Comment by idopmstuff
2 years ago
My suspicion is that this is a bad bet by RH on user acquisition. Specifically, they've modeled the cost of this acquiring a customer this way against their ARPU and determined they're going to make money overall. What they're ignoring, however, is that they're going to get people self-selecting into this offer who don't match the profile of their existing users.
If right now they've got retail traders who like to trade a lot (and thus give them meaningful revenue) and they can acquire more of those with the economics of this offer, it's almost certainly a winner for them. If they instead end up acquiring frugal, credit card churning type folks who aren't going to trade on RH at all, it's going to be a loser. I bet on the latter.
There are plenty of >3% rewards (in limited categories) credit cards out there. Some are even paying 4% or 5% (usually with a cap, and sometimes with a yearly fee).
I can only assume that there will always be a certain fraction of users that are a net loss to the issuer, i.e. those that pay their credit card bills in full on the due date and maybe even only spend in the categories where the issuer makes a net loss per purchase.
Given that these cards and their issuers are still around, it must be working out for them on average.
True, but a lot of those are premium cards with high fees, ones with implementations that really minimize usage (like the rotating monthly opt-in categories that have limits on how much you can earn), or ones where the user generally has a broader relationship with the issuing bank that makes them net profitable even if the card is a loser.
RH seems to be going for the third option, but I just don't think they're going to be able to make it work in the same way someone like Chase can.