Welcome to FrequentFlier.com - the Internet's premier site for frequent flyer program information and advice. Welcome to FrequentFlier.com |
The Internet's premier site for frequent flyer program information and advice.

Is the Credit Card Rewards Bubble Set to Burst?

By | Published July 13, 2012 11:14 am
6a01347fd47536970c0176166ee04d970c-320wi

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?

Other Posts of Interest

Stay in Touch

For more news like this, sign up to receive our free weekly newsletter. You can follow us on Twitter, too.