Who benefits from MS? Who loses?

Old Nov 3, 2013, 11:33 pm
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Who benefits from MS? Who loses?

Here are the parties involved, along with an example of each:

Credit card issuer - e.g., Chase
Retailer - e.g., Safeway
Gift card issuer - e.g., Metabank
Gift card distributor - e.g., Blackhawk
Gift card network - e.g., Visa
Money order retailer - e.g., MoneyGram

My feeling is the following:

Credit card issuer benefits, because they get their commission regardless of what you buy. They have no idea you are buying gift cards, and they don't care. As long as you aren't using a 5% category, they likely come out ahead.

Retailer probably gets screwed. Paying the credit card processing fee for a rewards card on the entire $500 is a lot, and I can't imagine gift cards being high-margin items to begin with.

Gift card issuer is neutral. They get a part of the $5.95 purchase fee, however they do not get the normal interchange fee that they would expect from people who use the gift card for the intended purpose.

Gift card distributor benefits. They get paid by the merchant who sold the gift card regardless of how it is used.

Gift card network loses out. They do not get the interchange revenue they would have received otherwise, because PIN transactions produce less revenue.

Money order retailer is neutral. They collect the money order fee, but if you use multiple gift cards for one money order, they only collect one fee but they have to pay the swipe fee (which is usually a flat amount for PIN transactions) multiple times.


This is my best guess, based on what I know. I just started thinking about this and decided to put it down in writing. Any corrections or opinions are welcome.
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Old Nov 4, 2013, 12:19 am
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Who benefits from MS? Who loses?

Retailers are not dumb. These are not charged as a regular sale would be.

That would never make any sense to CVS which has a stated credit card policy. They have to be charged either less or the supplier has to pay some sort of reimbursement fee. Maybe they charge for that GC display too. And they also benefit from floor traffic.

No way in hell they are absorbing a ~2.5% fee

Last edited by lacuadra; Nov 4, 2013 at 12:26 am
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Old Nov 4, 2013, 4:11 am
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Originally Posted by lacuadra
Retailers are not dumb. These are not charged as a regular sale would be.

That would never make any sense to CVS which has a stated credit card policy. They have to be charged either less or the supplier has to pay some sort of reimbursement fee. Maybe they charge for that GC display too. And they also benefit from floor traffic.

No way in hell they are absorbing a ~2.5% fee
Agreed. If retailers were actually paying face value for the cards and then absorbing the swipe fee you wouldn't see giant gift card racks in every discounter, drugstore, department store, pharmacy, and gas station.
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Old Nov 4, 2013, 4:25 am
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No one "wins" or "loses." Over time, the market adjusts: Issuers, retailers, et. al. allow/tolerate as much MS as they deem to be in their best interests.
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Old Nov 4, 2013, 5:06 am
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.....

Last edited by gloreglabert; Dec 6, 2022 at 1:45 pm
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Old Nov 4, 2013, 7:38 am
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the problem with this discussion is there are too many unknowns. Maybe no one is losing. Maybe chase/amex/etc paid all of $1 for the miles that we are paying $3.95 for, so maybe theres a $2.95 profit that is distributed amongst all entities. Maybe it all evens out for everyone.... Without knowing how much credit card companies actually pay for the miles that they give us, theres no way to determine who is losing, or if anyone is losing. Maybe the airlines are the ones that are losing since they sell at a bulk discount to the credit card companies and we in return redeem those points at a much higher value than they sell at, but in the end you have to remember that we are not the only ones with miles earning cards and milers are only a small percentage of the people who use credit cards, so what they lose off us they may gain off of other people.
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Old Nov 4, 2013, 7:48 am
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It is possible for the game to be neutral.
For example, an airline is only able to fill 50 out of 52 seats on the plane, while person X with his wife will never travel except for MS.
So, airline is not losing, since they don't care either seat is empty or filled with an MS person. CC is not losing, since airline is giving it a good deal on miles to account for the case above. And so on.
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Old Nov 4, 2013, 8:31 am
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Originally Posted by LoveMountains
It is possible for the game to be neutral.
For example, an airline is only able to fill 50 out of 52 seats on the plane, while person X with his wife will never travel except for MS.
So, airline is not losing, since they don't care either seat is empty or filled with an MS person. CC is not losing, since airline is giving it a good deal on miles to account for the case above. And so on.
What about thank you points? They're worth 1 cent for sure, and cost at least very close to 1 cent, because there's no way WalMart or BestBuy would give away their gift cards at a heavy discount, or airlines won't sell seats at 25% discount through the TYP travel portal.

They all make money in aggregate, on the unenlightened masses, but we definitely cost them a lot, which would at least partially explain the rash of devaluations in the past 2 years. It coincided with the explosion of travel award blogging and booking services.
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Old Nov 4, 2013, 8:49 am
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Originally Posted by atxtravel
What about thank you points? They're worth 1 cent for sure, and cost at least very close to 1 cent, because there's no way WalMart or BestBuy would give away their gift cards at a heavy discount, or airlines won't sell seats at 25% discount through the TYP travel portal.
OP says "except 5% categories". Yes, on 5x TYP, CITI is losing money. That is why they've shutdown half of the people on this forum back in May.
But on the rest of TYP cards, CITI is simply making money or getting even because they are collecting 1.5%-3% in merchant fees.
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Old Nov 4, 2013, 9:19 am
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Originally Posted by LoveMountains
OP says "except 5% categories". Yes, on 5x TYP, CITI is losing money. That is why they've shutdown half of the people on this forum back in May.
But on the rest of TYP cards, CITI is simply making money or getting even because they are collecting 1.5%-3% in merchant fees.
Why would you do MS if you're not getting a bonus? It only makes senses to meet minimum spend requirements, but then no one really loses, except the issuing bank losing on the bonus payout.
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Old Nov 4, 2013, 9:29 am
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My take is that the ultimate loser is not any of the participants in the actual MS transaction - it is the casual collector of airline/hotel miles that sees those miles and points devalued as a result of the inflation driven in part by MS, credit card bonuses and churning, etc.

As discussed above, there is no real loser in any of the individual transactions. In a fraud-free world, each of those transactions is entered into willingly by both parties because there is a profit involved for both parties. Be they the CC issuer, the retailer, the GC network, WMT, etc - they all benefit.

But at the end of the day, the airlines and hotels who are the ones giving away value in exchange for miles/points know they have to devalue those miles and points because they are being generated in such enormous quantities and so they do. The MS crowd cries a bit, then goes ahead and continues to generate away, perhaps even more than before. The man on the street who earns miles and points the hard way (BIS, etc) is the one who is screwed.
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Old Nov 4, 2013, 11:11 am
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Originally Posted by zs58
The man on the street who earns miles and points the hard way (BIS, etc) is the one who is screwed.
+1

Thanks OP for this interesting discussion.
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Old Nov 4, 2013, 12:33 pm
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Originally Posted by atxtravel
They all make money in aggregate, on the unenlightened masses, but we definitely cost them a lot, which would at least partially explain the rash of devaluations in the past 2 years. It coincided with the explosion of travel award blogging and booking services.
This is where it goes...
The more easily consumable info is available, the more people involved in MS the worst devaluations happen.
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Old Nov 4, 2013, 12:40 pm
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What about the people who try to MS and then mess up once or twice by not paying the statement in full? I've never done it, but I think about taking a $30~60 hit if I just messed up once...

Also, what about the few times someone has lost or had stolen a VR card and was unable to recover it? There's a net gain, right? How many times have you walked out of a CVS with $500~$5,000 'cash' in your pocket?

Also, one time I converted a $600 Amazon payment to a Amazon gift card, so there's $600 bucks for Amazon right there. Granted I can use that balance forever, but still...

I think it all equals out. If it didn't, this would have been ended a long time ago.
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Old Nov 4, 2013, 2:35 pm
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I think a fair few of us don't bother with MS unless we are using a 5% category. For cards where the reward is cash equivalent rather than a pseudo-currency like miles, someone is taking a loss on our purchases somewhere in the chain.

We are paying 3-6 dollars per 500 dollars of MS and a month or so later getting 25 dollars as a reward. That 20ish dollars has to be coming from someones bottom line.
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