
How airlines plan to make billions from rewards cards - Damanick
https://blog.privacy.com/case-studies/how-airlines-plan-to-make-billions-from-rewards-cards-1
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lazerpants
Presumably airlines will be devaluing their points too, in order to help
balance the books.

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Groxx
Isn't that the purpose of rewards cards, as a company? To get a small % from
every purchase, and encourage use of your product?

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systemvoltage
Credit card rewards is a bizarre almost impossible to get rid of idea. Those
"rewards" are amortized across all customers for a given business by the
virtue of a higher transaction fee. There is no such thing as free lunch
obviously. It has a positive feedback loop - the more people use credit cards
(because of rewards and fraud protection), the more the competition to provide
better rewards. This competition drives higher transaction fees to business
which in turn pass those onto the customers. At the end, consumers lose no
matter how you slice the pie.

The _only_ way to get rid of this racket is to pass a law that bans credit
card rewards. Watch the chaos that ensues after that.

The more positive way to look at this is that a consumer using a CC is paying
2-3% extra for a product to have an isolation between their bank account and
the business charging them. The reward thing is a distraction to lure
consumers. 2-3% doesn't sound like a bad deal for fraud protection, isolation
and some perks. Someone has to take on liability risk and that's what CC
companies do. It also polices businesses from defrauding and exploiting the
consumer - I would guess that if a business has a very high percentage of
charge backs, they'll be investigated and reprimanded, if not blocked by the
CC company.

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JoshTriplett
If a law were passed that gets rid of credit card rewards, I very much doubt
that prices would go down accordingly; the merchant would still pay that fee,
and the credit card company would keep all of it.

I'd be happy to stop having rewards if all prices went down 2% accordingly.
But that doesn't seem likely to happen.

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kbenson
There are already different fees charged based on card types, which is why you
see some merchants accept Ames/Discover and some not. They have different per-
transaction fees and different transaction percentages (at least the last time
I saw, long ago). If a card offers a smaller fee, I imagine some processors
and then merchants will jump on it ASAP. What's half a percent off the
processing fee to Amazon/Walmart/Target? Hundreds of millions to billions of
dollars, given it has a disproportionate affect on profit since it applies to
total charged.

I'm sure this is also why Target tried to get you to sign up for their own
card, and offers you a percent off all purchases at target with it.

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JoshTriplett
> There are already different fees charged based on card types, which is why
> you see some merchants accept Ames/Discover and some not.

But those merchants are not allowed to accept both but pass through their
fees.

Rather than seeing a prohibition on rewards, I'd rather see a prohibition on
the anti-competitive terms that prevent merchants from passing through credit
card processing fees. Then a card that charges less to the merchant would be
just as good as a rewards card.

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sneak
I was really excited to sign up for privacy.com until I saw how many 3p
services they integrate with silently in their app.

Seems like the opposite of privacy to me. :(

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jedberg
They gotta make their money somehow. I love them because they have saved me
from fraud a few times. Anytime I need to buy something on a sketchy website
where I don't trust their security, I use a privacy.com card.

In fact, I used their card to pay my water bill, because I didn't trust the
city security, and in fact discovered a massive citywide fraud because of it.

One of the nice things about privacy.com cards is the cards are assigned to a
vendor, so if there is a charge from another vendor it rejects the charge no
matter how small and warns you.

I got a 56 cent charge from a "gardening service" on my water bill card.
Usually most banks won't let you set charge alerts below $1, so they use a
$0.56 charge to fall below the limit. But since I had a privacy card I got
notified, so I notified the city, and after their investigation they found
that their entire credit card database had been compromised.

So it saved me from fraud _and_ it saved everyone else in the city too!

(I have no affiliation to privacy.com, I've just been using them since their
alpha and I'm a big fan)

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arosier
Wow, I had no idea the terms on these partnerships. Amex spending $4B on Delta
miles in 2019 seems crazy. I wonder what sort of discount Amex (and other
CC's) get on those miles vs retail buyers.

Also, they report total marketing spend of $2.9B in 2019 - seems like they
could still be sitting on quite a few unused miles.

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inopinatus
> It’s essentially free cash for the airline, and it underscores the massive
> profit potential

Point of order, cash is not profit. You can’t (or shouldn’t) book unredeemed
loyalty credits as income; on the contrary, they sit on the balance sheet as a
liability under “unearned revenue” or similar journal.

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m3kw9
Yeah if they allow customers to buy Points now at a discount they can make a
killing. But otherwise at this stage it won’t make a dent

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IAmEveryone
That would seem to get dangerously close to financial speculation and might
invite some SEC scrutiny. A business in crisis selling future credits with a
discount for both risk and time lag is essentially a (junk) bond.

