Comment by neilk
2 years ago
I don’t pay attention to “points” systems at all. I sense that this is the right decision but I’ve never been able to quantify whether this is true.
My logic is that the people who design credit card reward systems are smarter than I am about the topic they spend 8 hours a day on. So, every rewards system they offer is designed to trick me into suboptimal purchase decisions. Even the perception of beating the system is built into the system.
patio11 seems to confirm some of this, but I’d love it if someone who is informed about the design of these programs would say it to me straight. (Experts in “hacking” rewards systems will be disregarded because according to my thesis you are victims of mind control.)
For context I’m one of those never-carry-a-balance credit card users.
Part of the point of rewards cards is to encourage people with more choice (ie you) to use cards from that issuer. If the rewards are bad then you use a competitor card. If the rewards are good you use the issuer’s card and they make money on interchange. The cost of paying out the rewards decreases the amount the issuer makes from interchange, but they still make a profit. So never gaining from the points is probably bad – you’re basically giving that money to the issuer – and you could be better served by cashback instead. The point of using points from an issuers perspective is that they can have companies subsidise the cost of the rewards by treating the available rewards as ad space. They have eg some hotel chain pay the issuer to create some ‘money off these hotels’ reward, potentially also offering a higher-than normal value for the points. The hotel chain is happy because they expect this promotion is made to people who are more likely to spend more at their hotels even after the discount (or just because it brings people to their hotels rather than competitors). The card issuer is happy because they make more money for a given % of interchange paid out in rewards. The consumer is potentially happier with the card because they now get slightly more valuable rewards. The competing hotels now getting less custom are unhappy about it.
I think it’s reasonable to think points systems are, in some sense, trying to trick you, but also silly to ignore them because of this. Coupons are also trying to trick you in a similar way but that similarly doesn’t mean they’re a bad deal.