Yesterday, the Wall Street Journal introduced the new year with an article that may be unwelcome to some members of the points community. Turns out that banks have made a resolution to go on a diet, as well. Problem is, their diet means cutting back on points that they are giving away, not taking in.
Will Sign-Up Bonuses Decline?
Tl;dr for those who don’t subscribe to the Journal: Reward costs are up and consumers are gaming the system. And they’re just figuring this out now?
Clearly, it’s not a secret that consumers are gaming the system. The proliferation of points and miles blogs is enough to show that. But companies are starting to pay more attention to the costs and returns. The article notes that rewards costs were up 15% in the third quarter, while returns on assets have slipped from an average of 5% in 2014 to an estimated 3% next year.
Of course, shaving promotions is not as easy as it sounds. It would be illegal for competitors to get together and decide to cut bonuses. Still, we’ve seen the start of it. For example, Citibank cut back on free hotel night benefits on the Prestige card. Likewise, IHG changed its sign-up bonus. No longer could the free hotel night that came with it be used anywhere. Now, that night could only be used at certain categories of hotels.
But the big sign-up bonuses are harder to cut back. Consumers have gotten used to being rewarded for getting a card. A decade or two ago, 25,000 points was considered a strong promotion. Now, it’s not uncommon to see 100,000 points or more just to get a card and spend a bit.* The card companies have cut back on the number of cards that you can acquire. For example, American Express limits personal cards to one bonus per lifetime per reward type. Chase won’t let you get most cards if you’ve signed up for five or more of any credit card, regardless of issuer, in the past 24 months. It’s known as the 5/24 rule. And both Discover and Capital One have tightened card issuances. Anecdotally, Capital One seems to have gotten more aggressive with serial applicants. Discover is known for giving extremely low credit lines to cardholders with more than one Discover card. Etc.
Will It Last?
We’ve seen articles like this one before, and somebody has inevitably blinked. The problem most companies face is getting people to use their cards once they’ve gotten the bonus. That’s why you see so many cards with category bonuses. The banks offer extra points on frequent occasion purchases (restaurants, groceries, etc.). That gets the card to the top of your wallet. Hopefully, you then reach for that card for all of your purchases. It hasn’t worked out well, though, as gamers have exploited them. If I only use Discover for 5% rotating quarterly categories, for example, Discover eats the costs of the excess rewards but doesn’t make it up through “swipe fees.” I cost them money. At least they don’t big initial bonuses. If I get 100,000 points from Chase and then cancel the card, they really lose out.
What Can Banks Do?
Banks have started to address the issues in other ways. For example, they can limit card benefits or the number of times you can get a bonus. But limiting benefits causes people to stop using the card, which is where they make their money. Ultimately, it will get reflected in pricing. But until then, enjoy your points. You’ve earned them.
*Beginner’s Hint: Don’t get fooled by the large number. For example, 100,000 Chase Ultimate Rewards points is worth a heck of a lot more than 100,000 Hilton Honors points. Heck, even 50,000 UR points is worth more than 100,000 from HH.
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