...Pssst!
😎 Reselling that age old promise of an artificial bargain, or that one last chance to get a little something for nothing?
A interesting discussion on the ins and outs of rewards cards has broken out in the comments section of the last two posts. Check them out [link - 3/7] and [link - 3/6]. Hope it doesn't come as a surprise to you that those points, miles, and cash back "bait-and-switcheroos" cost the provider - in this case SECU - some big bucks to provide.
Most consumers never consider the costs of rewards. In the realm of finance, most of us live in a sorta fantasy land of oblivia. In order to exist we are forced to play in the finance world (direct deposit, mortgages, credit cards, Zelle, IRAs, taxes, pensions, insurance), even though we really don't understand the rules of the game.
We tend to choose to overlook or ignore The Eleventh Command: "There is-eth not a free-eth luncheon." Many financial service providers prey upon our lack of understanding. The cost for ignorance to consumers - you and your family - are great. Rewards cards are a good example.
When the "rewards card concept" first came on the scene decades ago, SECU staff and Board took a look, but it appeared to be little more than a marketing gimmick - no great value to the members. As the years past however, the rewards programs were enhanced, refined, and expanded.
Airline miles became the rage and later cashback was added for the stay-at-home types. Sign-on incentives, discounts, two-fers, recommend-a-friend, 2X/3x bonuses, airport lounges, free tickets, concierge services - the hype became universal, marketeers entered frenzy! "The industry standard" became a rewards card - everyone had one (or 2.3!). Except at SECU, so another look was taken.
The credit card folks (Visa and Mastercard are the leaders) were subsequently asked to provide SECU with reward card "proformas", which are simply financial projections of the number of cards which would be issued, the resulting loan balances, operating costs and what would be required to make a rewards card program "profitable". Paying for the airline miles, points and cashback was a major cost (see Eleventh Commandment above!).
✅ Who would pay those costs? The financial proformas showed that SECU "transactor" members [link - 3/7] paid off their balances in full each month, so they got a "subsidized", free ride. The only way to recoup the cost of a rewards program was through the interest charged to SECU "revolver" members, who don't pay their balance in full.
😎 Hope you can see where that proposal was heading.... (more to follow).
... this is starting to look like RBL with "rewards"! Guess the SECU Board is now gonna "pick the member's other pocket"...
so you looked at a pro-forma that didn't include the interchange income? no wonder the numbers didn't look good. mileage and cash back don't cost anything if people don't use their cards, and we get interchange every time they do.
ReplyDelete11:44am No you've got that wrong. The financial proformas did of course include projections of all interchange fees.
DeleteLove that second sentence ..."mileage and cash back don't cost anything if people don't use their cards" ... well yeah, can't argue with that one!
Guess that means the less SECU members use a cash back card, the more they'll save. Might want to send the members an email explaining that....
1:11pm your post didn't say that. try to take it at face value. just another product you don't get. it's about usage.
Deleteone last change to get something for nothing? says who? Rewards holders pay for those rewards willingly, in fees and rates. It's not a fleece.
ReplyDelete11:46am Appreciate the confession - finally! - that rewards are paid for by the members "in fees and rates".
DeleteSince you acknowledge the fact that rewards will be costing members, can you share with us how much an SECU member on average will be "willingly" paying for those rewards.
Know you support full and fair disclosure.
Look forward to your answer.will
simple. rewards costs will be paid by reward card holders. most programs have fees, ours won't.
Delete1:15pm Help everyone's understanding. If the SECU rewards program doesn't have fees ("ours won't"), how will the rewards be paid for?
DeleteMembers are classified into tiers. Those that have(transactors) and those that have not(revolvers). The have nots need to support the haves, who deserve it because the haves are more successful. It is the revolvers own fault that they carry a balance! Pay off your card!
ReplyDeleteFor profit card issuers don't offer rewards out of kindness. They are financial sustainable. But, now you're concerned about subsidy?
ReplyDelete1:15pm Can't argue with you if you don't mind being subsidized. Some folks are that way.
DeleteI have always personally objected to an unfair and unjustified subsidy of any kind. That old saying that there is a difference between a handout and a hand up still rings true.
1:45. ridiculous. one rate for all was a brazen subsidy which included a penalty for those who used credit responsibly. SECU no different than all other FI's in that 80% of income is derived from 20% of members.. different percentages among them maybe, but every FI has that dynamic. Savers are subsidized by borrowers, young members bring negative net income subsidized by others, etc. members subsidized income tax prep for others, etc, etc. so you believe in subsidies, or selectively believe in them.
Delete1:51pm Whoa! That little "point-out" about your subsidy seems to have pushed a button. Yet you seem to defend your subsidy with the following analysis:
Delete1) If all SECU members were toreceive the "A-tier best loan rate" that would be a subsidy?
2) SECU savers are subsidized by borrowers?
3) Young SECU members are "negative net income" and are subsidized by others?
4) Tax prep was subsidized by others?
5) etc, etc, etc.
Bizarre analysis, which at least conforms to your 80/20 theory... the logic is 80% ridiculous, the other 20% simply silly. But thanks for describing for us your personal view of the world.
Don't take your subsidy so badly, looks like we're all practicing it at SECU.
2:11pm Flat rate lending as you suggest NEVER allows the institution to issue the best rates to its members. In flat rate lending, higher tier borrowers are overcharged to cover the losses from lower tier borrowers.
Delete2:40pm Your first statement is clearly not true. What prevents SECU from offering the same current A-tier rate to all SECU members starting tomorrow?
DeleteWe don't need to worry about any mispricing in the past. You've got the best A-tier rate NOW, member A-tier loans are flooding in, right? Now just make the same rate available to all... call it a "rewards" loan!
Higher tier borrowers won't be subsidizing anyone...they'll still be getting your best A-tier rate.
...and hate to keep bringing it up but your losses and delinquency are soaring under RBL or haven't you noticed (everybody else has!).
Can give you a hint on those two problems...YOU NEED TO STOP MAKING BAD LOAN DECISIONS!
If you don't make bad loans, you will have no defaults!
@1:51 "young members bring negative net income subsidized by others" except for the ones whose mama can cosign all their paperwork! Aren't they in a different category? A+ tier. New/new unicorn.
Delete"SECU no different than all other FI's ..."
DeleteNo truer words were ever uttered by the new/new
ReplyDeleteCards are not a gimmick and they don't hard people who use them right. I pay an annual fee of 200, charge everything on my mileage card, pay it off, and have taken 3 trips this year with tickets that would have cost $1,300. Hard, tangible value. how is that a gimmick?
1:19pm Not arguing that your card may be a good deal for you, although can quickly tell that you are paying at least $200 too much for your rewards with that annual fee. Why are you paying that $200 bucks unnecessarily?
DeleteBut lets not argue. Since we've all agreed that rewards aren't free. Who is subsidizing you by paying for those "free" flights (less the $200)?
The mentality that we looked at it once, so case close til the end of time.
ReplyDelete1:28pm Might want to reread the post. As indicated, he value of rewards cards was reviewed several times and was always a topic of discussion.
DeleteHave you ever looked into offering the same rate for checking accounts, savings accounts, money market, and STC? We do we not offer the same rate for every one and every product.
Delete2:16pm Not sure I follow your logic?
DeleteLast time I checked SECU only offered one checking account all at the same rate: only one mmsa at the same rate; one share account at the same rate; and the same rate on each STC term.
Are you suggesting that simply adding the rewards for the existing 342,000 SECU cardholders and having only one card is a good idea? Again the "SECU Best Card" would meet the best interests of all SECU members - revolvers and transactors!
Low rate, no annual fee, grace period, points, miles, cashback!
Why not be the "BEST" rather mediocre?
I am asking why Money Market, checking, STC, share all have different rates from each other?
Delete5:14pm I guess for the same reason that people call an orange an orange and an apple an apple.
DeleteIs it possible we have more intelligent people in charge now?
ReplyDeleteThat's clearly not the case. Numbers don't lie. Charge off are through the roof. The excuse used to discriminate against people has proven to be a lie. The only people impacted by race based lending are the ones who make the payments.
DeleteHow bout all the folks in the mountains? Guess it was their fault they lost their jobs and everything they own?
2:20 pm Certainly hope so!
ReplyDeleteGuess the best way to gauge that would be to look at rates, service quality levels, cost of operations, delinquency, charge offs, employee satisfaction and other performance criteria?
We are no longer an a tier credit union.
DeleteDoes the interchange income not pay for the rewards? There interchange rate for rewards cards is quite a bit higher than non rewards cards.
ReplyDeleteIf you are a "revolver" then the value is not there. But if you pay off the balance each month there is value there for both the card holder and the institution.
The bigger issue is the fact that they are launch this card not and Senator Durbin is pushing to greatly reduce the interchange rate on Credit Cards just as the did on Debit cards. This is the reason we saw rewards on debit cards and then they went away because the interchange that paid for them went away.
best comment yet. interchange is in play and there is crazy talk about 10% int rate cap on cards. important that we think about the regulatory risks that could change the economics of traditional and rewards cards, to where it would be a financial issue for the CU.
DeleteThe fee might pay a portion of the rewards. The majority will come from interest from less educated lower income individuals who will subsidize higher educated wealthier individuals free stuff.
ReplyDeleteGuess which race will be the majority on the latter end of that equation? its just a coincidence that one race will benefit heavily while another race pays for it. Wonder which race makes up the majority of members "begging" for a rewards card?