Who benefits from MS? Who loses?
Nov 4, 2013, 7:18 pm
#17
Moderator: Manufactured Spending
Original Poster
Join Date: Jul 2011
Posts: 6,580
As discussed above, there is no real loser in any of the individual transactions. In a fraud-free world, each of those transactions is entered into willingly by both parties because there is a profit involved for both parties. Be they the CC issuer, the retailer, the GC network, WMT, etc - they all benefit.
For example, the card issuer (Metabank) assumes that it is going to get the commissions for the use of the gift card at the rates established by Visa. If you drain the card in one shot with a PIN, they don't get that.
Nov 4, 2013, 11:55 pm
#18
Join Date: Jun 2013
Posts: 243
Honestly, by the time you pay all the stupid fees involved, the loser is probably the people doing this.
60,000 miles in 500$ increments at 3.95 a pop = 474.00
Estimated gas, on average of doing this say 60 times = 15$
Time spent to do this = 10 minutes on average x 60 times = 10 hours @ $10.00/hr = 100 bucks
Annual cc fee, lets just split it up and to make it easy say 5 bucks of your fee went to this game
$594.00
Yes its a good deal and you will be getting airfair at about half off, but you still shelled out almost 600 dollars. If you spent the time and effort elsewhere I think you would come out further ahead than that
That being said, the arugument of course could be made the OTHER way, like in doing this you are making 60 bucks an hour because you saved 600 dollars on airfare....
60,000 miles in 500$ increments at 3.95 a pop = 474.00
Estimated gas, on average of doing this say 60 times = 15$
Time spent to do this = 10 minutes on average x 60 times = 10 hours @ $10.00/hr = 100 bucks
Annual cc fee, lets just split it up and to make it easy say 5 bucks of your fee went to this game
$594.00
Yes its a good deal and you will be getting airfair at about half off, but you still shelled out almost 600 dollars. If you spent the time and effort elsewhere I think you would come out further ahead than that
That being said, the arugument of course could be made the OTHER way, like in doing this you are making 60 bucks an hour because you saved 600 dollars on airfare....
Nov 5, 2013, 5:40 am
#19
Join Date: Dec 2012
Programs: UA Platinum, HH Gold, Marriott Gold
Posts: 183
I still cant believe CVs allows credit card purchases for Vanilla when others don't. If a store doesn't lose money by doing that, more stores would allow that practice, if nothing else, to bring more foot traffic into the stores.
Nov 5, 2013, 12:38 pm
#20
Join Date: Feb 2012
Location: Los Angles
Posts: 2,101
lets make one thing clear "No one loses" no one can stay in the game losing for long! This is not a "zero sum game" we have only winners, some big, some small. This is a complex game the banksters have created and keep on changing the rules (fine tune) to keep the balance by keeping every one in the game. The wheels keep on churning the money is created of thin air. We can discuss all but cannot reach a conclusion!
Nov 5, 2013, 2:47 pm
#21
Join Date: Oct 2013
Posts: 99
lets make one thing clear "No one loses" no one can stay in the game losing for long! This is not a "zero sum game" we have only winners, some big, some small. This is a complex game the banksters have created and keep on changing the rules (fine tune) to keep the balance by keeping every one in the game. The wheels keep on churning the money is created of thin air. We can discuss all but cannot reach a conclusion!
Nov 6, 2013, 2:28 am
#23
Original Member
Join Date: May 1998
Posts: 1,139
Thanks BE01 for the calcs. I am even a little
more conservative and I figure a 3.5% profit per dollar spent including liquidation costs and wear and tear on car. I do this primarily with an unlimited 5% card and a little bit with a 2% card since many of the costs are fixed and if I make a liquidation run after purchasing with the 5% card, the purchases with the 2% card do not carry the same burden. This has never made sense to me with a 1 point per dollar spent calculation with no bonus offers, but I realize that others may disagree. The cc abbreviation for the 5% card to me is not credit card, it is Christ Child. Hopefully I do not get a shut down or a Financial Review.
I think this forum is very math/finance/accounting oriented, but posters underestimate how much business evaluation involves only the top line. Most salesmen assume that all costs are fixed, whereas most costs are variable avd one famous economist said that all costs are variable in the long run. In a normal situation with float and lost cards, profit would be earned by the businesses in the stream. Our immediate liquidation messes with that, but I am not sure that is being factored in by those businesses. When it does get factored in, and/or the government decides this facilitates money laundering by true money launderers (or just causes them to get too many SARs that are clogging the system) this will come to a forced end. Personally I believe that day will come.
more conservative and I figure a 3.5% profit per dollar spent including liquidation costs and wear and tear on car. I do this primarily with an unlimited 5% card and a little bit with a 2% card since many of the costs are fixed and if I make a liquidation run after purchasing with the 5% card, the purchases with the 2% card do not carry the same burden. This has never made sense to me with a 1 point per dollar spent calculation with no bonus offers, but I realize that others may disagree. The cc abbreviation for the 5% card to me is not credit card, it is Christ Child. Hopefully I do not get a shut down or a Financial Review.
I think this forum is very math/finance/accounting oriented, but posters underestimate how much business evaluation involves only the top line. Most salesmen assume that all costs are fixed, whereas most costs are variable avd one famous economist said that all costs are variable in the long run. In a normal situation with float and lost cards, profit would be earned by the businesses in the stream. Our immediate liquidation messes with that, but I am not sure that is being factored in by those businesses. When it does get factored in, and/or the government decides this facilitates money laundering by true money launderers (or just causes them to get too many SARs that are clogging the system) this will come to a forced end. Personally I believe that day will come.
Nov 6, 2013, 3:04 am
#24
Join Date: Mar 2013
Posts: 35
I think it's pretty clear at least with 5x cards that banks lose to the MS crowd. Otherwise, how can you explain how aggressively Chase went after the AARP 5% abusers, how Chase put pressure on Office Depot regarding VRs, and how Citi was cracking down on TY Preferred abusers. Nevertheless, losing to the MS crowd probably still means a big win overall for the banks as they capture more market share.
Nov 6, 2013, 6:15 am
#25
Join Date: Oct 2009
Location: Land of the parrots and parrotheads
Programs: Several dozen
Posts: 4,820
Indeed, there are annual card fees, bank account monthly fees, money order fees, Vanilla reload fees, BUXX fees, service charges (think US Airways) and scam charges (think British Airways).
Yet you still can net a small (by the modest standards of Texas) profit. For years that profit actually exceeded take home pay.
What is priceless is that this profit is tax free - you don't contribute to the screwed up social security system, pay taxes to support corrupt Congressmen, support a really funked up Supreme Court, contribute a cent to creating the train wreck that is Obamacare, or make massive debt payments to creditors in China.
Yet you still can net a small (by the modest standards of Texas) profit. For years that profit actually exceeded take home pay.
What is priceless is that this profit is tax free - you don't contribute to the screwed up social security system, pay taxes to support corrupt Congressmen, support a really funked up Supreme Court, contribute a cent to creating the train wreck that is Obamacare, or make massive debt payments to creditors in China.
Honestly, by the time you pay all the stupid fees involved, the loser is probably the people doing this.
60,000 miles in 500$ increments at 3.95 a pop = 474.00
Estimated gas, on average of doing this say 60 times = 15$
Time spent to do this = 10 minutes on average x 60 times = 10 hours @ $10.00/hr = 100 bucks
Annual cc fee, lets just split it up and to make it easy say 5 bucks of your fee went to this game
$594.00
Yes its a good deal and you will be getting airfair at about half off, but you still shelled out almost 600 dollars. If you spent the time and effort elsewhere I think you would come out further ahead than that
That being said, the arugument of course could be made the OTHER way, like in doing this you are making 60 bucks an hour because you saved 600 dollars on airfare....
60,000 miles in 500$ increments at 3.95 a pop = 474.00
Estimated gas, on average of doing this say 60 times = 15$
Time spent to do this = 10 minutes on average x 60 times = 10 hours @ $10.00/hr = 100 bucks
Annual cc fee, lets just split it up and to make it easy say 5 bucks of your fee went to this game
$594.00
Yes its a good deal and you will be getting airfair at about half off, but you still shelled out almost 600 dollars. If you spent the time and effort elsewhere I think you would come out further ahead than that
That being said, the arugument of course could be made the OTHER way, like in doing this you are making 60 bucks an hour because you saved 600 dollars on airfare....
Nov 6, 2013, 8:07 am
#26
Join Date: Feb 2012
Location: Los Angles
Posts: 2,101
Indeed, there are annual card fees, bank account monthly fees, money order fees, Vanilla reload fees, BUXX fees, service charges (think US Airways) and scam charges (think British Airways).
Yet you still can net a small (by the modest standards of Texas) profit. For years that profit actually exceeded take home pay.
What is priceless is that this profit is tax free - you don't contribute to the screwed up social security system, pay taxes to support corrupt Congressmen, support a really funked up Supreme Court, contribute a cent to creating the train wreck that is Obamacare, or make massive debt payments to creditors in China.
Yet you still can net a small (by the modest standards of Texas) profit. For years that profit actually exceeded take home pay.
What is priceless is that this profit is tax free - you don't contribute to the screwed up social security system, pay taxes to support corrupt Congressmen, support a really funked up Supreme Court, contribute a cent to creating the train wreck that is Obamacare, or make massive debt payments to creditors in China.
Those who don't like Obamacare prefer Affordable Care Act, that makes me think,,,,,
Last edited by prasha11; Nov 6, 2013 at 8:40 am
Nov 6, 2013, 9:02 am
#28
Join Date: Feb 2012
Location: Los Angles
Posts: 2,101
Honestly, by the time you pay all the stupid fees involved, the loser is probably the people doing this.
60,000 miles in 500$ increments at 3.95 a pop = 474.00
Estimated gas, on average of doing this say 60 times = 15$
Time spent to do this = 10 minutes on average x 60 times = 10 hours @ $10.00/hr = 100 bucks
Annual cc fee, lets just split it up and to make it easy say 5 bucks of your fee went to this game
$594.00
Yes its a good deal and you will be getting airfair at about half off, but you still shelled out almost 600 dollars. If you spent the time and effort elsewhere I think you would come out further ahead than that
That being said, the arugument of course could be made the OTHER way, like in doing this you are making 60 bucks an hour because you saved 600 dollars on airfare....
60,000 miles in 500$ increments at 3.95 a pop = 474.00
Estimated gas, on average of doing this say 60 times = 15$
Time spent to do this = 10 minutes on average x 60 times = 10 hours @ $10.00/hr = 100 bucks
Annual cc fee, lets just split it up and to make it easy say 5 bucks of your fee went to this game
$594.00
Yes its a good deal and you will be getting airfair at about half off, but you still shelled out almost 600 dollars. If you spent the time and effort elsewhere I think you would come out further ahead than that
That being said, the arugument of course could be made the OTHER way, like in doing this you are making 60 bucks an hour because you saved 600 dollars on airfare....
Nov 6, 2013, 9:31 am
#29
Join Date: Nov 2010
Programs: IHG Platinum
Posts: 1,066
[QUOTE=cbn42;21722609]Here are the parties involved, along with an example of each:
Credit card issuer - e.g., Chase
Retailer - e.g., Safeway
Gift card issuer - e.g., Metabank
Gift card distributor - e.g., Blackhawk
Gift card network - e.g., Visa
Money order retailer - e.g., MoneyGram
My feeling is the following:
Credit card issuer benefits, because they get their commission regardless of what you buy. They have no idea you are buying gift cards, and they don't care. As long as you aren't using a 5% category, they likely come out ahead.
QUOTE]
Even at 1.6% cash back, cc issuers are making a loss if you pay in full each month.
Of the 2ish % credit card processing fee, about 1.5% + 10 cents goes to the card issuer while about 0.5% goes to the card issuer's network (like Visa or MC). So if the issuer rewards over 1.5% cash back, doesn't charge annual fees and the cardholder pays in full in each month, the issuing bank is losing out.
Credit card issuer - e.g., Chase
Retailer - e.g., Safeway
Gift card issuer - e.g., Metabank
Gift card distributor - e.g., Blackhawk
Gift card network - e.g., Visa
Money order retailer - e.g., MoneyGram
My feeling is the following:
Credit card issuer benefits, because they get their commission regardless of what you buy. They have no idea you are buying gift cards, and they don't care. As long as you aren't using a 5% category, they likely come out ahead.
QUOTE]
Even at 1.6% cash back, cc issuers are making a loss if you pay in full each month.
Of the 2ish % credit card processing fee, about 1.5% + 10 cents goes to the card issuer while about 0.5% goes to the card issuer's network (like Visa or MC). So if the issuer rewards over 1.5% cash back, doesn't charge annual fees and the cardholder pays in full in each month, the issuing bank is losing out.
Nov 17, 2013, 4:03 pm
#30
Join Date: Nov 2013
Posts: 16
Who exactly are the loosers in the MS arbitrage game?
Please excuse this attempted thread if this issue has already been addressed in the forums. I have not seen it remotely touched upon. If I am wrong, I would greatly appreciate it if a forum member would please guide me to the proper thread.
I am a neophyte to FlyerTalk (just registered today), but an old dog in all financial matters. MS is a form of capital arbitrage. There is a financial benefit from a percentage spread in an exchange of fungible financial instruments from one market to another (one form of plastic liquidated into another form of plastic, liquidating the profit margin, while piggybacking on the electronic banking interchange system.) I am intrigued as to who is exactly loosing in the MS game. It must either be the merchant selling the VR/GC/DC, or the issuers thereof.
Example (just one of many possibilities):
Let us say that the CC holder is using an Amex or Visa Sig that charges an interchange fee ("swipe fee") to the merchant around 3%, perhaps more. (Amex and MasterCard have the highest interchange fee rates, and MC has an astounding 240 tiers of IC fees). If you buy a $500 VR with a $3.95 fee, and assume that the fee is split between the VR issuer and the merchant who stocks/sells them, then on the surface, each makes a profit. What about the interchange fee? Does CVS or Safeway take it up the rear and gain less than $2 to fork over $15 in fees. Hardly. What if the VR issuer agrees to give the whole $3.95 fee to the merchant, in hopes of making interchange fees on the consumer end-use of the GC (less than 3%, but still considerable). Does the merchant still loose $11 net to the swipe fee? Doubtful. The issuers of the VR/GC/DCs are making no interchange fees from the increasing number of people purchasing high denomination cards and liquidating them. They must know what is going on. I suspect that 95% $200-$500 cards are being liquidated in one fell swoop. They have electronic monitoring to confirm this. The banks know exactly what MS is and who is doing it. They are clearing around 1% of the transaction amount, after dolling out miles/points/rewards to the CC user. They desperately need the bottom-line and top-line revenue growth. As long as payment history, utilization, and FICO are very good to excellent, there should not be a serious problem.
Adding to the mystery is the fact that CVS may be in the processing of increasing its daily limit of VC/GC to $2000/day. Granted, this was the statement of a minimum wage cashier. However, he seemed pleasant and knowledgeable about it. He could not find the clipboard to confirm the recent change, but swore that there is one in the store to guide employees when such transactions are attempted. I will inquire with additional CVS stores and perhaps venture a trial $1500 run. Not yet sure if the limit is inclusive or exclusive of the VR card fee.
There is something hidden from sight regarding how this arbitrage is allowed to continue. The banks are definitely ahead, as are savvy MS afficionados. Who is loosing out? and how can they not have gotten wind? The unbanked/underbanked are most definitely not buying high denomination VC/GCs. They can barely feed themselves these days, even with dollar stores aplenty.
Does anyone have any insights into the distribution of losses and interchange fees between the Merchants and the VR issuers on these high denomination best-sellers? Office Depot's and Staple's reduction to $200 maximums only partially addresses the issue, and only for those two stores.
I desperately need to satisfy my financial/intellectual curiosity on this one. Any posts are appreciated.
I am a neophyte to FlyerTalk (just registered today), but an old dog in all financial matters. MS is a form of capital arbitrage. There is a financial benefit from a percentage spread in an exchange of fungible financial instruments from one market to another (one form of plastic liquidated into another form of plastic, liquidating the profit margin, while piggybacking on the electronic banking interchange system.) I am intrigued as to who is exactly loosing in the MS game. It must either be the merchant selling the VR/GC/DC, or the issuers thereof.
Example (just one of many possibilities):
Let us say that the CC holder is using an Amex or Visa Sig that charges an interchange fee ("swipe fee") to the merchant around 3%, perhaps more. (Amex and MasterCard have the highest interchange fee rates, and MC has an astounding 240 tiers of IC fees). If you buy a $500 VR with a $3.95 fee, and assume that the fee is split between the VR issuer and the merchant who stocks/sells them, then on the surface, each makes a profit. What about the interchange fee? Does CVS or Safeway take it up the rear and gain less than $2 to fork over $15 in fees. Hardly. What if the VR issuer agrees to give the whole $3.95 fee to the merchant, in hopes of making interchange fees on the consumer end-use of the GC (less than 3%, but still considerable). Does the merchant still loose $11 net to the swipe fee? Doubtful. The issuers of the VR/GC/DCs are making no interchange fees from the increasing number of people purchasing high denomination cards and liquidating them. They must know what is going on. I suspect that 95% $200-$500 cards are being liquidated in one fell swoop. They have electronic monitoring to confirm this. The banks know exactly what MS is and who is doing it. They are clearing around 1% of the transaction amount, after dolling out miles/points/rewards to the CC user. They desperately need the bottom-line and top-line revenue growth. As long as payment history, utilization, and FICO are very good to excellent, there should not be a serious problem.
Adding to the mystery is the fact that CVS may be in the processing of increasing its daily limit of VC/GC to $2000/day. Granted, this was the statement of a minimum wage cashier. However, he seemed pleasant and knowledgeable about it. He could not find the clipboard to confirm the recent change, but swore that there is one in the store to guide employees when such transactions are attempted. I will inquire with additional CVS stores and perhaps venture a trial $1500 run. Not yet sure if the limit is inclusive or exclusive of the VR card fee.
There is something hidden from sight regarding how this arbitrage is allowed to continue. The banks are definitely ahead, as are savvy MS afficionados. Who is loosing out? and how can they not have gotten wind? The unbanked/underbanked are most definitely not buying high denomination VC/GCs. They can barely feed themselves these days, even with dollar stores aplenty.
Does anyone have any insights into the distribution of losses and interchange fees between the Merchants and the VR issuers on these high denomination best-sellers? Office Depot's and Staple's reduction to $200 maximums only partially addresses the issue, and only for those two stores.
I desperately need to satisfy my financial/intellectual curiosity on this one. Any posts are appreciated.