Wallet Plastic Paybacks

In 2007 there must have been a landfill bulge to accommodate discarded credit card offers.   Every bank and merchant affiliate wanted you to carry the new, unsought card and transfer in the balances from your other cards – often at low interest for several months.  They provided the funds so the risks to you were low if you spent carefully and kept your job.  That was then.  

Today the debit and credit card offers are just a trickle, but the complexity of reward plans is byzantine.  Consumers can choose points or cash.  Whether accumulating points or getting cash back is your preference, there is an app that assists in selecting the best card.  Most cash-back schemes tier the rebates; e.g. Costco AMEX gives a 3% rebate for purchases at restaurants, 2% on gasoline purchases and 1% on purchases of everything else.  Costco’s “executive” card earns 2% on everything.  Some cash-back offers often make you wait for the rebate, such as Costco’s annual reward “coupon” (that can be cashed only at a Costco store).  

Point collecting schemes leave you a stash which is convertible into cash, if you are lucky.  For example, some Bank of America cards let you transform points into cash to help pay your account.  But sometimes you must redeem the points for banker-chosen “stuff” listed in a catalog.  Those straightjacketed choices are reminiscent of the S&H Green Stamp craze that gripped many households in the 1960s.  Some point-oriented cards use an obvious points-to-dollars value conversion.  Walgreens seems to use a ratio of 10 reward points per 1 cent of value.  You can “spend” 10,000 or more Walgreen points at the cash register.  Other cards may equate a point to a dollar spent or mile flown.

With enough collected “miles,” airline-affiliated cards let you book a trip on days that are not “blacked out.”  Most of the card “rewards” have a limited lifetime, encouraging customers to make sub-optimal redemption decisions before the points expire.  Some airlines allow you to purchase a life extension for your expiring points, but that’s not cheap.  

The Square Mobile Credit Card reader is ideal for small merchants who want to accept credit card transactions.  Square charges a merchant 2.75% to clear those sales and deposit cash into the merchant’s bank the next day.  Out of the 2.75%, Square will need to pay for its mobile telecom, amortized cost of the Square reader, and any charges the credit card issuer would assess on a merchant (it could be Square) for clearing the transaction.  The typical charge to a merchant for using a credit card service is 2%, but the actual cost is the total of a “discount” on the purchase, e.g. 1.9%, plus a monthly flat fee (say $20) plus a transaction fee (say 50 cents per sale)

Thus 2% is likely the upper bound funds for system costs and any “reward” that a credit card issuer could afford.  That would limit funds for a “reward” to less than 2% of total consumer charging on average.  Very little is available to reward a consumer who spends much time verifying points and selecting from catalog dreck.  A rewards card that automatically issues a check or money credit is likely be a better use of time.

Alan Daley is a retired businessman living in Florida and following public policy from a consumer’s perspective. 

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