Circulating Miles with Merchant Account
 

This is probably against the rules, but I'm putting it out there. What happens if you have a mile-earning credit card, and a business checking account with merchant banking. You could then 'circulate' miles, paying only the merchant processing fee each time (usually around 2-3%). So, for $250, you'd get 10,000 miles 'laundered'. Thoughts?

You could buy 10,000 miles directly from an airline's FF program for about $250 or not much more, particularly if they have a promotion on. Why would you want points at 2.5 cents per point?

True, but:
- The more transactions you do as a merchant, the lower your rate is. It could go down to 1.9%, meaning $1,900 for 100,000 miles. Not bad for a J return ticket.
- Buying miles has relatively low limits (around 40k), whereas CC earning limits are generally higher (around 100k). This method would allow you to 'buy' more miles than your limit.

Probably? It certainly violates the terms of your merchant agreement and creates an accounting headache because you need to reconcile the credit card transaction receipts against the gross income of the business.

In any event this idea has been discussed time and again. Here's a thread from 2005:

http://www.flyertalk.com/forum/other...cho-miles.html

Ahh - hadn't seen that thread - thanks!

As a merchant who does significant volume I can tell you that you are dead wrong. Even on a swiped card not sure you could get down to 1.9%. Even if you could you probably dont know how these merchant accounts work. They will find out. They will shut you down because you are in effect getting cash advances with no fees and huge risks on both sides of the transaction. Once they shut you down good luck getting another merchant account. I see zero benefits by the way in racking up huge 1 cent a mile points with credit cards for my airline program these days. Unless you are trying to get to 2 million mile status with American or something like that.

Rob

As a banking rep who sold merchant services, you might want to check your rates (depending on your industry). I regularly saw Visa/MC rates below 1.9% + swipe fee (usually no more than .25). Amex/Discover of course were always higher.

In fact check with your bank... usually they'll have a 'beat your current rate or give you cash' ($200-$500) promo. If you're with your bank already, check your other bank. Two ones I know that used to be good on rates back when I was in it were Chase Paymentech, and BBVA Compass' merchant services.

Edit: Oh, and unless your rates are insanely low, you can negotiate the proposal as well.

And another point is that most processors charge a higher merchant fee for rewards cards than for other cards.

Cheers!
JudyJFLA

I am a merchant myself... and yes it is definitely against their rules.

The 1.9% you see is usually for non-reward debit cards. No way you will ever find a reward card that rings up less than 2.5%.

In fact, my Barclays US Airways Mastercard and a lot of others I have are 4% (non-swiped).

You would be better off using PayPal where they have a flat rate with any type of card you use (however, it is still more expensive than just buying miles from the airlines) and also against their rules.