Originally Posted by
techcrium
When a credit card offers something like 5% reward points or cashback on gas and groceries
1. Are they trying to tell their customers to stop going to restaurants and buy groceries instead?
No, not really. People's purchasing behavior have shifted due to the pandemic and people are starting home and buying groceries. As a way to stay relevant, credit card companies starting shifting their rewards to categories such as groceries. Additionally, a lot of customers starting to review their credit card fees, and needed to way to justify keeping them. For example, with fee-based travel cards, if users didn't receive rewards in non-travel categories, they would be more open to cancelling the card given the lack of travel happening the past 10 months.
Originally Posted by
techcrium
2. Are they telling their customers to spend more on groceries?
See above
Originally Posted by
techcrium
3. Do they have better transaction deals with supermarkets then every other type of business?
Rates varies by industries and are set when they initially sign up a merchant. Generally, card companies earn more from grocery transactions (high discount rate) than other high transaction size type of merchants (buying $10,000 metal supplies for example).
Originally Posted by
techcrium
Also instead of giving 5% gas and groceries and 1% everything else, why not just give 2% across the board everything?
I am just curious what they have to gain for me carrying 5 credit cards in my pocket to maximize each category of cashback.
This is a good question. There are card companies that offer 2% cards, and targeted for customers like you who prefer simplicity. For others, who want to collect points, the answer is a bit more complicated. They try to balance customer needs, with marketability, profitability and execution risk.
a) customer needs: they know customers are buying groceries (they look at purchasing data), and they need to stay relevant.
b) marketability: it's much more sexy when you say you earn 5% on groceries than the boring 2% on everything. Customers who care about points want to win and maximize. 2% is the baseline nowadays - they want more. The 5%, however, will get attention and get people to spend and take share from the competition. And the more you use the card, the higher likelihood you will use the card on other purchases too, driving higher overall share of wallet.
c) profitability: groceries generally get a better discount rate than others, so that's good for card companies. In addition, it's easy for them to put caps on purchases, minimizing their downside risk (for example - up to $1,500)
d) execution risk: this is low risk since they already have the technology to add value. It's much easier and faster time to market than to sign up a new partner. You'll see the same thing with benefit credits for certain purchases. They do this all the time, and it's easy.