lacuadra

CVS definitely gets traffic. I usually buy things I need, and have benefitted from all the valuable coupons that VR amounts generate.

Tomorrow I am heading to two stores and have coupons printed as well as discounts that I added to my cards. This was not the case before. I imagine this is the same model that Redbox markets.

I doubt CCs are the sole winners of double transaction fees ( fee to sell the card and fee when the actual purchase occurs). Logically the fee would be charged to the issuing merchant. ( Macys or Subway etc).

As far as VGC the fee pretty much covers CVS handling of the cards. Seriously doubt CVS would absorb a ~2.5% fee of say $498.00.

Who knows ..

Agamemnon

Because I want to fully grasp the nature of the beast. Because we have slipped through a crack that should not exist. Because these multi-billion dollar merchants are no fools. Because the venture-backed gift card and debit card companies are not stupid. Because someone is absorbing a huge 3% Interchange Fee, that could be closer to 3.5% - 4%, esp. if an Amex is being used to purchase the VRs/GCs. Because I want to stay ahead of the curve. Because if the rules change while the game is in play I do not want to have $5-10 K of liguid plastic that could become illiquid (at least for my purposes).

Expect the unexpected.

craz

very simple then just move on and dont play the game. Its like wanting to know All the info regarding a banks safety deposit box, so you can determine if its safe enough for you to rent a box and store your valuables there

why do stores at times give things away for cost, below cost, or making little profit? Cause they hope to lure you in and that you end up buying many items not on sale and end up making a nice buck. Yet there are many folks out there that go armed with a shopping list and stick to it and unless the item is on sale or they have a cents off coupon they dont buy anything else = most likely the store losses on them.Im sure its all counted and expected

Unless FT is able to get the top execs of a number of companies involved to join up and spill the beans, the facts will never be known!

MsArbi

Deleted.

thewire76

True, most people don't have the CL or the stones to walk in there and buy $5K worth of cards once, let alone day after day.

Yesterday, a not-so-bright checker at CVS (that I've used many times) was ringing me up and asked "I know what you're doing has something to do with CC rewards, but the part I don't understand is why you always buy $5K. Do the rewards only kick in on $5K+ purchases?" Shaking my head, I said "no, honey... I get rewarded no matter what I buy. I buy $5K bc that's your store's limit. If your limit was $10K, then I'd be buying that". To which she replied "you must be really good with numbers".

"I know my way around a spreadsheet. See you tomorrow. Have a wonderful day" and off I went.

Don't know who's losing in this game, but I know who's winning. The great folks of FT!

kcblakely

I agree with Craz and, to be honest, Agamemnon sounds like a economicLibertarianGoldBug troll. I'd be mildly interested in knowing the full story on all the crazy permutations of how money flows in this game as well, but I'm pretty sure we never will.

FWIW, I think this is prolly the ultimate answer:

thewire76

The answer literally just came to me. The loser is the guy that just stopped by my office and announced he has received his first AA card because he has multiple weddings to attend, but "damn they got 22% APR". I asked why it mattered since I assumed he paid in full. You know what happens when you assume!

Answer: Well, I got 11 weddings/family events to attend in the coming months and I don't have the money so I need to pay over the next year or so.

The old me (pre-MS) would have gotten on my soap box about debt and preached to him about making decisions and cutting some of those events, but the new me just smiled and said OK. And thought to myself "Thank you for supporting my MS"!

toomanybooks

Not the case out here in Chicagoland. All my regular CVS stores are quite nice. Maybe they are newer, plus I am sure they don't get the traffic of a NJ/NY CVS.

Agamemnon

[QUOTE=MsArbi;21805227]Eta. CVS raising the limit to 5000 per day is not a mystery. Few people can buy $5000 or even $1000 on a credit card in one go.

But it is a mystery!!! An incredibly fascinating one.

You said it yourself in your quite thorough post that CVS is likely absorbing the interchange fee at a specific merchant tier. The default standard of the electronic interchange system is that the merchant always absorbs the fee, paid primarily to the "acquiring bank", and to a much lesser degree, the "merchant bank", with the processor and the licensor nibbling a bit. Basically, the merchant is "financially raped" by the banks.

For CVS to raise the daily limit so substantially means they know the high demand for $500 GCs and they want to play ball. They know that such a demand is artificial and not end-user based. So they want to increase their interchange fee liability?? Very dubious.

On the other hand, if the GC issuers are taking it in the rear (who are backed by venture-capital gurus and have had several IPOs already) it means they do not understand the marketplace. This is a credit-based consumer economy, with many transactions consummated with CCs. Even for those who pay in full. The lines between credit and cash have blurred significantly. Credit (and the rewards obtained thereunder) are themselves becoming a medium of exchange and a store of value. So these venture-backed big-shots don't understand the forces of "creative destruction". How could they fail to anticipate huge IC fees in a credit-based economy?

Fascinating example of a lack of understanding of the marketplace by multi-billion dollar companies. Or Am I missing something?

Agamemnon

I am not a "economicLibertarianGoldbug" troll. Gold is predicated on the "greater fool theory". How can it be a hedge against inflation (and an inflated dollar) if it is valued and liquidated in those very same inflated dollars. Do you take me for an imbecile kcblakely. I never insulted you.

I simply understand this new era of financial capitalism that we entered into after WWII (as opposed to the previous model of industrial capitalism). I am simply fascinated at what appears to be the complete inability of these large corporate players to anticipate the marketplace by this gift card on credit card system that has been allowed to continue. Fascinating.

Also, I like to learn as much as possible and apply it to the next arbitrage opportunity that might present itself.

mithrin

You have to remember that when the companies design products--whether they are prepaid cards or rewards programs; they design them to be profitable _on average_.

I'll probably never know if the merchant loses money when I get 5% cash back on a $500 VGC. Could be the merchant is set up to break even on CC purchases and make money on debit/cash transactions. The prepaid card issuer probably loses because I drain the card in one debit transaction, and have 0% breakage. My CC bank certainly loses when I'm earning 5% back--spending little in non-bonus categories--and paying in full each month.

Since the prepaid card game has lasted so long, we can assume that the merchant either profits from the GC fee structure (when averaging CC/debit/cash purchases) or values the increase in foot traffic over the losses. GC issuer makes a profit on the combination of fees, swipe fees, and breakage. CC issuer makes profit on rewards cards due to swipe fees, interest charges, late fees, etc.

Of course, companies can choose to be more efficient by finding ways to stop MS type transactions (where they take a loss) while keeping the rest. We've seen plenty of that from the CC issuers trying to limit their rewards programs, or getting rid of individual customers.

The real question is why the prepaid card issuers aren't adapting to constrict MS. As mentioned previously, they could cap cards at $200 instead of $500. Even if MS continues, they generate more in activation fees. One possible reason could be that they are giving the entire activation fee to merchants already (relying on swipe fees and breakage for their profit), so changing their product wouldn't generate any more fees for them. Perhaps office stores restricted GC values to generate more activation fees for themselves. Maybe CVS has a better deal from the issuers; or maybe they value foot traffic more?

For the prepaid issuers, perhaps the previous poster is right in that they don't separate the stats on variable load cards based on load amount, so they aren't seeing the MS effect standing out on the $500 load vs. the average numbers for the variable load cards in general. Maybe whoever processes the raw data is busy cashing in on MS, and doesn't want to pass along the more specific data to the execs.

youngmoneyhack

I don't know the exact economics of merchant selling gift cards, but there's got to be some incentive to the merchant from the gift card network they partner with to sell the cards in-store (why else would CVS bother with selling retail gift cards if there's nothing in it for them?) I'd imagine that the $4-$6 fee on these visa/mc/vr gift cards must, at the very least, cover the interchange fee and offer some profit margin to the merchant...

Lemma

I'm sure this explains the merchant GCs, no problem. Subway or Macy's probably gives CVS (indirectly, through the GC network e.g. Blackhawk) a commission on the GCs they sell because they generate sales that would not otherwise take place and they make money on float and breakage. That's probably why eBay stopped selling GC in stores, because paying that commission wasn't worthwhile for them.

This does not, however, explain the Visa GC. When we cash those out in a single debit transaction, the swipe fee is only 21 cents. If the GC were still only usable as credit, they would make a lot more in swipe fees when the GC were redeemed. If Incomm is giving CVS enough to cover their swipe fees, then Incomm must be losing money when we redeem the entire $500 in a debit transaction ten minutes later at the Walmart money center counter.

I don't know about Incomm specifically, but in general prepaid cards are a very lucrative business. The market of people who cannot qualify for real credit cards (or even bank accounts) is large and profitable. I think it is much more likely that they are making enough money off people who use their products for the intended purpose to balance out us arbitrageurs than that they are just too oblivious to realize they are losing money on us. Maybe even the $500 cards are profitable overall - perhaps people holding on to a cache of gift cards somewhere as a way to hide assets and making them money on float? Keep in mind when CVS raised the daily limit from $1k to $5k, they also started requiring ID scan. Maybe that's in case the feds go after them for facilitating money laundering when people buy these with cash. That's the reason, after all, that gift cards can only be used in the US - it'd be too easy otherwise to send someone a bunch of card numbers as a way of smuggling money across international borders.

I don't follow why gold being valued in dollars means it can't be a hedge against inflation. If you purchase gold today and then there is an unexpected rise in inflation, you will be able to exchange that gold for more of tomorrow's dollars than you would have had if you had if you had kept cash under the mattress instead of buying gold. Put another way, that gold will hold its purchasing power better than cash. That said, I'm not a goldbug either and I think people who want a gold standard misunderstand the purpose of money - to facilitate trade, not make people who hold money wealthier over time.

I agree gold is predicated on the "greater fool theory" because its value is almost entirely based on speculation. People don't pay more than $1000 an ounce for gold because of its actual uses as a metal, they pay that much because they think someone else will be willing to pay more for it down the road. Compare that to a stock where you are buying ownership in a company that is actually producing things and (hopefully) making profits and paying dividends, and therefore has more intrinsic value than gold, which just looks pretty, relative to its market price, and it's easy to see why the real return on stocks outpaces the real return on gold in the long run.

Agamemnon

You are correct when considering gold viz a viz cash in an inflationary scenario. Cash is the biggest loser when there is inflation. Gold will always triumph. However, there is an implied, and often explicit, pitch by goldbuggers and the financial media that gold is the best "asset class" as a hedge against inflation. This is specious. What about equities, MLPs, and other asset classes that would ride the coattails of an inflating dollar and yield higher nominal revenue, profits, and dividends in those inflated dollars. These investment classes are relatively less speculative than gold, with underlying productive capacities.

I will always perceive gold as a dubious and dangerous haven for the uninformed, peddled by profiteers.

wcj

I have no idea who you are but you sound EXACTLY like my BIL, lol. If he's reading like Ive told him to, he will read your posts with knowing nods. I have had this discussion with him numerous times while he tries to figure it all out from the ground, I fly over his house, lol.

Seriously, you are having a fine discussion that I will not interrupt, but did want to say that IMO, your worst case scenario on a VGC is you actually have to spend it, which IMHO means there is very little risk....unlike some of the other plays you can become involved with here. So running around trying to be in front of the curve by attempting to understand insider info. may drive you nuts and at the end of the day, it's very likely you will be holding some cards when playing any volume at all. If that is unacceptable, then I think you must sit out.