FlyerTalk Forums - View Single Post - The end of the "Free Ride" for credit card holders with good credit?
Old May 19, 09, 11:33 am
Join Date: Feb 2007
Programs: DL Plat, Marriott Gold
Posts: 1,314
Originally Posted by iahphx View Post
Well, we'll see. Obviously, the way many of us have been able to churn credit cards for thousands of dollars of free benefits each year makes no economic sense.
I think the weakness in this argument is the presumption that the rewards have always been "free." The reality is that we typically "pay" for the rewards in two ways: (1) with our (usually very small) annual fees; and (2) by choosing to use our CCs (as opposed to cash or other forms of payment) with merchants, who in turn pay billions of dollars in merchant fees to the issuers. I understand that the former is pretty inconsequential, but the latter is a huge source of very secure revenue for CC issuers.

Like it or not, consumers have huge economic power, and could put CC companies out of business overnight if we decide that they don't offer us a good deal. For those of us who are able to pay our balances off monthly, it would be pretty easy to switch from CCs to cash if they immediately charge interest and/or eliminate rewards. If that were to happen, CC issuers would be left in a position of having to manage the default risk of having only card holders who carry balances.

In essence, they would trading in some very secure revenue (the huge merchant fees) for some less secure revenue (interest payments from card holders who can't afford to pay off thier bills monthly). While the total dollar amount might be larger in the latter scenario, one has to wonder if it is justified by the increased risk.

I think that's called cutting off one's nose to spite one's face....
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