Reader Question: Will Banks Tighten

Last week, I wrote about my on again/off again relationship with my Chase Sapphire Preferred. At one point I mention why I have been so aggressive in opening cards recently. In the last couple of years, we have seen banks tighten up and I think we will continue to see a tightening of banks. This lead to a reader question, which I thought would be better explained in a post.

Reader Question: Will Banks Tighten

The question by Loose was:

“Why do you think things will get tighter? AMEX just upped Plat bennies, had the highest-ever SPG Business card bonus, and Chase is currently offering the highest-ever United bonus. On top of that, the recent article indicating that airlines make big profits on selling miles makes me think this is a lucrative business. This is before we even consider the likely significant numbers of people who sign up for cards like these but carry balances and incur other fees.”

I think there are a few things to answer in Loose’s question. So, break each piece down in parts.

American Express Platinum Benefits

I think the overall feeling of what American Express did to their Platinum card was bad. If you are a heavy Uber user, this could be a positive. There are quite a few rule and restrictions that make this an issue. Your credit isn’t available all at once; you basically receive a $15 credit each month. If you don’t use it, you lose it.

If you want to use this credit outside of the US, well that’s too bad. It is only to be used in the US. If you don’t use Uber well you’re out of luck, because you still have a fee raised by $100 per year.

If you have a family, well American Express just basically told you to pick your favorite 2 people and leave the others out. Well that is unless you want to pay $50 per person!

All of these “enhancements” covered up with a shiny new metal card. Which if you’re keeping a card for looks, we need to talk.

These enhancements don’t benefit the majority and I think it will show when annual fees come due. Doctor of Credit posted about how desperate American Express is to keep people that they are offering quite large retention offers.

Also keep in mind that American Express bonuses are “Once per lifetime.” That is pretty restrictive. Had the card 15 years ago, then you are probably not lucky enough to get the bonus.

There is the exception of finding targeted offers with no language mentioning once per lifetime.

SPG Highest Ever Bonus:

Now, this bonus was available to you if you didn’t take advantage of last years “highest offer ever,” of 30,000 points. Well ,if you had the bonus you weren’t going to get this again anyways due to American Express restrictions.

My hunch on this, again hunch, is that American Express is EXTREMELY worried about the merger of SPG and Marriott. American Express has lost quite  a few partners over the last couple of years. If they lose SPG, that would be huge. As much as I don’t like the SPG program, I realize it is very popular and profitable.

I think American Express is hoping for a dual relationship, like the kind American Airlines has with Citi and Barclay. Although, I see Chase squashing that, but I could be wrong. If they were they are wanting to acquire as many customers as possible before the merger takes place.

If I was a betting man, I would think we will see one last push if this is the case, with a bonus of 35,000 points or greater.

Chase and Their Cards

Chase has this nasty rule called the “5/24.” If you have opened 5 or more cards in the last 24 months, you are given a denial. There is the case of swaying a representative, but it seems to be very hard to do.

They even send out emails and flyers “targeting” you for higher offers then denying you. One of those offers has been my only denial in over 3 years of opening cards.

The highest ever United bonus is great, but you need to be under the 5/24, be targeted, and not of had the card within the last 24 months.

We all have heard about the Chase Sapphire Reserve, it has been probably the most talked about card for a while now. Chase told everyone they “lost” $200 million dollar in profit and had crazy amount of people sign up with very little advertising. I have a hard time thinking many people are going to pay that 2nd annual fee. Some will, but not most.

To recoup that “lost” money, I am sure we will see benefits change to the Reserve and/or more restrictions on people being approved for their cards.

Selling of Miles:

I think this is one of the most ridiculous ways to “earn” points/miles. Airlines/Hotels are overcharging you for their award currency. Unless you have run the numbers and purchasing the miles saves you actual money, this is many times costing you more money!

Not to mention a credit card can earn you these with little to no effort.

But these loyalty programs are a business and they are going to sell you a dream. That why I feel you need to be loyal to yourself, not a company. You’ll end up getting burned if you are too loyal, because at the end of the day these programs care more about the money you pay vs you. I mean look at airline programs, you can no longer earn your status for the amount you fly. You need to spend a certain amount in addition to flying to earn those top tier statuses.

I’m sure you see many blogs pushing the bonuses you receive when you purchase miles (100% bonus for purchasing X miles), that could be since some receive a kick back on the money made. I am not against people pushing credit card links or telling you about promotions. I would just like them to be more transparent about it. Anytime I put a link of my own personal referral link you can bet it is the best offer available, because I refuse to put my own personal link if there is a better offer available.

I think there are people who read about points and miles, but don’t completely understand it. They see something someone else did and decide to purchase those miles for first/business class tickets. They buy these miles and use them for a redemption they could have paid for, probably for less.

Interest and Fees:

The unfortunate truth of this game…

We earn these rewards due to the interest and fees someone else pays. They either open a card to earn 50,000 Ultimate Reward points and hold a balance. They don’t realize the interest rates are close to 20%.

The banks love these people. They keep a balance and pay fees that make the bank money.

If you are going to play this game, PLEASE PLEASE do not hold a balance. The interest rates on these far outweigh the cost of the rewards.

The hope from banks is that you see these “Limited time only, highest ever” offer and start charging it. Fall into a situation where you can’t pay your bill in fill.

The ones that do, are unprofitable for banks. This leads to the initial question, why do I think banks will tighten.

Why will banks tighten more by the end of this year?

If you haven’t noticed this game has been receive more attention from mainstream media. Did you not see the article from the WSJ? The banks read that and see what we are doing. They aren’t oblivious to these articles.

Everyone wants the rewards of these cards. Who can blame them? I use these banks to travel the world for pennies on the dollar. All thanks to American Express, Chase, Citi, Bank of American, and many others.

Banks aren’t wanting to prevent people from applying. They want to prevent people like “us,” the people who game them from applying. They want profitable customers and churners are not profitable.

I’m confident will continue to see some high bonuses, but the people who will be able to apply for them will shrink. Soon there could be a combination of restrictions. Can you imagine if Citi’s restrictions were added at Chase, in addition to the 5/24 rule? Good luck getting that companion pass ever again!

Banks are catching onto these things and putting more restrictions in place. Remember when certain people told you about applying for 5 cards ( I think) from Bank of America in one day. Then they put in new policies to stop that? They want that type of behavior to stop.

Limiting bonuses will continue to happen, and eventually we will be left with the cards we already have.

Now what if…

What if a bank made an unprecedented move and pulled all their bonuses from their credit cards. They would definitely lose some business, but it only takes one bank to attempt it and for others to join in. If that happens then we could see a whole different game (I think this is scenario is unlikely to happen). They could start rewarding more based on your relationship with them; accounts, years of membership, or annual spend on their cards, instead of a big bonus to grab your attention.

Conclusion

I think banks are catching on to people opening cards for the bonus, then closing or placing them in sock drawer. We will continue to see high bonuses, but the people eligible for those bonuses will continue to shrink. As banks look for ways to gain and keep profitable customers, I think this trend will continue through 2017.

That is what I mean by banks tightening up, not the lack of bonuses available.

If there was a million point bonus, but you have had to not open a card with any bank for 5 years. It is still a million point bonus, but many of us wouldn’t qualify. So to many of us, it wouldn’t matter.

Do you thinks banks will tighten up this year? Do you disagree with me?

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