What do the banks really think of churners.

[xr6er]

Do they love them of hate them:
- Are there few enough that they don't eat too much into their billion dollar profits ?
- Do the merchant fees make enough to offset the points ?
- Do they lay in waiting for people not to repay in full and have to pay interest ?
- Do they lay in waiting for people to default ?

 

[moa999]

I'd think on the whole they don't like them.

Customer acquisition has a cost (whether it's advertising, admin, credit checks etc) - and then they expect to receive that cost over a number of years.

So a person who signs up, then moves on quickly is likely costing the bank money. Even more so for churners who are only ever signing up when there are points bonuses on offer.

But it's a cost of doing business to attract more profitable customers.

 

[burmans]

While not what I did towards the end of my career during the changes on Credit Reporting I managed a number of credit programs and belonged to industry working groups. What I found was that this hardly rated with them, an inconvenience at best. Yes they were aware, but no one seemed to think it necessary to factor this into their credit decisioning beyond what they were already doing (and it would be possible). Number of applications was always a factor but because it was a potential indicator of credit stress rather than churning.

 

[jakeseven7]

The biggest issue for CC companies right now is the basically unregulated BNPL players…. The recent announcement that a massive pub group has started offering Afterpay is a massive issue

 

[33kft]

Yes they were aware, but no one seemed to think it necessary to factor this into their credit decisioning beyond what they were already doing (and it would be possible).

It probably wouldn't do them any favours to factor in revenue to servicing approvals... Imagine the next royal commission... "So you were deliberately declining those borrowers with good servicability who pay on time?". Not the greatest look.

 

[exceladdict]

Do they love them of hate them:
- Are there few enough that they don't eat too much into their billion dollar profits ?
- Do the merchant fees make enough to offset the points ?
- Do they lay in waiting for people not to repay in full and have to pay interest ?
- Do they lay in waiting for people to default ?

On the whole, the banks wouldn't offer incentives like 100k+ points with no annual fee if it didn't work out in their favour.

 

[andye]

I presume the churners help in one aspect of KPIs (serviceability, income on application) which makes up for the losses on retention. I suspect churners are a much smaller minority than our AFF bubble would make us think

 

[wxxnxs]

AMEX is the particular one, although it might offer some retention bonus, but overall it more focuses on acquisitions. The big 4 is a different story, as they have so many other areas to generate the revenue, so acquisition or attrition won't bother them too much, as most of their homeloan customers will take their credit cards regardless as part of the package.

 

[theblank]

They dont care, as not enough do it, and even then some churners will eventually forget too or must stop churning and therefore they have retained the client.. If they did care about it, they would do so from the credit files.

Credit cards are a mass scale business, they dont want to spend the extra time looking into that.

 

[Mr H]

Does anyone know how much FF points actually cost the banks (i.e. per point)?

 

[exceladdict]

Does anyone know how much FF points actually cost the banks (i.e. per point)?

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.

 

[Mr H]

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.

So that would mean a typical sign up bonus costs the credit card company little more than they recoup with the annual fee. No wonder they’re in no hurry to stop it; it’s just a way for a few particularly dedicated churners to buy ff points at wholesale price.

 

[CaptJCool]

. The big 4 is a different story, as they have so many other areas to generate the revenue, so acquisition or attrition won't bother them too much, as most of their homeloan customers will take their credit cards regardless as part of the package.

yes, one of the conditions of the CommBank wealth package was the credit card offering. There was no particular way to avoid being given them. I didn’t want them nor need them and they certainly are given out with ZERO sign-up bonuses, SO aside from some international ATM withdrawals and rail and coffee purchases on a couple of trips, I’ve not used them in over a decade, and never in Australia. Just because they hand them out doesn’t mean they get used. Especially since they didn’t link upto any of the airline awards programs. Having looked at the threads here about their in-house reward program, I was not convinced of the need to “start“ another one. I appreciated being granted the home loan but didn’t see any reciprocity on their behalf. Surprisingly, loyalty iisn’t a two way street because if it was, THEY would have automatically reduced my HOME LOAN interest rate to the same as new customers but their REFUSAL to take initiative showed they didn’t care about my display of loyalty.

PS CHURNING also needs some discretionary spending possibilities so WHILE paying down DIRECT debits for mortgage debt and child support and taxes and super, there was bugger all left to spend except in August or perhaps the Christmas holidays, so while I contemplated churning, it wasn’t a serious prospect.

 

[CaptJCool]

In fiddling with some analysis given the Test is over ..... the points cost for the consumer ranges from

$00.003 cents per point to $00.009. ( with the exception of AMEX $00.0296 per point)
Annual fees plus say 2% merchant fee.... and taking the assumption that the spending would have been incurred regardless.

can’t see how this could make any FI any profit whatsoever - mind you, one would require discipline to STOP spending once the BONUS points have BEEN EARNT which suggests “a few churners” is the price paid for customer acquisitions. After all, it’s harder to get new customers than it is to retain existing ones

 

[Mr H]

can’t see how this could make any FI any profit whatsoever

Most credit card holders do not churn. We are the outliers. Clearly FIs find credit cards as a whole to be profitable or they would not offer them. I imagine they make a healthy profit even on card holders who pay their entire balances - getting enough revenue through merchant fees and annual fees. And they will make a handsome profit from cardholders who leave an unpaid balance and therefore pay monthly interest. I have wondered whether churners are a net cost to card issuers and based on the speculation on the wholesale price of points here, I suspect we are pretty much cost neutral for most card issuers - which probably explains why they don't try ever so hard to deter us. Amex would be an exception if churners use their travel credit (I suspect many do not) - and by all accounts they are the most likely to decline applicants.

 

[Mr H]

Surprisingly, loyalty iisn’t a two way street because if it was, THEY would have automatically reduced my HOME LOAN interest rate to the same as new customers but their REFUSAL to take initiative showed they didn’t care about my display of loyalty.

Banks are companies, not emotional beings. They exist to make money for their owners. They want to secure and retain your business, but they won't intentionally do things that are not optimal for their own enrichment. They do not have the time/financial incentive to get to know most of their customers as individuals - they play the numbers game and work on the law of averages. The Commmonwealth Bank may have lost you as a customer, but they will only change their MO when they believe the cost of acting outweighs the cost of not acting. In fairness, we exploit this law of averages too by using sign-up offers in the expectation that it would not be cost-effective for the banks to stop us.

 

[exceladdict]

Clearly FIs find credit cards as a whole to be profitable or they would not offer them. I imagine they make a healthy profit even on card holders who pay their entire balances - getting enough revenue through merchant fees and annual fees. And they will make a handsome profit from cardholders who leave an unpaid balance and therefore pay monthly interest

Absolutely. I do have minor ethical concerns whether my profit from churning is cross subsidized by those crippled by credit card debt.

I have wondered whether churners are a net cost to card issuers and based on the speculation on the wholesale price of points here, I suspect we are pretty much cost neutral for most card issuers - which probably explains why they don't try ever so hard to deter us.

I'd suspect bonus points offers are loss leaders, probably partially cross subsidised by the loyalty program. If you cancel after a month or two and don't put many transactions through, the bank may come out behind, but pay that annual fee once, or miss a repayment and they're in front.

Amex would be an exception if churners use their travel credit (I suspect many do not) - and by all accounts they are the most likely to decline applicants.

Interesting, I generally think of amex as the most generous with limits and applications. I remember getting a ~$30k limit on a ~$60k income while holding a second card with another bank and a home loan.

 

[theblank]

Absolutely. I do have minor ethical concerns whether my profit from churning is cross subsidized by those crippled by credit card debt.

no large scale business would ever match up a single cost to a single income like that. Every bank has customers that churn and those that pay credit card interest. You are taking profit from the shareholders and thats it, if thats a reason to be ethical dont do it.

IMO, It is a moral dilemma to take advantage of a business's free gift/generosity they offer for your custom when your only intention is to grab the money and run. How much this moral dilemma bothers one is a matter for oneself I certainly wouldnt do it to a local small business, but have no guilt doing it to some banks especially those that have coughped on me. I only do about one a year, i havent gone completely ruthless yet.

 

[33kft]

IMO, It is a moral dilemma to take advantage of a business's free gift/generosity they offer for your custom when your only intention is to grab the money and run.

No way - it's half of their job to correctly price their products and services and any associated incentives, if we take that on as our responsibility, what exactly does the organization have left to take responsibility for?

They are in full control of the T&Cs. I don't feel bad when Woolworths sell a product at half price and I don't feel bad when a promo's T&Cs are not in favour of the company offering it - better luck next time to the well paid exec's team that came up with the idea (although they'll never see the loss within the aggregate numbers anyway, and they'll make sure it gets hidden one way or other).

I don't think there's any realistic connection to small business here. They're not pushing credit cards with 30% annual interest rates at us. 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.

 

[Mr H]

I don't feel bad when a promo's T&Cs are not in favour of the company offering it - better luck next time...

Yes up to a point. There's still the issue about how far you're prepared to rip the cough out of it and run the risk that it'll get shut down for everyone.

I hope most of us would be more generous to small enterprises than to multinational corporations (genocide of the starving nations).