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?

2. Are they telling their customers to spend more on groceries?

3. Do they have better transaction deals with supermarkets then every other type of business?



Just trying to understand why gas/groceries usually gets the highest cashback..

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.

mia

Bonus categories are designed to keep the card in our wallets so that we also use it for other purchases. They are not intended to encourage us to shop at a particular type of store. There are still many cards with dining bonuses. The pandemic has distorted bonus strategies because in many jurisdictions non-essential businesses are periodically closed. Supermarkets, takeout/delivery restaurants, gas stations (and some other categories) are typically exempt, and the card issuers want to encourage us to use their card when shopping at the places which remain open. Look again in 2022 to see a more normal array of category and temporary offers.

paperwastage

Majority of people I know (who don't frequent FT or Bogle heads or DOC), carry around one card and use the same card everywhere
Some just don't want to carry so many cards, remember which card has which category bonus

They get one card (hey, I spend a lot of money on X and this card offers 5% on X) and use it everywhere (even at places that only earn 1%). Some just give up and get the 2% card (citi double cash comes to mind)

You and I are outside of the norm (using the best card for most bonus).

flyerdesire

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.

See above

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).


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.

lwildernorva

The bank robber Willie Sutton was once asked why he robbed banks, replying, "That's where the money is."

Same principle here. Although I'm sure there are well-heeled folks in places like Manhattan who do not have cars and eat out at restaurants every night of the week, before the pandemic, the vast majority of Americans had to fill their cars with gas and did weekly grocery shopping. Even if these purchases are relatively low, they are frequent. As mianotes, credit card companies are trying to provide an incentive to consumers to keep the cards in their wallets so that they'll use the cards for other, less-rewarding purchases as well.

As spending habits changed during the pandemic, reducing restaurant visits and increasing grocery spending, the CC companies adjusted, emphasizing grocery spending especially. Keep in mind, though, that several credit cards rewarded grocery and gas spending (Amex Everyday as an example) even before the pandemic.

The focus here at FT is the exact opposite. I guarantee you in the world beyond points obsession, the term "sock drawer" is rarely used--other than to indicate where your socks, and nothing else, are kept.

tmiw

I actually know a significant number of people who use their debit card for most/all transactions. If a CC is used at all, it is generally only one or two as you said. I suspect other factors come into play, too (e.g. millennials and younger are a lot more leery of credit given life experiences).

I was under the impression that grocery stores pay less in interchange than merchants in other categories. Regardless, the typical bonuses for grocery stores aren't really sustainable without spending limits (for instance, Freedom/Freedom Flex's $1500/quarter limit for 5x categories).

EDIT: I just checked and grocery stores indeed pay less (PDF) at least with Visa--1.4% for the biggest grocery chains with Visa Signature/Infinite vs. 2.4% for stuff like restaurants.

flyerdesire

I always find this a strange thing. Debit doesn't give you the same protection as credit card, and doesn't allow you to build credit history. The younger kids may be definitely scared of getting into debt.

Yeah, looks like the right range, and the highest discount rates go to restaurants/travel related purchases.

tmiw

At least with fraud, the protections are fairly similar thanks to Regulation E. Trying to do a chargeback for other reasons, though, might be problematic.

In addition, there are still certain merchants where debit card use is problematic (hotels, car rentals). While it might not be important now due to the lack of travel, a lot of the people without credit cards now might end up running into significant trouble eventually.

satman40

Fidelity will give you 2%, Chase INK is my go to card at Staples for debit cards 5X when no free is promoted,

Best game in town,

I have applied and received over 50 credit cards,

Love the Credit Cards, but carry only 4 at this time