Many miles and points credit cards offer bonus earning categories but then get in their own way with earning caps – why do they do this?
Earning Category Limits
One of the strongest draws of those in our hobby that use credit cards to earn miles and points are the multipliers for certain categories. These multiplier categories are used to draw in spenders that can focus on certain areas beneficial to the bank’s business yet many of them are capped.
As a business owner with a Chase Ink card that offers 5x points on travel spend for the first $150,000/year, I prioritize spend on this card through the bonus period. But I often charge far more than $150,000 annually in travel spend. Once I cross $150,000 annually (the same multiplier applies to online advertising spend too), it drops to 1 point per dollar. At this point, I have no incentive to use this card above others in my wallet as I once did.
The Chase Ink card is not alone in this limitation. American Express offers 5x points for flights booked directly with an airline but only up to $500,000/year. The American Express Gold card caps its 4x restaurant earnings at $50,000/year. The Chase Freedom and Discover It card limit quarterly categories at 5x points but only up to $1,500/quarter.
This is not meant to be an exhaustive list, but a general concept of where and how banks want high level spending in specific categories but only to a point.
Self-Defeating
This practice is self-defeating. In my travel business, the Chase Ink card has an opportunity to be top of wallet all year round due to the high value of its points and the high earning multiplier, but with a limit of $150,000/year I don’t spend a dollar more than limit in a given year. Chase has an opportunity to win more of my business and chooses not to. If the 5x multiplier is just a loss leader and isn’t profitable for the bank then I am maximizing their pain and walking away. And I do it every year.
The same is true for business owners that host lost of client dinners at expensive restaurants using the Gold card. American Express should want the high spenders but instead ells them to find another product when they spend more than $4,166/month.
It creates an opening for high spenders to look for another option. Finding customers is an expensive aspect of the credit card business. Once they are found, become part of the ecosystem, ingrain themselves in the rewards platform and points, the banks give them a reason to look elsewhere.
If the concern is that these types of clients (those with excessive expenses on bonus categories) are not the target and are not profitable to the bank, then perhaps the limits should be even lower to limit exposure and discourage those who have high spend and don’t carry balances from signing up in the first place.
What becomes problematic for me as a customer is that I am disloyal and unprofitable to several banks. I’m not attached to any particular product or provider though I’d like to be. The same problem is for those who might be impactful on United credit cards that limit premier points earning (thankfully, the Citi Aadvantage products don’t do this.) If I was loyal to United, I wouldn’t want to hold a handful of United cards (and annual fees) just to get the premier points I am earning through spend but with caps.
Conclusion
Banks spend an inordinate amount of money attracting low risk, high-spending customers. Still, they limit their potential performance either because exposure to loss leading categories is unprofitable or because they believe that they will hold onto clients regularly using their card no matter what. Regardless, those who have high spend in particular categories and are informed of the limits and their options will move on to other products, maximizing the loss leading categories and becoming more costly to banks, all while moving the rest of their business elsewhere.
What do you think?
[“one of the strongest draws of those in our hobby” ?]
More like : a “strange infatuation with ridiculous non-rational nonsense” .
Nothing charitable nor helpful to others can be found in “points mania” .
More like selfish demanding reactions when they don’t receive “promised benefits” , such as lounge upgrades , refunds in sufficient values of points , or when officials are not sufficiently obedient to the demands of the “points users” . Maybe the “points users” ought to try to practice humility .
I agree with you. There is no further incentive, though we are not normal people. I would imagine the majority of customers who spend 150K or whatever, just keep spending and don’t think about the rewards. People like us maximize them, but I don’t think that’s what makes Chase any money.
Re: “ If the 5x multiplier is just a loss leader and isn’t profitable for the bank then I am maximizing their pain and walking away.”. Wouldn’t their pain be furthered (maximized even more) if you continue to spend at 5x on the card beyond their arbitrary limit?
Re: “And I do it every year.”. Considering they get your ongoing loyalty “every year“, seems. incongruous with their behavior being self-defeating, Maybe somehow 5X is profitable for them up to the limit.
The way I read it, 5X is a loss leader, meaning it is not profitable (which is why it has limits). Maybe at 1X after 150K they quickly recoup the losses, but if Kyle isn’t spending that extra, they never do.
I always find it funny how confident journalists are they know exactly how to run a business. You rightly identified the categories bonuses as a loss leader, then completely dismissed the premise because some percentage of customers will be unprofitable. Do you think someone at the credit card companies has ever done the math on this genius? The same thing is true for sign up bonuses and yet every credit card company offers them, because enough customers end up being profitable to make it worth it.
@PointsParasite – I don’t know that they are loss leaders, I openly admit that and position it as a possibility then ask the audience. Do you know the answer?