What do the banks really think of churners.

[33kft]

Can we just be clear for a moment - this thread is about churning credit cards from (almost entirely) mid-major banks. There are next to no small enterprises at work here. I don't think we need a disclaimer on each of our posts that the way we engage with banks might not be the way we engage elsewhere.

These are banks offering promos to lock people into high interest short term credit instruments, we abide by the T&Cs that they set. Nobody is taking advantage of the little guy here. What's the issue again?

Next we'll be feeling bad for negotiating lower mortgage rates because they're apparently cross- subsidized by those with lower credit scores who come from lower means? (which is of course complete BS). How micro can we get here? How about it all comes from a big fat pool of funds generated by people who take money and use it to make more money, authorized by some finance team who sees a number under "projected marketing and promotions expenses" and says approved.

 

[MEL_Traveller]

I would love anyone with facts or actual evidence to chime in and correct me but my best guess: 0.3-0.5c/p with discounts based on volume.

I thought the most common figure being bandied around was 1c per point the banks pay the airlines? The airline sells them at 1c each and gives out rewards/awards at .7c per point, giving a 30% profit (before costs). Full award seats on planes potentially a bigger profit given the seat would be empty anyway.

Of course banks may devalue the ongoing cost of an airline point by saying only 1 point per 2 dollars spent, etc.

 

[exceladdict]

I thought the most common figure being bandied around was 1c per point the banks pay the airlines? The airline sells them at 1c each and gives out rewards/awards at .7c per point, giving a 30% profit (before costs). Full award seats on planes potentially a bigger profit given the seat would be empty anyway.

Of course banks may devalue the ongoing cost of an airline point by saying only 1 point per 2 dollars spent, etc.

On reflection, 0.3 might be a bit low, but rationale for those bounds were

• Qantas sells various gift cards between 0.3 and 0.6 cents per point value - now the gift cards are probably bought at a discount to face value, and would be subsidised by breakage. Assuming they aren't willing to lose money (on the whole, they may during promotions from time to time), this is probably a lower bound
• Average interchange on CC transactions varies between 0.5% and 0.9% for visa/MC and 1-1.5% for amex. If amex can award up to 1.25p/$ and banks can award 0.5-0.75p/$, at 1c/p there isn't much room for margin - to cover the costs of card systems, bad debts, etc. So the upper bound is probably less than a cent - there's probably wiggle room though based on volume.

Another useful point of reference could be exchanging 10 Woolworths Dollars for 1000 QFF points. This suggests 1c/p, but I would be surprised if Woolworths pay the full cent in this arrangement.

 

[theblank]

Having worked for plenty of banks before, please don't ask me to feel sorry for them. There's no emotion on their side of the fence, and likewise on mine.

Didnt ask you to feel sorry for them or anyone else. If you take something from the bank, the shareholders pay, not the bank, they dont care either (I have worked for banks too).

 

[33kft]

If you take something from the bank, the shareholders pay, not the bank

Yeah in the same way that shareholders paid our salaries in the past. So what? They hold equity in a public company which has business expenses to make profit which increases shareholder wealth year after year.

You are trying far too hard to equate this to taking bread off someone's table. Shareholders pay for the air conditioning that keeps customers cool in branches too, so do I need to leave a tip the next time I go into a branch to cover that cost to avoid ripping off those poor shareholders? How about those wonderful ads I consume on TV and online for free? Lucky me.

I guess as a shareholder myself I am just ripping myself off.

 

[theblank]

You are trying far too hard to equate this to taking bread off someone's table.

I did begin with IMO. Thou doth protest too much, me thinks.

 

[Mr H]

How about those wonderful ads I consume on TV and online for free?

If the ads are causing hardship to the shareholders I would be willing to forego them.

Just sayin'

 

[MEL_Traveller]

This might be of interest on the price of miles: How Airlines Make Billions From Monetizing Frequent Flyer Programs

If i’ve read it right, United’s own reports are 1c+ per mile (perhaps as high as 2c). I would imagine QF would be fairly competitive with those rates?

 

[exceladdict]

This might be of interest on the price of miles: How Airlines Make Billions From Monetizing Frequent Flyer Programs

If i’ve read it right, United’s own reports are 1c+ per mile (perhaps as high as 2c). I would imagine QF would be fairly competitive with those rates?

That was a fascinating read, thanks for sharing. US$ and (I could be wrong here but) no interchange fee regulation in the US probably allows for higher points costs. Similarly a "flat rule" of 20% margin is interesting.

A bit of a google turned up this adnews (australia) article which claims QF sells points "between 1.1 and 2.5 cents".

I think that could be a weighted average - lower-volume partners would certainly pay more, reflecting those higher values. But I think it's unlikely that banks would on the whole lose money on interchange on an ongoing basis. Acquisition bonuses would probably be loss leaders, though negotiated at a volume discount with QF.

Otherwise, back of envelope calculations on an ANZ Qantas Platinum card:

- 75,000 points would cost $750 for acquisition
- Assume it's a super premium mastercard - that's 0.8% interchange ex GST for paypass transactions
- At a rate of 0.5 points per $ (0.75 for the first $3000 but let's ignore that for simplicity) there's a 0.3% margin for the bank on each transaction

The consumer would have to spend $250,000 on the card to cover the acquisition cost in the first year. This is why I think the points are probably sold at lower than 1c/p to the banks in particular - unless, of course, the whole thing is offset by people who pay interest.

So back to the OP's question. Do banks hate churners? At these numbers, probably, but I guess it's on us not to fly too close to the sun and end up paying interest on the debt.

 

[MEL_Traveller]

You probably wouldn’t like the churner on a card with no annual fee who paid all their statements on time. Annual free prolly off-sets some of the initial points bonuses, those paying interest the some more again. And some banks only give you one QFFF point per $2 spend, etc.

I would have thought the big banks desperately want FF point sand would be willing to pay full price? Without them the awards programs aren’t that enticing? (toasters?)

 

[exceladdict]

You probably wouldn’t like the churner on a card with no annual fee who paid all their statements on time. Annual free prolly off-sets some of the initial points bonuses, those paying interest the some more again. And some banks only give you one QFFF point per $2 spend, etc.

I would have thought the big banks desperately want FF point sand would be willing to pay full price? Without them the awards programs aren’t that enticing? (toasters?)

I saw an article recently that Qantas awards cards make up ~35% of credit cards, but not sure if that's all cards or just awards cards. But other awards schemes are big too, eg. CBA rewards - where you could cash out a CBA point for 1/209 of a dollar (as at a few years ago).
CBA points can also be converted to Qantas at 2.5:1 so that would put qantas points at 2.5/209 or about 1.2 cents, assuming no margin on CBA's side (though there probably is one).

 

[Mr H]

It is all a big mystery and it makes my head hurt to think about it. I would guess the best indication is the conversion rate from FF points to things that QF would have to buy with money - like gift cards, toasters and the ilk. Assuming they make a margin on the points, they would be selling at some percentage over that cost, but not that much over the cost or the banks would be offering their own gift cards and toasters.

 

[MEL_Traveller]

It is all a big mystery and it makes my head hurt to think about it. I would guess the best indication is the conversion rate from FF points to things that QF would have to buy with money - like gift cards, toasters and the ilk. Assuming they make a margin on the points, they would be selling at some percentage over that cost, but not that much over the cost or the banks would be offering their own gift cards and toasters.

I think there's a couple of different considerations in this. Banks give out points which people are happy to snap up and transfer to Qantas in the hope of redeeming a ticket. Those that can... great... QF 'sells' a seat that would otherwise be empty. For those that miss out, they might look for other items such as toasters.

QFFF makes the margin because they sell the points at say 1c each, but when the passenger/member comes to redeem they have a notional value of .7c or less. That's a ~50% profit to QFFF right there.

 

[oz_mark]

My view.
They've done their calculations, and if it were a problem, they'd do something about it

 

[Mr H]

My view.
They've done their calculations, and if it were a problem, they'd do something about it

Agreed, but we have seen a change in strategy over recent years. The amounts you need to spend to get the sign up bonus have increased. We have seen two part bonuses where part two comes on renewal. We have seen some cards split the bonus into monthly spend targets over up to six months. Mostly these are irritating.

On the positive side, Amex makes itself attractive as a long term card by offering excellent spend rewards, reimbursing annual fees through travel credits (encouraging people to stay until they want to book travel). offering access to exclusive lounges (encouraging people to keep the cards until they travel), and having relatively long intervals between sign-up bonuses.

 

[33kft]

Agreed, but we have seen a change in strategy over recent years. The amounts you need to spend to get the sign up bonus have increased. We have seen two part bonuses where part two comes on renewal. We have seen some cards split the bonus into monthly spend targets over up to six months. Mostly these are irritating.

I'm not sure I'd agree. What I've seen is increased bonus targets if you retain the card (eg 100K + 30K after 12 months) which would allow you to pick up a smaller second tranche of points if you retain it. Have you really seen a perceptible change in minimum spend? Maybe, but I have to say I haven't - and have never cared, it's hardly difficult to make any of the minimum spend requirements that I've ever encountered, perhaps why I'm unfazed. It doesn't take much to prepay some utilities or buy up the latest gift card offer.

Ultimately cards need to be competitive, the market decides. If all cards moved in one direction, we'd be in trouble. Individual institutions can tinker all they like. Take the average person and give them the choice between a big chunk of upfront points or some convoluted multi-year maze and they're likely going to go with the big upfront points. It's not going to entice people to go for a card if their target is a holiday in a year's time but the bonus is spread over 5 years.

What I do think has worked against churners has been the increased scrutiny brought by the banking royal commission, as well as the credit reporting regulation changes, but I wouldn't have suggested either of these are particularly bank driven and I'd say it's as simple as the banks preferring the status quo (with some ongoing tinkering for profitability) vs them trying to drive churners out of the market.

 

[exceladdict]

What I do think has worked against churners has been the increased scrutiny brought by the banking royal commission, as well as the credit reporting regulation changes, but I wouldn't have suggested either of these are particularly bank driven and I'd say it's as simple as the banks preferring the status quo (with some ongoing tinkering for profitability) vs them trying to drive churners out of the market.

I'm inclined to agree with this, my latest card application with a bank felt like I had to jump through substantial hoops. Comprehensive Credit Reporting now shows all of someone's open credit lines, which on the whole will help to avoid people being given credit they can't afford to service, but means there's something else we have to keep an eye on - at three bureaus - before making an application so you aren't rejected on the basis of incorrect information and given a 'computer says no' answer when you ask why.

 

[Mr H]

I'm not sure I'd agree. What I've seen is increased bonus targets if you retain the card (eg 100K + 30K after 12 months) which would allow you to pick up a smaller second tranche of points if you retain it. Have you really seen a perceptible change in minimum spend? Maybe, but I have to say I haven't - and have never cared, it's hardly difficult to make any of the minimum spend requirements that I've ever encountered, perhaps why I'm unfazed. It doesn't take much to prepay some utilities or buy up the latest gift card offer.

Ultimately cards need to be competitive, the market decides. If all cards moved in one direction, we'd be in trouble. Individual institutions can tinker all they like. Take the average person and give them the choice between a big chunk of upfront points or some convoluted multi-year maze and they're likely going to go with the big upfront points. It's not going to entice people to go for a card if their target is a holiday in a year's time but the bonus is spread over 5 years.

What I do think has worked against churners has been the increased scrutiny brought by the banking royal commission, as well as the credit reporting regulation changes, but I wouldn't have suggested either of these are particularly bank driven and I'd say it's as simple as the banks preferring the status quo (with some ongoing tinkering for profitability) vs them trying to drive churners out of the market.

I think I have seen a shift in minimum spend but it is difficult to be sure. I think the targets used to be $2k-3k but this past year I have seen as high as $7,500. I have just done $5k and my next card will require $6k. My health insurance is paid for the next 12 months, my car insurance for the next 6 months, my rates for the next 6 months and my utilities in healthy credit.

I have also perceived a shift from 100k up front to less than 100k upfront but an advertised figure that includes the year 2 bonus. I am sure I have seen some that offer a choice of a 50-50 split of a larger number of points, or a one off bonus of a smaller number of points. But it is so difficult to keep track of these things.

I agree that the cards need to remain competitive (and also profitable for the issuer). I suspect that most customers do not look to churn but look for long term cards - and the year two bonus might look really attractive to them. I know when personal circumstances forced me to stay with one card, I felt pangs of envy to see sign up bonuses for my card when as a long-term customer I got nothing. At the same time, I think issuers are watching one another and looking for ways to 'enhance' their offering. Earn caps seemed to pop up all of a sudden across a range of issuers. And many issuers make it almost impossible to know or compare the redemption rates for their own points. Hey everyone, get up to 180,000 Altitude points over two years that are redeemable for great benefits with our carefully selected partners...

The trick I hate most is spreading the bonus over consecutive months and requiring a spend target to be met each month.

 

[GSP]

Having churned and followed all offerings for quite a few years now, I haven't really seen an increase in minimum spend - on the whole I'd say it averages out the same.

I also have noticed an increase in products offering points spread over two year periods, particularly when the first year fee is waived but not the second which would need to be paid to receive the second tranche.

Amongst other trends observed, some years ago (around 2018 and before), the scrutiny or processes involved in getting another card were quite easy, then it become extremely hard, but of recent times it has been reverting to how it was some years ago. I saw on one application I had recently when it come to enter my other CC liabilities, it already had them auto-filled where previously you either had to list them one by one or even combined limits as a whole.

 

[burmans]

I'm inclined to agree with this, my latest card application with a bank felt like I had to jump through substantial hoops. Comprehensive Credit Reporting now shows all of someone's open credit lines, which on the whole will help to avoid people being given credit they can't afford to service, but means there's something else we have to keep an eye on - at three bureaus - before making an application so you aren't rejected on the basis of incorrect information and given a 'computer says no' answer when you ask why.

Not a problem if people actually close down credit lines they don't need! But agree, banks are required by law to lend responsibly and yes banks are concerned about this more than churning per se.

Will banks tweak their offers to try and keep people longer, well of course, but are they going to fundamentally change their prime method of attracting customers, I think not. For all those who churn cards we should not delude ourselves that we are the norm, most can't be bothered and the banks have the stats to prove it.