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Is the Credit Card Rewards Bubble Set to Burst?

Is the Credit Card Rewards Bubble Set to Burst?

If you’re even moderately engaged with travel loyalty programs, it’s a pretty sure bet that a significant portion of your mileage account balance originated with a rewards credit card, some combination of a lucrative sign-up bonus and ongoing earnings from everyday purchases.

So far, it’s been a great ride for most of those concerned.

The credit card issuers make lots of money from the card holders and from merchants that accept the cards. The airlines and hotels that partner with the issuers on co-branded cards make lots of money from the sale of miles and points to the banks. And card users enjoy lots more miles and points.

A lotta money, a lotta miles, a lotta happy campers.

But profits and frequent flyer miles don’t just materialize out of thin air — somebody must be paying extra for them. That "somebody" is, mostly, the retailers that pay interchange fees to the banks of around 2 percent on every credit card charge. And those interchange fees are endangered, both directly and indirectly.

There is a movement afoot that, if successful, would limit the interchange fees banks charge merchants (as has already happened with debit-card fees) or allow merchants to charge a premium for purchases made with a credit card.

So, how might this affect the generous mileage and points offers consumers have come to expect from their rewards cards?

Either change would squeeze much of the profit out of the current system and could make the current eye-popping sign-up and spend bonuses financially unfeasible. Such rewards largesse, after all, is only sustainable thanks to those robust interchange fees.

Too many people make too much money and earn too many miles from rewards credit cards to think they’ll simply dry up and disappear.

But a change could be a comin’.

Reader Reality Check

Can you imagine life without big credit card bonuses?

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  • brianmco

    Hopefull no major changes in nthe near future…

  • MORT

    SPECIAL DEALS (IN MY THOUGHTS)

    1. JOIN OUR AIRLINE CREDIT CARD – “ONE TIME BONUS OF ONE MILLION MILES”

    AWARDS AVAILABLE: FIRST CLASS RT EUROPE- 1,500,000 MILES-FLIGHTS AVAILABLE 2017 (NON-REFUNDABLE)FEES ADDL

  • D. Whit

    That would crush the online prospects of sites such as this and numerous others that are fortunate to make revenue recycling information that is already out there. It does seem that too many spend too much personal time researching the business of travel when they would be better rewarded researching their business. No one does anything illegal, but it humors me to hear people considering spending their cash to fly in to a conference to learn how to game the travel programs for more benefits. It is a pyramid scheme if you take the time to think it thru. The airlines have finally come to their senses and realized that free is not revenue and the threats of never flying a particular airline are just business class bar boasts. You knew it was coming. Every bubble bursts.

  • Rose

    If they stop spending and other bonuses I will quit using credit cards and stop being loyal to one airline since there would be no advantage for me.

  • SW

    If a customer has to pay more if they use a credit card, I will go back to using cash or checks.

  • Dan H

    Merchant don’t pick up the tab, consumers do. You seriously think I’m taking one less vacation if all my customers payed with affinity cc w/ higher fee? No, and that’s why prices are higher than they used to be. There is no free lunch, only one someone else is paying for.

  • Ajay

    These banks (you know, the ones that crushed the global economy) have plenty of tricks to make money.
    There’s no way they make enough money off these fees to pay for half the rewards i get.
    However, they have tons of fees, interest charges, etc, do basically, someone else is paying for my rewards.
    Yet another case of the better off (those that can afford to pay their bills with ease) living off the bottom rung.

  • http://twitter.com/DaveHamilton Dave Hamilton

    It’s true — most merchants aren’t aware of these fees, but they can *really* add up and, for most, MasterCard and Visa cost more than American Express once you add in the former’s interchange fees (something AmEx doesn’t charge) http://www.dealbrothers.com/deal/detail/attention_merchants_mastercard_and_visa_may_cost_you_more_than_amex/

  • http://twitter.com/DaveHamilton Dave Hamilton

    It’s true — most merchants aren’t aware of these fees, but they can *really* add up and, for most, MasterCard and Visa cost more than American Express once you add in the former’s interchange fees (something AmEx doesn’t charge) http://www.dealbrothers.com/deal/detail/attention_merchants_mastercard_and_visa_may_cost_you_more_than_amex/

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