I'm wondering if someone who reads this board also has real insight, probably from working for a loyalty program or credit card company, of the economics behind these loyalty programs.

I did read that 39% of credit card holders carry a balance, and I'm sure that cardholders who both carry a balance and don't default are hugely profitable.

Obviously there is also revenue in the transaction fees.

I'm not sure what the real costs of points programs are. On the DL board there was some indication that Amex pays DL something like 0.5 cents per mile, and that DL values outstanding miles on its balance sheet at 0.57 cents. Obviously there's an assumption that some of the miles will not be redeemed, and when they are redeemed, I'm sure they don't expense the full retail price of a ticket.

On the other hand, some deals must be big losers, most specifically, bonus points with first year fee waived. When Chase gives 50K (or "only" 40K as they are now) on a card that allows points to be redeemed for at least a penny each, and someone gets the card, charges $300, pays no fee, they must lose big time. Now I got a SP card, expecting to cancel after a year, but now I will probably keep it, so they will get my business (although I use it almost exclusively for restaurants at 2X points) and $95 a year.

There is probably software they could apply to predict the profitability of accounts and use it in the approval process. Maybe they do.

Anyway, I'm wondering if anyone has the inside scoop on this stuff.