Visconti

I suspect that over the long term, Amex may be concerned about their value propositions on why Merchants should pay more for accepting their cards. Unlike V/MC/Banks, Amex (and Discover, but they don't do this well or figured out how to monetize it) has a closed loop system where they have the information from the entire chain of the transaction from start to finish. Amex's rational for Merchants to pay a higher cost is in return for the higher volume of business associated with a typical Amex cardmember, which has historically on average spent considerably more and on high margin luxury goods when compared to that of V/MC/D cardholders.

If Amex allows unabated for cardmembers to MS & churn, the integrity of their cardmember portfolio, while still may have the financial metrics, will deteriorate in quality. In other words, every business, if they could, would avoid having as customers MS'ers & churners, for obvious reasons. If Amex allows this subgroup to spread to a high enough ratio, it may begin to reduce the integrity, and therefore the value proposition of their cardmember portfolio to luxury Merchants. For instance, if you're a luxury Merchant, you'd pay more for accepting Amex in the hopes of high margin spenders frequenting your establishment, not the MS & churner loss leaders crowd. So, from a consumer gross margin perspective, these gamers (not expressing any personal views on the merits of perks abuse per se), if left unabated, are like a financial cancer which Amex has tolerated in years past, but, I suspect, has become wide spread enough where it now may be worthwhile to find a way to surgically remove it.

And, with modern AI driven algorithms and widely adopted L3 reporting, there's no reason why they can't greatly reduce negative revenue cardmembers, especially since Amex is far and away the most advanced with this sort of thing and have 100% of the information, unlike other issuers.

mia

In addition to the reasons mentioned by Visconti, Manufactured Spending represents credit risk. When you are buying something that must be sold (liquidated) to pay the credit card bill there is always some risk that you will not be able to pay.

jags86

Interchange fees can pay for rewards with money left over and they can also not. If AMEX signs up a Gold Card customer an they run $40k through the card in 4x categories and $0 through 1x categories, they certain lost money on that user even if they paid the $250 fee and didn’t use the credits. Let’s say AMEX has a book value of $0.01/MR, customer earned $1600 in rewards, AMEX collects roughly $1200 in interchange fees, throw in the $250, and AMEX lost $150 on this customer. Now you know why there is a $25k max on grocery spend...if someone maxes that out with gift cards its still an extremely small percentage of people who would spend $15k+ a year at restaurants.

GUWonder

There isn’t always some more risk that an individual will not be able to pay for things bought to do manufacturing spend than for things not bought for manufacturing spend, but there is increased risk in the aggregate when people increase the proportion of available charging/credit power made available to them ... and that is the case whether or not the purchases are made for MS purposes.

Even as card-churning has been cracked down on by banks, the airlines’ devaluations of miles/points has gotten worse and worse. I don’t blame the card churners for the airlines ripping off the airline loyalty program retail customers with devaluation after devaluation.

Adelphos

I feel like people are mixing things up - plenty of people can be “churners” (which I interpret as signing up for a few new cards annually with the intent of earning SUB) without ever doing things like manufactured spend, self referrals, etc

Happy

This!

Before the financial downtown our condo office manager also worked for AMEX collection dept on the night shift - he held the job for the insurance coverage because his day time job with our condo did not provide such. His job was calling on the deadmeats who ran up thousands and thousands of charges buying all sorts of things way above their means and eventually would not even be able to pay the minimum payment.

That is also why the suggestions to keep the utilization ratio below 30%. Plus that cycle one's CL is a major offender to cause shutdown.

One thing I really dont understand is, AMEX has already implemented the Once a Life Time bonus in its harshest form - because it is based on whether you have the product before, not whether you have gotten the bonus before - it is already a gate keeping measure albeit quite unfair. Why it would let the referral links being Free for All without the language?! Whoever at AMEX thought about the referral bonuses and opened the referral floodgate that you can refer any card from one single AMEX card, is not very intelligent, AI or not. Then of course the Big Data a few months later showed AMEX how big a jump of its market acquisition cost from the projection - so the bank scrambled to recoup those costs - by way of claw back, some 8 months after the flood gate opened...
Those who have transferred their points out, now with tens of thousands or hundreds of thousands negative balances in their Membership Reward account, what would AMEX do, to recoup the losses?
It goes down the pipe as the old Pig and Hog cliche.

Since AMEX touted its AI and taunted Chase, it should have done a lot better in preventing churners. Yet, it seems Chase is far more successful just by its simple 5/24, very little targeted offers that could bypass such. Not even their CPC clients could by pass 5/24 shortly after that being exploited 3 years ago after CSR launch..

Anyone remember how Chase brought out the rule that one could not have more than 1 Sapphire card thru new application? Then the 24 months rule suddenly changed to 48 months for the Sapphire family just right before the CSR 24 months "birthday" came up? That effectively stopped any churner hoping to cancel / downgrade the CSR then apply for another one after the then existing 24 months rule...

Just who is behind the curve, and has been doing things the hard way? i.e. Prevention is always better than remedy.

True, Chase has poached the AMEX talents to beef up its credit card business. It does look like Chase got the brightest minds in AMEX camp and those who remained at AMEX were the not so bright ones - those who dont see the consequences and could only come up with remedies long after the damages were inflicted

openwheelracing

It feels like Chase is now in the best position, they are overdue for a refresh, and Amex has shown it's cards.

GUWonder

Some may say that Amex has been sending signals to Chase in anticipation of the two of them working together toward creating a more peaceful and profitable duopoly/oligopoly (for these big financial intermediaries) in the bank credit/charge card space. In other words, Amex is counting on Chase to cut its benefit costs related to card holders, to increase card fees and continue firing customers whose approaches to credit/charge cards is taken as being risky and otherwise way more costly/risky than the average customer of the same products.

Birds of the same feather and what not.

soy

Is there any way to figure out which merchants are sending L3 to Amex.
Particularly interested in the grocery chains.

On a separate note, why do they allow GCM/GCC in the first place. If they don't like it, why not do a Simon style ban?

Gasolin

What's a Simon style ban? And also, I don't think gift cards per se are necessarily wrong, they exist for a reason.
But abusing them might be a different issue in my opinion.

Gasolin

This assumes that Chase wants to do some kind of refresh. They may not react at all and try to recoup costs.

soy

No amex cards earn rewards at Simon since earlier this year.

Visconti

Right, not a violation to buy V/MC/Amex GCs, but per the T&C, you just won't earn rewards on "cash equivalent" purchases. Of course, there's the AML factor where Amex would prefer not to deal with beyond a certain threshold.

akr1970akr

They could try, but getting all the other banks to play nice, and leave them alone to pluck the super prime customers is unrealistic. Look at how quickly Goldman got into the card business by partnering with Apple.

There are certainly barriers to entry, but maybe only 100mm worth.

That would be chump change for a Japanese bank looking at another decade of zero/negative interest rates in its domestic loan portfolio. Maybe they would take a flyer on the US market with something bigger than Marukai.....

GUWonder

That a market has barriers to entry which are potentially surmountable with financing availability due to zero/negative real (or even nominal) interest rates doesn't necessarily translate into an easy and quick ability for new participants to enter the market and generate sufficient profits on a sufficiently large and diverse enough revenue base to make it worthwhile. Recall that Chase didn't find it cheap to make the Chase Sapphire Reserve become what it became and that various of the smaller/newer niche players for high-premium cards haven't really gotten out of being tiny niche players.

Even with zero/negative real interest rates in its home market, a Softbank can only lose so much money for so long on some investments before it stops throwing more good money after bad money on the same investment in anticipation of some big whopper of a return from a liquidity event way down the road.

Two or three big players taking up each others signals and responding in "friendly" ways works to strengthen their position against consumers even in a market where there may 4, 5, 6, 7 or more "competitors". Just look at the airline loyalty program marketplace for US consumers as a sign of it taking just 2 or 3 of the group to "make peace" for consumers in the aggregate to pay the price for the cartel-like behavior of the industry kingpins.