Economist article on the Problems with Rewards Programmes

[doctorstrangelove]

Interesting article on CC Rewards Programmes in The Economist.

For those who lack access some snippets:

Worse still, Messrs Trump and Sanders are looking past genuine problems with American credit cards. That may be because the problems stem from something stupendously popular: ultra-generous rewards. Credit-card rewards are meagre in much of the rich world, especially Europe. But in America they are chunky, and many are hooked. The Points Guy, a website with the strapline “Maximise your travel”, which recommends strategies to accumulate and spend credit-card points, has garnered almost 30m visits in the past three months.

I don't have direct experience with regard to how easy it is to earn points with FF programmes in Australia vs USA, but having lived in the UK and dabbled a little in Avios while I was there it is much easier to earn points in the 'local' airlines in Australia (Qantas, Virgin) than it was to earn Avios with BA. I mean, Qantas chuck points at you for walking! I suspect Australia is maybe the middle ground between the paucity of Europe and the largesse of America?

To the sufficiently obsessed, optimising credit-card spending can be a lucrative hobby. However, beneath the bonanza is a problem: the rewards are funded by the least well-off. This happens in two ways. First, customers who do not use credit cards subsidise those who do.

A second issue is that rewards function as a tax on those with credit cards but without the ability or inclination to keep up with the panoply of options. Sumit Agarwal of the National University of Singapore, Andrea Presbitero of the IMF, and André Silva and Carlo Wix of the Federal Reserve find that American credit-card-reward programmes redistribute around $15bn a year from “naive” to “sophisticated” consumers. In cash terms, the biggest losers are actually the unsophisticated well-off.

This is interesting. I'd wager almost all regular posters on AFF take a sufficient enough interest to fall under the sophisticated bracket, and even most of us unless we're Platinum or above would find it difficult to get rewards seats on Qantas to Europe directly from Australia for example. It makes you wonder how many millions of Australians who are not as engaged as us are sitting on thousands of Qantas points that they struggle to redeem for a decent return (toasters don't just cut it!) When you do eventually manage to snag one of those elusive award seats to Europe spare a thought for the unfortunate CUB who's subsidising you.

I'd argue that Australia has too much of a points surplus and not enough rewards supply. I'd contrast this with Singapore and Krisflyer where it seems to be harder to earn points in the first place and therefore there's much better availability. Qantas have made some steps to rectify this by releasing their Classic Plus Rewards to deal with both the surplus and demand issue, but the value isn't really there usually. I'd actually be in favour in making points harder to earn in the first place by reducing these CC sign-up bonuses but I can't see Qantas or Virgin having any incentive to address that lucrative revenue stream!

What Donald Trump and Bernie Sanders get wrong about credit cards

Forget interest rates. Rewards are the real problem

www.economist.com

 

[clifford]

Interesting article on CC Rewards Programmes in The Economist.

For those who lack access some snippets:



I don't have direct experience with regard to how easy it is to earn points with FF programmes in Australia vs USA, but having lived in the UK and dabbled a little in Avios while I was there it is much easier to earn points in the 'local' airlines in Australia (Qantas, Virgin) than it was to earn Avios with BA. I mean, Qantas chuck points at you for walking! I suspect Australia is maybe the middle ground between the paucity of Europe and the largesse of America?





This is interesting. I'd wager almost all regular posters on AFF take a sufficient enough interest to fall under the sophisticated bracket, and even most of us unless we're Platinum or above would find it difficult to get rewards seats on Qantas to Europe directly from Australia for example. It makes you wonder how many millions of Australians who are not as engaged as us are sitting on thousands of Qantas points that they struggle to redeem for a decent return (toasters don't just cut it!) When you do eventually manage to snag one of those elusive award seats to Europe spare a thought for the unfortunate CUB who's subsidising you.

I'd argue that Australia has too much of a points surplus and not enough rewards supply. I'd contrast this with Singapore and Krisflyer where it seems to be harder to earn points in the first place and therefore there's much better availability. Qantas have made some steps to rectify this by releasing their Classic Plus Rewards to deal with both the surplus and demand issue, but the value isn't really there usually. I'd actually be in favour in making points harder to earn in the first place by reducing these CC sign-up bonuses but I can't see Qantas or Virgin having any incentive to address that lucrative revenue stream!

What Donald Trump and Bernie Sanders get wrong about credit cards

Forget interest rates. Rewards are the real problem

www.economist.com

Credit cards will be the death of frequent flyer programs.

When it's cheaper to get reward flights through credit card sign on bonuses, etc than for flying, something's got to give eventually.

 

[Human]

Credit cards will be the death of frequent flyer programs.

When it's cheaper to get reward flights through credit card sign on bonuses, etc than for flying, something's got to give eventually.

But what many of us credit-card-points-churners/hackers don't realise is actually how few of us there are!

I work in a workplace of about 100 people. I make no secret of how my wife and I galavant around the world in business class using points. I always try to help people to the best of my ability when they ask about it. But when people ask me how I do it, I start to explain how easy it is ... and their eyes glaze over and they quickly make some excuse about how it's "not for them". I reckon I've had 50 conversations with workmates about how I accumulate points, and I'm still the only one who actually does it.

So yes, in my experience the "unsophisticated well-off" do really subsidise the "sufficiently obsessed" like, evidently, me.