Are unprofitable customers "creditworthy"?
#1
Original Poster
Join Date: Sep 2005
Location: JZRO
Posts: 9,169
Are unprofitable customers "creditworthy"?
If I ran a "co" in one of Chase's co-branded cards, I'd tell Chase to issue my card to every credit-worthy customer who applies for it. Or, I'd find a bank who will.
#6
Join Date: Jul 2013
Posts: 1,784
I know Chase and Barclays are trying not to let churners like me get new cards. But there's a downside to this as well. I used to make sure to put regular monthly spend on my Chase/Barclays cards, hoping to have this help get me approved for new cards in the future. Now that it's clear that won't happen any more, I only spend where the ROI on that spend is worth it to me. So DW and I put a cumulative $6K each month on our HHilton cards, as that gets us 6X points on GCs at grocery stores. And $6K yearly "grocery" spend on each of our Everyday Preferred cards, as that gets us 4.5 points per $. But now our Chase cards, with the exception of the quarterly bonus on the Freedom card, only see a few small charges a year, just to make sure Chase doesn't close them for lack of activity. The ROI on our IHG cards, which we keep just for the annual free night certificate, is just not good enough to reward spending any significant amount on.
The question with the airlines and hotels is quite different. They are not paying for the sign up bonuses that churners get. Au contraire, they are selling those miles and points to the cc companies. AA's last quarterly report stated that they are actually losing money on their aircraft operations, but making money on selling FF miles, mostly to banks I assume, but of course at least some to their FF members too. To the extent that having their co-brand ccs encourage folks to patronize them to take advantage of free checked bags, priority boarding, etc that does help their bottom line profits. They could care less how churners get their miles and points, they just want the banks to keep buying as many of them as possible.
Every time DW and I fly FC TATL on AA, which has been every year for the last 10 years, especially now that we can't get Saver awards anymore, and have to book Anytime Awards, AA sells Citi bank 560,000 miles. We are of course an exception, most folks don't know how, or don't bother to learn, how to play this GAME at a semi-professional level. So they end up getting one AA card, and the sign up bonus is just enough for an Economy award, which AA only gives out when they are pretty sure that seat would have gone out empty otherwise. Ordinary "normal spend" Muggles are a small profit maker for the Hotels and Airlines, whereas Wizard churners are a huge profit maker for the Hotels and Airlines.
#7
Suspended
Join Date: Oct 2017
Location: Miami, Florida
Programs: AA ExPlat, Hyatt Globalist, IHG Spire, Hilton Gold
Posts: 4,009
Being “credit-worthy” is a lot more than having a good FICO score. Likewise, Chase and Barclays aren’t losing out because you’re not spending a few hundred each month at a 3% interchange fee in the hopes of taking them for additional ~$1,000 bonuses.
No sense rehashing this debate again, but people here simply aren’t being honest with themselves.
No sense rehashing this debate again, but people here simply aren’t being honest with themselves.
#8
Join Date: Aug 2015
Location: SFO
Programs: AS 75K (OW), SK Silver (*A), UR, MR
Posts: 3,329
“Frequent-flyer programmes are massively profitable for airlines. A carrier can charge credit-card companies far more for the miles or points they offer customers than it costs the airlines to redeem them.”
Airlines should think twice before devaluing their frequent-flyer points
https://www.economist.com/gulliver/2...t-flyer-points
#9
Suspended
Join Date: Aug 2010
Location: DCA
Programs: UA US CO AA DL FL
Posts: 50,262
Credit-worthy means that a given person (or business entity) is likely to be profitable taking into account the credit risk presented. FICO scores matter as do other features considered by card issuers. Those factors predict the likelihood that you will make make payments in a timely manner.
But, that alone is not enough. Anything that makes you a "high maintenance" customer or which involves churn for bonuses and the like, costs the card issuer money and that may tip the balance from "worthy" to "unworthy".
So, if you were the "co" and insisted, the card issuer might well comply if you are willing to guarantee the credit risk and make up for costs generated by customers who otherwise aren't worth it.
But, that alone is not enough. Anything that makes you a "high maintenance" customer or which involves churn for bonuses and the like, costs the card issuer money and that may tip the balance from "worthy" to "unworthy".
So, if you were the "co" and insisted, the card issuer might well comply if you are willing to guarantee the credit risk and make up for costs generated by customers who otherwise aren't worth it.
#10
Original Poster
Join Date: Sep 2005
Location: JZRO
Posts: 9,169
The title of this thread was changed without my knowledge or permission. Disturbingly, it significantly alters the meaning of my original intent. Therefore, I hereby 1) disclaim origination, and 2) abandon it to the winds of inanity.
#11
Join Date: Mar 2007
Location: SJC/SFO
Programs: WN A+ CP, UA 1MM/*A Gold, Mar LT Tit, IHG Plat, HH Dia
Posts: 6,284
FWIW I agree with the content of your OP, @RNE, even if the title was changed. As for the title itself... I think it points to the need for an additional term alongside "creditworthy". I suggest "bonusworthy". Many customers are creditworthy, in the sense that their risk of default is low and in normal usage they will generate profit for the issuing bank, but perhaps not bonusworthy, in that they churn cards well before the bank is likely to recoup the cost of a generous sign-up offer.
#12
Moderator
Join Date: Jun 2003
Location: Miami, Mpls & London
Programs: AA & Marriott Perpetual Platinum; DL & HH Gold
Posts: 48,952
Moderator explanantion
These posts originally appeared in another thread. I chose the Title when breaking out these posts. It is based on the content of post 2, and accurately described the subsequent discussion.
Last edited by mia; Dec 15, 2018 at 8:32 am
#13
Moderator
Join Date: Jun 2003
Location: Miami, Mpls & London
Programs: AA & Marriott Perpetual Platinum; DL & HH Gold
Posts: 48,952
Moderator reminder
If you think a thread should have a different title or be relocated to another forum, please click the triangular Alert icon in the lower left corner of any post in the thread, and explain.
If you think a thread has run its course, ignore it, do not reply, and it will scroll down the list in just a few days.
If you think a thread has run its course, ignore it, do not reply, and it will scroll down the list in just a few days.
#14
Join Date: Aug 2015
Location: SFO
Programs: AS 75K (OW), SK Silver (*A), UR, MR
Posts: 3,329
I wonder what would happen if banks dropped the common man from its credit card business and focused on high-end clients alone and what would happen if airlines dropped the cattle class. A flyertalk article quoted that “in 2017 the airline industry pulled in about $38 billion in profit, yet still only netted about $20 revenue per ticket.” Funny how things work!
#15
Moderator
Join Date: Jun 2003
Location: Miami, Mpls & London
Programs: AA & Marriott Perpetual Platinum; DL & HH Gold
Posts: 48,952
There have been business-class-only airlines, and most (all?) have failed.
Depends what you mean by high-end clients. There are over 100 million households in the USA, so even a product marketed to The One Percent has over a million potential customers. Many "private" banks issue payment cards only to their clients, but we cannot judge the profitability of the card products because they are bundled with wealth management services. Also, these cards are often administered by another card issuer, such as Elan Financial Services, because it isn't cost effective to do this in house with a small customer base.
Depends what you mean by high-end clients. There are over 100 million households in the USA, so even a product marketed to The One Percent has over a million potential customers. Many "private" banks issue payment cards only to their clients, but we cannot judge the profitability of the card products because they are bundled with wealth management services. Also, these cards are often administered by another card issuer, such as Elan Financial Services, because it isn't cost effective to do this in house with a small customer base.