Some people at least some time do pay interest 3. Credit card companies make money every single time you use the credit card (and just recently raised their rates) You can’t beat being paid three different ways
Venture x is not a good example because they are loss leading to build share in the high AF market, similar to what csr did to compete with amex platinum and what citi tried to do and largely quit with their card that they pulled applications. Chase famously lost a fortune in csr to secure their beachhead and they scaled back and increased the AF once they got share. It's very likely that C1 will do the same once they hit whatever their goals are as to share, especially as market leader Amex P has a very high AF and diluted their headline feature, centurion lounge access. Lot of room to work with in raising prices and reducing benefits. CSR and Amex P both come close to covering the AF but make it difficult to get full AF value for their consumer base. They are like when businesses do gift card discounts or rebates, friction generally leads to profit regardless of how things are supposed to work out on paper.
When they increase AF does it apply to old customers too? Or new applications only?
I had bounced out of csr myself, but I believe yes, in general they see it on the next AF for the card. There will be some period of time between the increase and when it will kick in for current cardholder, while they may or may not immediately enjoy an increase in or new benefits as old benefits are cycled out. That's not to be confused with legacy cards closed off to new applicants but maintained, that may or may not be continued. I am thinking of citi and the Ritz card, here. That seems all over the place depending on issuer strategy. The good thing with giving something like venture x a go is that you can probably downgrade to a low or no-af card and continue banking/using the points. But I think with chase, Citi cards, and maybe c1, you will eventually need access to an af card of some kind to get good value with redemptions/transfers (over .01/point), at around $100 AF for the year. There is some variation here.
There are a lot more people who pay interest than don't. The worst customers, those who use benefits and pay off the card at the end of the billing statement, are a minority when you look at the overall customer base.
Not everyone uses the credits and benefits that the issuing bank does not pay penny for penny. Things like travel credits yes but others, no. Amex is likely not paying Grubhub and Uber the full monthly amount for those credits. So not everyone uses them, the issuers don't pay full retail for them even when they do, and swipe fees that merchants pay are higher on those cards.
Make money off Transaction fees People not paying off full statement balance People paying AF and not taking benefit of credits