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The optimal amount of fraud is non-zero. That’s the title of a Bits about Money essay by Patrick McKenzie (hat tip to View from the Wing for pointing it out). The essay’s premise is this: efforts to turn away fraudulent customers make things tougher for regular customers to complete their purchases. The more anti-fraud measures a business puts in place, the more honest customers they’re likely to lose. For almost any business, there is a point at which accepting some fraud is cheaper than eradicating it. That argument makes sense to me. Plus, I think that the same argument applies to credit card issuers and loyalty programs who have tried to eradicate rewards “gaming.” They’re often losing more than they’re gaining from those efforts.
What is “gaming”?
To me, the points and miles hobby is a game. You win by accumulating points & miles as cheaply as possible, and by redeeming points towards fantastic value (see: The Games We Play). In that context, “game” has a positive connotation. To credit card issuers, though, “gaming” is negative. To them, “gaming” is doing pretty much anything that’s legal, but that they don’t like. This includes things like signing up for credit cards over and over just for the welcome bonuses; cancelling cards as soon as the welcome bonuses are earned; using credit cards to buy money-like things (Visa or Mastercard gift cards, for example); etc.
Similarly, rewards programs don’t like when we take things too far. Many programs have taken away some of the “games” we used to play, such as: earning high level airline elite status entirely through dirt-cheap flights; booking free one-way trips as add-ons to round-trip awards by making creative use of free stop-overs; etc.
Losing customers
As a blogger who writes about this stuff, it’s pretty common to hear from frustrated people who never did anything like the “gaming” described above and yet were turned down for a new credit card, or lost their points, or were unable to redeem rewards. Not surprisingly, these individuals vowed to take their business elsewhere. And they should.
I get the need to stop excessive gaming. If a card issuer allows people to get welcome bonuses for the same cards over and over without end, that issuer will lose a lot of money. Bonus limits make sense as long as they don’t force away good customers.
Several years ago Amex implemented their “lifetime” rule. The idea is that if you’ve ever had a card before, you won’t get a welcome bonus if you sign up again [The reality is much more nuanced: Amex “forgets” you’ve had a card approximately 7 years after you cancel; plus Amex often sends out offers without lifetime exclusions; etc.]. I don’t have any problem with this rule. In general it’s reasonable to expect that customers should only earn a welcome bonus once for any given card. But Amex took it too far. When they change the name of a credit card or significantly change its features they should relax the rule. It shouldn’t be up to the customer to know, for example, that the Bonvoy Brilliant card used to be called SPG Lux. It’s reasonable for a customer who previously had the SPG Lux card to expect to be able to sign up for the Bonvoy Brilliant. And they can, but they won’t earn a welcome bonus. That’s silly.
Limiting gaming
A better approach to dealing with gaming is to allow it but limit it. For example, no card issuers like it when “gamers” earn category bonuses when buying gift cards. At times Amex has made efforts to try to stop people from doing so (by clawing back points, for example), and US Bank has shut down accounts when people used the Altitude Reserve to buy gift cards via Apple Pay or Samsung Pay (to earn 3x rewards). Chase, on the other hand, seems to be fine with looking the other way. Their cards often have strict category bonus limits and so there’s a limit to how much a single “gaming” customer will cost them. For example, one of my favorite cards, the Chase Ink Cash, earns 5x at office supply stores on up to $25,000 spend per year. Chase loses money on each of these transactions, but they don’t seem to mind people buying gift cards at Staples or Office Depot. Most of their customers probably don’t max out their $25K on gift cards. And while there are definitely customers that are a net negative for Chase, sites like Frequent Miler would stop talking so much about the card if the gift card angle wasn’t an option. The positive press probably does much more good for Chase’s bottom line than the gamers cost them.
Inviting gaming for the win
An interesting option that’s sadly very rare is to actively invite gaming. By doing it right, it’s possible to earn more revenue and to keep customers more engaged. American Airline’s new elite program is a great example…
This year, American Airlines completely revamped their elite program. Now, almost all transactions that earn AA miles also earn Loyalty Points. It’s now possible and feasible to earn top tier AA status by taking advantage of opportunities to earn AA miles without ever stepping on a plane. I think that this was a brilliant move by American Airlines. The new program encourages people like us to choose the AA shopping portal over competitors, to choose to earn AA miles when buying flowers, to put spend on AA credit cards, etc. For real examples see: AA’s Loyalty Point Pursuit game – Earn status w/out flying. AA earns money from each of those situations. In order for a florist to give you AA miles with your purchase, they have to buy those miles from AA. And here’s the kicker: it doesn’t cost AA anything extra to provide Loyalty Points along with redeemable miles. When gamers earn elite status this way, guess how much it costs AA to provide in-flight benefits to those who rarely fly AA? Yep, practically nothing. And it gets better for American Airlines… At some point these gamers with newly earned elite status are going to fly. And if all else is equal, they’re going to book their flights on AA instead of Delta or United because they’ll want to benefit from their elite status. They’ll get free checked bags, free priority seating, a chance of a free upgrade to first class, etc. Gamers win. AA wins. Why aren’t more companies welcoming gamers?
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Greg, this isn’t strictly related to your post, but are you aware that U.S. Sens. Roger Marshall (R-KS) and Dick Durbin (D-IL) have introduce the Credit Card Competition Act of 2022? They are arguing that Visa and Mastercard control most of the credit card market and setting fees for merchants. The bill is suppose to make credit card fees more transparent and increase competition by allowing other card companies to compete with Visa and MC. However, a lot of the commentary I’ve seen online about the legislation suggests that this would just result in ending credit card rewards programs as a way to deal with “increased competition.” This might be a good topic to blog about.
Don’t worry they both will be paid off by Award points and the bill will Die..Worry about paying ur n-gas Bill this winter mine was up just 150%..V bernie
Let’s see Greg never had to post since he post this $$$. America the land of $$$ and V Bernie..
I made no sense of that. And that last part? Straight giberish.
I can’t get a single person I know into churning. If I had to guess it’s probably less than 5% of the population, if that. Then you got the . 001% who MS 100k+/mo ruining it for everyone else.
The different companies have different profit strategies, but they all want to lock you into their system. Chase is the easiest to use so most people say that’s good enough. Amex is fancy, lounges, metal cards, high annual and interchange fees, no poors allowed. Capital one is the one card to rule them all. Citi exists? Pretty sure they’re only around because no one will let them go bankrupt. Bilt is for gen Z. They’ll all put up with the 5% as long as they don’t bleed them out, cost of doing business.
There seems to be a tradeoff for AA. On the one hand, they are potentially devaluing elite status if there are a number of us receiving benefits that we wouldn’t have had (and these might impact frequent travelers). So there could be a loss of business travelers to other airlines. But, AA might make up for it with their earnings on the portals plus all of us flying AA more than we otherwise would have.
It depends. I tend to already get most of the benefits of elite status, no matter what I fly, because I use miles to fly almost exclusively international J or F. So I have the better check in lines, the earlier baggage drops at my destination, the lounge access and the early boarding.
But I still use my two AA cards for the ability to fly other airlines more cheaply.
I think the poster child for “win through inviting gaming” is World of Hyatt. On the WoH Facebook groups it seems like there are multiple posts each day in the form “I don’t stay at Hyatts very much, if at all, but I want to earn Globalist. What’s the quickest way for me to do that?”
(Well, except that it’s usually written “Hyatt’s” instead of “Hyatts”).
I mean, seriously? Except, you know, I did the same thing, spending hundreds of dollars last year to get a status that is nice enough, I guess, but not travel-changing for me.
Travel is not free under any circumstances. As members of the club, we couldn’t care less who is paying for it, as long as it’s not us.
Many hospitality companies and airlines now make most of their profits from so called “loyalty programs”. Which is to say, we are no longer their customers, we are their product. By this I mean they have a mutually parasitic relationship with the banks. The hotel chains and airline companies deliver us to the banks so the banks can feed off of our financial blood. In turn, the banks buy billions of dollars worth of points and miles from these companies. For every “gamer” in the system, you can correctly surmise that there are a huge number “hosts”. In biological and banking terms, a host is not seating you at the Ritz Carlton restaurant. Rather, a host is the body upon which a parasite feeds. If you live in the USA, you live in debt. You may have no personal debt, but debt is all around you 24 hours a day. Public debt, private debt, corporate debt. This country, as we know it, would cease to exist without debt. Your standard of living here is completely dependent upon debt and the creation of more debt every year. Is this a sustainable model of society? Of course not. The day of reckoning will come, but in the meantime, who is willing to give up on their American dream? In summary, the question is not whether you exercising flexible morals or ethical elasticity while you’re drinking champagne in a first class seat on your way to a luxury resort in the Maldives. The real and only question in American life is “Do I want to be a gamer or a host?” As for me, I’m grabbing the swag.
AA isn’t exactly the program to laud over welcoming gamers!
I don’t know about that !! I never spent ANY money on AA cards BUT still have 209K left over..Just canceled my ATH trip my POINTS I got back in an hour ..
INKer forever!!
V Bernie
No level of gaming is ever “good” for banks, there is just some point where it’s negative ROI to try to fight it further. However, my beef is not anti gaming, it’s in the banks response. Citi was right to finally shut down the grAAvy train, but allowing their partner to shut down accounts and confiscate points as cover for their horrible controls and lack of oversight? Ridiculous. Amex is getting very petty and arbitrary with their anti gaming, which should turn off normal customers, but more annoying is their incessant structuring of advertised benefits to ensure maximum breakage. This should turn off normal customers much more than any anti gaming measures. When you need to offer massive retention offers just to keep customers, it’s obvious your products value prop is terrible.
I’m pretty sure that Citi has no ability to dictate, or even suggest, what AA does with their loyalty accounts.
Of course they do. They’re the ones paying the money.
U could be Confused ” They Have the Money ” not AA Citi could buy ANY airline…Howard Hughes figured that out when he upgraded to Jets in the 50’s.. V Bernie
I don’t know if I would apply arguments concerning fraud to credit card “gaming”, due to there being a big difference between the two, as well as the somewhat common misperception that credit card “churning” is somehow fraudulent. Not sure we wanna feed that fire.
For whatever it’s worth, personally I liken credit card gaming or churning to people that have figured out mathematical loopholes to succeeding at the lottery or at casinos/gambling à la “Jerry and Marge go Large”. It’s not fraud, but the house may not like it because we’ve succeeded in tilting the odds in the players’ favor. 🙂
And casinos DO keep track of those people who have figured it out (with facial recognition) and they BAN those people from their properties. Separately, if a table is hot, a casino will close it. Same with slots. Using artificial intelligence, casinos have attributed thermal camera patterns as indicators of a table that has become or is about to become hot and they will close that table. Trust me on this.
Nothing illegal. No fraud. Simply move, counter move.
HaHa I think u Called it Right Banks ” We don’t want to play ur GAME ” !!
It’s All a Game Greg got it right from start !! Move on to another Card and go on..
Air Canada abd Capital One.
Huh? Care to elaborate?
Sure… the other two entities who’ve figured out what Greg is saying are Air Canada and Capital One, both of which have correctly figured the risk problem: They’ve made themselves, intentionally, gamifiable (I made that word up). There must be others — I can think of one but I won’t say what it is, man’s gotta have his secrets… But. Aeroplane seems to have said, f*** it, game us! And Capital One, too… what a sweet card. As a master gamer, I tip my hat to them. They beat me! Now they give me money.
I now use that Venture card almost exclusively (when I’m not playing another game… but mostly I only play games that other people don’t realize are games… they’re more fun).
Have you ever had a problem with Capital One (since the Venture X came out at least) with them clawing back points or getting upset with other “cash like” activity?
Nope, never… Have you? Their flight reimbursement terms suck. Don’t do that! (I did and got burned a bit.) But, I think they have a very high tolerance for… “cash-like” purchases. I tend though to keep that on the down low because, honestly, it’s such an awesome card.
Thanks for clarifying. I’ve had Cap One cards off and on for years, but they rejected my app for the Venture card, so at this point I’m on the outside looking in. My son, who has not a pot to pi$$ in, got the Venture card. Go figure.
Cap One is like a lover… You try to understand what’s going on, but, hey, love. Once you get in there, though, it’s an amazing ecosystem. I just got another note from Cap One telling me there’s sending me MORE MONEY. Amazing. The Venture Plus (all Venture cards) are pretty amazing….
I do find it funny that people like Dave Ramsey say “you won’t win at their game” while I and many others have profited thousands of dollars off of Amex alone this year. I’m going to keep playing the game, thank you very much. Dave insists that they have all this info on us and when we call the bank, they route us to a phone rep who lives miles away from us so we will “like them more.” Yeah right. Every time I call the bank, I talk to some poor soul in a 3rd world country who Amex is probably flipping 10 cents an hour to. The banks are clueless. Didn’t we learn this from Bonvoy branding? Wow, what a flop that was…
Remember he went BROKE so who would listen to a FOOL but rich now as in PR..
Have you heard Dave’s average caller? I think Dave has the right message for 95% of his audience. No room for misinterpreting.
Agreed, but he uses blanket statements that are pretty dismissive of us. I have family/friends who think I am in massive debt and financial distress because of Dave.
So basically, Dave’s narrow minded outlook makes it tough for you to deal with narrow minded people?
If someone can’t listen to Dave and think for themselves than it’s probably best for them to continue to listen to Dave.
We all have to deal with narrow minded family. Dave’s dart throwing doesn’t make it any easier.
U PAY BIG $$$ to get his Stuff and yes I understand money ??
Agreed. Never listened to him but there are plenty of people — a majority, I would wager — not cut out of this game and it’s no knock on anyone who provides advice to them.
Greg
Not giving a CC to someone is up to the CC company u have No Rights to their Money.Now once u Do everything they want it’s unmoral to take the points back. Been a landlord 35 years u Follow what they do over time not the last 7 years. What their looking to DO is get more profits after the person did everything to get the card and points.
AMEX does it right no u can’t get the points IF u apply for the card but we will give u the card..
Don’t worry they have all the numbers too and I’m sure ur photo is on their Dart Board at 5pm on Friday while having their drinks ..
V Berine